HR Block 2014 Annual Report Download - page 83

H&R Block, Inc. | 2014 Form 10-K 75
On October 15, 2010, the Federal Home Loan Bank of Chicago (FHLB-Chicago) filed a lawsuit in the Circuit Court
of Cook County, Illinois (Case No. 10CH45033) styled Federal Home Loan Bank of Chicago v. Bank of America Funding
Corporation, et al. against multiple defendants, including various SCC-related entities, H&R Block, Inc. and other
entities, arising out of FHLB-Chicago's purchase of residential mortgage-backed securities (RMBSs). The plaintiff seeks
rescission and damages under state securities law and for common law negligent misrepresentation in connection
with its purchase of two securities collateralized by loans originated and securitized by SCC. These two securities had
a total initial principal amount of approximately $50 million, of which approximately $36 million remains outstanding.
The plaintiff agreed to voluntarily dismiss H&R Block, Inc. from the suit. The remaining defendants, including SCC,
filed motions to dismiss, which the court denied. The defendants moved for leave to appeal and the circuit court
denied the motion. A portion of our loss contingency accrual is related to this matter for the amount of loss that we
consider probable and reasonably estimable.
On May 31, 2012, a lawsuit was filed by Homeward in the Supreme Court of the State of New York, County of New
York, against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Index No. 651885/2012). SCC removed
the case to the United States District Court for the Southern District of New York on June 28, 2012 (Case No. 12-
cv-5067). The plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-2 and for the
benefit of the trustee and the certificate holders of such trust, asserts claims for breach of contract, anticipatory
breach, indemnity and declaratory judgment in connection with alleged losses incurred as a result of the breach of
representations and warranties relating to loans sold to the trust and to SCC. The plaintiff seeks specific performance
of alleged repurchase obligations or damages to compensate the trust and its certificate holders for alleged actual
and anticipated losses, as well as a repurchase of all loans due to alleged misrepresentations by SCC as to itself and
as to the loans' compliance with its underwriting standards and the value of underlying real estate. In response to a
motion filed by SCC, the court dismissed the plaintiff's claims for breach of the duty to cure or repurchase, anticipatory
breach, indemnity, and declaratory judgment. The case is proceeding on the remaining claims. We have not concluded
that a loss related to this matter is probable, nor have we accrued a liability related to this matter.
On September 28, 2012, a second lawsuit was filed by Homeward in the District Court for the Southern District of
New York against SCC styled Homeward Residential, Inc. v. Sand Canyon Corporation (Case No. 12-cv-7319). The
plaintiff, in its capacity as the master servicer for Option One Mortgage Loan Trust 2006-3 and for the benefit of the
trustee and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection
with losses allegedly incurred as a result of the breach of representations and warranties relating to 96 loans sold to
the trust. The plaintiff seeks specific performance of alleged repurchase obligations or damages to compensate the
trust and its certificate holders for alleged actual and anticipated losses. In response to a motion filed by SCC, the
court dismissed the plaintiff's claims for breach of the duty to cure and repurchase and for indemnification of its costs
associated with the litigation. The case is proceeding on the remaining claims. We have not concluded that a loss
related to this matter is probable, nor have we accrued a liability related to this matter.
On April 5, 2013, a third lawsuit was filed by Homeward in the District Court for the Southern District of New York
against SCC. The suit, styled Homeward Residential, Inc. v. Sand Canyon Corporation (Case No. 13-cv-2107), was filed
as a related matter to the September 2012 Homeward suit mentioned above. In this April 2013 lawsuit, the plaintiff,
in its capacity as the master servicer for Option One Mortgage Loan Trust 2007-4 and for the benefit of the trustee
and the certificate holders of such trust, asserts claims for breach of contract and indemnity in connection with losses
allegedly incurred as a result of the breach of representations and warranties relating to 159 loans sold to the trust.
The plaintiff seeks specific performance of alleged repurchase obligations or damages to compensate the trust and
its certificate holders for alleged actual and anticipated losses. In response to a motion filed by SCC, the court dismissed
the plaintiff’s claims for breach of the duty to cure and repurchase and for indemnification of its costs associated with
the litigation. The case is proceeding on the remaining claims. We have not concluded that a loss related to this matter
is probable, nor have we accrued a liability related to this matter.
Underwriters and depositors are, or have been, involved in multiple lawsuits related to securitization transactions
in which SCC participated. These lawsuits allege or alleged a variety of claims, including violations of federal and state
securities laws and common law fraud, based on alleged materially inaccurate or misleading disclosures. Based on
information currently available to SCC, it believes that the 18 lawsuits in which SCC received notice of a claim for
indemnification of losses and expenses, involved 38 securitization transactions with original investments of
approximately $14 billion (of which the outstanding principal amount is approximately $4 billion). Because SCC has
not been a party to these lawsuits (with the exception of the Federal Home Loan Bank of Chicago v. Bank of America