Friday, July 05, 2013

Courts reject the theory that lenders must waive borrower obligation...

Must a lender waive the borrower's obligations if the lender received funds through loan securitization or credit default swap?  No.  Federal courts have repeatedly rejected precisely that theory, as a matter of law.

  • Flores v. Deutsche Bank Nat'l Trust Co., 2010 WL 2719848, (D. Md. July 7, 2010) - the borrower argued that his lender "already recovered for [the borrower's] default on her mortgage payments, because various 'credit enhancement policies,'" such as "a credit default swap or default insurance," "compensated the injured parties in full." The court rejected the argument, explaining that the fact that a "mortgage may have been combined with many others into a securitized pool on which a credit default swap, or some other insuring-financial product, was purchased, does not absolve [the borrower] of responsibility for the Note."

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