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`EXHIBIT1
`EXHIBIT 1
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`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NEW YORK
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`In the matter of the application of
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`U.S. BANK NATIONAL ASSOCIATION (and U.S.
`BANK TRUST COMPANY, NATIONAL
`ASSOCIATION (each separately as Trustee, Securities
`Administrator, Paying Agent, and/or Calculation Agent
`under various Pooling and Servicing Agreements),
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`
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`PetitionerPetitioners,
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`for judicial instructions pursuant to CPLR Article 77.
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`Index No. 656028/2021
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`Justice Andrew S. Borrok
`Part 53
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`FIRSTSECOND AMENDED
`PETITION
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`
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`PetitionerPetitioners U.S. Bank National Association and U.S. Bank Trust Company,
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`National Association, solely in itstheir capacities as trustee, securities administrator, paying agent,
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`and/or calculation agent (as named in such role or as successor to the named party, the
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`“PetitionerPetitioners”)
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`for
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`the
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`seventy-sevensixty-six
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`residential mortgage-backed
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`securitization trusts (“RMBS”) listed on Exhibit A hereto (including any individually designated
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`loan groups therein, the “Subject Trusts”), filesfile this firstsecond amended petition (the
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`“Petition” or “Second Amended Petition”) pursuant to Article 77 of the New York Civil Practice
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`Law and Rules (“CPLR”) seeking instruction concerning the interpretation and application of
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`certain provisions of the contracts governing the Subject Trusts (the “Governing Agreements”).
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`This Second Amended Petition modifies the list of Subject Trusts to add the “Group II
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`Certificates” of SACO I 2005-10 (as that term is defined in Exhibit B (SACO I 2005-10 PSA))
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`(“SACO I 2005-10 (Grp. II)”),1and revises omit reference to the eleven RMBS previously at issue
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`in this proceeding pursuant to the first amended petition (the “First Amended Petition”)
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`1 Petitioner is not seeking instruction concerning the “Group I Certificates” for SACO I 2005-10
`(as defined in Exhibit B (SACO I 2005-10 PSA)) because the issues raised herein are not expected
`to impact the Group I Certificates due to amounts owed to the insurer of certain Group I
`Certificates.
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`(NYSCEF No. 33),1 but which have since been severed from this action following entry of certain
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`Partial Severance Orders and Partial Final Judgments related to these RMBS (NYSCEF Nos. 171,
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`258), and to revise certain aspects of the original petition (NYSCEF No. 1) (the “OriginalFirst
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`Amended Petition”). A redline comparing the Second Amended Petition to the OriginalFirst
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`Amended Petition is attached as Exhibit 1 to the affirmation of Nidhi Nina Yadava filed
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`contemporaneously herewith.
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`INTRODUCTION
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`1.
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`In itstheir respective roles for each of the Subject Trusts, Petitioner isPetitioners are
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`responsible for calculating and distributing payments to investors, known as “certificateholders,”
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`from the collections derived from the mortgage loans held in the Subject Trusts. Certificateholders
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`own designated classes of “certificates” that are entitled to distributions in a specific order set
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`forth in payment provisions in the Governing Agreements. These provisions are commonly
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`referred to as “waterfalls,” and the Governing Agreements contain three distinct waterfalls that
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`govern distributions: (i) the “interest” waterfall, (ii) the “principal” waterfall, and (iii) the
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`“Excess Cashflow” waterfall.
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`2.
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`This Petition concerns issues regarding (i) the manner in which distributions are
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`calculated and applied under the waterfalls after the aggregate outstanding principal balances of
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`the Class A, Class M, and/or Class B classes of certificates (the “Primary Classes”) are reduced
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`to zero, and (ii) the treatment of borrower payments of deferred or forborne principal, interest,
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`and/or other amounts on mortgages that have been subject to servicer modifications in connection
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`1 The First Amended Petition was preceded by an original petition dated as of October
`18, 2021 (the “Original Petition”) (NYSCEF No. 1) which was accompanied by an original
`order to show cause entered as of November 16, 2021 (the “Original Order to Show Cause”)
`(NYSCEF No. 30).
