AHMSI Is Fighting Lawsuit.

New York-In another sign of growing tension between investors in mortgage securities and servicers of subprime loans, Carrington Capital Management has prepared a lawsuit against American Home Mortgage Servicing Inc., alleging that the firm exacerbated losses on the sale of foreclosed homes.

The complaint, which was served on AHMSI last week, argues that AHMSI engaged in an "egregious failure to honor unique certificate holder rights that Carrington specifically bargained for," granting Carrington a larger role in making decisions about the sale of foreclosed homes, or REO, than an investor would normally have. Carrington claims those special rights were negotiated with the original servicer, Option One, which was later acquired by AHMSI.

In the complaint, Carrington argues that in September of last year, AHMSI "encountered financing difficulties" in making servicing advances on delinquent loans to investors. As a result, the complaint claims that AHMSI sped up the sale of REO at fire-sale prices late last year as the company came under pressure to pay down a credit line.

Carrington argues that under the pooling and servicing agreements, AHMSI's managing of the REO sales should be considered an "event of default" by the servicer, allowing AHMSI's servicing contract to be terminated.

The PSA requires an investor to get the backing of 25% of certificate holders in a deal to sue the servicer, but Carrington argues that because of its "unique rights," the ...