IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE IN RE: Chapter 11

NEW CENTURY TRS HOLDINGS, INC., et Case No. 07-10416 (KJC) al., a Delaware Corporation,
Re: D.I. 10562, 10574 & 10575

Debtors.

THE NEW CENTURY LIQUIDATING TRUSTS REPLY TO RESPONSES RECEIVED FROM CLAIMANTS RUSSELL AND GOINES REGARDING FORTY-SECOND OMNIBUS OBJECTION TO CLAIMS PURSUANT TO 11 U.S.C. 502(b) AND FED. R. BANKR. P. 3001 AND 3007 AND LOCAL RULE 3007-1 [NON-SUBSTANTIVE] The New Century Liquidating Trust (the Trust), by and through Alan M. Jacobs, as its Bankruptcy Court (as defined below) appointed Liquidating Trustee (the Trustee), respectfully submits this reply (the Reply) to Response to Omnibus Objection to Claims (Forty-Second) [Non-Substantive] of Karan Russell [D.I. 10574] (the Russell Response) and Response to Omnibus Objection to Claims (Forty-Second) [Non-Substantive] of Claimant Tiphanie Goines [D.I. 10575] (the Goines Response; together with the Russell Response, the Responses).

The pre-confirmation Debtors were the following entities: New Century Financial Corporation (f/k/a New Century REIT, Inc.), a Maryland corporation; New Century TRS Holdings, Inc. (f/k/a new Century Financial Corporation), a Delaware corporation; New Century Mortgage Corporation (f/k/a JBE Mortgage) (d/b/a NCMC Mortgage Corporate, New Century Corporation, New Century Mortgage Ventures, LLC), a California corporation; NC Capital Corporation, a California corporation; Home123 Corporation (f/k/a The Anyloan Corporation, 1800anyloan.com, Anyloan.com), a California corporation; New Century Credit Corporation (f/k/a Worth Funding Incorporated), a California corporation; NC Asset Holding, L.P. (f/k/a NC Residual II Corporation), a Delaware limited partnership; NC Residual III Corporation, a Delaware corporation; NC Residual IV Corporation, a Delaware corporation; New Century R.E.O. Corp., a California corporation; New Century R.E.O. II Corp., a California corporation; New Century R.E.O. III Corp., a California corporation; New Century Mortgage Ventures, LLC (d/b/a Summit Resort Lending, Total Mortgage Resource, Select Mortgage Group, Monticello Mortgage Services, Ad Astra Mortgage, Midwest Home Mortgage, TRATS Financial Services, Elite Financial Services, Buyers Advantage Mortgage), a Delaware limited liability company; NC Deltex, LLC, a Delaware limited liability company; NCoral, L.P., a Delaware limited partnership; and New Century Warehouse Corporation, a California corporation.

PRELIMINARY STATEMENT 1. This Reply is submitted in further support of the New Century Liquidating Trusts

Forty-Second Omnibus Objection to Claims Pursuant to 11 U.S.C. 502(b), Fed. R. Bankr. P. 3001 and 3007 and Local Rule 3007-1 [Non-Substantive] [D.I. 10562] (the Objection) and in order to refute various factual assertions and arguments advanced by claimants Karen Russell (Russell) and Tiphanie Goines (Goines; together with Russell, the Claimants) in their respective Responses. More specifically, the Trust submits that (a) the Claimants were unknown creditors as of the Petition Date2 and the date on which the Bar Date Notice was served, and, as such, were entitled only to constructive notice of the Bar Date; (b) the constructive notice of the Bar Date provided by the Debtors through publication of the Bar Date Notice in the national edition of The Wall Street Journal and The Orange County Register was in accordance with prevailing law and good and sufficient to satisfy the Claimants due process rights; and (c) the Claimants have not demonstrated sufficient factual evidence to permit the allowance of their late-filed claims as the result of excusable neglect. REPLY I. As stated in the Objection, the Claimants were not known creditors of the Debtors estates. 2. As set forth more fully below and in the Objection, the Claimants were unknown

creditors because their identity was not reasonably ascertainable through reasonably diligent efforts. See Chemetron Corp. v. Jones, 72 F.3d 341, 346-47 (3d Cir. 1995). Rather, the Claimants have asserted claims which, as of the Petition Date and the date on which the Bar Date Notice was served, were merely conjectural or future. Id.

