WestLB AG v. BAC Florida Bank

912 F. Supp. 2d 86, 2012 WL 4473445, 2012 U.S. Dist. LEXIS 141216
CourtDistrict Court, S.D. New York
DecidedSeptember 28, 2012
DocketNo. 11 Civ. 5398(LTS)(AJP)
StatusPublished
Cited by10 cases

This text of 912 F. Supp. 2d 86 (WestLB AG v. BAC Florida Bank) is published on Counsel Stack Legal Research, covering District Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
WestLB AG v. BAC Florida Bank, 912 F. Supp. 2d 86, 2012 WL 4473445, 2012 U.S. Dist. LEXIS 141216 (S.D.N.Y. 2012).

Opinion

Memorandum Opinion and Order

LAURA TAYLOR SWAIN, District Judge.

Plaintiff WestLB (“Plaintiff’ or “WestLB”) is the lender under certain mortgage agreements, pursuant to which U.S. Mortgage Finance, LLC (“USMF”) purchased mortgages from BAC Florida [88]*88Bank (“BAC”), which also services the mortgages on a day-to-day basis, WestLB commenced this action in August 2011, claiming that USMF and BAC (collectively, “Defendants”) had breached the relevant mortgage and servicing agreements by failing to dispose of certain foreclosed properties as required under the relevant transaction documents. This Court has jurisdiction of the action pursuant to 28 U.S.C. § 1382.

WestLB filed an' Amended Complaint (“Complaint”) on November 8, 2011. Both BAC and USMF have moved to dismiss the Amended Complaint. The Court has reviewed carefully all of the parties’ submissions and, for the following reasons, BAC and USMF’s motions to dismiss are granted.

Background

Unless otherwise indicated, the following allegations are taken from the Amended Complaint and, for purposes of this motion practice, assumed to be true.

On September 29, 2005, and March 29, 2006, WestLB entered into two Wholesale Warehouse Mortgage Agreements (collectively, the “WWMA”) with USMF. (Compl. ¶ 3.) Pursuant to the WWMA, WestLB loaned USMF $360 million to facilitate USMF’s purchase of mortgage loans (the “Mortgages”) from BAC. (Compl. ¶¶ 4-5.) The Mortgages relate principally to numerous residential properties in Southern and Central Florida. (Compl. ¶ 4.) The WWMA grants WestLB a security interest in the Mortgages as collateral for WestLB’s loan. (Compl. ¶¶ 4-5.) The repayment term of the loan extends to May 1, 2038. (Compl., Exh. 1, § 2.1.) Between September 1, 2005, and April 1, 2006, USMF and BAC entered into four purchase agreements' (collectively, the “Purchase Agreement”), pursuant to which USMF acquired the Mortgages. (Compl. ¶ 29.) The Purchase Agreement names WestLB as a third-party beneficiary. (Compl. ¶ 29, Ex. 5, § 9.9.). In addition to the Purchase Agreement, USMF and WestLB entered into a Servicing Agreement with BAC. (Compl. ¶¶ 6-7, Ex. 3.) Pursuant to the Servicing Agreement, BAC agreed to manage the Mortgages and the underlying properties for the benefit of both WestLB and USMF. (Compl. ¶ 8.) The WWMA, Purchase Agreement, and Servicing Agreement' will be referred to collectively as the “Transaction Documents.”

Section 3.01 of the Servicing Agreement provides that:

The Servicer [BAC], as an independent contract servicer, shall service and administer the Mortgage Loans for the benefit of the Owner [USMF], the Agent [WestLB] and the Lenders [WestLB] and shall have full power and authority, acting alone, to do any and all things in connection with such servicing and administration which the Servicer may deem necessary or desirable and consistent with the terms 'of this Agreement and each other Transaction Document.

