Cityscape Financial Corp., a subprime lender that imploded this year, is suing the buyer of its U.K. business, alleging the company has not paid up fully.
Ocwen Financial Corp., a West Palm Beach, Fla., distressed-asset specialist, said in April that it would buy City Mortgage Corp., London. The deal, which was to bring Cityscape a reported $86 million in cash, was seen as a Band-Aid for the capital-strapped lender.
Cityscape's most recent quarterly report to the Securities and Exchange Commission said Ocwen owes it more than $4 million. Ocwen is claiming breach of contract by Cityscape and seeking return of one-quarter of the purchase price, the SEC filing said.
A lawyer for Ocwen would say only that Cityscape, based in Elmsford, N.Y., had sued Ocwen Sept. 4 in England. A lawyer for Cityscape did not return calls.
The Cityscape filing also said that Ocwen claims it is due $21.4 million because of City's "alleged excessive charging to borrowers, alleged failure to notify borrowers of interest rate rises, and alleged failure to advise borrowers of increased repayments."
Cityscape said in the quarterly report that it believes the Ocwen complaint is without merit. Cityscape sold its U.K. business after the unit was crippled by an Office of Fair Trade crackdown on high loan charges.
In July, Ocwen completed a $365 million securitization backed by City Mortgage loans. More than 80% of the notes in the transaction were given an AAA rating by Duff & Phelps, and all were rated at least investment-grade, Ocwen said at the time. Greenwich Natwest in London underwrote and structured the securities.
Ocwen specializes in buying pools of poorly performing loans and using special servicing techniques to improve their performance. Its apparent effort to get a partial refund for the purchase of City Mortgage led some observers to speculate that it has had difficulty collecting on the former Cityscape loans.