December 9, 2011 / 1:52 AM / in 6 years

BofA lawyer says settlement challenger is Baupost

NEW YORK (Reuters) - Walnut Place, a group of undisclosed investors who oppose Bank of America Corp’s (BAC.N) $8.5 billion mortgage bond settlement, is the Baupost Group, a distressed debt fund, according to an attorney for the bank.

“Walnut Place is actually a made up name,” Theodore Mirvis, an attorney with Wachtell, Lipton, Rosen & Katz who represents Bank of America, said at a hearing in New York state Supreme Court Thursday.

The “real” firm, which sued Bank of America and Bank of New York Mellon BKNYK.UL, as trustee, over mortgage-backed securities trusts is Baupost -- “known as a distressed debt or sometimes a vulture fund,” Mirvis said.

Baupost spokeswoman Elaine Mann declined to comment on whether the Boston-based hedge fund was behind Walnut. David Grais, an attorney at Grais & Ellsworth LLP in New York who represents the Walnut entities, also declined to comment on whether Walnut was Baupost.

Like most hedge funds, Baupost doesn’t usually disclose its earnings or investments, but was reported to have $23 billion in assets last year.

Walnut Place is involved in separate cases against Bank of America.

In August, 11 entities sharing the name Walnut Place filed to remove the global $8.5 billion settlement case from New York state to federal court, citing its size and complexity.

The settlement was intended to resolve much of Bank of America’s remaining legal liability tied to its disastrous 2008 purchase of mortgage lender Countrywide Financial Corp. The deal, which was reached with over 20 institutional investors, would apply to other investors as well.

The decision to remove the case to U.S. District Court for the Southern District of New York is on appeal to the U.S. Court of Appeals for the 2nd Circuit.

Bank of New York Mellon is the trustee for the 530 mortgage securitization trusts covered by the proposed agreement.

Mirvis and Grais were in state court Thursday, arguing on a motion by Bank of America to dismiss a separate case that the Walnut Place entities brought against Countrywide Home Loans for breaching the agreements governing two mortgage-backed securities trusts. Trustee Bank of New York Mellon is also a defendant.

Mirvis argued the lawsuit should be dismissed because the right to sue for the repurchase of loans on representation and warranty claims belonged to the trustee. He told the judge that if she sides with Bank of America, “there’s no plan B for certificate holders.”

Grais argues that holders of 25 percent of voting rights are authorized to bring cases when the trustee doesn’t want to.

In a May court filing, Bank of America said that Baupost sent letters to the Bank of New York Mellon, claiming it was a certificate holder and that loans in two trusts did not comply with representations and warranties made by Countrywide Home Loans. They said appraisals were inflated and other information had been misrepresented.

Baupost demanded the trustee give notice of the alleged breaches to Countrywide, according to the document, and require Countrywide to repurchase the loans. On December 21, 2010, the trustee received a letter concerning one of the trusts from entities including the “Walnut Place” entities.

“The Walnut Place entities claimed to have been assigned Baupost’s interest in that trust,” the document said.

The case in state court Thursday was Walnut Place LLC v. Countrywide Home Loans Inc, 650497/2011, New York state Supreme Court (Manhattan).

The federal case for the $8.5 billion proposed settlement is Bank of New York Mellon v. Walnut Place LLC, 11-cv-05988, U.S. District Court, Southern District of New York (Manhattan).

Reporting by Karen Freifeld in New York; Editing by Richard Chang

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