After a Manhattan appellate court unanimously upheld a lower court ruling on Tuesday, Bank of America’s Merrill Lynch (BAC) must now face a lawsuit brought by two trusts that sued the lender, in an effort to force the company to buy back loans after the representations and warranties of the loans were violated.
Bloomberg reported the court's decision:
Merrill in 2006 bought 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 turned them into tradeable securities that were sold to investors, according to the complaint.
An appellate court in Manhattan today unanimously upheld a September 2013 ruling by Justice Melvin Schweitzer denying a motion to dismiss the suit, saying only that it reached the decision for different reasons as “extrinsic evidence” had to be used to determine the meaning of an “ambiguous” contract provision. Schweitzer said Merrill had guaranteed the obligations of ResMAE under a transfer agreement.
ResMAE filed for bankruptcy in February 2007 and the trusts subsequently pursued claims against it through LaSalle Bank, demanding that it buy back loans on which borrowers had missed their first or second payments or provide other compensation, according to the complaint.
The two trusts, which administered mortgages on behalf of investors who owned securities for the $1.1 billion pool of loans, said Merrill was obligated to buy back the loans because ResMAE could no longer fulfill its contractual obligations because the company had been liquidated in bankruptcy.
After today’s ruling, the lawsuit can proceed in New York State Supreme Court.
Earlier in the day, SunTrust (STI) agreed to pay $968 million to settle claims brought against the company by the U.S. Department of Housing and Urban Development, the U.S. Department of Justice, the Consumer Financial Protection Bureau and attorneys general in 49 states and the District of Columbia over SunTrust’s mortgage servicing and foreclosure practices.
