A New York State Supreme Court justice said Tuesday that Bank of America’s Merrill Lynch mortgage unit will have to defend a lawsuit over $1bn worth of mortgage-backed securities, Bloomberg reported Friday.
In a ruling dated Tuesday and made public Friday, Justice Melvin Schweitzer denied Merrill’s motion to dismiss the suit, which was filed by two trusts that hold and administer the mortgages backing the securities.
“The force of the trusts’ arguments subordinates Merrill’s unreasonable positions, however cleverly put they may be,” Schweitzer said.
In 2006, Merrill bought more than 6,000 mortgages from loan originator ResMAE Mortgage Corp. and turned them into securities that were sold to investors, Bloomberg reported. The trusts are seeking to force Merrill to buy back the loans, which they allege did not live up to the lender’s representations.
The lawsuit contends that Merrill is obligated to buy back mortgages in cases where misrepresentations were made by ResMAE, which was liquidated in a 2007 bankruptcy.
Merrill unsuccessfully argued that it was not responsible for misrepresentations made by ResMAE. Schweitzer, however, ruled that Merrill guaranteed ResMAE’s obligations under a transfer agreement, Bloomberg reported.