Amicus Curiae Brief to the New York Court of Appeals in Ace Securities Corp. v. DB Structured Products, Inc.

Abstract

This amicus brief is submitted on behalf of the defendant’s position, that nothing in the contract at issue, or its commercial context, indicates an intent to depart from New York’s statute-of-limitations default rule. Plaintiff alleges that its claims under residential mortgage-backed securities (RMBS) for the cure or repurchase of defective mortgage loans are not time-barred, and that the contractual limitations period does not end, for any defective loan, until six years after a cure-or-repurchase demand as to that loan. The amicus brief maintains that plaintiff’s position contradicts the law, practice, and organization of the securitization market because it would, de facto, create a limitless limitations period, thereby effectively treating the seller of the securitized loans as an ongoing guarantor throughout the life of those loans. That, however, would ignore the essence of securitization — which is to transfer future risk from companies making and selling loans, on the one hand, to investors in securities based on those loan repayments, on the other. Plaintiff also ignores reality in arguing that, but for the claimed lifelong assurances, the RMBS would have been too risky to market. At that time, investors were all too eager to invest in these types of securities; and they did so based principally on the security’s credit rating and interest rate, not the statute of limitations. Finally, plaintiff incorrectly asserts that six years following the loan sale was too short a period within which to detect a breach. The only type of breach that triggered a cure-or-repurchase obligation was a breach of representation and warranty of a loan’s quality at the time of its sale. For loans that are timely repaid for years, subsequent defaults almost certainly would be caused by a change in the borrowers’ circumstances.