Earlier this year, a United States District Court judge for the Southern District of Florida (Judge James Lawrence King) severed and dismissed 7 out of 8 mortgage repurchase claims filed by Lehman Brothers Holdings, Inc. against a residential mortgage originator because Lehman was attempting to demand the repurchase of 8 separate loans in a single complaint. Initially, the claims had been asserted in a single count and dismissed as an impermissible “shotgun” style complaint—an unclear mass of allegations. When Lehman attempted to re-file, the court later ruled that the lack of commonality in circumstances surrounding the origination of separate loans “makes them all but impossible to be adjudicated together.”
Recognizing that each individual loan was unique with respect to the location and date of the loan, the identity of the borrower, and the home being purchased, compounded by the varying proof Lehman would need to show to establish each claim, the Florida court required that the 7 dismissed claims be re-filed in completely separate lawsuits. The 8th claim was later dismissed as well for lack of jurisdiction in the federal court.
Colorado Judge effectively affirmed Florida dismissal
Subsequent to the dismissal in Florida, Lehman attempted to re-consolidate the 7 dismissed claims in a single action pending in the District of Colorado. After reviewing the record in the Florida proceeding, the District Judge in Colorado (Judge Christine M. Arguello) denied Lehman’s motion to consolidate. Holding that the 7 claims lacked common questions of law and fact to warrant consolidation, the court effectively affirmed the Florida ruling, finding that “the cases involve different brokers, borrowers, property, and loan products, defects, and documentation. Further, each case may require divergent proof of damages.” Just like Judge King in Florida, Judge Arguello was not persuaded by the mere fact that all of the individual loans were sold to Lehman pursuant to the same loan-purchase agreement; instead, the court came to the logical conclusion that each individual claim required separate and distinct legal analyses.
As other big banks like Lehman Brothers continue to file lawsuits against smaller loan originators, and attempt to cast blame on the smaller lenders for following the lending guidelines that banks like Lehman themselves established and promoted, we have seen and expect to see more attempts to “bundle” large numbers of claims arising from defaulted mortgages. We also expect that courts will continue to hold that loan buyback claims must be dealt with individually on a loan-by-loan basis, either as separate mini-trials within the same case, or as separate lawsuits entirely.