Bank of America Corp. (BAC:US)’s lawsuit against the Federal Deposit Insurance Corp. for $1.7 billion in client losses was revived after the agency said that a bank at the center of the Taylor Bean scandal may have enough assets to pay the claims.
U.S. District Judge Barbara Rothstein yesterday vacated her August 26 order dismissing Bank of America’s claim against the FDIC, which it made as trustee for Ocala Funding LLC, a mortgage financing vehicle Taylor Bean controlled.
The case (BAC:US) stems from a mortgage-fraud scheme at failed lender Taylor Bean & Whitaker Mortgage Corp. From 2002 through August 2009, Lee Farkas, while he was chairman of Taylor Bean, sold more than $1.5 billion in fake mortgage loans to Colonial Bank with the collusion of its employees and diverted more than $1.5 billion from Ocala Funding.
Rothstein’s ruling followed the FDIC’s notice, published in the June 10 Federal Register, withdrawing its finding that there aren’t enough assets in the receivership of Colonial Bank, of Montgomery, Alabama, to make payments to general unsecured creditors. Colonial Bank’s purchase of fake mortgages from Ocala Funding led to its collapse.
“The receivership’s theoretically possible recoveries have been revised upwards as a result of changed circumstances and could possibly exceed the previously calculated $1.698 billion deficit, which in turn could possibly result in payment on non-deposit claims under the most favorable circumstances,” the FDIC said in the notice.
The notice offered no indication of the amount of potential payments.
“Although highly unlikely, it is theoretically possible that non-deposit claims made upon the Colonial receivership could be paid,” Andrew Gray, an FDIC spokesman, said in an e-mailed statement.
Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on Rothstein’s ruling.
Farkas is serving a 30-year sentence after being convicted in April 2011 of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.
In its 2010 suit, Bank of America (BAC:US) argued that the FDIC didn’t follow its own procedures in assessing the Colonial Bank receivership’s funds, according to a Bank of America filing in June 2013.
Bank of America filed a second suit in 2013 specifically challenging the valuation process.
The case is Bank of America v. FDIC, 10-cv-1681, U.S. District Court, District of Columbia (Washington).
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