The Treatment of Mortgage Loan Repurchase Agreements in Chapter 11 Bankruptcy

March 14, 2008
In Calyon New York Branch v. American Home Mortgage Corp., the U.S. Bankruptcy Court for the District of Delaware held that a contract providing for the sale and repurchase of mortgage loans was a “repurchase agreement” as defined in Section 101(47) of the Bankruptcy Code and that the amended “safe harbor” provisions of Sections 555 and 559 of the Bankruptcy Code applied. But the court also held that the safe harbor provisions did not apply to the servicing rights for the mortgage loans. This update explains mortgage loan repurchase agreements, the safe harbor provisions, the court’s decision and rationale, and the decision’s significance.