Residential Capital should lose exclusive control of its reorganization once a bankruptcy examiner finishes probing a deal the mortgage company cut with its parent, Ally Financial, creditors said in court papers.
The nation’s fifth largest residential servicer is in the process of being sold with a list of bidders that includes Nationstar and Ocwen Financial.
ResCap, according to a report by Bloomberg, is seeking a nine-month extension of its exclusive right to file a reorganization plan that would settle legal claims related to Ally and MBS investors. The official committee of unsecured creditors said it’s too much time and is asking for a shorter period tied to the probe and assurances that Ally will negotiate on a new plan.
“To date, the debtors have failed to engage in any substantive discussions with the committee over the terms of a Chapter 11 plan,” the panel said in court papers in U.S. Bankruptcy Court in lower Manhattan.
ResCap, which also uses the trade name GMAC Mortgage, filed for Chapter 11 bankruptcy protection in May. It’s likely to be sold through an ‘asset transaction’ as opposed to a franchise deal. (The deal that it had cut with Ally, which involves the transfer of certain assets to the bank, is being reviewed by a court-appointed examiner.)
The creditors asked U.S. Bankruptcy Judge Martin Glenn to limit ResCap’s exclusive control over the bankruptcy process to 30 days after the examiner files a report or until March 1, whichever comes first.
ResCap has agreed to accept $750 million from Detroit-based Ally in return for dropping any legal claims against its former parent. The company has also proposed settling a fight over mortgage-backed securities by giving investors the right to pursue an $8.7 billion claim in bankruptcy.
Both proposals need Glenn’s approval.