(Compl. Ex. 3, § 3.01) If the mortgagors of the underlying properties default on their loans, BAC must foreclose on the properties, rendering them “Real Estate Owned” or “REO Properties.” (Compl. ¶ 9.) Section 3.06 of the Servicing Agreement dictates how BAC is to manage any such REO properties, and provides that:

The Servicer [BAC] shall manage, conserve, insure, protect and operate each REO Property for the Owner [USMF] and the Agent [WestLB] solely for the purpose of its prudent and prompt disposition and sale. The Servicer shall, either itself or through an agent selected by the Servicer, manage, conserve, insure, protect and operate the REO Property in the same manner that it manages, conserves, insures, protects [89]*89and operates other foreclosed property for its own account, and in the same manner that similar -property in the same locality as the REO Property is managed. The Servicer shall attempt to sell the same (and may temporarily rent the same) on such terms and conditions as the Servicer deems to be in the best interest of the Owner [USMF], the Agent [WestLB] and the Lenders [WestLB].

(Compl. Ex. 3, § 3.06.) The Servicing Agreement sets forth how BAC is to dispose of the REO Properties:

The disposition of REO Property shall be carried out by the Servicer in a commercially reasonable manner for cash at such price, and upon such terms and conditions, as, the Servicer deems to be in the best interest of the Owner, the Agent and the Lenders and, as .soon as practicable, the Servicer shall be entitled to be paid or reimbursed for all standard and customary costs and expenses of such sale, including, without limitation, all Liquidation Expenses; provided the Owner [USMF] may direct the Servicer [BAC] with respect to any such disposition so long as the Agent [WestLB] consents to such direction (which consent shall not be unreasonably withheld or delayed).

(Id. (emphasis in original).) Any proceeds from BAC’s sale of REO Properties are to be applied to the payment of interest and principal owed by USMF to WestLB. (Compl. ¶ 9, Ex 3, § 3.06.)

As of September 30, 2011, USMF had foreclosed on approximately 82 Mortgages, rendering the underlying properties REO Properties under the Transaction Documents. (Compl. ¶ 12.) These 82 REO Properties carry loan balances of approximately $19.2 million. (Id.) WestLB alleges that BAC has foreclosed upon an additional 104 loans that have not yet been listed as REO Properties. (Compl. ¶ 13.) These likely REO Properties would carry additional loan balances of approximately $ 27.6 million. (Id.)

BAC has not disposed of the REO Properties following default. (Compl. ¶41.) Instead, USMF directed BAC to rent the REO Properties rather than sell them, and BAC has rented them out. (Compl. ¶ 42.) USMF’s motivation in directing the rental of the properties was a desire to avoid the effect on its balance sheet of selling the properties at a loss, given the general decline in housing prices. (Compl. ¶41.) USMF neither sought nor received WestLB’s consent -before instructing BAC to rent the properties indefinitely. (Compl. ¶-42.)..-Similarly, BAC made no effort to verify whether WestLB consented to the rental of the REO Properties. (Compl., ¶ 43.) In servicing mortgages other than the USMF portfolios, BAC has not held onto similar REO Properties, but has promptly disposed of them. (Compl. ¶ 50.)

Event of Default Under the WWMA

The WWMA provides that an Event of Default will occur if USMF “shall fail to perform or observe any ... covenant or agreement under any Transaction Documents to be performed by it and such failure [remains] unremedied for a period of [10] Business Days after written notice thereof shall have been given to [USMF].” (Compl., Ex. 1, § 7.1(v).) The Servicing Agreement is a Transaction Document for purposes of this provision of the WWMA. (Id., Ex. 3, § 1.01.) WestLB alleges that USMF’s failure to seek WestLB’s consent before directing BAC to rent the REO Properties (allegedly a breach of § 3.06 of the- Servicing Agreement) constitutes an Event of Default under Section 7.1 of the WWMA. (Compl. ¶ 62.) Section 7.2 of the WWMA provides that, upon an Event of Default,-■ WestLB may “by notice to Bor[90]

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912 F. Supp. 2d 86, 2012 WL 4473445, 2012 U.S. Dist. LEXIS 141216, Counsel Stack Legal Research, https://law.counselstack.com/opinion/westlb-ag-v-bac-florida-bank-nysd-2012.