New York Attorney General Files Suit Against Ditech, Investigates RMS

Following recent resistance from Bank of America on a deal to sell Reverse Mortgage Solutions, RMS parent company Ditech Holding Corp. is now being sued by New York’s Attorney General in an effort to stop the sale. Her office calls the proposed sale an “attempted end-run around statutory protections for homeowners,” which includes reverse mortgage borrowers.

The Attorney General also revealed that her office is engaged in an ongoing investigation into RMS itself, but details concerning the specific reasoning for it, and its duration, were excluded from the public statements.

“In addition to filing this motion, the Office of the New York State Attorney General currently has an open investigation into Reverse Mortgage Solutions (RMS), a reverse mortgage servicer that is owned by Ditech,” the statement reads.

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New York State Attorney General's Office | CC0
New York State Attorney General Letitia James

Letitia James, who won election to the Attorney General post in November 2018 and assumed office in January, contends that Ditech’s proposal essentially contends the sale could be using the U.S. Bankruptcy Code to skirt potential lawsuits.

“Bankruptcy Court should never be used as a tool to unjustly oust New Yorkers from their homes,” said Attorney General Letitia James in an official statement released Tuesday. “Ditech’s action is an illegal attempt to strip hundreds of homeowners of their legitimate claims and eviscerate New York’s carefully-created foreclosure process. Housing is a right, and we will continue to use every legal tool at our disposal to stand up for homeowners and to protect their rights.”

James was joined in her objections by U.S. Trustee William K. Harrington and shortly thereafter by Geoffrey S. Berman, the U.S. attorney for the Southern District of New York.

The Attorney General’s office adds that Ditech currently has more than 880 active foreclosure actions pending across New York State. Trustee Harrington organized the Consumer Creditors Committee to ensure that the courts, “do not permit the company to sweep their rights under the rug,” the press statement from James’ office reads. The new organization’s purpose is to give homeowners affected by Ditech a voice as the company is embroiled in bankruptcy proceedings, according to Law360.

The organization is demanding that their claims and defenses, up to and including significant monetary damages, not be swept away in Bankruptcy Court through the sale of Ditech’s forward and reverse mortgage businesses.

RMD reached out to Attorney General James’ office but did not receive comment by press time.

This follows a continually unfolding odyssey of legal and financial issues that have afflicted Ditech, and by extension, RMS. Mortgage Assets Management, LLC was named as the successful bidder for RMS earlier this month, an asset that was put up for auction on June 5.

In May, Ditech was officially deregistered from the New York Stock Exchange following its second bankruptcy, which suspended the requirement for it to make additional filings with the Securities and Exchange Commission (SEC). This further clouded its financial status.

In April, it was revealed that a loophole in Ditech’s bankruptcy proceedings invited scrutiny from both consumer advocacy groups and the Department of Justice. In the midst of the financial difficulties that Ditech is embroiled in, RMS seems to be relatively insulated from the larger problems of its parent company, at least from an operational perspective.

In 2018, Ditech emerged from its first bankruptcy filing after having previously done business under the name Walter Investment Management Corporation. Walter acquired Reverse Mortgage Solutions in 2012 and Security One Lending in 2013, and in 2017, Walter decided to stop originating Home Equity Conversion Mortgages (HECMs). RMS then turned to servicing only and closed its retail channel.

Read the full statement from the New York Office of the Attorney General.

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