RMBS Failure to Notify Claims Survive, But Only Within a Narrow Window

On October 27, 2023, Justice Reed of the New York County issued a decision in U.S. Bank N.A. v. EquiFirst Corp., 2023 NY Slip Op. 51150(U), holding that failure to notify RMBS put-back claims survived a motion to dismiss, but only within a narrow window.

Justice Reed did not dismiss the suit, but plaintiffs have a pretty narrow needle to thread in bringing claims, since failure to notify claims are only timely “if based on breaches that the defendant discovered within the six-year period immediately preceding the assertion of the failure to notify causes of action” (fair enough—six years from the breach of the duty to notify) AND only if based “on breaches discovered during the six-year period following the date of the closing, while the repurchase remedy remained available to the Trustee.”  Unhelpfully, Justice Reed noted that for claims based on alleged discoveries made more than six years after closing, “only nominal damages would be available.”

This framework was decided in an earlier decision.  The current decision applies it to the amended complaint.  Some claims survived because of fact questions.  Basically, there will be an argument regarding who knew (or maybe should have known) about breaches earlier, the trustee or the originator.  No one seems to be suggesting that the loans were not bad and that the trustee and originator did nothing.

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