APL 2016-00024
New York County Clerk’s Index Nos. 653783/12, 651124/13,
652614/12 and 650337/13
Court of Appeals
of the
State of New York
NOMURA HOME EQUITY LOAN INC., SERIES 2006-FM2, by HSBC Bank
USA, National Association, solely in its capacity as Trustee; NOMURA HOME
EQUITY LOAN, INC., SERIES 2007-3, by HSBC Bank USA, National
Association, solely in its capacity as Trustee; NOMURA ASSET ACCEPTANCE
CORPORATION MORTGAGE PASS-THROUGH CERTIFICATES, SERIES
2006-AF2, by HSBC Bank USA, National Association, as Trustee and NOMURA
HOME EQUITY LOAN, INC., HOME EQUITY LOAN TRUST,
SERIES 2007-2, by HSBC Bank USA, National Association, as Trustee,
Plaintiffs-Respondents,
– against –
NOMURA CREDIT & CAPITAL, INC.,
Defendant-Appellant.
BRIEF OF AMICUS CURIAE SAND CANYON
CORPORATION IN SUPPORT OF DEFENDANT-
APPELLANT NOMURA CREDIT & CAPITAL, INC.
JAMES K. GOLDFARB
MURPHY & MCGONIGLE, P.C.
1185 Avenue of the Americas, 21st Floor
New York, New York 10036
Tel.: (212) 880-3999
Fax: (212) 880-3998
DANIEL T. BROWN
(Admission pro hac vice pending)
MURPHY & MCGONIGLE, P.C.
555 13th Street, N.W., Suite 410W
Washington, D.C. 20004
Tel.: (202) 661-7000
Fax: (202) 661-7059
MICHAEL L. CALHOON
(Admission pro hac vice pending)
BAKER BOTTS L.L.P.
1299 Pennsylvania Avenue, NW
Washington, DC 20004
Tel.: (202) 639-7700
Fax: (202) 639-7890
BAKER BOTTS L.L.P.
30 Rockefeller Plaza
New York, New York 10112
Tel.: (212) 408-2500
Fax: (212) 259-2520
Attorneys for Amicus Curiae Sand Canyon Corporation
Dated: February 3, 2017
i
CORPORATE DISCLOSURE STATEMENT
Pursuant to Rule 500.1(f), amicus curiae Sand Canyon Corporation
provides its Disclosure Statement as follows:
Sand Canyon Corporation is a wholly-owned indirect subsidiary of
H&R Block, Inc., a publicly-traded company. No publicly-held corporation owns
10% or more of the stock of H&R Block, Inc.
ii
TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT ...........................................................i
TABLE OF AUTHORITIES .................................................................................... iii
STATEMENT OF INTEREST OF AMICUS CURIAE............................................1
PRELIMINARY STATEMENT ................................................................................3
ARGUMENT ..............................................................................................................7
I. EVEN IF RAISED FOR THE FIRST TIME ON APPEAL, THE
ISSUE IS ONE OF PURE LAW THAT THE COURT
SHOULD CONSIDER TO PROVIDE CERTAINTY AND
PREDICTABILITY TO THE INTERPRETATION OF
CONTRACTS CRITICAL TO THE RESIDENTIAL
MORTGAGE SECURITIZATION MARKET AND NEW
YORK’S ECONOMY.............................................................................. 7
II. UNDER THE CONTRACTS’ PLAIN LANGUAGE, SECTION
7 REPRESENTATIONS AND WARRANTIES WERE NOT
TRANSFERRED TO THE TRUSTEE.................................................... 9
A. The PSA’s Assignment Clause Does Not Transfer Any
Section 7 Representation or Warranty to the Trustee................10
B. The PSA’s Granting Clause Does Not Transfer Any
Section 7 Representation or Warranty to the Trustee................12
C. The PSA’s Enforcement Mechanism Makes No Mention
of the Section 7 Representations and Warranties ......................14
III. THE CONTRACTS’ PLAIN LANGUAGE SQUARES WITH
THE LEGAL AND REGULATORY FRAMEWORK IN
WHICH SECURITIZATIONS OPERATE ...........................................17
A. Section 7 Representations and Warranties Help to Establish the
Purchaser as a Holder-in-Due-Course, a Status the Trustee
Attains Through Nearly-Parallel Representations and
Warranties Given By Its Own “Seller,” the Depositor..............19
B. The Purpose of the No Untrue Statement Representation and
Warranty Is To Protect Underwriters Against Claims Brought
Under Federal Securities Laws..................................................23
