HSBC Bank has asked the Court of Appeals in White Plains, New York, to consider reviving a 2012 lawsuit against Deutsche Bank Structured Products Inc. The 2012 claim alleged that Deutsche misrepresented the quality of residential mortgages it sold to investors in 2006.
On the original claim, Deutsche’s defense was that the statute of limitations had already passed. Though a state judge rejected this defense, a Manhattan appeals court reversed this decision and officially dismissed the suit in 2013.
Now, HSBC is asking the court to reconsider the case, claiming that the six-year statute of limitations should not begin when securities are first purchased, but instead when the issuers of those securities refuse to buy them back or replace them when their quality is deemed less-than-ideal.
According to Paul Clement, attorney for HSBC, if the new claim is revived–and successful–it could open the door for other mortgage fraud cases down the line, particularly ones from the years just before the housing crisis hit.
The Association of Mortgage Investors agrees, too. According to a recent AMI brief, if the court were to rule in Deutsche’s favor, it could close down millions of dollars in claims by investors – particularly those who failed to file suit within the six-year time limit.
David Woll, representative for Deutsche, said reviving the claim could create financial uncertainty, causing a slippery slope in which security issuers can be sued for decades after a deal has been closed.
"If you adopt [HSBC's] theory,” Woll said, “our grandchildren could be here in 2042.”
The claim is currently in the New York State Court of Appeals No. 85 and will go before a six-judge panel. One of the judges, Eugene Pigott, expressed sentiments that seemed to favor HSBC.
Issuers, he said “would be less inclined to put bad loans in these [securities], if 15 years down the road it had to be cured or repurchased.”
In response, Woll stated that six years should be enough time for both issuers and investors to determine is a mortgage is of quality or not.