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'Robo-Signing' Claims May Stick to U.S. Bank

fool.com | May 5, 2014

By Rose Bouboushian

(CN) - U.S. Bank must face claims that it illegally "robo-signed" docs related to two residential mortgage-backed securities trusts originally worth more than $51 million, a federal judge ruled.

VNB Realty Inc., a subsidiary of New Jersey's Valley National Bank, claims it bought certificates in the CSMC Mortgage Backed Trust 2006-8 valued at more than $21.6 million on Oct. 20, 2006, but has since taken an impairment charge of more than $1 million.

Though VNB allegedly purchased certificates in the MASTR Alternative Loan Trust (MALT) 2007-1 valued at about $30 million, on Jan. 30, 2007, it says it has since taken an impairment charge of nearly $2.6 million on those certificates.

The regional bank later sued U.S. Bank, the trustee, in Newark, N.J., alleging it tainted the trusts with "robo-signing."

U.S. Bank and nonparty Wells Fargo, the master servicer, signed mortgage-related documents "in assembly-line fashion, often with a name other than the affiant's own, and swearing to personal knowledge of facts which the affiant has no knowledge," VNB says.

Plus, because U.S. Bank was engaging in robo-signing outside of the trusts, it had a conflict of interest that "made it impossible for [U.S. Bank] to prevent, remedy, or address the robo-signing within the trusts at issue," according to the complaint.

VNB further claims that Wells Fargo and another nonparty, Countrywide, originated the loans recklessly and negligently, based on a June 7, 2010, complaint in which the Federal Trade Commission alleged that Countrywide "knowingly originated risky loans."

But U.S. Bank "failed to nose to the source, provide notice of, and address" these risks, despite "pervasive evidence," VNB claims.

U.S. Bank also failed to investigate or announce "significant and material discrepancies" between prospective and actual loan data in the CSMC Trust uncovered by Allstate, VNB says.

VNB alleges that by at least Oct. 19, 2011, problems in the mortgage industry had grown so wide that U.S. Bank was clearly to blame.

U.S. Bank moved to dismiss the seven-count complaint for failure to state a claim.

U.S. District Judge William Martini did toss bad-faith, breach-of-contract and breach-of-fiduciary duty claims on April 23.

VNB also may replead its conflict-of-interest allegations under a negligence claim and seek an injunction for the surviving counts, the nine-page ruling states.

In preserving a claim that U.S. Bank failed to provide notice of defaults as required by the Trust Indenture Act, however, Martini deemed it "plausible that U.S. Bank had actual knowledge of defaults in both trusts."

"The court also rejects U.S. Bank's argument that VNB has failed to plead any compensable damages," Martini wrote. "And as for U.S. Bank's argument that VNB fails to establish that VNB would have acted differently absent the alleged conflict of interest, that argument is premature on a motion to dismiss."

Martini disagreed with the bank that "no-action clauses" in the pooling and servicing agreements governing the trusts ban litigation unless certificate-holders demand that either Wells Fargo or U.S. Bank bring suit.

"Here, it would have been absurd to demand that U.S. Bank bring the instant suit against itself," Martini wrote. "Similarly, it would have been absurd for VNB to demand that Wells Fargo bring the instant suit."

The judge also noted that in a similar suit against U.S. Bank, Missouri's Western District held that the no-action clause did not apply.

 

Back to May 2014 Archive

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