Capitalized terms not herein defined shall have the meanings ascribed to them in the Objection.

219910/005-2609667.4

A.

Claimant Russell was an unknown creditor as of the Petition Date and the date on which the Bar Date Notice was served.

3.

Claimant Russell argues that she was a known creditor and entitled to receive

actual notice of the Bar Date because New Century Mortgage Corporation (NCMC) retained an interest in [her] property as of the April 2, 2007 filing date of the voluntary petition. Russell Response, 3. According to the Debtors Books and Records, however, NCMC originated two (2) loans for Russell on August 17, 2006, one in the amount of $880,000.00 (the Russell 80% Loan) and the other in the amount of $220,000.00 (the Russell 20% Loan; together with the Russell 80% Loan, the Russell Loans). The Russell 20% Loan was sold to DLJ Mortgage Capital, Inc. on December 19, 2006 as part of a wholesale transaction and was subsequently service released to Select Portfolio Servicing on February 2, 2007. The Russell 80% Loan was seized by Barclays Bank PLC (Barclays) on March 16, 2007 due to the Debtors default on a certain credit facility provided by Barclays Bank PLC and was subsequently service released to HomEq Servicing (now Ocwen Loan Servicing, LLC) on March 28, 2007 at the direction of Barclays. Thus, both Russell Loans were sold and/or transferred and service released before the Petition Date. Accordingly, from and after March 28, 2007, the Debtors did not have any interest (ownership, servicing, or otherwise) in the Russell Loans. 4. In support of her contention that Russells relationship with the Debtors continued

beyond the origination of the Russell Loans, Russell attached to her Response an assignment of deed of trust, which she alleges was executed by NCMC on February 13, 2008. Response, Exhibit B. Russell

As an initial matter, the assignment attached as Exhibit B was

executed by Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for New Century Mortgage Corporation. The assignment was not executed by the Trust or any of its representatives, and therefore, cannot be used to establish the existence of an ongoing
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relationship with the Debtors or a basis to assert a claim against the Trust. Furthermore, any issues concerning the validity of the assignment, the current ownership of the Russell Loans, or any actions taken in the foreclosure proceedings referenced in the Russell Response are not properly before this Court. Rather, any such issues should be and have been litigated between Russell and the current owner of the Russell Loans (which is not the Trust). In fact, Russell filed a State Court Action (defined below) against NCMC and several other parties, including the current owner of the note and mortgage. The State Court Action commenced by Russell

proceeded against the defendants other than NCMC and resulted in a grant of summary judgment against Russell. 5. Russell also asserts that she was a known party-in-interest and thereby should

have been notified of the Bar Date for Proof of Claim [sic] because the assignment was made by NCMC. Russell Response, 5. This argument is fundamentally flawed and unsupported by the law. The Bankruptcy Code defines creditor in pertinent part as an entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor. 11 U.S.C. 101(10). A claim is defined under the Bankruptcy Code as: (A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured. 11 U.S.C. 101(5). While a creditor is a party-in-interest in any bankruptcy case, a party-in-interest is not necessarily a creditor under the Bankruptcy Code. The two distinct terms simply do not

equate. Russell was not a creditor and does not have a claim against the Debtors estates because any obligations arising from the origination of the Russell Loans did not give rise to a right to payment or right to an equitable remedy, particularly since the Russell Loans were no longer owned or serviced by the Debtors as of the Petition Date. In fact, as set forth more fully in the Objection, the mere existence of a pre-petition mortgagor-mortgagee relationship does not make the pre-petition mortgagor a known creditor of the debtor-mortgagee. See Objection, 37 (citing Hebell v. NVR, Inc., 1997 U.S. Dist. LEXIS 10786, No. 97-C-4000 (N.D. Ill. July 21, 1997)). At best, Russells claim was speculative. Id., at *4-5. Russell has established only that she was a known customer, which this Court recently held is insufficient to establish that she was a known creditor. See White v. New Century TRS Holdings, Inc. (In re New Century), 450 B.R. 504, 512 (Bankr. D. Del. 2011). Consequently, this Court should find that Russell was an unknown creditor. 6. Finally, Russell asserts that she has made several attempts to receive information

