It held 100% of the junior certificates and still couldn't get through the courthouse door
A hedge fund that claimed a mortgage servicer shortchanged it by at least $3.25 million lost its case before the fight over money ever started.
On August 27, 2026, New York's Appellate Division, First Department, unanimously upheld the dismissal of HBK Master Fund L.P.'s suit against NewRez LLC, servicer of a residential mortgage-backed securities trust. The judges never ruled on whether NewRez underpaid; they found HBK had no right to sue.
The dispute goes back to the Series 2004-W5 Trust, a pool of home loans bundled into securities. NewRez, as servicer, collected borrower payments, worked out delinquencies and foreclosures, and forwarded the money to Deutsche Bank National Trust Company, the trustee, which paid investors in a fixed order of priority.
By November 2019, the loans still in the trust had fallen below 10% of their original balance. That let NewRez buy out the remaining assets and close the trust. It calculated the contract's Termination Price, paid it to Deutsche Bank, and the trustee sent the money out.
HBK held every one of the trust's most junior Class CE certificates, last in line to be paid. The fund said NewRez got the math wrong by leaving out an item called the Deferred Principal Balances, and that the junior holders ended up with nothing. It sued for breach of contract over a shortfall it put at a minimum of $3.25 million.
The case never reached that number. The Pooling and Servicing Agreement governing the trust includes a no-action clause. In plain terms, an investor cannot sue the servicer unless it holds certificates carrying at least 25% of the voting rights, and voting rights follow the outstanding principal balance of the certificates.
When HBK demanded action in October 2023, its certificates had a principal balance of zero. Deutsche Bank's reports showed the Class CE certificates carried about 0.1% of the voting rights in October 2019, then dropped to 0.0% once the trust was terminated. No balance, no votes.
HBK pushed back on two fronts. Count the disputed amounts, it argued, and it would have held at least 41% of the voting rights. Because it still physically held the certificates, it said, it controlled 98%. The court rejected both. Nothing was left to repay, so the certificates carried no votes, and the judges declined to write new terms into the contract.
For servicers and investors, a no-action clause's voting threshold is a hard gate: a junior holder written down to zero cannot force a lawsuit, however large the alleged gap.
