Reuters: Bankruptcy News: US Trustee objects to ResCap sales procedures

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US Trustee objects to ResCap sales procedures Jun 11th 2012, 19:36 June 11 | Mon Jun 11, 2012 3:36pm EDT June 11 (Reuters) - Residential Capital LLC needs to do more to ensure it is protecting consumer privacy for homeowners under bankruptcy law in the sales of its mortgage loan and servicing businesses, the U.S. Trustee said in court papers on Mon day. Tracy Hope Davis, who represents the U.S. Justice Department in the bankruptcy, also challenged the potential break-up fee and other parts of an auction process for those businesses. She said they would discourage bidders from participating. ResCap, the mortgage unit of Ally Financial, filed for bankruptcy in May with a plan to sell its mortgage servicing business for about $2.4 billion to Nationstar Mortgage Holdings , owned by Fortress Investment Group. It also plans to sell some mortgage loans to Ally for about $1.4 billion. Ally is the former in-house financing arm for General Motors Co, and was previously known as GMAC. Ally is not in bankruptcy. At the time of the ResCap bankruptcy, the mortgage company filed court papers detailing procedures it plans to follow for the sales. The Nationstar and Ally agreements are likely to be the starting bids in an auction set for September. ResCap CEO Tom Marano told Reuters last week that other bidders are likely to emerge in the coming weeks. Under the sale, ResCap mortgages would be transferred to new owners. But Hope Davis, in a filing in U.S. Bankruptcy Court in Manhattan, said ResCap needs to produce additional evidence showing it is complying with the terms of ResCap's privacy policies when those mortgages are sold. ResCap has to consider fundamental individual privacy rights and protect the personal information of its customers in these sales, the trustee wrote. She also asked for more clarity on how the sale plan would affect consumers' legal rights. Under the sales agreement, ResCap agreed to pay a $72 million break-up fee and a $10 million expense reimbursement to one of the bidders if the deal does not close. That could prevent other bidders from stepping forward, Hope Davis wrote. She also said the plan to set a $25 million minimum bid increment for the next highest offer would discourage other bidders. ResCap spokeswoman Susan Fitzpatrick declined to comment. The U.S. Trustee oversees bankruptcy cases to ensure compliance with bankruptcy laws. A bankruptcy judge is to consider the sale procedures at a June 18 hearing. Link this Share this Digg this Email Reprints

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