Assured Guaranty v. Flagstar Bank

Dallas, TX trial attorney Warren Burns talks about a very important case he was a part of.

Contact Warren Burns

Email: [email protected]

Phone: (469) 904-4551

Transcript:

One of the things that great about our practice and really motivates me to get up and go to work every day is the fact that we are involved in some of the most important cases that are going on at any given time in our country. And that’s true today. It’s been true throughout my practice. We’re all sort of painfully aware of what this country went through a decade ago with the great recession back in 2008. I’m sure many of my clients and folks I work with have read The Big Short, seen the movie, know at least a little bit about the shenanigans that went on in the mortgage industry at that time. I was very fortunate at the time to be sort of on the – unwittingly, as it would turn out – in that we were hired before the crash really occurred, to be right at the front line of the litigation that formed around that great recession and what went on in the mortgage industry.

So, what many folks, at least at this point, may have a sense of is that where this all went wrong and where it spiraled out of control is that you had banks across the country that would write mortgages that, under normal circumstances, they’d never write. So, they would write mortgages for people that couldn’t afford to pay back that mortgage. They would write it in amounts that weren’t supported by the property. The whole industry was just riddled with fraud. And it was – it existed like that because the banks could then essentially sell those mortgages, put them into securities, and have other investors take the risks. It was a constant churning process that just wrote hundreds and thousands and hundreds of thousands of mortgages that should never have been written. And, which ultimately, when they all began to fail, put our whole economy at risk.

So, I was hired – or our old firm was hired – to represent an entity that insured the securities. So, it was a little bit of an interesting concept. But, the securities are backed by thousands of mortgages. They guarantee a certain amount of return to people who invest in them. So, folks will go out and get insurance that essentially backs up those payments on the return to the investors. So, as these mortgages started to fail, our client, the insurer, Assured Guaranty, really began to be subject to horrible losses on this portfolio.

Like any smart business, they didn’t understand why. They had underwritten a certain quality in the portfolio and the losses didn’t make sense. They hired us to figure out what was going on. What we learned through that process was that, again, most of those mortgages weren’t worth the paper they were written on. That they were just underwritten to no standards at all or the standards that they had were completely ignored.

So, as the crash occurred, these enormous losses began to occur. Dozens of suits popped up in New York City, largely. New York City and Washington, D.C. that really were centered on all these same facts. You had these thousands of mortgages going bad. They were underwritten just improperly. And you had parties trying to go after the banks to really hold them accountable for this process.

Now, what we did, which was unlike many of our competitors in the legal industry, is we took a very streamlined and arrow shot at getting these cases to trial. So, instead of writing 300-page complaints that focus on any number of fraudulent activities that were going to be difficult to prove and would take a long time to prove up in any event, we focused on fairly simple allegations of breach of contract that really required us to go in and dig into the mortgages, see if they met underwriting criteria. If they didn’t, we knew we’d have a good shot at winning. So, our case was actually the first of the cases that made it up to the trial level. Interesting in a number of perspectives.

First, that it didn’t resolve before trial. The defendant on the other side was a little crazy, if you will, for allowing this case to go to trial. The amount in question in our particular case was about $106 million. But they had other deals that were impacted as well. For the industry, it was billions and billions of dollars. So, we took this case to trial in the southern district of New York. We tried it for a period of about eight or nine weeks. During which hurricane Sandy came in and blew out the city. We had a nor’easter blow through a week later.

But, at the end of that trial, we were able to get a $106 million judgement, everything that we asked for in the case. The case ultimately resolved very quickly without going to on to appeal as a result. But probably within the next year and for several years after, you literally saw billions and billions of dollars in settlements of these cases, largely on the work we did in that trial that established the framework for how you try these cases.