Subprime Lending Practice

Sonnenschein's Corporate Reorganization and Bankruptcy Practice Group, together with our Real Estate, Capital Markets, Financial Institutions & Lending, Insurance, Litigation, and Corporate Practice Groups, have extensive experience handling matters related to the financing, origination, servicing, sale and securitization of real estate and commercial loans as well as in the workout of companies in the industry.  The firm's broad experience provides our Corporate Reorganization and Bankruptcy Practice Group with the tools to participate quickly and effectively in the subprime mortgage bankruptcy cases and work out situations on behalf of our clients.

Our attorneys realize that there is no one-size-fits-all answer for handling the wide variety of restructuring issues and cases they regularly face.  Our goal is to work with our clients in developing and implementing the appropriate case resolution.  We bring creativity and vigor to every representation as we have shown in other matters described below, and we have the experience and credibility to succeed.

Representative Engagements

The following is a summary of certain of the matters in which we have been actively involved for the party or parties noted in the descriptive text and that are of a public nature.  There are also representations in non-public matters that are not discussed by name herein. 

Bankruptcy and Work out Representations

First Merchant Acceptance Corp.:
These cases involved a sizable automobile financing company that specialized in subprime lending and had multiple outstanding securitizations.  It was discovered during the course of the case that senior management had altered loan delinquency data, which had been removed from the company's books days before the bankruptcy filing.

Sonnenschein assisted the debtors in securing approval of a financing plan proposed by the strategic bidder, and facilitated the transfer of the debtor's portfolio and servicing of the outstanding securitizations to preserve value of the assets.  We also structured a joint prosecution strategy addressing the altered loan delinquency data.  Plaintiff's class counsel obtained recovery from the former accountants and insurers on security fraud theories, agreeing to split a portion of that recovery with the estate and its creditors.

First Plus Financial, Inc.:
Sonnenschein attorneys represented a bondholder committee of the parent company.  In the bankruptcy proceedings and in separate litigation on behalf of the bondholders, we secured a recovery for these creditors from the work-out of the subprime loans of the operating subsidiary as well as from the equity of the parent.  In addition, a member of our firm represented the State of Arizona with respect to consumer finance regulatory matters in the bankruptcy proceedings of this national subprime mortgage lender.

First Wisconsin Mortgage Trust:
We were counsel to this troubled REIT in the out-of-court liquidation of its assets.  We helped it to dispose over 400 separate properties and were able to obtain a higher return to the secured and unsecured creditors than would have been possible had the banks foreclosed.

Southern Pacific Funding Corporation:
We represented the Indenture Trustee, who served as a member of the creditors' committee, in the Oregon chapter 11 case of this specialty finance company engaged in the business of originating, purchasing and selling high-yielding, subprime mortgage loans secured by one to four family residences.  Together with the representative for the holders of senior bonds, we litigated the terms of the indentures and other documents of the debtors to determine the priority of claims and to obtain a recovery for all creditor constituents.

Harbor Financial Corp.:
Sonnenschein attorneys represented a purchaser of subprime mortgage loans from the debtors and structured an agreement to resolve competing claims by the lenders, the debtors and the purchaser over a reserve fund.

Household Finance: 
We successfully represented an officer of the company in an SEC investigation that focused on subprime lending and collection practices.  This investigation focused on the adequacy of disclosures regarding the credit card's policies on default, reaging, reinstatement, reclassification, underwriting criteria and dealings with ratings agencies.

Forrest Financial:
We were special securitization counsel to the Assignee for the Benefit of Creditors of this subprime equipment finance company.

VMS: 
We represented this large syndicator of real estate loans in its out-of-court wind down for the benefit of creditors.  This matter also involved over 400 properties, including several with environmental issues.

Third-Party Interests:
We are currently working to protect the rights of a significant party in interest in several major subprime mortgage company cases.

Capital Markets

Sonnenschein's Capital Markets practice is comprised of attorneys from the firm's real estate, finance and taxation practice groups.  The group assists clients with the origination and acquisition of commercial real estate loans for aggregation in commercial mortgage back securities (CMBS) and commercial real estate collateralized debt obligation (CRE CDO), acquisition of servicing rights, investment in subordinate interests, post issuance servicing and real estate mortgage investment conduits (REMIC) compliance.

Our origination experience spans a broad range of financing transactions, including interim, construction and permanent fixed and floating rate financing secured by all property types, mezzanine lending, equity investments, structured finance, tenant in common financings, subscription facilities, loan syndications and participations.  Our attorneys have closed over than $40 billion in securitized loans and represent national banking associations, mortgage bankers and investment banks in the nationwide origination of over 400 transactions totaling more than $6 billion in CMBS loans annually.

Sonnenschein attorneys routinely represent master and special servicers in connection with the servicing of mortgage loan pools, including loan assumptions, transfers of interests, defeasances, collateral releases, loan extensions, servicer consents and modifications, restructurings and workouts.  We advise our clients on Pooling and Servicing Agreement compliance issues, REMIC tax issues associated with various servicing transactions, and work closely with the rating agencies on transactions in which rating agency "no-downgrade" letters are required.  Additionally, our attorneys have significant expertise in connection with the formation and operation of securitization vehicles, including REMICs, CRE CDOs and grantor trusts.

As reported in its public releases, in August 2007, Delta Financial Corp.("DFC"), a loan company with a diversified wholesale/retail origination platform, issued $10.0 million of convertible notes to funds managed by Pabrai.  Sonnenschein represented Pabrai on the transaction.  The notes are convertible into an aggregate of 2.0 million shares of common stock, at a conversion price of $5.00 per share.  The exercise of most of the warrants and the issuance of all of the shares upon conversion of the notes are both subject to shareholder approval. Pabrai is already a significant shareholder of DFC.

Sonnenschein attorneys represented Imperial Credit Commercial Mortgage Investment Corp. ("ICCMIC"), a mortgage REIT, as its outside general counsel, in its IPO, financings, acquisitions, securitizations, and eventually its sale by merger.  ICCMIC owned mortgages including some sub-prime mortgages.  The company that acquired ICCMIC is no longer in the business.

Sonnenschein attorneys also represented Household Finance, prior to its sale to HSBC, in connection with its financing documents and currently represents a trustee of securitized mortgage loan trusts.

Insurance and Regulatory Matters

We represent several of the largest mortgage guaranty insurance companies in the U.S.  We have assisted these mortgage guaranty insurers with insurance regulatory issues relating to, among other things, contingency reserve analysis and reduction of reserves, approvals of programs for insuring mortgage companies and originators (including Korean and sub-prime mortgages), and general regulatory issues involving direct interaction with regulators.  We also represent these guaranty insurance companies in administrative proceedings instituted by or on behalf of the mortgage companies or the borrowers regarding coverage.

Cash Fast Finance d/b/a Blue Financial: 
We represent this Arizona subprime mortgage lender with respect to consumer finance regulatory matters.