“Calyon New York Branch v. American Home Mortgage Corp.”
The first court test of contractual terms and recently expanded provisions of the Bankruptcy Code designed to protect participants in the markets for mortgage-related securities has yielded a qualified win for creditors.
In that decision, Calyon New York Branch v. American Home Mortgage Corp. (In re: American Home Mortgage, Inc.) 379 B.R. 503 (Bankr. D. Del. Jan. 4, 2008), the Bankruptcy Court for the District of Delaware ruled that the “automatic stay” of Section 362(a) of the Bankruptcy Code did not prevent a creditor from exercising its rights under a mortgage loan repurchase agreement to liquidate the underlying loans. The court also held, however, that the automatic stay did bar the creditor from exercising the related right to take over the servicing of the loans.
This Stroock Subprime Task Force Special Bulletin examines the Calyon decision and its implications.