Over the last few months, the tangled web of intermingled business between Ocwen Financial (OCN) and its related companies, Altisource Portfolio Solutions (ASPS), Altisource Residential Corporation (RESI), Altisource Asset Management Corporation (AAMC), and Home Loan Servicing Solutions (HLSS), came under intense scrutiny from regulators and investors.

William Erbey, the now-former chairman of each of those companies, was forced to resign from his positions as chairman as part of a $150 million settlement with the New York Department of Financial Services over the companies’ relationships. And several investors publicly questioned the companies’ business dealings as well and demanded the companies separate themselves entirely.

Ocwen, Altisource Portfolio Solutions and Home Loan Servicing Solutions bore the brunt of the scrutiny, with Altisource Residential and Altisource Asset Management escaping mostly unscathed, except for the companies’ stocks, which have dropped significantly in recent months.

But now, Altisource Residential is the target of an investor who’s demanding an Altisource family divorce.

Capstone Equities Capital Management, which disclosed that it is a shareholder of RESI, sent a demand letter to the company’s board of directors, requesting the board terminate the relationship between RESI and AAMC.

In the letter, provided to HousingWire, Capstone said that AAMC, which, according to the company's website, exists solely to provide “portfolio management and corporate governance services” to RESI, has the duty to prevent harm coming to RESI and has failed in that capacity.

Capstone said that harm has come to RESI because of the company’s relationship with Ocwen, which is the “main servicer of RESI’s portfolio” of loans, and demands that RESI and AAMC terminate the servicing agreement with Ocwen.

“Ocwen has admitted to engaging in ‘numerous and significant’ violations of law and imprudent servicing practices to the detriment of investors in the loans it services,” Capstone said in its letter.

“Capstone states moreover that, by having failed to terminate Ocwen despite the admitted misconduct, AAMC has materially breached its obligations as RESI’s asset manager,” Capstone said.

“This breach by AAMC, Capstone believes, allows RESI’s board of directors to break the asset management agreement under which AAMC manages RESI’s investments without paying any termination fee,” Capstone added. “Capstone further believes that RESI’s agreements with AAMC and Ocwen are unenforceable due to conflicts of interest existing at the time of their authorization.”

By AAMC choosing not to exercise that right on behalf of RESI, the company has been materially harmed, Capstone said.

“A corporate board of directors should act loyally and in good faith to its company and its shareholders, but the RESI board has repeatedly failed to do so at the expense of both the company and its shareholders,” said Joshua Zamir, managing principal at Capstone Equities.

Capstone said that the admissions contained with Ocwen’s settlement agreement with the NYDFS compel AAMC to terminate the Ocwen-RESI relationship because of a “know, longstanding” event of default.

“Specifically, Ocwen covenanted to service RESI’s mortgage loans in accordance with ‘all federal, state, laws, statutes, rules and regulations,’ servicing practices ‘undertaken to maximize the net present value’ of RESI’s mortgage investments, and ‘prudent’ mortgage servicing practices,” Capstone said in its letter.

“Ocwen’s admissions establish material breaches of these covenants, which result in an event of default in the servicing agreement and grounds for the agreement’s termination.”

Capstone also requests that RESI’s board investigate any claims that RESI has against AAMC, Ocwen, and the officers and directors of each company.

“The ‘investigative’ report prepared by Robert & Stanger & Co in response to prior shareholder demands is simply insufficient and obsolete given recent events,” Capstone said. “Specifically, the report purports to assess only the reasonableness of the fees paid by RESI to AAMC for asset management services. It does not evaluate the harm caused to RESI through the related-party servicing agreement due to Ocwen’s misconduct and inadequate operations, which Ocwen admitted in the NYDFS Consent Order after the Stanger report was prepared.”

Capstone said that it believes the “positions espoused in the Stanger report are flawed and do not address the improper influence of the interested directors on the board’s response to the prior demands.”

The issue that Capstone is facing in its request is the complicated relationship between RESI and AAMC. The two company’s executive teams were identical, until AAMC named a new CEO last week in the form of George Ellison, who joined AAMC from Bank of America (BAC).

Ashish Pandey had served as chief executive officer of both RESI and AAMC since the companies were founded in 2012. The companies still share a chief financial officer, chief accounting officer and general counsel & secretary.

Capstone said that the RESI board must consider alternative servicers for RESI’s portfolio. “Divorced from Ocwen’s inefficiencies, RESI could more effectively resolve or modify its non-performing loan portfolio,” Capstone said. “Ocwen has also limited RESI’s ability to issue future NPL securitizations, hence limiting the company’s ability to grow.”

Capstone notes the recent servicing agreements that RESI signed with two vendors, Fay Servicing and Servis One, which does business as BSI Financial Services, as a potential positive step.

“If these servicing agreements are the initial steps to divorce from Ocwen, RESI must not permit Ocwen to remain in a master servicer role and siphon additional fees for no actual services provided,” Capstone said. “The board instead must terminate the servicing agreement for cause without making any further payment to Ocwen and exit the fundamentally conflicted relationship.”

Click here to read Capstone’s letter to RESI’s board.