Residential Capital LLC should try to negotiate a new foreclosure-review process with federal regulators before seeking a bankruptcy court order to halt the $300 million program, a judge said.
U.S. Bankruptcy Judge Martin Glenn in Manhattan told ResCap today he wouldn’t rule immediately on the company’s request to suspend its obligation to find any damages suffered by borrowers who went through foreclosure. ResCap, through its GMAC Mortgage unit, agreed to the review under a settlement with U.S. regulators before filing for bankruptcy last year.
The review, which may cost about $300 million, is a waste of money because a new federal policy allows a lump-sum payment to be split among borrowers, a lawyer for ResCap said today. That would be cheaper than paying PricewaterhouseCoopers LLP to conduct the review, the company said.
“You have to negotiate with the Fed and then come back to me,” Glenn said, referring to the U.S. Federal Reserve, which is requiring the review. “I’m not ruling today, I’m making that crystal clear.”
The review may yield $35 million to $60 million to homeowners who have been harmed, the official committee of ResCap creditors said in court papers.
The company has asked Glenn to declare that costs of paying damages found by the review are unsecured claims, which would give them a lower repayment priority than other company debts.
ResCap, based in New York, filed for bankruptcy in May with plans to sell most of its assets and resolve legal claims related to residential mortgage-backed securities.
Last year, in what the U.S. called the largest federal- state civil settlement its history, the nation’s five largest mortgage servicers committed $20 billion in relief for borrowers plus payments of $5 billion to governments.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Steven Church in Wilmington, Delaware at email@example.com