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Nomura Home Equity Loan, Inc., Series 2006-FM2 v Nomura Credit & Capital, Inc.

Nomura Home Equity Loan, Inc., Series 2006-FM2 v Nomura Credit & Capital, Inc.

Supreme Court of New York, Appellate Division, First Department

October 13, 2015, Decided; October 13, 2015, Entered

650337/13, 652614/12, 651124/13, 653783/12

Opinion

 [*98]  [**3]  Sweeny, J.

 [****3] These appeals stem from the securitization of residential mortgage-backed securities (RMBS) by Nomura Credit &  [*99] Capital, Inc., the defendant in each case. The allegations and arguments advanced in the parties' briefs are, with certain exceptions, materially similar throughout these four cases. Therefore, the factual and legal issues will be addressed in a unified manner, with pertinent differences noted where necessary. [***5]  

 [**4] As a starting point, it is necessary to understand how the debt instruments involved in these cases were created. ] Generally, the securitization process involves packaging numerous mortgage loans into a trust, which in turn issues debt securities, which it then sells to investors. The payments made by the borrowers of the underlying mortgages are "passed through" to the investors holding the securities, who in turn receive distributions to the extent and in the priority provided for in the [****4]  securitization documents. (See MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 AD3d 287, 290, 928 NYS2d 229 [1st Dept 2011].)

More specifically, ] a "sponsor," which is an affiliate of a bank (such as defendant herein), acquires mortgage loans from the institutions that actually made the loans to individual borrowers. The sponsor selects the loans it wishes to purchase and has unrestricted access to the underlying documentation associated with each loan. It then sells the loans via a mortgage loan purchase agreement (MLPA) to a special-purpose entity affiliated with the sponsor known as the "depositor." The depositor immediately transfers or "deposits" the mortgage loans into a trust, which then issues securities to the depositor, which in turn sells them to investors through an underwriter. [***6]  The proceeds of the sale of these securities ultimately finance the purchase of the mortgage loans. A trustee then holds the loans and administers the trust for the benefit of the investors. The depositor, trustee and sponsor then enter into a pooling and servicing agreement (PSA) with a "servicer," which is engaged to collect payments on the underlying loans in a manner consistent with the securitization documents. (See Ace Sec. Corp. Home Equity Loan Trust, Series 2007-HE3 ex rel. HSBC Bank USA, N.A. v DB Structured Prods., Inc., 5 F Supp 3d 543, 547-548 [SD NY 2014].) This process was followed in each of these four cases.

Certain provisions of the MLPAs form the core of the disputes between these parties. In section 7 of each MLPA, defendant represented and warranted as follows:

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133 A.D.3d 96 *; 19 N.Y.S.3d 1 **; 2015 N.Y. App. Div. LEXIS 7518 ***; 2015 NY Slip Op 07458 ****

 [****1]  Nomura Home Equity Loan, Inc., Series 2006-FM2, by HSBC Bank USA, National Association, Solely in its Capacity as Trustee, Respondent-Appellant, v Nomura Credit & Capital, Inc., Appellant-Respondent.Nomura Home Equity Loan, Inc., Series 2007-3, by HSBC Bank USA, National Association, Solely in its Capacity as Trustee, Respondent-Appellant, v Nomura Credit & Capital, Inc., Appellant-Respondent. [****2]  Nomura Asset Acceptance Corporation Mortgage Pass-Through Certificates, Series 2006-AF 2, by HSBC Bank USA, National Association, as Trustee, Appellant-Respondent, v Nomura Credit & Capital, Inc., Respondent-Appellant.Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series 2007-2 by HSBC Bank USA, National Association, as Trustee, Appellant-Respondent, v Nomura Credit & Capital, Inc., Respondent-Appellant.

