Lehman Brothers Holdings Inc. Floods its Mortgage Brokers with New Wave of Lawsuits

Lehman Brothers Holdings Inc. Floods its Mortgage Brokers with New Wave of Lawsuits

Recently, the Lehman Brothers Holding Inc. (“LBHI”) flooded its borrowers with numerous lawsuits. It has filed a new wave of lawsuits before U.S. Bankruptcy Court for the Southern District of New York against almost 60 defenders, who are mostly mortgage brokers. It is also anticipated that many similar lawsuits would be filed in coming future. Years ago, in the year 2018, LBHI filed similar lawsuits against around one-ninety mortgage originators in the “2018 Adversary Proceedings”. Vide the fresh lawsuits, LBHI has claimed remedy of contractual indemnification, alleging breach of representations and warranties at the time certain loans were sold or brokered.

However, there lie certain differences between the presently filed lawsuits and the 2018 Adversary Proceedings. Most prominently, the fresh lawsuits target the entities which had entered into broker agreements with LBHI’s affiliate, viz. the Lehman Brothers Bank. The said broker agreements contain certain provisions which are more advantageous for the defendants than the loan purchase agreements, which are anticipated to make success in litigation certainly difficult for LBHI. Generally, the broker agreements contains “prevailing party” provisions for attorney’s fees, and representations and warranties which may require “knowledge” by the broker of any alleged misrepresentation regarding the loan. In the 2018 Adversary Proceedings, the bankruptcy court considered LBHI’s claims of defective loans which mirrored the claims asserted against it by the RMBS trustees. Therefore, in the fresh lawsuits, LBHI will have to prove much beyond mere misrepresentations in the loan agreements. LBHI will have to prove that the broker had the knowledge about the misrepresentations in the loan agreements.

To give an insight, in the pleadings, the LBHI states that its claims would be limited to, firstly four principal misrepresentations type, which are a) income, b) employment, c) occupancy, d) debt; secondly, claims that LBHI conceded in the underlying proceedings against the RMBS trustees, which includes not only “misrepresentation” claims but also includes “regulatory” claims and “particularly egregious” underwriting claims. For the “misrepresentation” claims, LBHI would exclude loans from this group, which has performed for more than three years; have breaches which are supported by “less reliable” evidence; or are involved solely in “missing document” claims. It is being speculated whether the fresh lawsuits would be combined with the 2018 Adversary Proceedings, considering the latter has been going on for more than two years of document productions and written discovery.