CONCLUSION.........................................................................................................26
iii
TABLE OF AUTHORITIES
Cases
ACE Sec. Corp. v. DB Structured Prods., Inc.,
25 N.Y.3d 581 (2015) .......................................................................................4, 17
Am. Sugar Ref. Co. of N.Y. v. Waterfront Comm’n of N.Y. Harbor,
55 N.Y.2d 11 (1982) ...............................................................................................8
Beal Savings Bank v. Sommer,
8 N.Y.3d 318 (2007) .............................................................................................16
Dupuis v. Federal Home Loan Mortgage Corp.,
879 F. Supp. 139 (D. Me. 1995) ...........................................................................20
Fed. Hous’g Fin. Ag. v. Nomura Holding Am. Inc.,
104 F. Supp. 3d 441 (S.D.N.Y. 2015) ..................................................................26
Hooper Assocs., Ltd. v. AGS Computers, Inc.,
74 N.Y.2d 487 (1989) .................................................................................... 12, 15
In re Lehman Bros. Mortgage-Backed Sec. Litig.,
650 F.3d 167 (2d Cir. 2011) .................................................................................24
In re Morgan Stanley Info. Fund Sec. Litig.,
592 F.3d 347 (2d Cir. 2010) .................................................................................24
Matter of Rivera v. Smith,
63 N.Y.2d 501 (1984) .............................................................................................8
MBIA Ins. Corp. v. Merrill Lynch,
81 A.D.3d 419 (1st Dep’t 2011) .............................................................................9
Midfirst Bank, SSB v. C.W. Haynes & Co.,
893 F. Supp. 1304 (D.S.C. 1994), aff’d sub nom. C.W. Haynes & Co.
v. Midfirst Bank FSB,
87 F.3d 1308 (4th Cir. 1995) ................................................................................20
Misicki v. Caradonna,
12 N.Y.3d 511 (2009) .........................................................................................7, 9
iv
Pub. Employees’ Ret. Sys. of Miss. v. Merrill Lynch & Co.,
714 F. Supp. 2d 475 (S.D.N.Y. 2010) ..................................................................24
Quadrant Structured Prods. Co. v. Vertin,
23 N.Y.3d 549 (2014) ...........................................................................................11
Realtime Data, LLC v. Melone,
104 A.D.3d 748 (2d Dep’t 2013)..........................................................................11
Retm’t Bd. of the Policemen’s Ann. & Benev. Fund v. Bank of N.Y. Mellon,
775 F.3d 154 (2d Cir. 2014) .................................................................................17
S. Rd. Assocs., LLC v. IBM Corp.,
4 N.Y.3d 272 (2005) ...................................................................................... 12, 15
Telaro v. Telaro,
25 N.Y.2d 433 (1969) .............................................................................................8
Tshering v. Fairfield Fin. Mortg. Group, Inc.,
No. 08-cv-2777, 2013 WL 3527129 (E.D.N.Y. July 11, 2013) ...........................20
Valassis Commc’ns, Inc. v. Weimer,
304 A.D.2d 448 (1st Dep’t 2003) ...........................................................................9
W.W.W. Assoc. v. Giancontieri,
77 N.Y.2d 157 (1990) .................................................................................... 10, 17
Statutes
15 U.S.C. § 771................................................................................................. 24, 25
15 U.S.C. § 77K.......................................................................................................24
N.Y. U.C.C. § 3-302(1)..................................................................................... 20, 21
N.Y. U.C.C. § 3-305 ................................................................................................20
U.C.C. § 3- 302(a)(2) ...............................................................................................21
U.C.C. § 3-305(b) ....................................................................................................20
v
Regulations
17 C.F.R. § 229.10 ...................................................................................................24
17 C.F.R. § 229.1100 ...............................................................................................24
Other Authorities
Karger, Powers of the New York Court of Appeals § 17:1 (3d. ed. rev.) ..................8
Reg AB Release, No. 33-8518 (SEC Dec. 22, 2004) ..............................................17
1
Statement of Interest of Amicus Curiae
Sand Canyon Corporation (“Sand Canyon” or “Amicus”), a
California-based corporation, was one of the nation’s largest mortgage originators
and regularly transacted business in New York. As such, it is intimately familiar
with the two types of agreements, the Mortgage Loan Purchase Agreement (the
“MLPA”) and the Pooling and Servicing Agreement the (“PSA”), governing the
four residential mortgage-backed securities transactions that are the subject of this
appeal. Sand Canyon pooled and sold thousands of mortgage loans under similar
agreements controlled by New York law, and in recent years has been involved in
litigations arising from the impact of the financial crisis on the performance of
some of those loans. It thus has a substantial interest – and significant experience
– in the proper interpretation of the governing agreements in this case.
Sand Canyon respectfully submits this brief to the Court because it is
concerned that the parties and the courts below have not focused on a key issue
that would be dispositive of this appeal, namely whether the No Untrue Statement
representation and warranty contained in Section 7 of the MLPAs at issue here was
transferred to the Respondent-trustees. As the plain language of the governing
contracts makes clear, no such transfer to the Respondent-trustees occurred and,
therefore, Respondents’ causes of action related to Section 7 should be dismissed.
2
The proper interpretation by this Court of these widely-used
agreements is much needed and comes at a critical time because numerous disputes
related to these agreements, including disputes over the application of the No
Untrue Statement representation and warranty, are being litigated in state and
federal courts interpreting New York law. Sand Canyon itself currently is a party
to three pending diversity actions in the United States District Court for the
Southern District of New York concerning similar MLPAs and PSAs, and the issue
it addresses here would apply to those actions, as well as to others to which it is not
a party. In sum, the Court’s consideration of the issue not only will impact the
immediate stakeholders in this litigation, but will have ramifications for actions
pending in courts throughout the State and in other jurisdictions.
3
Preliminary Statement1
This case concerns the interpretation of MLPAs and PSAs, contracts
critical to the residential mortgage securitization market, a key contributor to New
York’s economy. Here, and in the courts below, the parties have advanced
competing interpretations of four MLPAs and PSAs in an attempt to address
whether the PSAs’ “sole remedies” provision limits the remedies for alleged
breaches of the No Untrue Statement representation and warranty. But the Court
need not reach that issue because it can decide this appeal on a more fundamental
ground: the MLPA Section 7 representations and warranties, including the No
Untrue Statement representation and warranty, were never made or transferred to
the Trustee and, therefore, the Trustee may not assert a cause of action for an
alleged breach of those representations and warranties. That conclusion would be
dispositive of this appeal and is compelled by the governing contracts’ plain
language, the purpose of the Section 7 representations and warranties, and the legal
and regulatory framework within which securitization transactions operate.
1 Unless stated otherwise, capitalized terms have the meanings ascribed to them in the
MLPAs and PSAs or in the parties’ briefs; all emphasis is added; and all quotation marks and
internal citations are omitted. For ease of reference, we refer to the “Depositor” and the
“Trustee” in the singular. We also cite only to the MLPA and PSA for the NHELI 2006-FM2
transaction (see R445-466, 101-278 (exclusive of exhibits)) because the MLPAs and PSAs for
the other three trusts at issue are materially similar for purposes of this appeal.
4
Under the PSA, the Depositor assigns to the Trustee all the
Depositor’s “rights and interest under the [MLPA] to the extent of the Mortgage
Loans sold under the [MLPA].” (PSA § 2.01 [R175]). That language reflects the
Depositor’s intent to transfer to the Trustee its MLPA rights and interest in the
Mortgage Loans, including the “loan-specific” Section 8 representations and
warranties, which are representations and warranties about the Mortgage Loans
themselves. In contrast, the Section 7 representations and warranties, including the
No Untrue Statement representation and warranty, are not about the Mortgage
Loans. They are what Respondents themselves call “transaction-wide” assurances
about the Seller and its capacity to undertake the sale of the loans to the Purchaser
under the MLPA.
If the contracting parties intended the No Untrue Statement
representation and warranty to concern the Mortgage Loans, as opposed to the
seller or the sales transaction, they could have placed it in Section 8; if they wanted
to assign it to the Trustee, they could have crafted a broader assignment provision.
That they did neither compels the conclusion that they did not intend to transfer
that representation and warranty to the Trustee. See ACE Sec. Corp. v. DB
Structured Prods., Inc., 25 N.Y.3d 581, 597 (2015) (“Historically, we have been
‘extremely reluctant to interpret an agreement as impliedly stating something
which the parties have neglected to specifically include.... [C]ourts may not by
5
construction add or excise terms, nor distort the meanings of those used and
thereby make a new contract for the parties under the guise of interpreting the
writing’”) (quoting Vt. Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470,
475 (2004)). See Point II, below.
