Legal Malpractice

Sub-Prime Loans and Legal Malpractice

By (Andrew Lavoott Bluestone)

We have been following this story of the intersection of legal malractice and the sub-prime morrgage crisis.  Today, Susan Beck in the New York Law Journal reports that Cadwalader Wickersham & Taft faces a continued legal malpractice case for their work in servicing and securing loans worth $1.8 billion.  Cadwalader's motion to dismiss was denied, and the case continues.  From the NYLJ:
"Nomura sued Cadwalader in 2006, claiming that it had botched a 1997 assignment to advise and assist Nomura on the origination and securitization of 156 commercial loans totaling $1.8 billion. (Cadwalader had signed a tolling agreement that extended the statute of limitations.) The most significant claims arose from a $50 million loan made to a doctors hospital that went into default in 2000. Cadwalader, representing Nomura, had drafted documents that asserted that the trust that held these loans qualified for special tax treatment as a Real Estate Mortgage Investment Conduit (REMIC), which required that the fair market value of the real property securing each loan be at least 80 percent of the loan amount. In fact, the doctors hospital loan did not meet this 80 percent test, according to Nomura's own appraisal.
 

Acting Supreme Court Justice Melvin Schweitzer in Nomura Asset Capital Corporation and Asset Securitization Corporation v. Cadwalader Wickersham & Taft, 116147/2006, ruled on April 28 that Nomura's position in the LaSalle litigation did not bar it from bringing claims against Cadwalader, especially since its earlier arguments had failed. Perhaps most significantly, the judge ruled that Cadwalader's reliance on language in the Standard & Poor's manual did not create a defense for a motion to dismiss. The judge also ruled that even if Dechert was primarily responsible for assuring that the loan met the REMIC test, Cadwalader had not established that it did not have a duty to verify this fact."

Full post as published by New York Attorney Malpractice Blog on May 20, 2009 (boomark / email).