Bank of America Corp. has scored a legal victory as it attempts to secure $1 billion from ailing Colonial Bank.
On Wednesday, Bank of America, National Association, filed a complaint in a Miami federal court alleging that Colonial sold loans to Freddie Mac without passing on the proceeds.
The case involves more than 6,000 mortgages for $1 billion. Colonial was supposed to hold the loans in trust while Freddie considered them for purchase then pass on either the sale proceeds or loans to BoA.
“In no event was Colonial permitted under the agreement to hold the sale proceeds or notes at issue for more than 15 days from the date of the transmittal letter,” U.S. District Judge Adalberto Jordan wrote in an Order Granting Motion for Temporary Restraining Order that was filed yesterday.
The judge wrote that the relationship between the plaintiff and defendant took a turn for the worse in July when Colonial fell out of compliance with the Federal Reserve’s capital requirements, became the subject of a criminal probe and warned of its likely collapse.
The order indicated that temporary restraining orders are appropriate when the plaintiff appears likely to win the case, irreparable harm will be caused and the harm to the plaintiff outweighs the damage to the enjoined party. It also requires that the injunction won’t harm public interest.
“I find that Bank of America has met its burden in this case as to each of the four requirements,” Jordan wrote. “As detailed in the motion, Colonial maintains a clear contractual obligation to return to Bank of America more than $1 billion in assets, but has-to-this-point-rebuffed requests by Bank of America to remit the full amount owed.”
BoA is scheduled to present its argument for a preliminary injunction on Aug. 28.
BoA’s $1 Billion Lawsuit
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.
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).