In the fall out of the sub-prime mortgage meltdown, numerous mortgage insurers have sued lenders claiming that they were induced to underwrite mortgage risks based on inaccurate, misleading and fraudulent information. In other words, the mortgage insurers are claiming that the mortgages did not meet the underwriting criteria for insurance, but that the mortgage lenders provided incorrect information which caused the policies to be written. In two actions, Syncora Guarantee, Inc. v. Countrywide Home Loans, and MBIA Insurance Corporation v. Countrywide Home Loans, the insurers are seeking to recover for amounts paid out on policies that were underwritten based on misrepresentations, as well as force Countrywide to repurchase the risk for the allegedly defective mortgage loans.

The insurers sought a declaration that they were entitled to recover: (1) for damages on a fraudulent inducement claim upon proof that there was a fraudulent inducement, without regard to whether the inducement caused damages; (2) for damages on a breach of contract claim, upon proof that demonstrates material misrepresentation, not that damages resulted from the misrepresentation; and (3) on its claim to have Countrywide repurchase defective mortgage loans, upon proof that the loach breached a representation or warranty in a way that increased the risk profile of the insurance, without demonstrating the increased risk lend to a loss. Countrywide argued that the insurers must demonstrate losses caused by the alleged breaches to recover.

In a January 3, 2012 decision, Hon. Eileen Bransten, Supreme Court, New York County granted the insurers’ motion in part, seemingly lowering the bar to establish recovery for fraudulent inducement by eliminating a requirement establishing damages from the breach. It held that the insurers could recover “rescissory damages” upon proof of material representation (without regard to causation), but denied other relief. Both parties have now appealed, with Countrywide contesting the insurer’s ability to recover damages without showing causation. In the Pre-Argument Statements filed by Countrywide on January 27, 2012, which can be found here, Countrywide argues that damages cannot be awarded without causation and that the judge’s decision should be reversed in its entirety on that basis alone.

For a copy of Countrtwide's papers click here

Sarah Delaney





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