Hedge fund can’t sue NewRez without required voting rights, court rules
By November 2019, the loans still in the trust had fallen below 10% of their original balance. That let NewRez buy out the remaining assets and close the trust. It calculated the contract’s Termination Price, paid it to Deutsche Bank, and the trustee sent the money out.
HBK held every one of the trust’s most junior Class CE certificates, last in line to be paid. The fund said NewRez got the math wrong by leaving out an item called the Deferred Principal Balances, and that the junior holders ended up with nothing. It sued for breach of contract over a shortfall it put at a minimum of $3.25 million.
The case never reached that number. The Pooling and Servicing Agreement governing the trust includes a no-action clause. In plain terms, an investor cannot sue the servicer unless it holds certificates carrying at least 25% of the voting rights, and voting rights follow the outstanding principal balance of the certificates.
When HBK demanded action in October 2023, its certificates had a principal balance of zero. Deutsche Bank’s reports showed the Class CE certificates carried about 0.1% of the voting rights in October 2019, then dropped to 0.0% once the trust was terminated. No balance, no votes.
HBK pushed back on two fronts. Count the disputed amounts, it argued, and it would have held at least 41% of the voting rights. Because it still physically held the certificates, it said, it controlled 98%. The court rejected both. Nothing was left to repay, so the certificates carried no votes, and the judges declined to write new terms into the contract.
