The presiding judge in the bankruptcy case involving Reverse Mortgage Investment Trust (RMIT) — the parent company of former leading reverse mortgage lender Reverse Mortgage Funding (RMF) — has approved a request to transfer the company’s bankruptcy status to Chapter 7 from its current Chapter 11 status. This is according to court documents reviewed by RMD.
The move allows the RMIT estate to sell off its remaining assets to satisfy creditor claims. It can also provide an additional mechanism for resolving disputes while reducing the administrative costs the estate would need to continue paying under Chapter 11.
Granting the conversion
In the original request, the RMIT plan administrator explained that conversion to Chapter 7 was being sought to preserve the value of the estate’s remaining assets and ease the overall liquidation process.
“The Plan Administrator hopes that by converting this case, instead of seeking dismissal or simply resigning, that the estate will be able to preserve value of any potential recovery from the TCB dispute or other litigation for the benefit of all unsecured creditors,” the January filing explained. “Absent conversion and the installation of a chapter 7 trustee, this value could be significantly eroded, if not entirely eliminated.”
Presiding Judge Mary Walrath of the U.S. Bankruptcy Court for the District of Delaware found that the request was “due and sufficient under the circumstances.” The conversion will be effective anywhere from five to 10 business days after the entry of the March 12 order, according to the court filing.
In a separate order, Walrath gave permission to the plan administrator to “abandon and destroy any records to be destroyed which she, in her sole discretion and business judgment, deems to be no longer necessary to the administration of the plan,” pursuant to the bankruptcy code.
TCB/Ginnie Mae dispute
When presenting the motion to convert the case to Chapter 7, an attorney for the plan administrator reiterated that this was partially due to a dispute currently playing out between Ginnie Mae and Texas Capital Bank (TCB), the debtor-in-possession lender to RMF.
After the bank filed its lawsuit, the court in that case set deadlines well into 2025, making the situation more challenging for the plan administrator in the bankruptcy case to resolve in a timely manner. The attorney for the RMIT estate told Walrath that the case is clearly “not going to be resolved anytime soon.”
“As a result, the court previously entered an order turning over the unencumbered assets to TCB. The plan administrator has worked diligently to try and resolve as much of the issues as possible before we needed to come to your honor, but […] that day is here.”
The attorney reiterated that the estate has run out of money, and that it requires conversion to Chapter 7, which will mean liquidating any remaining assets to wind the company down.
Need for conversion
In the January filing, the plan administrator explained that a conversion to Chapter 7 would be in the best interest of all stakeholders.
“While it is unclear at this juncture how the TCB dispute will conclude, there remains the possibility of future distributions being available to creditors. If the Chapter 11 Cases were to be dismissed, all creditors, including TCB, could lose the opportunity to receive funds from the estate,” the filing read.
The creditors themselves would also “be in a better position if the Chapter 11 case converted to one under Chapter 7 which would remain and be preserved as a vessel that can resolve any remaining disputed unsecured claims, and distribute funds to all creditors, if TCB is successful in the TCB dispute and thereafter returns funds to the estate,” according to the January filing.
