Rescap- Ally

Posted by Kevin on February 26, 2013 under Bankruptcy Blog | Be the First to Comment

Ally is GM.  Rescap is their subprime, residential mortgage subsidiary.  Rescap and a slew of its subsidiaries filed bankruptcy.  Prior to the filing, Ally reached a settlement with Rescap whereby Ally would pay $750 million to Rescap’s estate in return for a release from claims from outsiders (presumably based on the bad loans made or owned by Rescap).

Love it.  Potential claims against Rescap could be tens of billions of dollars or more.  So, what Ally tried to do is get a puppet subsidiary to enter into a sweetheart deal which would effectively screw investors, borrowers and other people in contact with Rescap bad paper.

At this point, the creditors have put their collective feet down.  They have asked Rescap’s board to allow the creditors to sue Ally while at the same time, the creditors committee is seeking court approval to bring suit against Ally.  Ally is pushing back saying it was an arm’s length transaction because Rescap had an independent board, and has threatened to take the $750 million off the table.

Government has not shown the cajones to litigate these matters.  I hope that the creditors committee at Rescap does not lose its will.  It is important for the Too Big to Fail banks to start to understand that  they cannot buy themselves out of their own wrongdoing.

In the meanwhile, if you have a mortgage with Rescap, you may want to check the Rescap  bankrutptcy docket periodically to make sure that your rights have not been sold out from under you.