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`with a default or a reasonably foreseeable default (as determined by servicers), which is a
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`subsidiary issue that has the potential to impact issue (i).
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`Issues Related to Distributions of Funds
`After Primary Classes’ Principal Balances Are Reduced to Zero
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`Each of the Subject Trusts issued Class A, Class M, and/or Class B classes, i.e., the
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`3.
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`Primary Classes. See, e.g., Exhibit C (SACO I 2006-4 Pooling and Servicing Agreement)
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`(“PSA”), § 6.01.2 These classes of certificates have priority payment rights at varying levels with
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`respect to the funds collected over the life of the Subject Trusts. See generally id. § 5.04(a). The
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`Subject Trusts also issued Class C, CE, or B-IO classes (referred to herein as the “Class C Classes”
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`or “Class C”), which may be entitled to specified funds in certain circumstances. See generally
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`id.
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`4.
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`Distributions to the Primary Classes under the principal and interest waterfalls are
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`calculated based upon the outstanding principal balances of each Primary Class. See id.
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`§ 5.04(a)(1)-(2).
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`5.
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`Distributions to the Class C Classes are generally limited to certain amounts that
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`may be distributable under the Excess Cashflow waterfall, and the economic interests of the Class
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`C Classes are tied to the “overcollateralization” structure of the Subject Trusts. See generally id.
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`§ 5.04(a)(3).
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`2 Although certain of the Governing Agreements use varying terminology for particular concepts,
`they are materially similar with respect to the issues addressed in the Petition unless otherwise
`noted. To the extent this Petition cites particular definitions or provisions from the Governing
`Agreements, unless otherwise noted it uses SACO I 2006-4 as an exemplar, and the pooling and
`servicing agreement for this transaction, dated March 1, 2006, is attached hereto as Exhibit C.
`Because the total volume of the relevant contracts is many thousands of pages in length, Petitioner
`isPetitioners are prepared to provide the Court with electronic versions of each Subject Trust’s
`pooling and servicing agreement in a format to be specified by the Court.
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`6.
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`Under the overcollateralization structure, the initial aggregate unpaid principal
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`balance of the mortgage loans held in each Subject Trust exceeded the initial aggregate principal
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`balance of the Subject Trust’s Primary Classes. See Exhibit D (SACO I 2006-4 Remittance Report,
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`Apr. 2006) at 2, 5; see also Exhibit E (SACO I 2006-4 Prospectus Supplement) (“Pro Supp”) at
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`S-9. At any given time, the current amount of overcollateralization is equal to the excess aggregate
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`unpaid principal balance of the mortgage loans over the aggregate outstanding principal balance
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`of the Primary Classes. See PSA § 1.01 (Definition of Overcollateralization Amount). This
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`excess, if any, may fluctuate, and it is intended as a credit enhancement for the Primary Classes
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`insofar as the collateral in the Subject Trusts was generally expected to generate more cashflow
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`than needed to satisfy interest and principal amounts owed to the Primary Classes. See Exhibit E
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`(Pro Supp) at S-8 to S-9. This feature was specifically intended to insulate the Primary Classes
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`from incurring “realized losses.” Id. at S-17.
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`7.
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`If on any payment date the level of overcollateralization in a Subject Trust exceeds
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`the amount of overcollateralization required under the Governing Agreements, funds may be
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`distributed under the Excess Cashflow waterfall (in addition to any required distributions made
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`under the interest and principal waterfalls). See PSA, §§ 1.01 (Definition of Excess Cashflow),
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`5.04(a)(3). Excess Cashflow may be distributed to certain Primary Classes as reimbursement for
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`prior realized losses or interest shortfalls incurred by such Primary Classes, and thereafter any
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`remaining funds constituting Excess Cashflow may be distributed to the Class C Classes, which
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`are in a subordinate position in the Excess Cashflow waterfall. See id. § 5.04(a)(3).
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`8.
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`As a result of defaults on the mortgage loans, the Primary Classes have incurred
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`substantial realized losses, which have also eroded the overcollateralization in the Subject Trusts.
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`See Exhibit F
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`(Selected Aggregate Subject Trust Data).
