Lenders Trying to Sell Loans Free and Clear

Once again a major lender, originator, servicer, and securitizers are attempting to sell loans free and clear and whitewash their liabilities. GMAC, RESCAP and affiliated entities are currently in over 1900 prepetition litigation cases nationwide, and it is too early to determine if they will abide by the nationwide settlement agreement.

There have been countless efforts since the subprime fiasco, to get a bankruptcy cram down bill passed. The effort has been defeated every time. Ironically, the lenders and servicers have gone bankrupt and in those Chapter 11 processes basic homeowner rights have been taken away.

One such protection that was added to the BACPA in 2005 is 363(o) which has been largely ignored in all these cases – a provision that seems to limit "free and clear" sales of assets that are consumer credit transactions subject to the Truth in Lending Act or consumer credit contracts. Although much fun has been poked at including the phrase "Consumer Protection" in BAPCPA, Congress may have anticipated the problems being raised by the bankruptcies of subprime lenders by adding 363(o) to the Bankruptcy Code.

Homeowners have earned the right to have a seat at the table in this matter.

This bankruptcy will affect the rights of homeowners and may also affect the nationwide settlement agreement that these entities agreed to participate in. Homeowners affected by this maneuver may have no avenue to be heard in this matter as they can’t attend the hearings or afford to hire representation in this venue.

Residential Capital/GMAC entities included in the bankruptcy: (1) Originated loans: GMAC Mortgage, Homecomings Financial, Residential Funding Corp., Ditech, (2)Securitized loans: Residential Asset Securities Corp. (RASC), Residential Accredit Loans Inc.(RALI), Residential Asset Mortgage Products Inc. (RAMP), Residential Funding Mortgage Securities, (3) Serviced loans: GMAC Mortgage LLC, RFC GSAP Mortgage Servicer Advance LLC., (4) Foreclosed on Loans: Executive Trustee Services, RFC REO, for example.

The majority of homeowners have no idea of what rights may be affected via this bankruptcy filing as the notices sent out simply ask the homeowners to keep paying their bills. Homeowners are spread out all over the Country and need a voice in this case.

Bankruptcy law allows for formation of Official Committees in a chapter 11 bankruptcy cases to represent various classes of claimants. In lender bankruptcies it is typical that Indenture Trustees, insurers and large bank claims dominate the committee for the unsecured creditors. In this case trustees on securitization trust which may be foreclosing on homeowners seated on the committee include: Wilmington Trust, N.A., Deutsche Bank, The Bank of New York Mellon Trust Company, N.A., and U.S. Bank National Association. Insurers which may have to pay claims on loans and which are assigned the right to seek deficiency judgments against homeowners seated on the committee include: MBIA Insurance Corporation, AIG Asset Management (U.S.), LLC, and Allstate Life Insurance Company. Understandably this creates conflicts of interest if the borrower claim is directly against not only the bankrupt entity, but may also be against a Trustee or insurer seated on the committee.

An official committee is necessary as the companies seated on the unsecured creditors committee are conflicted due to direct involvement with foreclosures via securitized trusts they represent. These committee members are in litigation and foreclosure against the homeowners, and against investors and insurers. Committee members seated include: American International Group Inc. (AIG), Allstate Corp. (ALL) and Financial Guaranty Insurance Corp., MBIA Inc. (MBI)., Wilmington Trust, Deutsche Bank AG (DBK), Bank of New York Mellon Corp. (BK) and U.S. Bancorp, according to the filing by the U.S. Trustee.

You can read the entire press release here: OFFICIAL_BORROWER-HOMEOWNER_COMMITTEE_IN_THE.pdf