Carrington Capital Management, a unit of Carrington Holding Co., and American Home Mortgage Servicing (AHMSI) have agreed to bring to a close the action filed by Carrington against AHMSI in 2009.

The deal also resolves other disputes reflected in the action as well as any other disputes between the parties in the past. The specific terms of the agreement were not disclosed.

"We look forward to a productive relationship with AHMSI going forward," noted Carrington Founder and CEO Bruce Rose. "The market has changed dramatically over the past few years, and both companies have decided that we're better off working together than fighting past battles."

Case's History

In February 2009, ASR sister publication National Mortgage News (NMN) reported that Carrington Capital sued AHMSI alleging that the firm exacerbated losses on the sale of foreclosed homes.

According to NMN, the complaint argued that the defendant engaged in an "egregious failure to honor unique certificate holder rights that Carrington specifically bargained for."

The bargain effectively granted Carrington a bigger role in making decisions regarding the sale of foreclosed homes, or REO, compared to an ordinary investor would usually have, NMN reported.

Carrington claimed that those special rights were negotiated with the original servicer, Option One, which was later acquired by AHMSI.

In the complaint, Carrington argued that in September 2008, AHMSI had funding difficulties in making servicing advances on delinquent loans to investors.

Because of this, the complaint claims that AHMSI sped up the sale of REO at fire-sale prices late in 2008 after it was pressured to pay down a credit line.

Carrington in turn argued that under the pooling and servicing agreements, AHMSI's managing of the REO sales should be viewed as an "event of default" by the servicer. This would have allowed the termination of AHMSI's servicing contract.

The PSA requires a buyer to get the backing of 25% of certificate holders in a transaction to sue the servicer. However, Carrington argued that given its "unique rights," the lawsuit should be allowed to proceed without the backing of more senior investors, NMN reported.

Carrington also sought a court order stopping AHMSI from selling REO except according to Carrington's directions. Carrington also sought monetary and punitive damages, NMN reported.


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