RMBS Trustee's Failure to Provide Timely Notice of Breach of Representations and Warranties Constituted Failure to Satisfy Condition Precedent to Defendants' Repurchase Obligation

On December 30, 2023, Justice Joel M. Cohen of the New York County Commercial Division issued a decision in U.S. Bank, N.A., v. DLJ Mortgage Capital, Inc., et al., Index No. 653140/2015, dismissing claims, brought by the trustee of an RMBS trust, alleging that defendants failed to repurchase loans in the trust following the trustee's provision of notice of breaches of representations and warranties concerning loans in the trust, explaining:

The Court of Appeals has "in the RMBS context . . . repeatedly enforced sole remedy provisions-a typical component of these transactions-in accordance with their plain terms . . . ." (HEAT 2007-1, 38 NY3d at 178 [collecting cases]). In ABSHE 2006 (i.e., the 2012 Action) the Court of Appeals observed that "failure to comply with a procedural condition precedent may be a fatal flaw to maintaining the prior action and grounds for dismissal," even though it "is not a judgment on the merits for purposes of CPLR 205 (a)" (33 NY3d at 80 [citing Carrick v Central Gen. Hosp., 51 NY2d 242 [1980]). Further, the Court of Appeals in Heat 2007-1 held that "nothing in our decision in [ABSHE 2006] approves of post-suit notice" (38 NY2d at 182).

Here, the record is clear that the Trustee did not serve notice on Ameriquest within ninety (90) days of the Trustee's discovery of a breach, as required by paragraph 4 of Section 7.04 of the MLPA. Instead, the Trustee served notice of breach on DLJ on March 28, 2012 (thus establishing the latest possible date of the Trustee's "discovery" of such breaches), but failed to provide notice to Ameriquest until December 2012, more than 90 days thereafter. The Trustee's failure to provide the contractually required notice to Ameriquest within 90 days of the Trustee's discovery of the breaches is fatal to the Trustee's notice-based claims against Ameriquest, as the time for providing such notice has lapsed. Because liability on the part of Ameriquest is necessary to invoke DLJ' s backstop obligations, the notice-based claims against DLJ must be dismissed as well.

A condition precedent is a condition that must be satisfied before a contract, or a party's obligation under a contract, becomes effective. As this case shows, at least in the RMBS context, failure to timely provide notice can be fatal for failure to satisfy a condition precedent. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning conditions precedent.