Lawyers for Reverse Mortgage Investment Trust (RMIT), the parent company of bankrupt reverse mortgage lender Reverse Mortgage Funding, LLC (RMF), have secured an additional round of debtor-in-possession (DIP) financing to continue funding operations and necessary obligations under its bankruptcy agreement that could end up totaling over $124 million.

Separately, a former RMF sales support and business development employee has filed a class action lawsuit against RMIT due to the mass layoff of nearly 500 employees which took place on November 29. In the suit, the former employee alleges that RMIT/RMF violated the Worker Adjustment and Retraining Notification (WARN) Act across several different states, which requires 60 days of advance notice prior to the institution of a large-scale reduction in force (RIF).

The suit was brought in U.S. Bankruptcy Court for the District of Delaware, where other proceedings related to the RMF winddown are taking place.

Additional financing

Presiding Judge Mary Walrath authorized RMF to obtain post-petition DIP financing in what is expected to eventually total approximately $124.5 million. In court on Thursday, an attorney representing RMIT made the case for the separate channels of financing the company sought to get approved.

“As we discussed at the first-day hearing, the debtors have two principal liabilities related to the Ginnie Mae MSR that requires significant funding during the transfer,” the lawyer explained to the judge. “The first is tail requests, those are those borrower requests and the expenses related to mortgages. And the second is our monthly Ginnie Mae buyout obligation, and that relates to the purchase of the active buyouts, and the nonactive loans from the Ginnie Mae-backed securitizations.”

Judge Walrath issued an order immediately releasing $34.5 million in financing for obligations to reverse mortgage borrowers, one of whom told RMD that she didn’t receive her most recent scheduled disbursement. 

Once other obligations are met, an additional $10 million of “pre-petition obligations” will be released for RMIT to that is owed to Leadenhall Capital Partners, one of its warehouse credit lenders.

The lawyers for RMIT acknowledged that Judge Walrath was being inundated with scores of voluminous documents, and Judge Walrath ultimately approved this second interim DIP financing order so long as the final petitions were filed by the end of the day.

“The interim relief granted herein is necessary to avoid immediate and irreparable harm to the Debtors and their estates pending the Final Hearing,” Judge Walrath’s order stated.

The order follows a decision by Judge Walrath earlier this week allowing for $13 million to fund payments to reverse mortgage borrowers as it winds down operations.

Class action lawsuit

Since the affected employees of the mass layoff were not given 60 days advance written notice of their terminations by RMF, the company did not observe the legal requirements specified in the WARN Act, the lawsuit alleges.

The suit goes on to say that WARN Act provisions in the states of New York, New Jersey, California and the federal government were violated, and seeks “unpaid wages, salary, commissions, bonuses, accrued holiday pay, accrued vacation pay, pension and 401(k) contributions and other ERISA benefits, for 60 days, that would have been covered and paid under the then applicable employee benefit plans had that coverage continued for that period, all determined in accordance with the WARN Act,” according to the suit.

The plaintiff, a former sales support and business development employee named Melissa Giglio, and other eventually-situated members of the full class — if it is certified — are also seeking 60 days’ worth of health insurance coverage for 60 days after their terminations. Giglio would also serve as the class representative if it is certified.

The attorneys for Giglio and the eventual class did not immediately return a request for comment.

A similar turn of events transpired following the abrupt closure of reverse mortgage lender Live Well Financial in 2019. At that time, Alejandro Caffarelli, employment attorney and shareholder at Caffarelli and Associates, Ltd. in Chicago, Ill., explained for RMD that a closing company facing these allegations may be able to claim different defenses depending on the circumstances of the company’s closure.

“The typical defenses to WARN claims are the faltering company defense, or the unforeseen business circumstances defense,” Caffarelli told RMD in 2019. “[It can be] common to see scenarios where [a company is] trying to get financing, or they’re trying to do what they can to stay in business, and if they could show they were doing that and [demonstrate] that giving employees notice would’ve caused a mass exodus which would’ve put the business under, then they may be able to take advantage of that faltering company defense.”

The ‘unforeseen business circumstance’ defense, Caffarelli described, can be cited if the company “had no reason to believe they would’ve been closing,” which would release them from the requirement to provide 60 days’ advance notice to employees.

As of Friday afternoon, RMF had yet to file a response to the class action suit.