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`
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`Indeed,
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`the
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`individual
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`overcollateralization for each Subject Trust has generally not reached levels high enough to permit
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`distributions under the Excess Cashflow waterfall, and such distributions have been very limited
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`since issuance. See id. As of the September 2021 payment period, the Subject Trusts currently
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`have $191,245,983173,938,232
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`in aggregate overcollateralization, and
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`the amount of
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`overcollateralization (which, for certain of the Subject Trusts, is determined with respect to
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`particular loan groups) ranges from $12,599 to $19,614,369.3 See id.
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`9.
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`Due to both principal payments and the application of realized losses, the Primary
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`Classes’ principal balances will eventually be reduced to zero and some already have been reduced
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`to zero. See id. It is expected that when the aggregate outstanding principal balance of the Primary
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`Classes for a Subject Trust is reduced to zero, there will be some amount of assets remaining in
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`the Subject Trusts (or, for Subject Trusts where this has already occurred, there are in fact assets
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`remaining). See id. It is also expected that certain of the Primary Classes will have outstanding
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`unreimbursed realized losses and/or interest shortfalls at that time (or presently have losses and/or
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`shortfalls for applicable Subject Trusts where the Primary Classes have already reached an
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`aggregate principal balance of zero). See id.
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`10.
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`The Governing Agreements, however, are unclear as to whether collections on the
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`mortgage loans should be distributed under the principal or Excess Cashflow waterfalls when the
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`Primary Classes’ principal balances are reduced to zero (“Post-Zero Balance Collections”). This
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`gives rise to various questions concerning how PetitionerPetitioners should administer the
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`waterfalls here, which ultimately may impact whether, and to what extent, the Primary Classes or
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`Class C Classes are entitled to distributions of Post-Zero Balance Collections.
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`3 Unless otherwise noted, all statements in this Petition concerning the Subject Trusts’ current
`economics are as of the September 2021 payment period.
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`11.
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`In addition, the Governing Agreements include a “Retired Class Provision” that
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`may arguably prohibit distributions to the Primary Classes after such classes’ principal balances
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`have been reduced to zero. See PSA, § 5.04(a). As a result, the Retired Class Provision may
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`prevent distributions of Post-Zero Balance Collections to the Primary Classes regardless of
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`whether Post-Zero Balance Collections are construed to come within the principal or Excess
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`Cashflow waterfalls. See id. This may potentially result in distributions to the Class C Classes,
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`even though certain Primary Classes have substantial outstanding realized losses. See id. It is
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`unclear whether the Retired Class Provision should have this effect given the structure of the
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`Subject Trusts, and this particular provision is subject to an ongoing dispute among interested
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`parties in a different matter concerning some of the Subject Trusts. Additionally, Petitioner
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`hasPetitioners have received correspondence from investors asserting that the Retired Class
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`Provision should not be applied to prevent distributions of Excess Cashflow to Class A classes,
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`and should also not be applied to prevent increases to the balances of such classes in certain
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`circumstances.
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`Issues Related to Treatment of Collections of Deferred Payments on Modified Mortgage Loans
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`12.
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`The servicers for the mortgage loans in the Subject Trusts periodically authorize
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`loan modification agreements with borrowers under which borrowers may be permitted to defer
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`scheduled payments of principal or payments of interest or other amounts.
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`13.
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`Servicers typically include all amounts that are deferred under modification
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`agreements in a non-interest-bearing component of the mortgage loan’s principal balance
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`(“Deferred Principal Amounts”), and generally report and treat Deferred Principal Amounts as
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`losses on the mortgage loans, i.e., as a “loan-level loss.” It is a common industry practice for
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`servicers to treat such amounts as losses even though most of the Governing Agreements do not
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`expressly call for treating Deferred Principal Amounts as losses. See id. § 1.01 (Definition of
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`Realized Loss). This practice reflects the possibility that borrowers may ultimately not pay back
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`Deferred Principal Amounts that are due on modified loans, and, at least in part, has been
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`influenced by government guidance stemming from the 2008 financial crisis, as discussed infra
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`¶¶ 70-76.
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`14.
