Minneapolis-based U.S. Bank NA on May 24 sued Bank of America Corp. over a 2007 contract on the sale of residential mortgage-backed securities, in which the former is a trustee.
The suit, which was filed in the U.S. District Court for the Southern District of New York, alleged that BofA unit First Franklin Financial Corp. certified that the loans were of a certain quality and promised that if a loan turned out to be defective, it would either cure the breach or repurchase the loan. U.S. Bank said it discovered thousands of defective mortgage loans and alleged that the defendants failed to notify U.S. Bank of their existence.
U.S. Bank argued that the certifications were important as the trust and its potential certificate holders were not legally required to conduct due diligence on the quality of the loans.
The plaintiff then served notices to ask the defendants to either cure the breach or repurchase the loans. Merrill Lynch Mortgage Lending Inc. then repurchased some of the defective loans on First Franklin's behalf, but an "overwhelming majority" of these loans were neither cured nor repurchased, according to the suit. Merrill Lynch Mortgage Lending and First Franklin are also named as defendants with BofA in the suit.
Under a 2007 contract, First Franklin sold the mortgage loans to Merrill Lynch Mortgage Investors, another Merrill Lynch subsidiary, which then deposited the loans to the trust.
U.S. Bank asked the court that the company be compensated for the damages it allegedly suffered from the defendants' failure to comply with their obligations.
U.S. Bank and BofA declined to comment on the litigation when contacted by S&P Global Market Intelligence.