Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

7. Commitments and Contingencies

Litigation, claims and assessments

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. We believe the matters to which we were party as of September 30, 2020 will not have a materially adverse effect on our financial position or results of operations upon resolution. The following new legal action was commenced in the third quarter of 2020:

Altisource Portfolio Solutions S.A., et al. v. Front Yard Residential Corporation

On August 17, 2020, two purported Company stockholders, Altisource Portfolio Solutions S.A. and Altisource S.A.R.L. (collectively, “Altisource”), commenced an action against us in the Circuit Court for Baltimore City, captioned Altisource Portfolio Solutions S.A. and Altisource S.A.R.L. v. Front Yard Residential Corp., No. 24-c-20-0033529 (Md. Cir. Ct. Baltimore City) (the “Action”). Altisource generally alleges that it was fraudulently induced to hold its position in the Company, including by signing a support agreement in connection with the terminated Agreement and Plan of Merger between the Company and Amherst Residential Partners IV, L.P., and by alleged misstatements and omissions concerning the likelihood that the Amherst transaction would close. The Company believes the claims are without merit and intends to vigorously defend the Action.

Potential purchase adjustments of certain properties sold

In January 2020, we received notice regarding potential purchase price adjustment/indemnification claims of up to $1.2 million relating to certain real estate sold in January 2019. We are investigating these claims, and, if they are determined to be valid, we may be required to forfeit a portion of the sales proceeds to the purchaser, based on the terms of the purchase agreement. At September 30, 2020, we have reserved $0.8 million of indemnity loss, which is included in net realized gains and losses on mortgage loans and real estate.

Acquisition from AAMC under the Termination Agreement

On August 13, 2020, we entered into the Termination Agreement with AAMC, facilitating our transition from an externally managed REIT to an internally managed REIT. In connection therewith, we expect to acquire the equity interests of AAMC’s Indian subsidiary and the equity interests of AAMC’s Cayman Islands subsidiary as well as certain other operational assets and employees of AAMC. The purchase price for this acquisition of the Transferred Assets is $8.2 million, consisting of an upfront payment of $3.2 million, which was paid in cash on August 17, 2020, and a payment of $5.0 million in cash or Front Yard common stock, at our election, on the Termination Date.

COVID-19 Pandemic

Due to the current COVID-19 pandemic in the United States and globally, our employees, tenants, lenders and the economy as a whole have been, and will continue to be, adversely impacted. The magnitude and duration of the COVID-19 pandemic and its impact on our tenants, cash flows and future results of operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat the pandemic, and reactions by consumers, companies, governmental entities and capital markets. Although the impact of COVID-19 on our business to date has been limited, the prolonged duration and impact of the COVID-19 pandemic could materially disrupt our business operations and impact our financial performance.