A trustee of a $1.75 billion mortgage pool has sued Bank of America in Manhattan recently, seeking to force the company to buy back the underlying loans after alleging the company made misrepresentations about how the loans were made in the first place, Thomson Reuters reports.
Among the most complex areas in the legal system, banking law in New York can apply to a wide range of issues, from mergers and acquisitions to insider trading issues and truth in savings and truth in lending matters.
These matters are complex and there is often a lot at stake. Banks are critical in making sure our economy moves forward. Credit and loans, as well as people's savings accounts and investments must be secure and sound. But banks, like any average person, must make investments in order to generate money to please shareholders.
And as the economy has weakened and investors have lost money, people are looking for someone to blame. This goes for individual investors as well as big banks. Because lenders were affected by the real estate crash, they are now at the forefront of many investor lawsuits. These lawsuits must be defended in order to ensure banks can survive and continue serving customers. Conversely, consumers have a right to be treated fairly and may have to take a bank on in court in order to win justice in a foreclosure case or other litigation.
In this case, a lawsuit filed in state court in Manhattan alleges that Countrywide, which Bank of America acquired in 2008, issued 4,484 loans and materially misrepresented the quality of its underwriting and loan documentation. The lawsuit was filed by the banking unit of US Bancorp.
According to the lawsuit, soon after the loans were sold to the trust of investors, the loans became "delinquent and default" at a "startling" rate, the lawsuit states. Out of a sample of 786 loans, 66 percent breached at least one representation made by the bank, the trust alleges.
Bank of America has had to fend off lawsuits filed against Countrywide, which the bank paid $2.5 billion for three years ago. Yet, write downs and legal costs have increased the estimated cost to $30 billion.
The documentation used by loans during the 2008 peak of the real estate market in the United States has been called into question on all sides. Foreclosure defense attorneys have said banks used "robo-signed" documents by mortgage servicers and filed inaccurate paperwork in trying to take away a home that a person has failed to make monthly mortgage payments on. Now investor groups are alleging that bad documentation of loans has caused problems.