Akin Secures Appellate Win for HBK Master Fund on RMBS Trusts
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(New York) – Akin has secured a significant appellate win at the First Department of the Supreme Court of the State New York for a trust instruction proceeding involving dozens of residential mortgage-backed securities trusts.
The case, captioned In re Wells Fargo Bank, National Association, Index No. 154984/2021, was filed in 2021 by Wells Fargo Bank, National Association as trustee of 36 residential mortgage-backed securities trusts. Wells Fargo sought instruction for the proper treatment of deferred principal payments recovered for loans modified in connection with the 2009 financial crisis. The instruction could affect over $400 million of similar payments.
Numerous investors appeared in the proceeding, including Akin’s client, HBK Master Fund L.P. The case proceeded through discovery and pre-trial motion practice, but in October 2023, on the verge of trial, the trial court issued a dispositive order. The trial court held that based on prior appellate authority, deferred principal payments fell under the definition of Subsequent Recoveries, a term in the governing agreements. That meant that the deferred principal payments would be used to benefit investors in subordinate certificates issued by the trusts.
Akin, along with counsel for other investors and Wells Fargo, appealed the ruling to the First Department. Akin and other investors argued that the appellate authority relied by the trial court did not address or resolve the issue in this case. The First Department heard argument on the appeal on May 7, 2024. On May 28, 2024, the First Department issued an order reversing the trial court’s order. The appellate court agreed with Akin’s and other investors’ arguments—that the deferred principal payments question was not previously resolved. The case will now head back to the lower court for resolution of this question and related issues.
This is a significant victory because the determination of how to treat deferred principal payments in residential mortgage-backed securities trusts is a far-reaching question that affects dozens, if not hundreds, of similar trusts.
The Akin team comprised New York funds litigation partner Uri Itkin; counsel Richard J. D’Amato and Michael Chen and associates Andrew McWhorter and Jennifer Yu.
Akin is a leading international law firm with more than 900 lawyers in offices throughout the United States, Europe, Asia and the Middle East.
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