Sadis & Goldberg (“Sadis”) recently won two major precedent-setting victories for RMBS Investors, which could lead to the recovery of hundreds of millions of dollars improperly excluded from Clean-Up Call termination prices. In the first case, Sadis and its clients defeated a motion to dismiss by winning a ruling from the Court that a Clean-Up Call price that excluded deferred principal treated as a realized loss violated “the express language of the” RMBS “Trust Agreement.”[1] In the second, Sadis and its clients led a group of RMBS Certificateholders that won a ruling that the plain language of several RMBS Agreements required that the Clean-Up Call price must include deferred principal balances treated as realized losses.[2]
These two victories are very important to RMBS investors, because at least $300 million in deferred principal balances have been improperly excluded from Clean-Up Call prices for RMBS Trusts over the last six years. RMBS investors who have recently been cashed out in the Clean-Up Call may have claims for tens of millions of dollars due to this improper practice. Further, existing RMBS deals hold billions of dollars in deferred principal that had been treated as a realized loss under guidance from the Home Affordable Mortgage Program (“HAMP”), which now should all be included in the Clean-Up Call price. Thus, these two victories set a precedent that will save RMBS investors billions of dollars, assuming the cases are upheld on appeal.
Sam Lieberman, who led Sadis’s team in both cases, stated: “these two rulings are major victories for all RMBS investors, who have a clear right to be paid the full price for all mortgage loan balances in a Clean-Up Call. Investors should review prior clean-up calls, because they may have been improperly underpaid by millions of dollars.” Sadis’s precedent-setting victories in were recently profiled in the New York Law Journal, which highlighted how the second victory relied on the precedent set by Sadis’s first victory in September 2022.[3]
Notably, the two cases apply broadly to Clean-Up Call price requirements under RMBS agreements. The first case held that Clean-Up Call price language that required payment of “100% of the unpaid principal balances” of mortgage loans required payment for deferred principal balances. The second case also reached the same result for agreements that required payment of the “Stated Principal Balance” of RMBS Certificates. The Court reasoned that realized loss treatment under HAMP did not apply to Clean-Up Calls.
