Bank of America Corporation
) may have to counter yet another legal hassle as a New York
appeals court upheld a prior judgment that its unit - Merrill Lynch
Mortgage Lending Inc. - must face a lawsuit filed by two trusts
back in 2012. These trusts manage mortgages on behalf of investors
having ownership of more than $1 billion of securities
collateralized by the loans.
The lawsuit filed in New York State Supreme Court in Manhattan is
to compel the company to repurchase the allegedly defective loans.
As per the complaint, back in 2006, Merrill Lynch purchased more
than 6,000 mortgages with an original principal balance of more
than $1.1 billion from a third-party loan originator - ResMAE
Mortgage Corp. and converted such mortgages into tradable
securities (RMBS - residential mortgage-backed securities), which
were sold to investors.
In Feb 2007, ResMAE filed for bankruptcy. While it went bankrupt,
the trusts pursued claims against ResMAE through LaSalle Bank
demanding to buy back the loans pertaining to borrowers who have
missed the first or second payments or provide other compensation.
Later in Jul 2008, LaSalle settled those claims on behalf of 5 of
Merrill Lynch's sponsored trusts, including the two plaintiffs
listed in this lawsuit.
The two trusts claim that Merrill Lynch is liable to buy back the
loans since ResMAE violated the representations and warranties and
the latter is not in a position to execute the obligations of the
contract following its bankruptcy.
In Sep 2013, the New York Supreme Court in Manhattan ruled that
BofA should face the lawsuit. The company appealed for dismissal of
the lawsuit stating that it was not accountable for the violations
of ResMAE. However, the court currently turned down the plea and
upheld the previous decision.
If BofA needs to reach a settlement owing to the probable lawsuit,
it will weigh on the company's financials. However, nothing
conclusive can be said about the outcome of the lawsuit until the
extent of Bank of America's involvement in the case is revealed.
Bank of America currently holds a Zacks Rank# 4 (Sell). Some better
ranked stocks include
Capital City Bank Group Inc
CVB Financial Corp.
Community National Bank
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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