Lawsuit claims New Century mishandled escrow, loan payments

The latest lawsuit against troubled subprime lender New Century Financial Corp. alleges the company failed to deposit loan payments it was collecting on behalf of an investor that had purchased loans into the appropriate account.

The lawsuit by UBS Real Estate Securities Inc. alleges New Century misappropriated $3.8 million in mortgage payments that were supposed to be placed in a third-party account during a period the loans were subject to a repurchase agreement. Such agreements typically allow investors to demand that loan originators repurchase loans if they default within 30, 60 or 90 days.

The lawsuit, filed Thursday in U.S. Bankruptcy Court for the District of Delaware, also alleged New Century has failed to account for missing escrow payments totaling $1.7 million the Associated Press reported.

New Century announced Monday that it had filed for Chapter 11 bankruptcy protection and laid off 3,200 workers, and was selling its servicing assets and servicing platform.

The company had previously announced that it is the subject of a criminal investigation by the U.S. Attorney's Office for the Central District of California, and at least 10 civil lawsuits filed on behalf of shareholders.

New Century, which once had access to $17.4 billion in credit through 15 short-term agreements, has secured $150 million in financing from CIT Group and Greenwich Capital Financial Products Inc. to allow the company to continue operating during the Chapter 11 bankruptcy process. Bankruptcy Judge Kevin J. Carey approved New Century's request to take on the loan Thursday, the AP reported.

All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.