This plain language reading of the MLPAs and PSAs squares with
how securitization transactions work, both as commercial transactions under state
law and as securities transactions under federal law. Respondents’ reading does
not. Purchasers in residential mortgage loan securitization transactions, like the
Purchaser and Trustee here, want to ensure they are holders-in-due-course of the
securitized assets (here, the mortgage notes) because that status enables them to
work out defective mortgage loans (for example, by foreclosing) free from certain
defenses (such as fraudulent inducement) that the maker (the borrower) otherwise
might have. The MLPA Section 7 representations and warranties help to establish
the Purchaser as a holder-in-due-course from its seller (the Seller) in the first step
of the securitization transaction.2 Analogous representations and warranties in the
PSA help to establish the Trustee as the holder-in-due-course from its seller (the
Depositor) in the second step of the securitization transaction. The Trustee does
not need to acquire the MLPA Section 7 representations and warranties – those
2 For discussion’s sake, a securitization transaction consists of three steps, which we
describe in greater detail in Point III, below. A diagram depicting these three steps, with
annotations to the relevant contract language, is included for demonstrative purposes as an
addendum to this brief.
6
made by its seller’s seller – to establish itself as a holder-in-due-course. What
matters to the Trustee for holder-in-due-course purposes are the transaction-wide
representations and warranties it receives from its immediate seller (the Depositor).
Those are in PSA Section 2.04 and, notably, do not include a No Untrue Statement
representation and warranty. See Point III.A, below.
The No Untrue Statement representation and warranty also provides
protection. But contrary to Respondents’ view, that protection does not run in
favor of trustees. It runs in favor of the purchaser in the first step of a
securitization transaction and the underwriters that underwrite the securitization
trust’s securities in the third step. A purchaser, not unlike purchasers in plain-
vanilla commercial transactions, expects and receives from its seller an enforceable
promise against material misstatements. Underwriters expect a similar promise to
help them avail themselves of a statutory “due diligence” defense if they are sued
by investors in a trust’s securities for certain violations of the federal Securities Act
of 1933.
A securitization trustee and trust beneficiaries, however, do not need
the protection of the No Untrue Statement representation and warranty. A
securitization trustee administers the trust for the benefit of investors in the trust’s
securities and has the power to compel a seller to cure or repurchase loans that
breach loan-specific assurances (the Section 8 representations and warranties here).
7
Investors have direct recourse to federal securities and common law for materially
untrue statements connected to the offering of the securities. Thus, properly
understood, the No Untrue Statement representation and warranty is not a weapon
a trustee can or needs to wield. See Point III.B, below.
The contracting parties’ intent (evident from the governing contracts’
plain language) and the purpose of the Section 7 representations and warranties
(informed by state and federal law) lead to a single conclusion – the No Untrue
Statement representation and warranty was neither made nor transferred to the
Trustee. As a result, the Trustee may not assert a cause of action for an alleged
breach of that representation and warranty. The Court should reverse the Appellate
Division order and dismiss the causes of action for breach of the No Untrue
Statement representation and warranty as a matter of law for failure to state a claim
upon which relief can be granted.
Argument
I. EVEN IF RAISED FOR THE FIRST TIME ON APPEAL, THE ISSUE IS
ONE OF PURE LAW THAT THE COURT SHOULD CONSIDER TO
PROVIDE CERTAINTY AND PREDICTABILITY TO THE
INTERPRETATION OF CONTRACTS CRITICAL TO THE
RESIDENTIAL MORTGAGE SECURITIZATION MARKET AND NEW
YORK’S ECONOMY
Amicus acknowledges that the Court generally does “not resolve
cases on grounds raised for the first time on appeal.” Misicki v. Caradonna, 12
N.Y.3d 511, 519 (2009). Assuming the Appellants did not raise below the issue
8
addressed in this submission,3 the Court should invoke the long-recognized
exception that the Court may consider an issue of pure law advanced for the first
time on appeal where, as here, “it is one which is decisive of the appeal and which
could not have been obviated ‘by factual showings or legal countersteps’ if it had
been raised below.” See Karger, Powers of the New York Court of Appeals § 17:1,
at 591-92 (3d. ed. rev.). In applying this exception, the Court has observed “that
the general rule concerning questions raised neither at the trial nor at previous
stages of appeal is far less restrictive than some case language would indicate.”
Telaro v. Telaro, 25 N.Y.2d 433, 439 (1969); see also Matter of Rivera v. Smith,
63 N.Y.2d 501, 516 n.5 (1984) (applying exception); Am. Sugar Ref. Co. v.
Waterfront Comm’n of N.Y. Harbor, 55 N.Y.2d 11, 25 (1982) (same).
There is an important reason for the Court to determine the issue of
pure law raised by Amicus here: to prevent this case, and numerous others
pending in state and federal courts applying New York law, from proceeding under
the misapprehension that the No Untrue Statement and other transaction-wide
representations and warranties are transferred to securitization trustees. By giving
voice to the governing contracts’ language and structure, as well as the surrounding
legal and regulatory framework, and by holding that the No Untrue Statement
representation and warranty was not made or transferred to the Trustee, the Court
3 The parties disagree about whether Appellants raised the issue below. (See Appellant
Br. at 15, 21; Resp. Br. at 30-31; Appellant Reply Br. at 8 n.4).
9
not only will conserve judicial resources in this and numerous other cases, but will
lend certainty and predictability to the interpretation and application of contracts
critical to the residential mortgage securitization market.4
II. UNDER THE GOVERNING CONTRACTS’ PLAIN LANGUAGE,
SECTION 7 REPRESENTATIONS AND WARRANTIES WERE NOT
TRANSFERRED TO THE TRUSTEE
A party has no cause of action for breach of representations and
warranties that were never made or assigned to it. See MBIA Ins. Corp. v. Merrill
Lynch, 81 A.D.3d 419, 420 (1st Dep’t 2011); Valassis Commc’ns, Inc. v. Weimer,
304 A.D.2d 448, 449 (1st Dep’t 2003) (affirming dismissal of breach of contract
claim because the contract contained no representation as to matters being sued
upon). Here, the parties agreed to transfer the Section 8, but not the Section 7,
representations and warranties to the Trustee. Therefore, the Trustee never
acquired the No Untrue Statement representation and warranty, and Respondents
may not assert claims for breaches of it.
