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Thursday, April 05, 2007 6:59 PM ET
UBS complaint alleges New Century and units misappropriated millions
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UBS Group AG (UBSG-SWX)SFr. 15.90
Countrywide Financial Corp.Calabasas, California
New Century Financial Corp.Irvine, California
Last Updated: 11/29/2021 2:18 PM

UBS AG unit UBS Real Estate Securities Inc. on April 5 filed a complaint in the U.S. Bankruptcy Court for the District of Delaware against New Century Financial Corp. and several of its affiliates, alleging that the company engaged in breach of contract, misappropriation of funds and breach of fiduciary duty.

UBS and the New Century entities were party to a master repurchase agreement, effective June 23, 2006. As part of that agreement, the complaint states, New Century acted as the servicer of the loans purchased by UBS "until very recently." New Century was required to deposit all payments it received under the arrangement into a "blocked account" at Deutsche Bank National Trust Co. no later than three days after receipt.

On or about March 12, the complaint states, UBS declared an event of default under the master repurchase agreement and notified New Century that it would not renew the servicing arrangement upon its scheduled expiration on April 2. The two parties then agreed that New Century would transfer the servicing of all loans funded and owned by UBS to Countrywide Financial Corp. unit Countrywide Home Loans Servicing LP, effective March 31.

According to the complaint, UBS believes that New Century received at least $3 million in scheduled principal and interest payments in March and that, as of March 31, New Century had collected $4.5 million from borrowers who had prepaid their loans in full. But the complaint alleges that New Century has either failed or refused to deposit at least $3.8 million into the blocked account, since it had only deposited $3.85 million. UBS states that it requested "on numerous occasions" that New Century "provide a reconciliation and accounting of all payments received" on its behalf and that the company cooperate by transferring the $1.77 million in escrow funds that it had received from borrowers to Countrywide.

"Despite UBS's requests, [New Century has] failed to comply," the complaint states, noting that no escrow funds had been moved as of April 4.

New Century "failed to deposit into the custodial account millions of dollars of mortgage payments that they received from borrowers on loans purchased and owned by UBS," the complaint adds. "As such … [New Century has] misappropriated UBS's money and escrow money being held for borrowers."

UBS states that it lacks an adequate remedy to its complaint as a result of New Century's insolvency and so it is requesting a permanent injunction to prevent the company from "wrongfully retaining and/or commingling payments and escrow funds, or otherwise breaching their contractual and fiduciary obligations with respect to the receipt and disposition of such payments." UBS requests that the bankruptcy court issue an order that would compel New Century to immediately deposit payments received on its behalf prior to the scheduled transfer date into the blocked account and immediately transmit payments received on its behalf as well as all escrow funds collected on or after the scheduled transfer date to the new servicer.