A Countrywide Bankruptcy Could Thrust BofA Into An Epic Litigation Battle

Countrywide seems to be the latest financial giant facing the possibility of bankruptcy due to foreclosure toxic run off.  The mortgage company, which was absorbed by Bank of America (BofA) is bleeding revenue fast, causing the nationwide bank to suffer major losses.  But financial losses aren’t the only troubles plaguing BofA, some asset transfers from the Countrywide to BofA have at least one creditors up in arms.  AIG is suing Bank of America accusing it of siphoning off the Countrywide’s assets.

The complaint filed by A.I.G. against Bank of America describes these transactions: On June 2, 2008, Countrywide Home Loans, a subsidiary of Countrywide Financial, sold Countywide Home Loans Servicing, another subsidiary, to NB Holdings, another subsidiary that was wholly owned by Bank of America. Bank of America paid Countrywide Home Loans for this sale by issuing it a note for $19.7 billion. Countrywide Home Loans Servicing was the actual subsidiary of Countrywide that serviced almost all of Countrywide’s mortgage loans. Countrywide Home Loans also sold a pool of residential mortgages to NB Holdings for $9.4 billion. On Nov. 7, 2008, Countrywide Home Loans sold the rest of its assets to Bank of America for $1.76 billion.

Generally speaking, when a company like BofA purchases an insolvent firm, they take care to protect themselves from the liabilities of the company. Such was the case for BofA’s purchase of Countrywide. However, if AIG’s assertions are valid and Countrywide is placed in bankruptcy, BofA could face accusations of unfairly transferring assets of the insolvent firm. Under bankruptcy law, an entity or individual who transfers assets for less than their fair value could be guilty of illegally transferring assets and thus find themselves facing liability in a bankruptcy case.

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