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July 27, 2015 Practice Points

BOA Sued for Alleged Misrepresentations Regarding Residential Loans

A glaring reminder that the mortgage crisis continues to impact lenders, insurers, and potentially the residential lending market as a whole.

By Kendal L. Weisenmiller

Seven years after the 2008 residential-mortgage crisis and Great Recession, their effects continue to impact today’s residential-lending market. On June 26, 2015, U.S. Bank, as trustee for a securitizied pool of home loans identified as Lehman XS Trust, Series 2007-7N, filed suit in New York state court against Bank of America and others for alleged misrepresentations and warranty breaches made in the sale of the pool of residential mortgages.

Specifically, U.S. Bank asserts that Countrywide breached various representations and warranties made under a 2007 warranties and servicing agreement, in part by failing to buy back the loans as the agreement required and failing to pay the trust for $178 million in losses incurred as a result of Countrywide’s alleged misrepresentations. U.S. Bank seeks an order compelling Bank of America, as successor-in-interest to Countrywide Home Loans, Inc., to buy back the loans or repay it for the losses, in addition to a declaratory judgment that Bank of America must comply with its contractual obligations.

Bank of America is facing similar claims in a December 2014 lawsuit, also in New York state court, filed by bond insurer Ambac Assurance Corp. Ambac insured approximately $1.68 billion of securities backed, in part, by mortgages from Countrywide’s home-loan unit. Seeking at least $600 million in damages, Ambac’s suit claims Countrywide lied about the mortgages complying with conservative underwriting guidelines and representing that the mortgages were solid investments.

Bank of America contends that the suit must be dismissed because, in part, Ambac cannot demonstrate justifiable reliance upon any alleged representation, as Ambac had access to offering documents containing the relevant disclosures and failed to properly investigate the loans.

These lawsuits are a glaring reminder that the mortgage crisis continues to impact lenders, insurers, and potentially the residential lending market as a whole.

Kendal L. Weisenmiller, Dickinson Wright PLLC, Las Vegas, NV

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