This is a straightforward contract law issue. As the Court has
consistently held, courts applying New York law must construe contracts to
effectuate the contracting parties’ intentions. The clearest indication of those
intentions is the language the parties chose to memorialize their agreement. When
4 This case is not like Misicki, in which the Court identified the issue on its own. See 12
N.Y.3d at 519 (holding that the Court is not in the business of deciding an appeal “on a distinct
ground that [it] winkled out wholly on [its] own” without any briefing by the parties). Whether
or not the argument was addressed below, the parties have addressed it in their briefs in this
Court. (See Appellant Br. at 15, 21; Resp. Br. at 30-31; Appellant Reply Br. at 8 n.4).
10
a contract’s language is unambiguous, courts must apply that language as written.
See W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). (“When parties
set down their agreement in a clear, complete document, their writing should ... be
enforced according to its terms.”). Here, the plain language of the MLPAs and
PSAs unambiguously demonstrates that the Depositor never transferred the No
Untrue Statement, or any other Section 7, representation or warranty to the Trustee.
A. The PSA’s Assignment Clause Does Not Transfer Any Section 7
Representation or Warranty to the Trustee
The transfer of rights from the Depositor to the Trustee is addressed in
two clauses of PSA Section 2.01 – an assignment clause and a granting clause.
Neither transfers to the Trustee any Section 7 representation or warranty. The
assignment clause provides:
[T]he Depositor does hereby assign to the Trustee all of its
rights and interest under the Mortgage Loan Purchase
Agreement, to the extent of the Mortgage Loans sold under the
Mortgage Loan Purchase Agreement.
(R175). This language plainly assigns the Depositor’s MLPA rights and interest in
the Mortgage Loans; and just as plainly assigns the Section 8 representations and
warranties, which are representations and warranties about the Mortgage Loans, as
Section 8’s heading and introductory language make clear: “Representations and
Warranties of the Seller Relating to the Mortgage Loans. The Seller hereby
11
represents and warrants to the Purchaser that as to each Mortgage Loan ….”
(R451).
Just as plainly, the assignment clause identifies what the Depositor
does not assign to the Trustee: the Depositor’s rights and interest under the MLPA
other than “to the extent of the Mortgage Loans sold under the [MLPA].” That
follows from the principle expressio unius est exclusio alterious – the expression
of one thing implies the exclusion of others. See, e.g., Quadrant Structured Prods.
Co. v. Vertin, 23 N.Y.3d 549, 560 (2014) (applying this “well established”
principle of contract interpretation to determine the scope of a “no action” clause in
a trust indenture governing a complex financial transaction); Realtime Data, LLC
v. Melone, 104 A.D.3d 748, 751 (2d Dep’t 2013) (holding that contract language
identifying the circumstances under which a former employee was entitled to
bonus compensation barred the former employee from receiving bonus
compensation in circumstances other than those identified in the contract).
Rights and interest other than “to the extent of the Mortgage Loans
sold under the [MLPA]” include the Section 7 representations and warranties,
which are standard purchase and sale assurances by the Seller about its ownership,
and ability to undertake the sale of the pool, of Mortgage Loans, not assurances
about the Mortgage Loans themselves. This distinction is highlighted by the
language the contracting parties chose to describe these sections of their
12
agreements: Section 8 contains “Representations and Warranties of the Seller
Relating to the Mortgage Loans” (R451), whereas Section 7 contains
“Representations, Warranties and Covenants of the Seller.” (R449). The parties’
decision to include the No Untrue Statement representation and warranty in
Section 7, as opposed to Section 8, is further proof of their intention not to transfer
that representation and warranty to the Trustee.5
B. The PSA’s Granting Clause Does Not Transfer Any Section 7
Representation or Warranty to the Trustee
Like the assignment clause, the granting clause makes plain that what
the Trustee acquires from the Depositor does not include Section 7 representations
and warranties:
The Depositor, concurrently with the execution and delivery
hereof, hereby sells, transfers, assigns, sets over and otherwise
conveys to the Trustee for the use and benefit of the
Certificateholders, without recourse, all the right, title, and
5 Respondents try to focus the Court on the acceptance clause that immediately follows
the assignment clause. See Resp. Br. at 30-31. The acceptance clause provides: “The Trustee
hereby accepts such assignment, and shall be entitled to exercise all rights of the Depositor under
the Mortgage Loan Purchase Agreement as if, for such purpose, it were the Depositor.” But by
law, the Trustee may not accept more than it actually is assigned. Therefore, the word “all” in
the acceptance clause may not expand the scope of the assignment clause to include Section 7
representations and warranties. See generally Hooper Assocs., Ltd. v. AGS Computers, Inc., 74
N.Y.2d 487, 491 (1989) (“Words in a contract are to be construed to achieve the apparent
purpose of the parties. Although the words might ‘seem to admit of a larger sense, yet they
should be restrained to the particular occasion and to the particular object which the parties had
in view.’”) (quoting Robertson v. Ongley Elec. Co., 146 N.Y. 20, 23 (1895)); S. Rd. Assocs., LLC
v. IBM Corp., 4 N.Y.3d 272, 277 (2005) (“It is also important to read the document as a whole to
ensure that excessive emphasis is not placed upon particular words or phrases.”).
13
interest of the Depositor in and to the Trust Fund and the
Supplemental Interest Trust.6
(R175). Respondents suggest that the Depositor’s “right, title and interest … in
and to the Trust Fund” include the right, title, and interest in and to the REMIC I,
which consists of the Mortgage Loans and their payment streams, the Mortgage
Files and, Respondents emphasize (see Resp. Br. at 31), “the rights under the
Mortgage Loan Purchase Agreement.” (PSA § 1.01 (definition of REMIC I)
[R148]). Respondents correctly trace through the definitions. But the definitions
do not support their argument.
To begin, the Section 7 representations and warranties are not
“rights;” they are representations and warranties. So while the granting clause
conveys to the Trustee “the rights under the Mortgage Loan Purchase Agreement,”
nothing about that phrase indicates that the contracting parties intended to convey
the Section 7 representations and warranties. True, the phrase indicates an intent to
convey the Purchaser’s right under MLPA Section 9 to pursue a remedy, namely,
cure or repurchase of a defective Mortgage Loan. But that remedy is triggered
6 The Trust Fund is defined as the collective “assets of the REMIC I, REMIC II, REMIC
III, REMIC IV, REMIC V, REMIC VI, the Basis Risk Shortfall Reserve Fund and the Basis Risk
Cap Agreement.” (PSA § 1.01 (definition of Trust Fund) [R158-59]). The Supplemental
Interest Trust is defined as the “corpus of a trust created pursuant to Section 5.12 of this
Agreement … consisting of the Swap Agreement, the Interest Rate Cap Agreement, the Class IO
Interest and the right to receive payments in respect of the Class IO Distribution Amount.” (PSA
§ 1.01 (definition of Supplemental Interest Trust) [R157]). REMICs are Real Estate Mortgage
Investment Conduits, entities that hold fixed pools of mortgages. The Supplemental Interest
Trust is not pertinent to this appeal.