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`In some instances, however, borrowers may eventually pay Deferred Principal
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`Amounts according to a schedule set forth in the applicable modification agreement, which often
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`provides that Deferred Principal Amounts are due at the end of the term of the loan or over some
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`set period of time. When this happens, servicers reduce the non-interest-bearing principal balance
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`associated with the modified loan in the amount of any borrower payments corresponding to
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`Deferred Principal Amounts (“Deferred Principal Collections”).
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`15. With respect to the certificates, servicer treatment of Deferred Principal Amounts
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`as loan-level losses may reduce overcollateralization and may result in the application of realized
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`losses to the Primary Classes, if there is insufficient overcollateralization to provide a buffer for
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`such realized losses when applied. See id. § 5.05(a); see also id. § 1.01 (Definition of Applied
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`Realized Loss Amount). If a realized loss is applied to one or more Primary Classes, Petitioner
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`isPetitioners are required to reduce, or write down, the certificate principal balance of the particular
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`Primary Classes to which the loss is applied. See id. §§ 5.05(b), 1.01 (Definitions of Applied
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`Realized Loss Amount, Certificate Principal Balance). Additionally, if Deferred Principal
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`Collections are distributed to one or more Primary Classes, Petitioner isPetitioners are required to
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`reduce the certificate principal balance of the particular Primary Classes that received such
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`distributions to account for a principal payment. See id. §§ 1.01 (Definition of Certificate Principal
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`Balance), 5.04(a)(2).
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`16.
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`From time to time, servicers may also remit collections representing recoveries on
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`previously recognized loan-level losses for loans subject to a liquidation or final disposition, as
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`indicated in servicer reporting, and these types of recoveries are defined as “Subsequent
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`Recoveries.” See id. § 1.01 (Definition of Subsequent Recoveries); see also id. § 3.04 (“The
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`Master Servicer . . . shall account fully to the Trustee for any funds received by the Master Servicer
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`or that otherwise are collected by the Master Servicer as . . . Subsequent Recoveries in respect of
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`any such Mortgage Loan.”). The Governing Agreements require PetitionerPetitioners to increase,
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`or “write-up,” the balance of the Primary Classes in the amount of Subsequent Recoveries
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`remitted by the Servicer. See id. § 5.04(b); see also id. § 1.01 (Definitions of Certificate Principal
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`Balance, Subsequent Recoveries). This is done to account for the prior application of a realized
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`loss to the certificates stemming from the underlying loan-level loss on liquidated or disposed-of
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`loans.
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`17.
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`But, the Governing Agreements for the vast majority of the Subject Trusts do not
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`define Subsequent Recoveries to include amounts collected that relate to Deferred Principal
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`Amounts or previously reported losses resulting from loan modifications. See id. And, Subsequent
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`Recoveries are the only designated amounts for which write-ups may be applied under the
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`Governing Agreements—i.e., if an amount is not a Subsequent Recovery, there is no express
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`mechanism requiring the application of a write-up for such amount. Consistent with these aspects
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`of the Governing Agreements for such Subject Trusts, Petitioner doesPetitioners do not treat
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`Deferred Principal Collections as Subsequent Recoveries, and doesdo not apply write-ups to the
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`Primary Classes when Deferred Principal Collections are distributed. There are, however, four
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`Subject Trusts where the Governing Agreements are slightly different with respect to this issue:
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`(i) three of the Subject Trusts have a definition of Subsequent Recoveries that includes “amounts
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`received” with respect to “a Mortgage Loan that has been modified which resulted in a Realized
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`Loss,” and (ii) one Subject Trust has no reference to Subsequent Recoveries. See Exhibit G
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`(Subsequent Recovery Concepts for the Subject Trusts). In total, then, seventy-threesixty-two of
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`the seventy-sevensixty-six Subject Trusts do not define Subsequent Recoveries to include
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`collections stemming from modification-related realized losses, such as Deferred Principal
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`Collections. See id.
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`18.
