U.S. Bank Nat'l Ass'n v. DLJ Mortg. Cap., Inc.

U.S. Bank Nat'l Ass'n v. DLJ Mortg. Cap., Inc.

Opinion

DiFIORE, Chief Judge:

In this residential mortgage-backed securities litigation, we are again called upon to determine the proper application of a now-familiar contractual "sole remedy repurchase protocol" provision. Applying well-settled principles of contract interpretation and giving effect to the plain meaning of the contract language, the repurchase protocol requires that plaintiff trustee provide loan-specific pre-suit notice in order to invoke defendant sponsor's repurchase obligation and satisfy the contractual prerequisite to suit. Furthermore, plaintiff trustee cannot rely on the relation back doctrine of CPLR 203 (f) to avoid the consequences of its failure to comply with the contractual condition precedent with respect to the loans in question prior to commencing this action. We also conclude [*2]  that the plain language of the parties' agreement limits interest recoverable on liquidated loans to interest that accrued prior to liquidation.

Plaintiff U.S. Bank National Association is trustee of the Home Equity Asset Trust 2007-1, a residential mortgage-backed securities (RMBS) trust that closed in February 2007. Defendant DLJ Mortgage Capital, Inc., as sponsor of the trust, selected the over 5,100 mortgage loans ultimately placed in the trust. The pooled loans represent the collateral for certificates issued by the trust, which in turn pay principal and interest to certificateholders based on the funds generated by the mortgage borrowers' underlying payments. Pursuant to the pooling and service agreement (PSA) establishing the trust, DLJ made certain representations and warranties, including that each loan was underwritten  [**2]  in accordance with the originators' underwriting standards and applicable law, that certain provided documentation was true and accurate, and that none of the loans were "high cost" or "predatory." As particularly relevant here, the PSA contains a "sole remedy" provision granting U.S. Bank, as trustee, the limited authority to seek a remedy for any breach [*3]  by DLJ of these representations and warranties through a contractually established "repurchase protocol" requiring DLJ to cure, repurchase, or substitute a nonconforming mortgage loan within 90 days of notice or independent discovery of such breaching loan.

In November 2011, in its capacity as conservator for the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal Housing Finance Agency (FHFA) sent two letters to plaintiff trustee asserting that 304 identified loans in the trust breached DLJ's representations and warranties. The FHFA requested that the trustee enforce DLJ's obligation "to repurchase the Subject Loans within 90 days" of notice. The following month, in December 2011, the trustee sent copies of FHFA's letters to DLJ, along with a demand that DLJ "repurchase all loans that breached representations and warranties, including" the 304 loans identified by the FHFA. Approximately three months later, in March 2012, the trustee sent another letter demanding that DLJ cure or repurchase an additional 900 loans identified on an attached schedule. DLJ evaluated the allegations of breach and agreed to repurchase approximately 40 of the loans identified by the trustee, [*4]  disputing the remaining allegations of nonconformity.

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