Morgan Stanley Mtge. Loan Trust 2006-14SL v Morgan Stanley Mtge. Capital Holdings LLC

Morgan Stanley Mtge. Loan Trust 2006-14SL v Morgan Stanley Mtge. Capital Holdings LLC

Opinion

BRANSTEN, J.

In this breach of contract action regrading mortgage-backed securities, Defendant Morgan Stanley Mortgage Capital Holdings, LLC ("MSMC") moves to dismiss the Complaint of Plaintiff Morgan Stanley Mortgage Loan Trust 2006-14SL, Mortgage Pass-Through Certificates, Series 2006-14SL ("2006 Trust") and Plaintiff Morgan Stanley Mortgage Loan Trust 2007-4SL, Mortgage Pass-Through Certificates, Series 2007-4SL ("2007 Trust") (collectively, "Plaintiffs") pursuant to CPLR 3211(a)(1) and (a)(7). Plaintiffs oppose. For the reasons set forth below, Defendant's motion is granted, in part, and denied, in part.

 [**3] Background¹

According to the Complaint, MSMC purchased thousands of second-lien residential mortgage loans from various non-party mortgage originators, pursuant to certain purchase agreements ("Third-Party Purchase Agreements"). (Cmpl. ¶¶ 18, 25). MSMC then sold the loans to an affiliated depositor, pursuant to the terms of two mortgage loan purchase agreements that are identical in all respects pertinent to the instant motion (the "Mortgage Loan Purchase Agreements" or "MLPAs").  [*2] See Cmpl. ¶¶ 15, 51, Exs. 1, 3. The depositor, in turn, sold the loans to Plaintiffs, which are two trusts organized for the express purpose of securitizing residential mortgages. (Cmpl. ¶¶ 14, 50). Under the two agreements establishing the trusts, also identical in all respects pertinent to the instant motion, the depositor assigned all of its rights and interests to Plaintiffs, including the depositor's right to enforce breaches of representations and warranties made in the Mortgage Loan Purchase Agreements ("Trust Agreements"). See Cmpl. ¶¶ 15, 51, Exs. 2, 4.

Plaintiffs aver that they have suffered over $378 million in losses, for an average loss of 57% of the original principal balance of the loans. See Cmpl. ¶¶ 25, 62. Allegedly due to these heavy losses, a certificate holder representing a majority of the voting rights in the 2007 Trust conducted an investigation into the underlying loans.  [**4]  (Cmpl. ¶ 3). The investigation, conducted at some point in 2010 and using publicly available information, allegedly discovered 163 loans that materially failed to conform to MSMC's representations and warranties.² (Cmpl. ¶ 3). On August 20, 2010, the trustee of the 2007 Trust sent a letter  [*3] that "informed [MSMC] of the specific breaches . . . and reminded [MSMC] of its obligation to repurchase these 163 Defective Loans and any other [defective loans]" ("Plaintiff's Letter"). (Cmpl. ¶ 3).

In September 2011, the 2006 Trust was also investigated. (Cmpl. ¶ 7). On December 14, 2011, the trustee demanded that MSMC repurchase 187 loans in the 2006 Trust that were specifically identified as breaching warranties, as well as all other breaching loans. (Cmpl. ¶ 7). Plaintiffs aver that, after a further review of the 2006 Trust, they discovered that 564 out of 613 loans, or 92%, were in breach of various representations and warranties. (Cmpl. ¶ 7). Defendant allegedly has agreed to repurchase only four loans, has explicitly refused to repurchase 207 loans, and does not consider itself to have received notice of any other breaches. (Cmpl. ¶ 46).

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