New York State Trial Courts Issue Opposing Opinions on MBS Claims Statute of Limitations

RMBS

This week, two New York trial court justices issued diverging opinions on when the statute of limitations begins to run on claims related to the repurchase obligations of securitizers under certain MBS pooling and servicing agreements. Both courts explained that under New York law a cause of action for a breach of contract accrues at the time of the breach, and that the statute of limitations for breach of contract is six years. But the courts diverged on the question of whether the clock for claims related to repurchase obligations begins to run from the date the representations for the allegedly faulty mortgages are made, or when the securitizer fails to meet its obligations to repurchase such loans. In one case, the court held that the clock on claims by trustees that the securitizer breached its contract by failing to repurchase began to run on the date the representations were made, i.e. the date the pooling and servicing agreement closed, and dismissed the trustee’s suit because it was filed more than six years after the closing date. Nomura Asset Acceptance Corp. Alt. Loan Trust, Series 2005-S4 v. Nomura Credit & Capital Inc., No. 653541/2011, slip op. (N.Y. Sup. Ct. May 10, 2013). In a second case, the court held the opposite: the statute of limitations did not begin to run until the securitizers improperly rejected the trustee’s repurchase demand, i.e. the breach is the failure to comply, not the date of the representation. Ace Securities Corp, Home Equity Loan Trust Series 2006-SL2 v. DB Structured Prods., Inc., No. 650980/2012, 2013 WL 1981345 (N.Y. Sup. Court, May 13, 2013). Based on that holding, the court found the complaint timely filed and denied the securitizer’s motion to dismiss.