As you may have heard (or experienced firsthand), Lehman Brothers is issuing demand letters to loan originators who originated loans with Aurora prior to 2008. The letters identify the loan(s) on which Lehman is seeking indemnity, but offer little else, including Lehman’s support for the indemnity claim. This lack of detail makes the resolution and evaluation process of these claims particularly difficult, as does the reality that the subject loan files may have been destroyed per the originator’s document retention policy.
By way of background, Lehman filed for Chapter 11 on September 15, 2008 -- the largest bankruptcy filing in U.S. history, and Fannie Mae and Freddie Mac were creditors in the proceeding. (Fannie Mae claimed approximately $19 billion in losses and Freddie Mac claimed about $2.163 billion. Lehman settled those claims for $2 billion and $767 million, respectively, in early 2014). All of the loans that were subject to the settled claims are listed, by loan number, in the settlement documents. As part of the settlement, Fannie Mae and Freddie Mac agreed to work with Lehman to provide information in support of the indemnity claims.
Now, Lehman is sending letters to over 3,000 originators (in connection with over 10,000 loans) seeking indemnity for the sums it paid to Fannie Mae and Freddie Mac, as the first “step” in its collection process. The bankruptcy court has established a procedure for handling these claims before Lehman files a lawsuit against an originator. (Presumably, this was established to make sure that the courts aren’t inundated with thousands of indemnity actions before an evaluation is made as to the viability of the individual claims). This procedure mandates that settlement offers must be exchanged according to a schedule. After that, the parties are required to participate in a mediation program in New York, with mediators drawn from an established pool and without the originator’s input into the selection process. While the Court cannot make the parties settle, it can penalize an originator for not complying with this procedure—an unfair approach to the originator, undoubtedly, but a reality nonetheless.
There are defenses available to the originator, of course, in connection with these Lehman claims, including the possibility of a statute of limitations defense (although this is a “tricky” area of the law, with a host of possible outcomes). Moreover, Lehman has the burden of proof, and admissible evidence in support of Lehman’s claims may have become stale over time or simply unavailable. That is not to say that the evidence does not exist, but it can be very difficult, by way of example only, to locate ten year old pay records of a borrower in a form that would be admissible evidence in court.
If you receive a demand letter from Lehman, contact counsel immediately.