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Lehman Brothers Announces Settlement to Resolve Massive RMBS Claims; Estimation Hearing Slated for Later This Year



For over eight years, In re Lehman Bros., No. 08-13555-scc (Bankr. S.D.N.Y.), has been one of the most active, complex bankruptcy dockets in the country. A large portion of the remaining contested matters in that case are claims by trustees for residential mortgage backed securities (RMBS), who continue to pursue claims against the Lehman estate for losses caused by toxic mortgages. Recent developmentsshow that Lehman is trying to wrap up many, if not most, of those RMBS claims by the end of this year.

Most practitioners are aware of the events surrounding Lehman’s bankruptcy filing in 2008, but fewer have followed the long road that the RMBS claims in the case have traveled. Prior to the bar date in 2009, the RMBS Trustees filed proofs of claim for hundreds of trusts, covering hundreds of thousands of mortgage loans. Lehman eventually agreed to reserve $5 billion for payment of those RMBS claims.

In December 2014, the Bankruptcy Court ruled against the RMBS Trustees: rejecting the Trustees’ request to increase that reserve amount, Judge Chapman agreed with Lehman that the Trustees could not use sampling for purposes of estimating Lehman’s liability on claims. While Judge Chapman recognized that sampling had been used in connection with RMBS claims in other bankruptcies (such as the ResCap case), and that sampling was regularly used in RMBS litigation brought by monoline insurers, she declined to authorize it in the Lehman bankruptcy.

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