Alison Frankel, Reuters
On Tuesday, Bank of America broke what I believe is new ground in mortgage-backed securities litigation. The bank brought a declaratory judgment suit against Wells Fargo, the trustee in a commercial MBS offering by BofA predecessor LaSalle Bank, requesting a judicial ruling that BofA is not required to comply with the trustee’s put-back demand. The complaint, filed in federal district court in Chicago by Aronberg Goldgehn and Cadwalader, Wickersham & Taft, contends that Wells Fargo didn’t comply with the terms of the governing contract, and, moreover, that some of the underlying loans the trustee wants BofA to buy back are performing just fine.
The MBS trust is backed by commercial rather than residential mortgages, so it’s not necessarily a harbinger of declaratory judgment claims in response to the rash of RMBS trustee suits we’ve seen lately. But Wells Fargo’s put-back demand, as BofA describes it in the complaint, was based on the same kind of alleged underwriting deficiencies cited by investors in RMBS put-backs. Wells Fargo has been notably quick and aggressive about asserting put-backs on mortgages underlying LaSalle commercial MBS offerings, even going to trial against BofA in federal court in Oklahoma last year in a 2008 case claiming that LaSalle’s underwriting process was systemically tainted. Perhaps when BofA has had as much experience with RMBS trustees as it has had with Wells Fargo on commercial MBS, we’ll see similar declaratory judgment actions. (I left a phone message forGregory Markel of Cadwalader but didn’t hear back.)