14
only by a breach of a Section 8, not a Section 7, representation and warranty. (See
R457-58). Respondents do not claim otherwise. Indeed, they repeatedly remind
the Court that Section 7 contains “transaction-wide” representations and warranties
(Resp. Br. at 7, 9), that Section 8 contains “loan-specific” representations and
warranties (Resp. Br. at 2, 4, 7, 12, 13, 19, 21, 22, 25, 32 (also referring to the
“loan-by-loan representations”)), and that Section 9 sets forth the exclusive remedy
for breach of “representations and warranties contained in Section 8” (Resp. Br. at
4-5, 7-9, 21-22), not for breach of representations and warranties contained in
Section 7. Thus, whatever the Section 9-related rights transferred to the Trustee,
they do not include rights related to Section 7; and the granting clause does not
transfer any Section 7 representation or warranty to the Trustee or create rights
under the MLPA to pursue remedies for breaches of Section 7.
C. The PSA’s Enforcement Mechanism Makes No Mention of the
Section 7 Representations and Warranties
The conclusion to be drawn from the plain language of the assignment
and granting clauses finds further support in the PSA’s enforcement mechanism.
Section 2.03(c) sets forth the Trustee’s sole remedies (cure or repurchase) for a
breach of a representation or warranty that “materially and adversely affects the
interests of the Certificateholders in any Mortgage Loan.” (R180-81). The only
breaches that trigger those remedies are breaches of three loan-specific
representations and warranties in PSA Section 2.03(b) and the loan-specific
15
representations and warranties of MLPA Section 8. (See id.). The transaction-
wide representations and warranties of MLPA Section 7 are nowhere mentioned.
Relying on the Appellate Division ruling (see R25-26), Respondents
argue that the remedies for breaches of Section 7 representations and warranties
are not limited to the sole remedies (cure or repurchase) because the MLPA’s and
the PSA’s remedies provision (MLPA Section 9 and PSA Section 2.03(c)) do not
reference Section 7. (See Resp. Br. at 2-3, 21-22, 34). But neither Section 9 nor
Section 2.03(c), nor the Appellate Division’s reading of them, support that
argument. Even if the absence of any mention of Section 7 in Section 9 suggests
that the Depositor could have extra-contractual, common law causes of action for
breaches of Section 7 representations and warranties, the Depositor did not transfer
them (if any even exist) to the Trustee. As shown in Point II.A and B, above,
extra-contractual causes of action are not the “right, title and interest of the
Depositor in and to the Trust Fund” transferred by the granting clause,7 or “rights
and interest under the [MLPA]” transferred by the assignment clause.8
7 To be sure, the Trust Fund the Depositor conveys to the Trustee includes “the rights
under the Mortgage Loan Purchase Agreement.” (PSA § 1.01 (definition of REMIC I) [R148]).
But an extra-contractual cause of action or remedy is not a right under the contract. And even if
it could be, the Court should construe the term “rights” consistently with the other six
components of the Trust Fund, all of which concern the Mortgage Loans and related property,
funds, and accounts, and none of which concerns the securitization transaction or transaction-
wide representations and warranties. See generally Hooper Assocs., 74 N.Y.2d at 491; S. Rd.
Assocs., 4 N.Y.3d at 277.
8 Respondents also cite to the MLPA’s cumulative remedies provision, Section 13, to
argue that the sole remedies provision does not limit their remedies for breaches of the No
16
As for Section 2.03(c), although the Appellate Division observed that
the section never mentions Section 7 (R26),9 the court did not focus on the point
made here: Section 2.03(c) never mentions Section 7 because the contracting
parties never intended to, and did not, convey the Section 7 representations and
warranties to the Trustee. Thus, the Appellate Division’s observation, and
Respondents’ reliance on it, are of no moment. In any event, an interpretation that
provides to the Trustee a right to pursue common law causes of action for breaches
of transaction-wide representations and warranties is inconsistent with the legal
and regulatory framework that governs securitization transactions. See Point III,
below.10
Untrue Statement representation and warranty. (See Resp. Br. at 10). But Section 13 is
irrelevant because the Depositor did not transfer to the Trustee any extra-contractual, common
law cause of action that it might have. In any event, Respondents read Section 13 too broadly:
Section 13 addresses the narrow issue of the Purchaser’s rights and remedies in the event the
Seller fails to timely deliver the Mortgage Loans. As this Court has recognized, the cumulative
remedies language cannot be given a meaning divorced from the rest of the provision and
contrary to the overall purpose of the contract. See Beal Savings Bank v. Sommer, 8 N.Y.3d 318,
329-30 (2007) (declining to give a “cumulative remedies provision” a construction inconsistent
with the contract’s overall purpose and, instead, construing the provision in the context of the
section in which it appears).
9 The Appellate Division cited to Section 2.03(e) in the NHELI 2007-2 PSA. That
section is the analog of Section 2.03(c) in the NHELI 2006-FM2 PSA, the PSA referenced in this
submission.
10 Assuming the Trustee could pursue extra-contractual remedies for breaches of
transaction-wide representations and warranties, the contracting parties set forth those
representations and warranties in the PSA itself. (See R179-80, R182-83). In Sections 2.03(b)
and 2.04, the Trustee’s contractual counterparties, the Sponsor and the Depositor, make
transaction-wide representations and warranties that are nearly identical to the Section 7
representations and warranties that the Seller under the MLPA made to the Purchaser under the
MLPA. One notable difference: the representations and warranties in Sections 2.03(b) and 2.04
do not contain a No Untrue Statement representation and warranty.
17
In sum, the contracting parties took care – in two specific clauses – to
identify what rights and interests were and were not transferred to the Trustee. The
Court should enforce the contracts as written (see W.W.W. Assoc. v. Giancontieri,
77 N.Y.2d 157, 162 (1990)), and not read into the PSAs transfers that were never
made and enforcement rights that were never intended. See ACE Sec. Corp. v. DB
Structured Prods., Inc., 25 N.Y.3d 581, 597 (2015).