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`The treatment of Deferred Principal Collections may materially impact the amount
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`of funds distributed to any particular class of certificates in the future. The aggregate mortgage
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`loan balance for a Subject Trust, as reported by servicers each period, necessarily reflects a
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`decrease for any Deferred Principal Amounts included in a non-interest-bearing balance for a
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`modified loan, due to servicers treating such amounts as loan-level losses. Such losses decrease
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`the aggregate mortgage loan balance at the time of modification. When Deferred Principal
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`Collections are subsequently received and distributed to certificateholders in a later period, such
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`amounts decrease the aggregate outstanding principal balance of the Primary Classes—because no
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`write-up is applied. But, in the period of such distributions, servicers do not apply a downward
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`adjustment to the collateral balance due to the fact that a loan-level loss was previously recognized
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`for the related Deferred Principal Amounts. As a result, distributions of Deferred Principal
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`Collections may increase the amount by which the aggregate principal balance of the mortgage
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`loans (which, again, are not reduced for such amounts) exceeds the Primary Classes’ aggregate
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`outstanding principal balance (which, again, are reduced for such amounts). This necessarily may
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`lead to increases in overcollateralization. Additionally, if Deferred Principal Collections do not
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`result in the application of write-ups to the Primary Classes, such classes will approach a zero
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`dollar principal balance more quickly than they otherwise would if write-ups were applied. See
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`PSA § 1.01 (Definition of Certificate Principal Balance). All of this has the potential to increase
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`Post-Zero Balance Collections and may impact which classes of certificates receive future
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`distributions.
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`19.
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`Although Petitioner’sPetitioners’ practice is consistent with the terms of the
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`Governing Agreements for the aforedescribed seventy-threesixty-two Subject Trusts, Petitioner
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`anticipatesPetitioners anticipate that certain interested parties may argue that Deferred Principal
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`Collections should be included in Subsequent Recoveries, or that write-ups should otherwise be
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`applied for such amounts. Other interested parties may take the opposite view. Petitioner
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`notesPetitioners note that in a different case concerning waterfall issues, certain investors filed a
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`counter-petition opposing the inclusion of Deferred Principal Collections in Subsequent
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`Recoveries, but asserting that Deferred Principal Collections should nevertheless result in the
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`application of write-ups to certain classes of certificates. See infra ¶¶ 31-34.
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`20.
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`PetitionerPetitioners cannot predict the amount of Deferred Principal Collections
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`servicers ultimately may remit to the Subject Trusts in the future. However, servicers have
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`reported hundreds of millions of dollars in loan-level losses associated with Deferred Principal
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`Amounts for active mortgage loans, and thus Deferred Principal Collections could potentially be
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`substantial depending upon the rate at which borrowers repay Deferred Principal Amounts. The
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`more substantial Deferred Principal Collections are, the more substantial the impact may be on
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`Post-Zero Balance Collections.
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`*
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`*
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`*
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`21.
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`All of these issues expose PetitionerPetitioners to potential conflicting claims
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`concerning the proper method to distribute funds under the Subject Trusts’ Governing Agreements,
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`and Petitioner expectsPetitioners expect that these issues may ultimately impact distributions in
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`excess of $191173 million in aggregate. See Exhibit F. Judicial instruction is necessary to ensure
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`that Petitioner isPetitioners are able to make distributions without the prospect of after-the-fact
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`challenges that may encumber trust funds or result in claw-backs or disputes. This proceeding will
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`provide all interested parties with the opportunity to appear and be heard, and will result in a
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`resolution of all relevant issues such that PetitionerPetitioners may distribute the funds at issue
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`with finality.
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`OTHER WATERFALL CASES
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`22.
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`Although this Petition raises novel questions regarding the administration of
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`waterfall provisions, courts have previously addressed, and continue to address, payment
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`distribution issues with respect to hundreds of “legacy” era RMBS transactions, including many
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`of the Subject Trusts.
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`23.
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`Certain of the Subject Trusts have been included in both (i) court-approved
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`settlements with respect to asserted or unasserted claims concerning alleged breaches of
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`representations and warranties regarding mortgage loans and/or violations of loan servicing
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`obligations under various provisions of the Governing Agreements, and (ii) post-settlement,
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`follow-on judicial instruction proceedings concerning the administration and distribution of
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`settlement payments for such court-approved settlements.
