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STRUCTURED REAL ESTATE DISPUTE RESOLUTION TEAM
We have recently formed a new practice group, the Structured Real Estate Dispute Resolution Team, as an adjunct to our more than 45-member Distressed Real Estate Practice Group. The new Team is co-chaired by real estate partner Bruce Stachenfeld and litigation chair Allan Taffet.
In the wake of the real estate collapse of the past few years, disputes have broken out among parties to structured real estate transactions, as property values have deteriorated and investor losses have risen steadily. In a rising market, the various stakeholders in the property owner or the pool of assets tend to work together harmoniously; however, in the current tumultuous economic climate, investors and lenders have been scrambling to preserve all or a portion of their capital.
We are representing our clients in these disputes (including both plaintiffs and defendants in litigation) and have observed that these disputes generally can be categorized as falling into one of the following categories: (1) repurchase claims, (2) "tranche warfare" cases, (3) investor suits based on fraud and various securities law claims, and (4) other breach of contract cases.
The repurchase claim disputes (sometimes referred to as "put-back/take-back" cases) generally involve a demand by a securitization service provider (trustee or servicer) to the entity (often a bank, insurance company or mortgage lending affiliate of an investment bank) that originated and sold the loan to repurchase the troubled or defaulted loan on the basis of an alleged breach of specified representations and warranties. There is a lot at stake with respect to a repurchase demand, as there could be a significant difference between the face amount of the loan (the presumed repurchase price under the mortgage loan purchase agreement) and the current value of the loan. If the service provider is successful in asserting its claim against the originator/seller, the securitization vehicle (and thereby, the investors) will receive significantly more proceeds than if the loan is foreclosed and sold for an amount equal to its current value.
The tranche warfare cases are best epitomized by the Extended Stay and Stuy Town high-stakes disputes, whereby holders of tranches of non-securitized debt refuse to be wiped out without a fight and engage in various legal strategies in an effort to salvage some of their equity.
The investor suits against the issuers and underwriters of CMBS, RMBS and CDOs are typically based on fraud and various securities law claims relating to inadequate or misleading disclosure in the marketing materials.
Other types of cases we have seen involve disputes regarding the language of transaction documents and the corresponding legal obligations of the parties, e.g. pre-securitization disputes relating to warehouse lines.
This work plays to our Firm’s strengths, for in order to prosecute – or to defend – any of these claims, a law firm needs a high-level of sophistication in the following areas (which our Firm possesses):
- Litigation
- Real estate
- Structured finance and securitization
These matters play to our strengths as our Distressed Real Estate Practice Group has deep expertise in all of these areas plus a fairly uncommon ability to represent clients on all sides of the capital stack. Because of this, we are better able to:
- spot the likely weaknesses in the other side’s position;
- appreciate and understand the other side’s pressure points, and
- arrive at a resolution among the parties consistent with the relative merits of our client’s position.
In order to develop and distill legal strategies for these types of disputes, we have formed the Structured Real Estate Dispute Resolution Team – as an adjunct to our Distressed Real Estate Practice Group. This Team is specifically targeted to this burgeoning area of contract disputes/litigation.