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Eleventh Circuit Affirms HomeBanc Subprime Securities Suit Dismissal | The D&O Diary
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First Citizens Bank product offerings differ from region to region. In order to accurately display information on accounts, rates and special promotions specific to your area, please enter your 5-digit ZIP Code below. This litigation arises out of the prelude to the financial crisis, which was neither widely recognized nor reached its nadir until later, and relates to private label mortgage-backed securities-based repurchase agreements between the Bear Defendants and HomeBanc. HomeBanc failed to pay the Bear Defendants repurchase prices in August The parties focused their attention on three issues in their papers and at oral argument.
Today, I decide only those three legal issues. The second issue is whether the August Payment should be paid to the Bear Defendants, as owners of certain Interpleader Securities, or HomeBanc, as the registered certificateholder of the Interpleader Securities on the record date. Therefore, HomeBanc is entitled to the August Payment. The final issue relates to the Bear Defendants' post-default auction to liquidate the Securities at Issue. HomeBanc alleges that the Bear Defendants breached the terms of the repurchase agreements and wrongfully converted HomeBanc's property by selling the Securities at Issue to themselves via an auction that was not conducted in good faith or in a commercially reasonable manner.
If nobody owns your mortgage note then you are in luck
Because Article 9 of the Uniform Commercial Code is inapplicable to repurchase agreements, the "commercially reasonable" standard does not apply to the auction. Instead, the applicable repurchase agreement allowed the Bear Defendants to use their discretion in valuing the securities post-default, so long as the Bear Defendants acted rationally, and their sale of the securities by auction was not irrational or in bad faith. I conclude that, under these circumstances, the auction should not be upset.
Accordingly, for the reasons set forth herein, partial summary judgment will be granted in favor of HomeBanc on the claim for turnover of the August Payment, and partial summary judgment will be granted in favor of the Bear Defendants on the claim for violation of the automatic stay and the claim for breach of contract as it relates to the auction of nine of the ten Securities at Issue. HomeBanc and the Bear Defendants entered into two sophisticated "master repurchase agreements" in Pursuant to the MRA and GMRA, specific transactions between HomeBanc and the Bear Defendants were confirmed on the micro level with written "confirmations," which are, essentially, receipts identifying, among other things, the purchase date, the purchase price, the repurchase date, and the pricing rate i.
These transactions were evidenced by Confirmations.
In August , HomeBanc was unable to meet certain obligations under its repurchase agreements with the Bear Defendants. On August 8, , BSC and BSIL sent notices to HomeBanc, advising that the term repurchase agreements would not be "rolled" or extended, declaring all amounts due and, without waiving any rights, agreeing to accept full payment by close of business on August 9, After HomeBanc failed to pay the amounts due under the repurchase agreements on August 9, , the Bear Defendants sent HomeBanc notices of default.
120 replies on “If nobody owns your mortgage note then you are in luck”
After noticing HomeBanc of its default, the Bear Defendants asserted that they had the contractual right to liquidate the securities in their possession by auction, and to offset the auction proceeds against HomeBanc's unpaid repurchase amounts. HomeBanc filed for bankruptcy protection on August 9, On August 10, , the Bear Defendants solicited bids, due on August 14, by p.
This litigation involves ten Securities at Issue, arising from three related sets of transactions, described below. The first set of transactions was completed on June 23, the "June Transactions". The Confirmations for the remaining eight securities showed a purchase price of zero and open repurchase dates. HomeBanc sought additional capital in June Attached to the June 21, email were collateral sheets for the two securities.
Lockie testified in his deposition that, despite some initial confusion over the mechanics of the June 21, transaction, HomeBanc figured out Neibert's explanation. The five three-hole-punched securities certificates discussed as part of the June Transactions were replaced without three-hole-punches and delivered to the Bear Defendants, and, on July 18, , Neibert sent an email to Lockie attaching "collateral sheets for the residuals received. HomeBanc's term repos were set to mature on August 3, As the date approached, HomeBanc requested that the Bear Defendants bid on a number of securities subject to repo transactions between the parties in an effort to sell those securities to the Bear Defendants on an outright basis i.
The term repos' end date was extended to August 7, , without the transfer of additional funds.
Further, on the same date August 8, , the Bear Defendants sent Confirmations of repurchase transactions showing HomeBanc's repurchase of certain Securities at Issue with a zero purchase price the "August 8 Confirmations". Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure , provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.
At the summary judgment stage, the court's function is not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc. The moving party bears the burden of establishing the absence of a genuine dispute as to a material fact. Celotex Corp.
When the nonmoving party bears the burden of persuasion at trial, the moving party "may meet its burden. Donjon Marine Co. Once the moving party has carried its initial burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts. Zenith Radio Corp. Summary judgment cannot be avoided by introducing only "a mere scintilla of evidence," Sarko v. Penn-Del Directory Co.
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United Bhd. Substantive law determines which facts are material; only disputes over facts that might affect the outcome of the suit will preclude summary judgment. Anderson, U. Moreover, a dispute over a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.
See also Delta Mills, Inc. GMAC Comm. The Court must resolve all doubts and consider the evidence in the light most favorable to the nonmoving party. The Third Circuit described how a repurchase agreement works:.