Subsequent History: Motion granted by Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., 28 N.Y.3d 1166, 2017 N.Y. LEXIS 189, 49 N.Y.S.3d 93, 71 N.E.3d 586, 2017 WL 628850 (Feb. 16, 2017)

Motion granted by Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., 28 N.Y.3d 1166, 2017 N.Y. LEXIS 192, 49 N.Y.S.3d 94, 71 N.E.3d 587, 2017 WL 628866 (Feb. 16, 2017)

Later proceeding at Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., 29 N.Y.3d 992, 2017 N.Y. LEXIS 1304, 53 N.Y.S.3d 610, 75 N.E.3d 1171, 2017 WL 1838866 (May 9, 2017)

Affirmed in part and modified in part by, Certified question answered by Nomura Home Equity Loan, Inc., Series 2006-FM2 v. Nomura Credit & Capital, Inc., 30 N.Y.3d 572, 2017 N.Y. LEXIS 3691, 69 N.Y.S.3d 520, 92 N.E.3d 743, 2017 WL 6327110 (Dec. 12, 2017)

Prior History:  [***1] Cross Appeals, in the first above-entitled action, from an order of the Supreme Court, New York County (Marcy S. Friedman, J.), entered July 18, 2014. The order (1) granted defendant's motion to dismiss the complaint as to the third and fourth causes of action and (2) denied the motion as to the first and second causes of action.

Cross Appeals, in the second above-entitled action, from an order of the Supreme Court, New York County (Marcy S. Friedman, J.), entered July 18, 2014. The order (1) granted defendant's motion to dismiss the complaint as to the third and fourth causes of action and (2) denied the motion as to the first and second causes of action.

Cross Appeals, in the third above-entitled action, from an order of the Supreme Court, New York County (Marcy S. Friedman, J.), entered July 22, 2014. The order, to the extent appealed from as limited by the briefs, (1) limited the relief available under the first cause of action to specific performance of the repurchase protocol or, if loans cannot be repurchased, to damages consistent with its terms, (2) limited the first cause of action to the alleged breaches of the Mortgage Representations, (3) granted defendant's motion to dismiss [***2]  the second cause of action, and (4) denied the motion as to the third cause of action.

Cross Appeals, in the fourth above-entitled action, from an order of the Supreme Court, New York County (Marcy S. Friedman, J.), entered July 22, 2014. The order, to the extent appealed from as limited by the briefs, (1) limited the relief available under the first cause of action to specific performance of the repurchase protocol or, if loans cannot be repurchased, to damages consistent with its terms, (2) limited the first cause of action to the alleged breaches of the Mortgage Representations, (3) granted defendant's motion to dismiss the second cause of action, and (4) denied the motion as to the third cause of action.

Nomura Asset Acceptance Corp. Mtge. Pass-Through Certificates, Series 2006-AF 2 v Nomura Credit &Capital, Inc., 2014 NY Slip Op 33609(U), modified.

Nomura Home Equity Loan, Inc., Home Equity Loan Trust, Series 2007-2 v Nomura Credit &Capital, Inc., 2014 NY Slip Op 32604(U), modified.

Nomura Asset Acceptance Corp. v. Nomura Credit & Capital, Inc., 2014 N.Y. Misc. LEXIS 6024 (N.Y. Sup. Ct., July 18, 2014)Nomura Home Equity Loan, Inc., Series 2007-3 v. Nomura Credit & Capital, Inc., 2014 N.Y. Misc. LEXIS 6403 (N.Y. Sup. Ct., July 17, 2014)Nomura Home Equity Loan Trust, Inc. v. Nomura Credit & Capital, Inc., 2014 N.Y. Misc. LEXIS 4428 (N.Y. Sup. Ct., July 18, 2014)Nomura Home Equity Loan, Inc., Series 2006-FM2 v. Nomura Credit & Capital, Inc., 2014 N.Y. Misc. LEXIS 6404 (N.Y. Sup. Ct., July 17, 2014)

CORE TERMS

loans, repurchase, mortgage loan, breaches, representations, warranties, cause of action, damages, written notice, documentation, sole remedy, cure, notice, mortgage, sponsor, missing, specific performance, untruthful statement, deny a motion, first cause, allegations, modified, parties, cases, costs, prompt, discovering, remedies, files, commencement of the action

Real Property Law, Financing, General Overview, Securities Law, Trust Indentures, Civil Procedure, Pleadings, Complaints, Evidence, Inferences & Presumptions, Inferences, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Contracts Law, Remedies, Equitable Relief, Specific Performance, Damages, Preliminary Considerations, Equity, Relief