and responses and has been actively pursuing New Century for such information. Russell Response, 3. The Trust acknowledges that, on September 19, 2011, Russell sent an email (the September 19 Email) to co-counsel for the Trust in which she solicited information concerning the Debtors bankruptcy and the Russell Loans. The Trust is working to respond to Russells inquiries. Other than the September 19 Email, the Trust has no record of any communications or contact of any kind with Russell (other than the origination of the Russell Loans and the September 19 Email). Furthermore, the Debtors Books and Records do not reflect any

correspondence (written or otherwise) from or to Russell, and the Debtors have no record of any relationship with Russell, other than the origination of the Russell Loans. Because the Debtors did not own the Russell Loans as of the Petition Date nor is there any evidence of any

communications or continuing relationship between Russell and the Debtors other than the loan origination, it is inconceivable that Russell was a known creditor as of the Petition Date or the date on which the Bar Date Notice was served. B. Claimant Goines was an unknown creditor as of the Petition Date and the date on which the Bar Date Notice was served.

7.

Claimant Goines asserts that she was a known creditor and, therefore, entitled to

receive actual notice of the Bar Date because the Debtor maintained a relationship beyond loan origination. Goines Response, 5. The Debtors Books and Records reflect that NCMC originated two (2) loans for Goines on May 26, 2006, one in the amount of $432,000 and the other in the amount of $108,000.00 (together, the Goines Loans). Both Goines Loans were sold to Barclays on July 28, 2006 as part of a wholesale transaction and were subsequently service released to HomEq Servicing (now Ocwen Loan Servicing, LLC) on October 2, 2006 at the direction of Barclays. Thus, both Goines Loans were sold and service released prior to the Petition Date. Accordingly, from and after October 2, 2006, the Debtors did not have any interest (ownership, servicing, or otherwise) in the Goines Loans. 8. In support of the assertion that she was a known creditor, Goines, like Russell,

also attaches an assignment of deed of trust filed in the office of the Los Angeles County Recorder on March 19, 2008. Goines Response, Exhibit B. The assignment attached as Exhibit B, however, was executed by Barclays Capital Real Estate, Inc., as attorney-in-fact for New Century Mortgage Corporation. The assignment was not executed by the Trust or any of its representatives, and therefore, cannot be used to establish the existence of an ongoing relationship with the Debtors or the basis to assert a claim against the Trust. Furthermore, as is the case with Russell, any issues concerning the validity of the assignment, the current ownership of the Goines Loans, or any actions taken in the foreclosure proceedings referenced in the Goines
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Response are not properly before this Court. Rather, any such issues should be and have been litigated between Goines and the current owner of the Goines Loans (which is not the Trust). In fact, Goines indicates that her property was subject to a trustees sale in October 2008 but that, in two (2) subsequent unlawful detainer actions commenced by the present owner of the note and mortgage, these very issues have been litigated, and, in both instances, Goines has prevailed. Goines Response, 9, 12. 9. Like Russell, Goines also asserts that she was entitled to actual notice of the Bar

Date because she was a known interested party. Goines Response, 5. For the reasons set forth more fully above and in the Objection, Goines cannot assert that she is a known creditor. Other than the existence of the relationship between the Debtors and Goines in connection with the origination of the Goines Loans, the Debtors had no ongoing relationship with Goines. As noted above, establishing that one is a known customer is insufficient to prove that the customer is a known creditor. See White, 450 B.R. at 512. In addition, the Trust has undertaken a comprehensive review of its records and has found no record of any communications or contact of any kind with Goines after the origination of the Goines Loans. Furthermore, the Debtors Books and Records do not reflect any correspondence (written or otherwise) from or to Goines, and the Debtors have no record of any relationship with Goines, other than the origination of the Goines Loans. Because the Debtors did not own the Goines Loans as of the Petition Date nor is there any evidence of any communications or ongoing relationship between Goines and the Debtors other than the loan origination, it is equally as inconceivable that Goines was a known creditor as of the Petition Date or the date on which the Bar Date Notice was served.

