Judge Throws Out Investor Lawsuit Against Bank of America Over Mortgages

By | March 30, 2012

Bank of America Corp. on Thursday won dismissal of a lawsuit by investors who wanted the bank to buy back mortgage loans that underlie more than $1.06 billion of securities.

The case is tied to risky home loans issued by Countrywide Financial Corp., which Bank of America bought in 2008. The bank was also awaiting court approval for its proposed $8.5 billion settlement with investors who lost money on Countrywide mortgage-backed securities.

The judge who threw out the investor lawsuit was also overseeing the proposed settlement. New York State Supreme Court Justice Barbara Kapnick granted the bank’s motion to dismiss the case brought by investors who sued under the name Walnut Place.

The investors claimed that Countrywide made false representations about the loans.

Walnut Place sued in February 2011 on behalf of a trust that owned 6,531 loans in which it holds more than 25 percent of the certificate balances. Walnut Place is a name used by Boston-based hedge fund Baupost, which is run by money manager Seth Klarman.

The investors claimed Countrywide made false representations on about 1,432, or nearly 66 percent, of the 2,166 mortgage loans they investigated.

Walnut Place said Charlotte, North Carolina-based Bank of America refused its demand that it buy back the loans and that Bank of New York Mellon, the Countrywide trustee, who also was a defendant, “unreasonably failed” to sue the bank to repurchase the loans.

In dismissing the lawsuit, Kapnick said Bank of New York Mellon did act on the investors’ complaints. The trustee told Walnut it needed additional time to investigate the matter, the judge said in the ruling.

In addition, the $8.5 billion settlement over Countrywide mortgage-backed securities also showed that the trustee took action, the judge said. The settlement includes the more than $1 billion at issue in the Walnut Place lawsuit.

The settlement was reached in June with 22 institutional investors, including BlackRock Inc. and MetLife, to resolve liabilities from Bank of America’s $2.5 billion purchase of Countrywide in July 2008.

Walnut Place, which was not part of the settlement talks but would be bound by the terms of the agreement, has complained the $8.5 billion payout was too low.

The agreement must be approved by Kapnick in a separate proceeding. Walnut lost a bid last month to have the proposed settlement reviewed in federal court.

New York attorney David Grais, who represents Walnut Place, did not immediately respond to a request for a comment.

Lawrence Grayson, a spokesman for Bank of America, said the bank was pleased with the ruling.

Kevin Heine, a spokesman for Bank of New York Mellon, said the trustee was glad the court recognized that the bank acted properly in the matter.

The case is Walnut Place LLC et al v Countrywide Home Loans Inc et al, New York State Supreme Court, New York County, No. 65097-2011.

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