A New York State Supreme Court judge dismissed a lawsuit filed by investors who challenged an $8.4 billion settlement between Bank of America Corp. and state attorneys general related to predatory-lending accusations.

As part of the 2008 deal, the Charlotte, N.C., bank agreed to modify about 400,000 mortgages serviced by Countrywide Financial Corp., which was acquired by Bank of America. Most of those loans are owned by investors.

In the suit dismissed by the New York judge, bond investors sought to require that Countrywide "purchase every mortgage loan on which it agrees to reduce the payments," according to court filings.

The push was aimed at shielding the investors from losses caused by the loan modifications, underscoring longstanding tensions between mortgage-bond holders and the servicing companies responsible for collecting loan payments and working with troubled borrowers.

In an Oct. 7 ruling, New York State Supreme Court Judge Barbara Kapnick said investors are barred from bringing the suit because they didn't satisfy terms set out in pooling and servicing agreements for the bond deals.

Under those agreements, investors are "expressly" prevented from bringing "any suit, action or proceeding" unless they have the agreement of 25% of the bondholders or met other procedural requirements, the judge said.

Such requirements have made it difficult for investors to challenge servicers of mortgages bundled into other securities. "We are reviewing the opinion and considering whether to file an appeal," said David J. Grais, a New York lawyer representing the investors.

In a statement, Bank of America said it is "pleased ... with the court's recognition that investors seeking to commence litigation over alleged violations of mortgage pooling and servicing agreements have to meet the procedural preconditions for that litigation first."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.