II.

As unknown creditors, the Claimants were entitled only to constructive notice, and the publication notice in The Wall Street Journal and The Orange County Register was good and sufficient to satisfy the Claimants due process rights. 10. Both Russell and Goines assert that the publication notice of the Bar Date was

insufficient to satisfy due process requirements. The Claimants argue that the publication notice was insufficient because it was not likely to reach the Claimants, each of whom, Russell alleges, are residents of Los Angeles County. This argument is meritless. Due process does not require publication that is likely to reach every possible unknown creditor. See Chemetron, 72 F.3d at 348. Rather, due process is satisfied if it is reasonably calculated . . . to apprise interested parties of the pendency of the action . . . . Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950). In this case, as in Chemetron, the Claimants are challenging sufficiency of the publication because, at the time of publication, they were residents in a region in which The Orange County Register was not widely circulated. However, as the Third Circuit noted in Chemetron, publication in national newspapers is regularly deemed sufficient notice to unknown creditors, especially where supplemented . . . with notice in papers of general circulation in locations where the debtor is conducting business. Chemetron, 72 F.3d at 348-49. Therefore, even assuming that the Claimants resided in a region beyond that in which The Orange County Register was circulated, the Debtors provided notice to a nationwide population of unknown creditors when they published the Notice of the Bar Date in the national edition of The Wall Street Journal. Since the Claimants cannot allege that they live in a region beyond which The Wall Street Journal is circulated and because numerous courts (including the Third Circuit) have emphasized the adequacy of publication in a nationally circulated newspaper to satisfy due process requirement, this Court should find that the publication notice provided by the Debtors was sufficient.

11.

Both Claimants also argue that this Courts decision in White v. New Century

TRS Holdings, Inc. (In re New Century), 450 B.R. 504 (Bankr. D. Del. 2011) conclusively establishes that the publication notice provided by the Debtors was insufficient to satisfy due process requirements. The Claimants misinterpret this Courts holding. In White, this Court held that the factual record was not sufficiently matured to permit the Court to make a determination as to whether the publication notice was sufficient. See White, 450 B.R. at 514. The Trust respectfully submits that the publication notice provided by the Debtors was sufficient, given the substantial case law outlined in the Objection holding that publication in a national newspaper alone is sufficient to satisfy due process, particularly where, as here, such national publication is supplemented by a local publication circulated in the region where the debtors offices are located. See In re Circuit City, et al., Case No. 08-35653 (Bankr. E.D. Va. Dec. 12, 2008); see also In re Chicago, Milwaukee, St. Paul & Pacific R.R. Co., 112 B.R. 920, 924 (N.D. Ill. 1990) (publication notice in The Wall Street Journal regarding applicable bar dates was adequate under bankruptcy law and sufficient under the Due Process Clause of the United States Constitution); Wright v. Placid Oil Co. (In re Placid Oil Co.), 107 B.R. 104, 106 (N.D. Tex. 1989) (publication of the bar date in The Wall Street Journal was sufficient notice to unknown creditor). Particularly where, as here, a debtor has offices throughout the country, courts have consistently approved publication in national newspapers as sufficient to satisfy due process. See, e.g., In re US Airways, Inc., 2005 Bankr. LEXIS 2696, at *20, No. 04-13819-SSM (Bankr. E.D. Va. Nov. 21, 2005). Accordingly, the Trust respectfully submits that the

publication notice afforded in this case was sufficient to satisfy the requirements of due process. 12. Finally, Russell asserts that the Debtors should have published notice of the Bar