III. THE GOVERNING CONTRACTS’ PLAIN LANGUAGE SQUARES
WITH THE LEGAL AND REGULATORY FRAMEWORK IN WHICH
SECURITIZATION TRANSACTIONS OPERATE
Securitizations involve three steps.11
First, a seller (here, the Seller of the Mortgage Loans, Nomura Credit
& Capital, Inc. (“NCCI”)) transfers the assets to be securitized (here, the Mortgage
Loans) to a purchaser (here, the Purchaser, Nomura Home Equity Loan, Inc.
(“NHELI”)) pursuant to a sales agreement (here, the MLPA).12
Second, pursuant to a trust agreement (here, the PSA), the purchaser
(NHELI, known for the purposes of this second step as the Depositor) creates a
common law trust (the Trust) to acquire and hold the assets (the Mortgage Loans
11 See generally Retm’t Bd. of the Policemen’s Ann. & Benev. Fund v. Bank of N.Y.
Mellon, 775 F.3d 154, 156 (2d Cir. 2014); Release No. 33-8518, §§ I.A at n.28 and text, II at
nn.46-47 and text (S.E.C. Dec. 22, 2004) (publishing final text of Regulation AB) (“Reg AB
Release”). The SEC adopted Regulation AB in 2004 to clarify existing regulations for the
issuance of asset-backed securities, such as the securities issued by the Trusts, and to establish a
set of disclosure requirements specific to asset-backed securities. See Reg AB Release § III.B.1.
12 In one of the four actions the Purchaser/Depositor was Nomura Asset Acceptance
Corporation, not NHELI. For ease of reference, we refer to the Purchaser under the MLPAs and
the Depositor under the PSAs as NHELI.
18
and related interests and proceeds, collectively called the Trust Fund); the Seller
(NCCI, known for purposes of this second step as the Sponsor) conveys to the
Depositor all its rights and interest in the Trust Fund assets; and the Depositor
conveys all its rights and interest in the Trust Fund to the Trustee (here, the
Trustee, HSBC Bank USA, N.A.) in exchange for securities (certificates)
representing beneficial interests in the trust.
Third, the depositor (NHELI) sells the certificates to an underwriter
that, in turn, sells the certificates to investors by means of offering documents,
including a prospectus supplement. The proceeds of the certificate sales in step
three fund the purchase of the assets in step one. The cash generated by the assets
(here, the borrowers’ principal and interest payments on the Mortgage Loans)
funds the payments due to the certificateholders and the costs of administering the
trust and the trust assets (here, for example, the costs associated with servicing the
Mortgage Loans).
The purposes the Section 7 representations and warranties serve in
this framework underscore what the governing contracts’ plain language makes
clear – those representations and warranties are not transferred to the Trustee.
19
A. Section 7 Representations and Warranties Help to Establish the
Purchaser as a Holder-in-Due-Course, a Status the Trustee Attains
Through Nearly-Parallel Representations and Warranties Given By Its
Own “Seller,” the Depositor
The first and second steps of a securitization transaction are purchase-
and-sale transactions. As in plain-vanilla commercial purchase-and-sale
transactions, the purchasers in the first and second steps of a securitization
transaction seek assurances not only about the quality of the assets (what
Respondents call “loan-specific” assurances), but also about the sellers themselves
and the transaction (what Respondents call “transaction-wide” assurances).
Because the assets are the same in the first and second steps of a securitization
transaction (the Mortgage Loans), the seller in the second step (the Depositor,
NHELI) passes through to its purchaser (the Trustee) the same assurances (the
Section 8 representations and warranties) about the quality of the assets that it
acquired from the seller in the first step (the Seller, NCCI). The same is not so for
the Section 7 transaction-wide assurances. Because securitizations involve two
purchase-and-sale transactions, each purchaser (the Purchaser in step one and the
Trustee in step two) seeks transaction-wide assurances from its immediate seller
(the Seller in step one and the Depositor in step two).
A seller’s transaction-wide assurances help to establish its immediate
purchaser as a holder-in-due-course. Under Section 3 of the Uniform Commercial
Code and many states’ laws, a holder-in-due-course of a negotiable instrument
20
(here, a mortgage note) takes the instrument free of certain defenses that the maker
of the instrument (here, a borrower) otherwise might have, such as fraud in the
inducement, lack of consideration, and actual payment of the debt. See U.C.C. § 3-
305(b); N.Y. U.C.C. § 3-305.13
Holder-in-due-course status is important to the securitization
transaction’s success. Investors in the securities issued by a securitization trust
want assurances that if an asset collateralizing their investment is non-performing
(for example, if a borrower fails to make timely mortgage payments), their agent
13 For a case addressing fraudulent inducement, see Tshering v. Fairfield Financial
Mortgage Group, Inc., No. 08-cv-2777, 2013 WL 3527129, at *5 (E.D.N.Y. July 11, 2013)
(applying New York law) (setting aside a judgment that voided a mortgage allegedly procured by
fraud and permitting proposed intervenors – including the trustee and master servicer of a
residential mortgage-backed securities trust – to intervene to defend their interest in the
mortgage: “Intervenors have provided a sufficient evidentiary basis to establish that [the trustee]
is a holder in due course under N.Y. U.C.C. § 3-302(1). … Intervenors have sufficiently
articulated the argument that [the borrower’s] allegations of fraud [and] misrepresentation,
among other claims, occurred before the [mortgage] Note transfer, and thus do not attach onto a
holder in due course.”).
For cases addressing lack of consideration and actual payment of the debt, see Dupuis v.
Federal Home Loan Mortgage Corp., 879 F. Supp. 139, 146-47 (D. Me. 1995) (applying Maine
law) (rejecting plaintiff-borrower’s affirmative defenses to defendant’s counterclaim to enforce
the terms of a mortgage; the defendant had acquired the mortgage from the original lender who,
unbeknownst to the defendant, had failed to disburse the full amount of the loan or credit that
amount to reduce the principal: “[A]lthough Fidelity [the lender] ultimately misbehaved in
failing ever to pay out the $6,000 performance escrow or the remaining amount of the home
improvement escrow or to transfer those funds to FHLMC [the defendant] and reduce the
amount due from Dupuis [the borrower], FHLMC as a holder in due course can collect the face
amount of the note it purchased and accruing interest in accordance with the note’s terms.”), and
Midfirst Bank, SSB v. C.W. Haynes & Co., 893 F. Supp. 1304 (D.S.C. 1994) (applying South
Carolina law) (granting summary judgment to plaintiff, who claimed it owned 14 mortgages that
Ginnie Mae had assigned to it after Ginnie Mae withdrew the mortgages from a Ginnie Mae-
guaranteed securitization trust, and denying the defendant-originator’s ownership claim; holding
that although the defendant had sold the mortgages to an entity that, in turn, sold the mortgages
into the Ginnie Mae trust without paying the defendant for the mortgages, Ginnie Mae was a
holder-in-due-course), aff’d sub nom. C.W. Haynes & Co. v. Midfirst Bank FSB, 87 F.3d 1308
(4th Cir. 1995).
