Posted in Negligence on May 8, 2013
According to reports, “A California judge has opened the door for the American International Group to pursue a fraud claim of more than $7 billion against Bank of America for losses it suffered on mortgage securities sold under duress after the federal government rescued A.I.G. in 2008.”
The ruling, issued on Monday, “is a setback for Bank of America, which has been trying to rid itself of numerous legal claims from investors who bought mortgage securities issued by the bank’s Countrywide Financial and Merrill Lynch units. In the California case, in which A.I.G., the giant insurance company, sued Bank of America over fraudulent mortgage securities, Bank of America argued that A.I.G. had no standing to sue because it had transferred that right when it sold the instruments to the Federal Reserve Bank of New York in the fall of 2008.”
The suit stems from claims by A.I.G. that Bank of America provided mortgages to buyers who lacked adequate finances to pay the note. A.I.G. alleges that Bank of America then resold the notes under false pretenses, by essentially representing to A.I.G. that the notes were secured by home purchasers who could not reasonably pay off the note.
The success of A.I.G. at this stage may pave the way for other purchasers of mortgage-backed securities to seek damages against other lenders.