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`24.
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`In the largest such proceeding concerning distribution issues (“JPM II”), U.S.
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`Bank and other petitioners filed a petition under CPLR Article 77 for judicial instruction as to the
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`administration and distribution of billions of dollars in settlement funds. See In re Wells Fargo
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`Bank et al., No. 657387/2017, Decision and Order at 1-2 (Sup. Ct. N.Y. Cnty. Feb. 13, 2020) (Dkt.
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`No. 843).
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`25.
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`On February 13, 2020, the court in JPM II issued a 46-page order (the “JPM II
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`Trial Court Order”) providing judicial instruction as to the administration and distribution of the
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`JPM II settlement funds. Id. Various parties in the JPM II proceeding appealed the JPM II Trial
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`Court Order to the Supreme Court, Appellate Division, First Department. See In re Wells Fargo
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`Bank et al., No. 2020-02716, Opinion at 1 (1st Dep’t, Aug. 19, 2021) (Dkt. No. 111). The First
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`Department issued an opinion affirming the JPM II Trial Court Order on August 19, 2021. See id.
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`(the “JPM II Appellate Opinion”). Two parties subsequently filed motions before the First
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`Department seeking reargument or permission to appeal to the New York Court of Appeals, and
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`those motions were denied on November 16, 2021. See In re Wells Fargo Bank et al., No. 2020-
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`02716, Order (1st Dep’t, Nov. 16, 2021) (Dkt. No. 127). These same parties have
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`sincesubsequently filed motions before the New York Court of Appeals seeking permission to
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`appeal. Their motions remain pending as of the filing date of this Amended Petition, and these
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`motions have since been denied on the grounds that the order sought to be appealed from did not
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`finally determine the proceeding.
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`26.
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`Numerous RMBS trusts that were initially included in JPM II are no longer at issue
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`in the proceeding, as appearing parties have mutually resolved the settlement payment
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`administration and distribution issues for certain trusts with court approval. See, e.g., In re Wells
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`Fargo Bank et al., No. 657387/2017, Partial Severance Order and Partial Final Judgment (Sup. Ct.
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`N.Y. Cnty. Mar. 30, 2020) (Dkt. No. 289). Nevertheless, as of the date of this Second Amended
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`Petition, sixty-twonineteen trusts are still at issue in JPM II, including twenty-twoseventeen of the
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`Subject Trusts.
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`27.
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`Certain issues raised in JPM II relate to issues raised in the present Petition. JPM
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`II, however, involves only the administration and distribution of a particular settlement payment,
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`including pursuant to the terms of the settlement agreement at issue, see JPM II Trial Court Order
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`at 1-4, whereas the present Petition involves the administration and distribution of mortgage loan
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`collections in the ordinary course (i.e., outside of a settlement context) pursuant to the terms of the
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`Governing Agreements.
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`28.
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`Additionally, following the issuance of the JPM II Trial Court Order, Wells Fargo
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`Bank, National Association (“Wells Fargo”), as payment administrator for certain RMBS trusts
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`(other than the Subject Trusts), filed a petition under CPLR Article 77 seeking judicial instruction
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`regarding waterfall administration issues for thirty-six RMBS trusts (the “2021 Wells Fargo Art.
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`77”). See In re Wells Fargo Bank, No. 154984/2021, Verified Petition (Sup. Ct. N.Y. Cnty. May
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`21, 2021) (Dkt. No. 1); see also id., Second Amended Verified Petition (Sup. Ct. N.Y. Cnty. July
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`16, 2021) (Dkt. No. 55). The RMBS trusts at issue were issued around the same time as the Subject
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`Trusts, and the trusts have the same sponsor as the Subject Trusts, i.e., Bear Stearns. See id. ¶¶ 6-
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`8 nn 4-6.
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`29.
