Kessler Class Settlement

Class Counsel are pleased to announce a class action settlement in In re: Residential Capital, LLC, et al., Case No. 12-12020 (MG), in the United States Bankruptcy Court for the Southern District of New York, related to the loans acquired by Residential Funding Corporation (“RFC”) that are at issue in In re Community Bank of Northern Virginia Mortgage Lending Practices Litigation, MDL No. 1674, Case No. 03-cv-0425, United States District Court for the Western District of Pennsylvania.


The lawsuit In re Community Bank of Northern Virginia Mortgage Lending Practices Litigation, involves second mortgage loans that were originated by Community Bank of Northern Virginia and Guaranty National Bank of Tallahassee. RFC was part of those suits as the purchaser of the loans the Banks originated.


ResCap is a financial services company focusing on residential real estate loans.  RFC is a subsidiary of ResCap.  ResCap and all its subsidiaries, including RFC, filed for bankruptcy in May of 2012.  As a result of ResCap’s bankruptcy, the claims against RFC were re-asserted in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”) where those claims are known as the Kessler Class Claims.


ResCap and the related bankrupt companies (the “Debtors” which includes RFC) have agreed to a class action settlement.  That settlement is contingent on final approval of the Debtors’ proposed liquidation plan (the “Plan”).  In connection with the settlement the Debtors agreed to an allowed claim in favor of the Kessler Class of $300 million dollars against RFC.  On August 23, 2013, the Bankruptcy Court issued an order granting preliminary approval of the settlement.  A hearing on Final Approval of the settlement is scheduled for November 19, 2013.


Because of RFC’s bankruptcy, it cannot pay 100 cents on the dollar.  Under the overall bankruptcy Plan, all of the borrower allowed claims which includes claims in addition to the Kessler Class Claims are to be paid from a pool (the Borrower Trust) to be funded with not less than $57.6 million dollars.   Current estimates are that RFC can pay a range of 7.8 to 13.0 cents on the dollar and thus the Kessler Class’ share of the $57.6 million is roughly estimated to be $27 million dollars.  That estimated amount less expenses and attorney’s fees will then be distributed to the Kessler Class Members for the 44,535 loans.


Beyond the monies available from the Debtor to pay the settlement there is a potential additional recovery from insurance proceeds.


Links to Settlement Documents:


November 27, 2013 – The Court also approved the settlement with the Kessler Class this afternoon. As part of the settlement, the Kessler Class will have an allowed Borrower Claim against RFC in the amount of $300 million. The parties were able to consensually resolve the limited objection of PNC, a non-settling defendant in the underlying litigation, with the addition of language to the approval order that preserves all issues relating to judgment reduction for determination by the court presiding over the class action. In addition, the Court approved an award of fees to class counsel and incentive awards to the class representatives to be paid from any distribution received by the Kessler Class from the Borrower Trust. The settlement is contingent on the Plan going effective.


Link to Kessler Settlement Document:


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