Fannie, Freddie Shareholder Challenge
Hedge fund Fairholme Capital Management LLC's challenge to the government's directing all the profits from Fannie Mae and Freddie Mac toward the U.S. Department of the Treasury has been closely watched for more than a year, and it is expected to come to a head in 2015.
The company alleges the government acted unconstitutionally when it altered its bailout deal for the government-sponsored enterprises to keep the companies' profits for itself.
“If the plaintiffs win, it could have a dramatic impact on how housing finance reform plays out," said David Reiss, a professor at Brooklyn Law School. "And even if they don’t win, the case can have a negative impact on housing finance reform if it casts a cloud over the whole project.”
Shareholders lost a related case in the D.C. district court, “but if they win the Fairholme case, things will get complicated,” Reiss said.
The case is Fairholme Funds Inc. v. U.S., case number 13-cv-00465, in the U.S. Court of Federal Claims.
California Suits That Have Lenders Nervous
Among a battery of recession-related suits making their way through the court system are two that threaten to handcuff the rights of lenders to foreclose on a property or get back loan proceeds after a short sale.
One of them, Yvanova v. New Century Bank, is primed to settle a conflict on whether a homeowner can attack a lender's standing to foreclose on a property after a maze of loan assignments allegedly had deficiencies.
“If the court says the borrower has no standing, that's going to put an end to that," said Wayne Grajewski of Liner LLP. "But if it doesn't, you're going to get all sorts of new litigation.”
The case is one of several that the California Supreme Court has taken recently to iron out potential conflicts caused by a another case that gave a borrower standing (Glaski)....
"I think more likely than not, the California Supreme Court is gong to confirm the majority of cases that say a borrower cannot challenge the assignment between lenders as a basis for a claim for wrongful disclosure. I think the court is going to say the borrower cannot do that, but also carve out a clear exception for fraud or prejudice," said Ken Styles, a litigation shareholder with Miller Starr Regalia.
In another, Coker v. JPMorgan Chase, the court will weigh in on whether a bank can continue to require the full payment of an outstanding loan after an agreed-upon short sale leaves the homeowner with a deficiency. The homeowner in this case contends that the loan is protected by state anti-deficiency statutes, but the bank disagrees.
The case is being closely watched by lenders, which could suddenly be forced to say goodbye to those proceeds, according to Grajewski.
The cases are Yvanova v. New Century Mortgage Corp., case number B247188, [currently at CA Supreme Court on specific issue along with 2 other cases] and Coker v. JPMorgan Chase Bank N.A., case number D061720, in the Court of Appeal of California, Fourth Appellate District, Division One.
--Editing by Jeremy Barker and Brian Baresch.