Date in a publication with greater circulation, such as the Los Angeles Times. As noted above

and in the Objection, however, publication notice need only be reasonably calculated to reach potential unknown creditors. See Mullane, 339 U.S. at 314. There is no requirement that the publication notice reach every possible unknown creditor. See Chemetron, 72 F.3d at 348. Because the publication notice provided by the Debtors in these cases was reasonably calculated to reach potential unknown creditors nationwide, Russells argument that she was deprived of sufficient constructive notice is meritless. III. The Claimants Argument that the Disputed Claims Should be Allowed as LateFiled Because They Were Unaware of the Debtors Bankruptcy Is Meritless. 13. Both Claimants argue that their failure to file timely proofs of claim should be

excused because they were unaware of the Debtors bankruptcy. Goines further argues that her proof of claim should be deemed timely filed on the grounds that the late filing of the claim is a result of excusable neglect. Goines Response, 16-20. However, an application of facts relating to the Disputed Claims to the standards set forth in Pioneer Investment Services Co. v. Brunswick Associates Ltd., 507 U.S. 380 (1993) demonstrate that the Claimants Disputed Claims should not be deemed timely filed. A. 14. Allowance of the Disputed Claims Significantly Prejudices the Trust.

Under the first Pioneer factor, there can be no doubt that the Trust and the

Debtors estates will be prejudiced by the allowance of the Claimants Disputed Claims. The Claimants assert that their claims are not intended to prejudice other creditors and that the Debtors will not be prejudiced by the allowance of the Claimants late-filed claims. Russell Response, 3; Goines Response, 21. While Goines cites to case law finding a lack of prejudice in allowing late-filed claims after plan confirmation and during the claims reconciliation process, neither Claimant has acknowledged the fact that, in this case, the Trustee has made two (2) distributions of a significant portion of estate assets and has created specific
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reserves for the remaining estate assets. A distribution model has been developed based on the then-existing universe of claims, and the claims reconciliation process is nearly complete. Allowance of the Disputed Claims at this late date, nearly four (4) years after the Bar Date, would severely hamper the claims reconciliation process and the overall administration of the estate, particularly since it does not appear that the continued filing of late-filed claims will end in the foreseeable future. 15. Goines further argues that her Disputed Claim should be allowed because the

Trustee has not completed the claims reconciliation process and allowance of her Disputed Claim would not hinder the administration of these cases. Goines Response, 21-22. The Trustee vehemently disagrees. Though not entirely complete, the Trustee has reconciled over 4,000 filed claims, and the remaining unresolved claims are held by only a handful of claimants. Additionally, the Trustee submits that the allowance of the Disputed Claims will result in the needless expenditure of additional estate resources and may threaten the ability of the Trustee to continue administration of these cases. Therefore, the Trust respectfully submits that the

prejudice to the estate is extremely significant. 16. Conversely, if the Disputed Claims are disallowed, the Claimants would not The Claimants allege that they are parties to state court actions

suffer significant harm.

involving foreclosure proceedings. Upon information and belief, the Claimants have already raised in their foreclosure proceedings and the State Court Actions (defined below) the very issues they now raise in their respective Responses. The Trustee submits that it is in these foreclosure proceedings that the claims raised in their respective Responses be addressed.

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B. 17. 18.

The Length of the Claimants Delay is Excessive.

The second Pioneer factor also supports disallowance of the Disputed Claims. The Claimants waited nearly four (4) years after the Bar Date to file the Disputed

