Reverse Mortgage disclosure statement draws U.S. trustee objection

By Sarah Lizee

Olympia, Wash., March 15 – Reverse Mortgage Investment Trust Inc.’s disclosure statement for its Chapter 11 plan of liquidation drew an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to documents filed Tuesday with the U.S. Bankruptcy Court for the District of Delaware.

The U.S. trustee said the disclosure statement doesn’t provide enough information about who will be giving or receiving third-party releases, and what claims will be released.

The plan imposes non-consensual third-party releases on many non-debtor parties through a “related parties” clause, where people and entities will be stripped of their direct claims against non-debtors because they are related in some fashion to certain releasing parties, Vara said.

The U.S. trustee said the categories of people and entities that will be forced to provide releases are broad and vaguely defined.

The disclosure statement also fails to adequately disclose or explain why the debtors and wind-down debtors are giving two sets of releases benefitting the same released parties, Vara added.

It also doesn’t disclose the value of the avoidance actions that may be released, or the effect such release will have on the distributions to be received by general unsecured creditors, the U.S. trustee said.

Vara said the impermissible scope of the third-party releases renders the proposed plan unconfirmable.

As previously reported, the disclosure statement has also drawn an objection from Federal National Mortgage Association (Fannie Mae), which took issue with setoff and recoupment rights under the proposed plan.

A hearing on the disclosure statement is scheduled for March 21.

The Bloomfield, N.J.-based reverse mortgage issuer filed Chapter 11 bankruptcy on Nov. 30 under case number 22-11225.

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