Available Damages Against Sponsor of Mortgage-Backed Securities Trust Limited By “Sole Remedies” Provision in Governing Documents

Commercial Division Blog

On May 29, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Saco I Trust 2006-5 v. EMC Mortgage LLC, 2014 NY Slip Op. 31432(U), ruling that Plaintiffs’ claim for rescissory and consequential damages was precluded by a “sole remedies” provision in the governing documents for a mortgage-backed securities investment.

In Saco I Trust, the plaintiff investors in mortgage-backed securities brought an action against the sponsor, EMC, for breaches of representations and warranties concerning the mortgages underlying the investment. The governing documents for the securitization trusts contained a “sole remedies” clause, which provided:

It is understood and agreed that the obligation under this Agreement of EMC to cure, repurchase or replace any Mortgage Loan as to which a breach has occurred and is continuing shall constitute the sole remedies against EMC (in its capacity as Sponsor) respecting such breach available to the Certificateholders, the Depositor or the Trustee.

Justice…

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