Bank of America has filed a $1 billion lawsuit against Colonial Bank claiming that the beleaguered bank sold loans without passing on the proceeds. The litigation came on the heels of Colonial’s acknowledgement that accounting irregularities might extend beyond just one year.
The lawsuit was filed Wednesday by Bank of America, National Association, in U.S. District Court in Miami.
In June 2008, notes issued by Ocala Funding LLC — a subsidiary of Taylor, Bean & Whitaker Mortgage Corp. — were purchased where Bank of America was indenture trustee, according to the complaint. A swap transaction accompanied the purchase. BoA also acted as collateral agent in the deal, taking possession of the loans and documents.
Taylor Bean was the seller and servicer on the loans in question.
Once Colonial received a loan and the corresponding documentation, it had 15 days to either sell the loan to Freddie Mac and pass along the proceeds to BoA or return the file to BoA, the Charlotte, N.C.-based institution said in the lawsuit.
But BoA claims Colonial collected more than $1 billion from Freddie from June 11 to Aug. 4 without forwarding the proceeds.
BoA said it requested the loans back on Aug. 6, and five days later it issued a demand for documents and proceeds which revoked the bailee letters and terminated of Colonial’s rights to maintain possession of the loans.
However, Colonial has reportedly refused to return the loans.
“Bank of America fulfilled all of its obligations,” the complaint says. “Colonial Bank nevertheless has filed and refused to (a) deliver to Bank of America, as collateral agent, all or substantially all of the sales proceeds and (b) deliver back to Bank of America, as collateral agent, the remaining loans.”
The lawsuit went on to cite Colonial BancGroup Inc.’s disclosure that it might not survive as a going concern, disclosure of a criminal raid by the FBI and Special Inspector General of the Treasury Department’s Troubled Asset Relief Program and other regulatory actions against the struggling Montgomery, Ala.-based institution.
The lawsuit came one day after Colonial BancGroup Inc. disclosed that it would miss the deadline for its quarterly financial filings with the Securities and Exchange Commission because it doesn’t know what its condition is now that accounting irregularities have been identified for more than one just one year.
Bank of America, National Association, Plaintiff, vs. Colonial Bank and John Doe #1-10, Defendants.
Case No. 09-22384, Aug. 12, 2009 (U.S. District Court for the Southern District of Florida Miami Division).