New York Appellate Court Rejects MBIA’s Pursuit of Rescissory Damages

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On April 2, New York’s First Department appellate court ruled that MBIA Insurance Corporation may not obtain rescissory damages in its breach of contract action against Countrywide because MBIA had freely given up its right to seek rescission in the contracts under which it sued. The court also ruled that if MBIA were to prevail on its claims for breach, Countrywide could be compelled to repurchase breaching loans even if those loans are not yet in default. The court concluded that the language in the agreements at issue permitted repurchase if MBIA’s interests were “materially and adversely” affected and that such an effect could arise even if the loans had not defaulted. Order.

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