Claims. As stated in their respective Responses, the Claimants became aware of their alleged claims against the Debtors in 2009, at which point each Claimant allegedly filed a complaint against New Century in the Superior Court of the State of California, County of Los Angeles (collectively, the State Court Actions). Russell Response, 3; Goines Response, 11. While the Trust was not aware3 of the State Court Actions until the Responses were filed, upon information and belief, the State Court Actions proceeded against the named defendants other than the Debtors. Even after becoming aware of their alleged causes of action, the Claimants still waited approximately two (2) years to file their proofs of claim in these chapter 11 cases. Courts in similar or less compelling circumstances have declined to allow a claim on the grounds of excusable neglect. See e.g., Jones v. Chemetron Corp., 212 F.3d 199, 205 (3d Cir. 2000) (excusable neglect argument rejected where claimants filed their claims two years after the confirmation date and four years after the bar date); The Trump Taj Mahal Corp. v. Alibraham (In re Trump Taj Mahal Assoc.), 156 B.R. 928, 938 (Bankr. D.N.J. 1993) (excusable neglect argument rejected where claimants filed their claims approximately one year after the confirmation date and bar date). 19. The Claimants argue, however, that they filed their respective proofs of claim as

soon as they discovered that the Debtors were in bankruptcy. Russell Response, 4; Goines Response, 4. The Trust disputes this assertion and argues that the Claimants should have known that the Debtors had filed for protection under chapter 11 of the Bankruptcy Code after

The Trust has no record of having been served with the complaints in the State Court Actions.

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filing the respective State Court Actions.4 Consequently, the length of delay (nearly four (4) years after the Bar Date) is both excessive and unjustifiable. C. 20. Claimants Have Presented No Valid Reason for the Excessive Delay.

Despite receiving constructive notice of the Bar Date by publication in The Wall

Street Journal and The Orange County Register, the Claimants argue that filing their claims nearly four (4) years after the Bar Date amounts to a reasonable period of time. Their reasoning: they were unaware that the Debtors were in bankruptcy. Since the Claimants were unknown creditors, however, they were not entitled to actual notice. Therefore, the Claimants cannot argue their ignorance of the bankruptcy filing as a basis for the excessive delay. See generally Chemetron Corp., 212 F.3d at 205 (3d Cir. 2000) ([I]gnorance of ones own claim does not constitute excusable neglect.) (citing In re Best Prods. Co., 140 B.R. 353, 359 (Bankr.

S.D.N.Y. 1992)); In re Trans World Airlines, Inc., 96 F.3d 687, 690 (3d Cir. 1996); see also Rendina v. Northrop, 399 B.R. 376, 382 (D. Vt. 2008) (refusing to allow a late filed claim where the unknown claimant was unaware of the bankruptcy proceedings, but where the debtor had provided appropriate notice and the claimants waited nearly five (5) years to assert a claim). D. 21. The Claimants Bad Faith

With respect to the fourth and final Pioneer factor, the Trust has no reason to

believe that the Claimants have acted in bad faith, but, as the Third Circuit noted in In re American Classic Voyages Co., 405 F.3d 127, 134 (3d Cir. 2005), the Trust submits that the Claimants have not been so careful or vigilant as to overcome the weight of the previous three

Further, upon information and belief, Russell, in her own chapter 13 bankruptcy proceeding, filed a declaration in May 2011, in which she references these chapter 11 cases. However, Russell did not file her proof of claim until July 2011, another two months after she filed her declaration. Therefore, Russell did not file her proof of claim immediately upon learning of the Debtors bankruptcy, as alleged in her Response. Russell Response, 4.

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factors especially the second. Id. CONCLUSION For the reasons set forth in the Objection and herein, the Trust respectfully requests that the Court enter an order disallowing and expunging in full the Disputed Claims listed on Exhibit A to the Proposed Order and granting such other and further relief as is just and proper. Dated: September 22, 2011 BLANK ROME LLP

By: /s/ Alan M. Root David W. Carickhoff (No. 3715) Alan M. Root (No. 5427) 1201 Market Street, Suite 800 Wilmington, Delaware 19801 (302) 425-6400 - Telephone (302) 425-6464 - Facsimile - and HAHN & HESSEN LLP 488 Madison Avenue New York, New York 10022 (212) 478-7200 - Telephone (212) 478-7400 - Facsimile Attn: Mark S. Indelicato Janine M. Cerbone Christopher J. Hunker Co-Counsel to the New Century Liquidating Trust

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