21
(the trustee) has the legal right to mitigate any loss to the trust that might occur (for
example, by foreclosing), and will not be subject to certain defenses the borrower
might have had against the lender. Absent those assurances, potential investors
might invest their money elsewhere.
To be a holder-in-due-course, a party must take the instrument for
value, in good faith, and without notice of any defense against or claim to it. See
U.C.C. § 3- 302(a)(2); N.Y. U.C.C. § 3-302(1)). Transaction-wide assurances, like
those in Section 7, help a buyer establish those elements. In step one, the Section 7
representations and warranties assured NHELI (the purchaser) that NCCI (the
seller) owned and was authorized to sell the Mortgage Loans and related rights and
interest to NHELI, and that the transaction itself would not materially, adversely
affect the Mortgage Loans.14 In step two, the representations and warranties in
14 See, e.g., MLPA §§ 7(3) (“The execution, delivery and performance of this Agreement
by the Seller … does not create or impose and will not result in the creation or imposition of any
lien, charge or encumbrance which would have a material adverse effect upon the Mortgage
Loans or any documents or instruments evidencing or securing the Mortgage Loans.”); 7(8)
(“Immediately prior to the sale of the Mortgage Loans to the Purchaser as herein contemplated,
the Seller was the owner of the related Mortgage and the indebtedness evidenced by the related
Mortgage Note … .”); 7(9) (“There are no actions or proceedings against, or investigations
known to it of[] the Seller before any court, administrative or other tribunal … seeking to prevent
the sale of the Mortgage Loans by the Seller or the consummation of the transaction
contemplated by this Agreement … .”); 7(10) (“… the transfer, assignment and conveyance of
the Mortgage Notes and the Mortgages by the Seller pursuant to this Agreement are not subject
to the bulk transfer or any similar statutory provisions in effect in any relevant jurisdiction,
except any as may have been complied with.”); 7(12) (“There is no litigation currently pending
or, to the best of the Seller’s knowledge without independent investigation, threatened against
the Seller that would reasonably be expected to adversely affect the transfer of the Mortgage
Loans, the issuance of Certificates or the execution, delivery, performance or enforceability of
this Agreement ….”). (R449-51).
22
PSA Section 2.04 assured the Trustee (the purchaser) that NHELI as Depositor (the
seller) owned and was authorized to sell the Trust Fund to the Trustee.15 Notably,
Section 2.04 does not contain a No Untrue Statement representation and warranty.
Respondents might wish that the Trustee acquired the Section 7
representations and warranties. But wishing does not make it so, and the Trustee
does not need them to protect the interest of the investors in the Trust’s securities.
If NCCI’s transaction-wide assurances to NHELI in the first step were untrue (for
example, if NCCI were not authorized to sell the Mortgage Loans), the Trustee’s
interest in the Mortgage Loans would remain intact because the Trustee is a holder-
in-due-course from NHELI by virtue of, among other things, the PSA Section 2.04
transaction-wide assurances it received from NHELI in the transaction’s second
step.16
15 See PSA § 2.04 (“Representations and Warranties of the Depositor”) (“The Depositor
hereby represents and warrants to the Trustee as of the Closing Date, following the transfer of
the Mortgage loans to it by the Sponsor, the Depositor had good title to the Mortgage Loans and
the related Mortgage Notes were subject to no offsets, claims, defenses or counterclaims.”).
(R183).
16 The Trustee would not be a holder-in-due-course if it had actual knowledge that
NHELI’s transaction-wide (PSA Section 2.04) assurances were untrue. To be sure, NCCI’s
transaction-wide (MLPA Section 7) assurances to NHELI might be relevant to that analysis. For
example, if the Trustee knew that NCCI was not authorized to sell the Mortgage Loans to
NHELI, it might struggle to show that it did not know NHELI’s Section 2.04 assurances were
untrue. But that would be so regardless of whether the Section 7 representations and warranties
are conveyed to the Trustee. In any event, to the extent the Trustee (or investors) sought
transaction-wide assurances from NCCI, NCCI provided them in PSA Section 2.03(b), which
does not include a No Untrue Statement representation and warranty. (See R179-80).
23
B. The Purpose of the No Untrue Statement Representation and
Warranty Is To Protect Underwriters Against Claims Brought Under
Federal Securities Laws
The third step of a securitization transaction, the capital markets
component, is primarily controlled by federal securities law. The role of the No
Untrue Statement representation and warranty is best understood in the context of
that law, which we summarize below.
Publicly-offered securities, such as the certificates issued in the
securitization transactions at issue here, typically are offered through a base
prospectus and a prospectus supplement. A base prospectus is prepared as part of a
shelf registration statement, which is filed with the SEC before a specific pool of
assets (here, the Mortgage Loans) is assembled. After the shelf registration is
deemed effective by the SEC, multiple offerings may be made based on that
registration statement. For each offering, the sponsor and/or depositor prepares a
prospectus supplement and files it with the SEC, and the underwriters furnish it to
potential investors. See generally Reg AB Release § III.A.1.
The Securities Act and related regulations require that the shelf
registration statement and prospectus supplement describe the assets being
securitized, the certificates, the rights of the certificateholders, the trust, the
administration of the trust, and the various parties to the securitization transaction,
including the originator of the assets that back the securitization, the depositor, the
24
sponsor, and the trustee. See Reg. S-K (17 C.F.R. § 229.10); Reg. AB (17 C.F.R.
§ 229.1100 et seq.). In preparing that material, the sponsor and/or depositor
incorporates information provided to it by various entities, such as the originator
and the trustee.
Underwriters can be liable under the Securities Act to investors in a
securitization trust’s securities if the information incorporated into the base
prospectus or prospectus supplement is untrue. See 15 U.S.C. §§ 77k(a) (Section
11), 77l(a)(2) (Section 12); see generally In re Lehman Bros. Mortgage-Backed
Sec. Litig., 650 F.3d 167, 175 (2d Cir. 2011); Pub. Employees’ Ret. Sys. of Miss. v.
