CHARLOTTE, N.C.-Bank of America has filed suit against MGIC Investment Corp. In a complaint filed in the Superior Court of California for San Francisco, BofA is alleging that MGIC, a Milwaukee mortgage insurer, is denying "millions of dollars in valid mortgage insurance claims" the lender has submitted.
Rhonda Orin, a Washington-based partner at the law firm Anderson Kill & Olick, which specializes in representing policyholders, told American Banker, an affiliate of Credit Union Journal, that it "seems inevitable" that lenders would resort to litigation to fight insurance rescissions, given the financial stakes.
"Everyone is looking for financial relief from this situation and insurance is one place to look and the insurance companies are saying, 'Look elsewhere,'" said Orin, who is not involved in the B of A suit. "Lenders have been trying to handle it without full-blown litigation" so far, she said, by seeking intervention from state insurance commissioners and negotiating directly with insurers.
But "there's been an increase in inquiries from lenders to us about what their options are," she said.
MGIC said in a Securities and Exchange filing that it would "vigorously" defend itself against B of A's suit. A spokesman for MGIC said the company would not discuss the matter further.
B of A alleged that MGIC "has adopted unreasonable interpretations of its mortgage insurance policy language to justify its failure to pay claims" because of steep losses during the downturn.
The Charlotte banking company — which became the largest residential lender and servicer by purchasing Countrywide Financial Corp. last year — asked the court to determine the proper interpretation of terms of its policies with MGIC.
Among other things, BofA said, MGIC has improperly taken the position that the lender must prove it was not aware of an alleged borrower misrepresentation to avoid rescission of a policy.
