BofA May Acquire Legal Headaches Together With Countrywide

The Wall Street Journal says Bank of America (BAC) may inherit legal troubles along with its buyout of Countrywide (CFC). Countrywide faces numerous borrower lawsuits, and is under investigation by federal and state regulators for alleged lending abuses, issues which are normally assumed by the acquiring company in a takeover.

The bulk of the actions against Countrywide are individual claims connected to foreclosure cases across the country, with assertions ranging from violations of federal lending laws during loan origination to duping elderly borrowers into taking out high-interest loans to mishandling loan payments, according to Ira Rheingold, executive director of the National Association for Consumer Advocates, whose members represent homeowners facing foreclosure lawsuits.

There are a number of other suits that could blossom into costly headaches for the company. In California, shareholders filed six suits this past fall against the company, Chief Executive Officer Angelo Mozilo and other executives in federal court, claiming they issued false and misleading statements about the company's health. The suits have been consolidated, and the company hasn't responded.

Furthermore, the company faces at least 12 class-action suits alleging borrower abuse. BofA must also take care that plaintiffs don't try and bilk its deep pockets, the Journal says.

Comments

[kkin365:]

While reading the aforementioned WSJ article, I was puzzled that a company can buy another's assets -- in toto, as it were in Countrywide's case -- without assuming the latter's liabilities. After the latter is folded, where can a creditor seek remedy? Is this a typical instance of capitalism?

2008 Jan 12 09:33 AM

[Norman Lepo...:]

Very interesting!

2008 Jan 12 10:53 AM

[gordon:]

On the money, Wakeup. The Feds will indemnify BAC. Period, end of story.

2008 Jan 12 01:07 PM