Are We Done With B2B Lawsuits About Residential Mortgages From the 2000s?

Bilzin Sumberg
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Bilzin Sumberg

2021 provided some long-awaited new exit ramps off the long and winding road of business vs. business residential mortgage litigation stemming from the 2007–08 financial crisis. A multitude of recent settlements has left that road far less congested than at any time in the last decade. Whether it will soon be abandoned entirely or instead re-paved and heavily traveled once again is not yet certain.

At the outset of the past year, there remained a significant number of active lawsuits, most of which dated back to 2016, between Lehman Brothers Holdings Inc. (LBHI) and individual mortgage originators (correspondent lenders). In March 2021, LBHI even added dozens of new cases to the total, filing lawsuits against mortgage brokers and other small players. Whether being sued for the first time in their company’s history or having already weathered multiple “mortgage put-back” and contractual indemnification lawsuits, the defendants in all of these LBHI cases had reason to fear that their cases would not be resolved for another two to three years. 

A confluence of factors — most notably, demonstrations by defendants of their abilities to mount strong factual and legal defenses and a business-minded approach taken by LBHI in settlement discussions — led to resolutions of all but a few of these cases by the end of 2021. Our team at Bilzin Sumberg negotiated resolutions for approximately 30 clients sued by LBHI over the last few years, with about 20 of the case dismissals coming between the fourth quarter of 2020 and year-end 2021. Though the terms of the negotiated resolutions are confidential, one consequence of the settlements is that there is no prospect of future litigation between LBHI (or its affiliates) and the mortgage companies (or their affiliates) with respect to anything that occurred prior to the settlement date. 

Coming on the heels of resolutions of previous waves of lawsuits filed by ResCap, CitiMortgage, Aurora, and other mortgage aggregators, the termination of the vast majority of the LBHI cases may herald an end at long last to litigation about residential mortgages originated and sold prior to 2008. There remains some uncertainty about that, however. JPMorgan Chase (often acting on behalf of EMC Mortgage) and the FDIC as Receiver for Washington Mutual have each made payment demands in recent years on numerous correspondents but have thus far filed no lawsuits of which we are aware related to those outstanding demands. (We defended, and resolved in 2020, cases brought by Chase/EMC against clients of ours, but are aware of no similar suits filed since then).
 
Correspondents and brokers have earned the right to be rid forever of lawsuits pointing fingers at them — with more than a little revisionist history — about loans originated so many years ago. Let’s hope their current peace remains undisturbed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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