Mortgage Lenders files lawsuit against lenders for damages related to 'fraudulent' transfers

By Jennifer Lanning Drey

Portland, Ore., April 1 - Mortgage Lenders Network USA, Inc. filed a lawsuit against Merrill Lynch Bank USA, Merrill Lynch Mortgage Lending, Inc. and Merrill Lynch Capital, Inc. seeking damages related to alleged transactions carried out by the lenders both before and after the company's Chapter 11 bankruptcy filing, according to a Tuesday filing with the U.S. Bankruptcy Court for the District of Delaware.

The Merrill Lynch lenders provided Mortgage Lenders with funds for loan originations under master repurchase agreements put in place prior to the company's Chapter 11 bankruptcy filing.

In the lawsuit filing, Mortgage Lenders outlined a series of transactions in which the company claimed the lenders had retained funds and sold assets that belonged to Mortgage Lenders without the company's approval, or received payments and property that should be returned to Mortgage Lenders' estate.

Mortgage Lenders is specifically seeking a turnover of any surplus and payment for damages related to the company's disposition of servicing rights collateral that Mortgage Lenders said Merrill Lynch sold directly to a third party following the company's filing for Chapter 11 bankruptcy protection.

The company is also seeking compensation for damages it claims resulted from the Merrill Lynch lenders retaining a total of more than $1.55 million without explanation in December 2006.

Mortgage Lenders said Merrill Lynch told the company in January 2007 that it was selling Mortgage Lenders' entire portfolio of warehouse loans to itself or an affiliate at a price of 98.2% of par. Mortgage Lenders said it requested to be allowed to market the loans to obtain a fair market price but the lenders refused.

The company contends it lost at least $2.8 million of value in the loans.

Mortgage Lenders Network, a Middletown, Conn.-based lending company, filed for bankruptcy on Feb. 5, 2007. Its Chapter 11 case number is 07-10146.

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