Merrill Lynch & Co., 714 F. Supp. 2d 475, 484 (S.D.N.Y. 2010). To
counterbalance that potential liability, the Securities Act affords underwriters a due
diligence defense that, if proven, absolves them of liability for certain types of
material misstatements of fact in shelf registration statements and prospectus
supplements. See 15 U.S.C. §§ 77k(b)(3), 77l(a)(2); In re Morgan Stanley Info.
Fund Sec. Litig., 592 F.3d 347, 360 n.7 (2d Cir. 2010). Under Section 11, for
example, an underwriter advancing a due diligence defense must prove that, after a
“reasonable investigation,” it had no reason to believe and did not believe that a
material misstatement or omission existed. A “reasonable investigation” is that of
“a prudent man in the management of his own property.” 15 U.S.C. § 77k(c).
25
Under Section 12, the standard for prevailing on the due diligence defense is the
exercise of “reasonable care.” 15 U.S.C. § 77l(a).
The No Untrue Statement representation and warranty helps lay the
groundwork for underwriters to assert the statutory due diligence defenses, and
underwriters often insist that the purchaser/depositor obtain the representation and
warranty from its seller in step one of the securitization transaction. Thus, the No
Untrue Statement representation and warranty does not “parallel[]” the liability
provisions of the federal securities law and afford the trustee a contractual right to
sue for misstatements in the transaction documents, as Respondents suggest.
(Resp. Br. at 17). Rather, it is a creature of federal securities law that helps
underwriters advance the statutory due diligence defenses to Securities Act claims
arising from misstatements in the prospectus supplement.17
Respondents might wish that the No Untrue Statement representation
and warranty empowered trustees to pursue money damages for alleged
misstatements in the prospectus supplement. (See Resp. Br. at 17-18). But
wishing does not make it so, and investors do not need trustees to do for them what
they can do for themselves under the Securities Act, as investors did in these very
17 To be sure, the representation and warranty is not exclusively a creature of federal
securities law. For example, if a seller in step one lies about its legal capacity to undertake the
transaction, the purchaser could sue for common law breach and rescission. Although the
purchaser is unlikely to do so where, as here, the purchaser and seller are sister corporations, the
sales agreement often is between unrelated parties.
26
securitizations. See Fed. Hous’g Fin. Ag. v. Nomura Holding Am. Inc., 104 F.
Supp. 3d 441 (S.D.N.Y. 2015) (finding NHELI liable to an investor for Section 12
violations, and NCCI liable for Section 15 (control person) violations, connected to
NHELI 2006-FM2, NHELI 2007-2, and NHELI 2007-3).18 Meanwhile, trustees
are empowered to manage trust assets by enforcing the repurchase remedy for
breaches of the loan-specific representations and warranties, including those that
protect against misrepresentation (see, e.g., MLPA § 8(2) (warranting against
borrower fraud) [R451]), as the Trustee has done here.
Conclusion
Respondents may not pursue claims for alleged breaches of the No
Untrue Statement representation and warranty because the Depositor did not
transfer it to the Trustee. That result is compelled by the plain language of the
MLPAs and PSAs, and is consistent with how securitizations are structured under
the relevant provisions of commercial and federal securities law. Respondents’
attempt to “harmonize” the No Untrue Statement representation and warranty
“with the sole remedy provision and the repurchase protocol” (Resp. Br. at 35)
ignores the governing contracts’ plain language and the legal and regulatory
18 The action also included Section 11 claims against NHELI, but the plaintiff voluntarily
withdrew those claims to avoid having to try the case to a jury. See 104 F. Supp. 3d at 455. An
appeal from the district court’s opinion and order following the bench trial in that case is fully
submitted to the United States Court of Appeals for the Second Circuit. See Docket No. 15-1874
(filed June 10, 2015). Respondents are well-aware of the FHFA action and cite it in their brief.
(See Resp. Br. at 18 n.5).
framework in which these securitization transactions operate. Accordingly, the
Court should reverse the Appellate Division order and dismiss the Respondents'
claims for breach of the No Untrue Statements representation and warranty as a
matter of law.
Dated: February 3, 2017
New York, New York
Respectfully submitted,
MURPHY & McGONIGLE, P.C.
James K. Goldfarb
jgoldfarb@mmlawus.co1n
1185 A venue of the Americas, Floor 21
New York, New York 10036
Telephone: (212) 880-3999
Facsimile: (212) 880-3998
Daniel T. Brown (Admission pro hac vice
pending)
dbrown@mmlawus.com
Murphy & McGonigle, P.C.
555 13th Street, N.W., Suite 410W
Washington, D.C. 20004
Telephone: (202) 661-7000
Facsimile: (202) 661-7059
27
28
Michael L. Calhoon (Admission pro hac
vice pending)
michael.calhoon@bakerbotts.com
Vernon Cassin
vernon.cassin@bakerbotts.com
Baker Botts L.L.P.
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Telephone: (202) 639-7700
Facsimile: (202) 585-1096
Douglas W. Henkin
douglas.henkin@bakerbotts.com
Joseph Perry
joseph.perry@bakerbotts.com
Baker Botts L.L.P.
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-2500
Facsimile: (212) 259-2520
Attorneys for Amicus Curiae Sand Canyon
Corporation
4814-3963-4241
Addendum - Securitization Transaction Diagram
Step 1 -Mortgage Loan Purchase Agreement (MLPA)
Mortgage Loans
"Loan-specific" representations and
warranties (MLP A § 8)
"Transaction-wide'' representations and war-
ranties, including the No Untrue Statement
representation and warranty (MLP A § 7)
Seller
Purchaser
Proceeds from sale of crtificate
(from Step 3)
Step 2 -Pooling and Servicing Agreement (PSA)
Depositor (Purchaser in step one)
Mortgage L an
' [T]he rights under the
[MLPA]'' (PSA § 1.01 (definitions
of''Trust Fund" and "REMlC I''))
All rights and interest in Trust und Assets
(PSA § 2.01)
All right. title, and interest in and to
the Trust und (PSA § 2.01
(granting clause))
All rights and interest under the
MLPA 'to the extent of the Mort-
gage Loans sold under the [MLPA] •·
including the ection 8 "loan-
specific" representations and warran-
ties (PSA § 2.01 (assignment clause))
Trust Fund
Sponsor
Depositor
Trustee
ertificatcs
Step 3-0ffering the Trust Certificates
ertificates (from tep 2)
Sale of Certificates by means ofProspectus
upplement
Depositor
Underwriters
Investors
Proceeds from ale of crtificatcs
Proceeds from sale of ertificates