Senior investors in a commercial mortgage securitization are attempting to bypass the terms of the trust and obtain more favorable terms for themselves in a huge bankruptcy case. Meanwhile, an Arizona-based lender has settled its part in a $1 billion lawsuit.
One-quarter of individual investors in a $4.1 billion securitization issued by Extended Stay America Inc. — the biggest commercial mortgage-backed securities loan ever made — have bypassed the trustee structure to represent themselves in the company’s Chapter 11 Bankruptcy reorganization, according to Moody’s Weekly Credit Outlook for June 22. Without consulting the servicer or the trustee, the group partnered with the debtor to produce a “term sheet” reorganization plan — which disregards the cash waterfall and procedures of the trust servicing agreement or ‘pooling and servicing agreement.’
Moody’s said the ad hoc group is asking the court to create a new $1.8 billion first mortgage benefiting only the top three certificate classes, a second mortgage for the next class and an equity-for-debt swap for some of the remaining classes. Competing certificate holders, including Bank of America, filed vigorous emergency objections.
“Those higher in the capital stack naturally want different things from those not so privileged,” the newsletter said. “However, these conflicts are fully understood when the deal is struck. And there are chiseled procedures in the principal documents to pacify, resolve, bury or simply live with these differences.”
StoneWater Mortgage Corp. has reached a settlement for its part in a $1 billion lawsuit filed in February by the First Magnus Litigation Trust, a news release last week said. In April, StoneWater confirmed that its president, Karl F.W. Young, and several other senior executives would step down so that they could focus on the lawsuit — which they remain defendants in — while enabling StoneWater to focus on originations.
Young and many of the other 39 defendants were senior executives of First Magnus Financial Corp. prior to its collapse in August 2007. The defendants are accused of utilizing bad financial statements and wasting precious capital on lavish spending — including an all-expense-paid trip for executives to a Hawaiian resort — as the lender spiraled towards insolvency.
“The announced settlement dismisses with prejudice StoneWater Mortgage Corp., its related companies and its current officers, directors and employees from the suit,” the statement said. “StoneWater Mortgage and its employees can now return their full attention to continuing to establish the company in the national residential mortgage lending market.”
South Dakota Attorney General Larry Long announced yesterday an $0.2 million settlement with Countrywide Financial Corp. Just 93 South Dakota borrowers will split the cash, while modifications will be provided for “an underdetermined number of borrowers.”
The South Dakota settlement appears to be part of the $8.4 billion multi-state settlement announced in October 2008 by Countrywide-parent Bank of America Corp.
Mortgage firms that face employment-related lawsuits might turn to Fisher & Phillips LLP’s Christopher Stief, who has litigated more than 500 employee employee defection and recruitment matters, according to a June 22 news release. He also has been featured in USA: America’s Leading Lawyers for three consecutive years.
California lenders face “aggressive tactics” and lawsuits by the Law Offices of Consumer Protection Legal Services, according to news release earlier this month. The Santa Ana, Calif., law firm claims it has forced lenders to reduce principal balances, interest rates and monthly payments.
State of South Dakota, Plaintiff, v. Countrywide Financial Corporation, Countrywide Home Loans Inc. and Full Spectrum Lending Inc., Defendants.
(In Circuit Court Sixth Judicial Circuit)