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`In the 2021 Wells Fargo Art. 77, the applicable contracts contain language that
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`limits the application of write-ups to Class M and Class B classes. Id. ¶ 21. Notwithstanding this
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`language, Wells Fargo has historically applied Subsequent Recovery write-ups to Class A classes,
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`in addition to Class M and Class B classes. Id. ¶ 6. However, the JPM II Trial Court Order ruled
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`that, in the context of the settlement at issue, such write-ups could only be applied to the Class M
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`and Class B classes. Id. ¶ 4. As a result, Wells Fargo changed its practices to begin applying
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`Subsequent Recovery write-ups to only the Class M and Class B classes. Id. ¶ 6, 9.
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`30.
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` Following its practice change, Wells Fargo apparently received correspondence
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`from certain investors demanding that it revert to its historical practice, and received
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`correspondence from other investors demanding that it maintain its practice change consistent with
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`the JPM II Trial Court Order. Id. ¶¶ 10, 37. Wells Fargo’s petition seeks instruction concerning
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`whether it should follow the JPM II Trial Court Order with respect to this issue, or whether it
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`should revert to its historical practice. See id. ¶¶ 37, 39.
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`31.
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`That matter, however, goes beyond the above issues. Following the filing of the
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`petition, certain investors filed a counter-petition regarding whether Deferred Principal Collections
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`should be treated as Subsequent Recoveries for four RMBS trusts at issue. In re Wells Fargo
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`Bank, No. 154984/2021, Amended Counter-Petition and Answer of Deer Park Road Management
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`Co., LP and Related Funds (Sup. Ct. N.Y. Cnty. Aug. 25, 2021) (Dkt. No. 121) (the “Deer Park
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`Counter-Petition”). The counter-petition asserts that the treatment of Deferred Principal
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`Collections may impact the core issues raised in Wells Fargo’s petition. See id.
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`32.
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`At least seventeen interested parties have now appeared in the matter, in addition
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`to Wells Fargo and counter-petitioners. These parties take various positions concerning the issues
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`raised in the petition and counter-petition.
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`33.
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`Some parties, including Wells Fargo, assert that Deferred Principal Collections
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`should be treated as Subsequent Recoveries, which, under the logic of the JPM II Trial Court
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`Order, would prevent Subsequent Recovery write-ups from being applied to the Class A classes.
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`See In re Wells Fargo Bank, No. 154984/2021, Wells Fargo Answer to Deer Park Counter-Petition
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`at 5-6 (Sup. Ct. N.Y. Cnty. Sept. 3, 2021) (Dkt. No 167).
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`34.
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`Other parties, such as the counter-petitioners, assert that Deferred Principal
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`Collections should not be treated as Subsequent Recoveries, but nevertheless argue that Deferred
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`Principal Collections should result in the application of write-ups under the loss mechanics of the
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`applicable contracts. See, e.g., Deer Park Counter-Petition ¶¶ 56, 66-68. According to these
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`parties, this would permit the application of write-ups to Class A classes for Deferred Principal
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`Collections, and would be consistent with Wells Fargo’s long-standing course of performance,
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`prior to its practice change. Id. ¶¶ 75-76. Some of these same parties, including counter-
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`petitioners, also advance an alternative argument in the event the court holds that write-ups should
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`not be applied under the loss mechanics of the applicable contracts. See id. ¶ 90. This argument
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`posits that if the court holds as much, no write-ups could be applied for any Deferred Principal
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`Collections because such amounts are not Subsequent Recoveries and thus cannot result in
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`Subsequent Recovery write-ups. Id. Absent any write-ups under the loss mechanics or Subsequent
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`Recovery provisions for the applicable contracts, these parties argue that Deferred Principal
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`Collections should be distributed without any corresponding write-ups and that doing so would
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`increase overcollateralization in the deals. See id. ¶ 96-97. According to these parties, this would
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`then lead to eventual Excess Cashflow distributions to reimburse Class A classes. Id. ¶ 102.
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`35.
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`The above cases do not resolve the issues raised in the Petition, but relate to this
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`matter. As a result, Petitioner hasPetitioners have filed this proceeding as related to both In re
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`Wells Fargo Bank et al., No. 657387/2017, and In re Wells Fargo Bank, No. 154984/2021.
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`JURISDICTION AND VENUE
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`36.
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`This Court has subject matter jurisdiction under CPLR Articles 4 and 77 to entertain
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`a special proceeding to determi