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merrill

merrill

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Published by: caitlynharvey on Dec 18, 2012
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01/26/2014

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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK
 
MERRILL LYNCH MORTGAGEINVESTORS TRUST, SERIES 2006-RM4,MERRILL LYNCH MORTGAGEINVESTORS TRUST, SERIES 2006-RM5,Plaintiffs,
 -
against-
 
MERRILL LYNCH MORTGAGELENDING, INC., MERRILL LYNCHMORTGAGE INVESTORS, INC., BANKOF AMERICA, NATIONALASSOCIATION,Defendants.
 
Index No. ___________COMPLAINT
Plaintiffs Merrill Lynch Mortgage Investors Trust, Series 2006-RM4 (“RM4 Trust”) andMerrill Lynch Mortgage Investors Trust, Series 2006-RM5 (“RM5 Trust”, and collectively, the“Trusts”), by U.S. Bank National Association (“U.S. Bank”), not in its individual capacity butsolely as current trustee with respect to the Trusts (the “Trustee”), by its attorneys, QuinnEmanuel Urquhart & Sullivan LLP, for their Complaint against Merrill Lynch MortgageLending, Inc. (“Merrill”, the “Sponsor”, or “Merrill Sponsor”), Merrill Lynch MortgageInvestors, Inc. (“Merrill Depositor”), and Bank of America, National Association (“Bank of America”) (all collectively, “Defendants”) allege as follows:
NATURE OF ACTION
1.
 
In this action, Plaintiffs are two securitization trusts that hold and administermortgage loans on behalf of investors who own securities collateralized by such loans. Plaintiffsseek to enforce their contractual rights against the parties that orchestrated the securitizations and
FILED: NEW YORK COUNTY CLERK 12/18/2012
INDEX NO. 654403/2012NYSCEF DOC. NO. 2RECEIVED NYSCEF: 12/18/2012
 
 2created the two Trusts, sold defective loans into the Trusts, and have refused to repurchase suchloans in violation of the contracts governing the securitizations.2.
 
In 2006, as a part of its effort to increase its share of the then-highly profitableresidential mortgage-backed securities (“RMBS”) market, Merrill bought over 6,000 mortgageloans (“Mortgage Loans”) with original principal balance of over $1.1 billion dollars from athird-party loan originator, ResMAE Mortgage Corporation (“ResMAE”). Through the processof securitization, Merrill turned these mortgages into tradable securities in the form of certificates (“Certificates”). Certificates were issued by the RM4 Trust and the RM5 Trust onSeptember 27, 2006 and October 27, 2006 for the RM4 Trust and RM5 Trust, respectively, andsold to investors, which resulted in over a billion dollars of proceeds to Merrill Depositor. EachCertificate entitles its holder to cash flows from the loan payments on the correspondingmortgages.3.
 
Merrill accomplished each securitization primarily through three contracts:
 
The Master Mortgage Loan Purchase and Interim Servicing Agreement (the “PurchaseAgreement”) (a copy of which is attached hereto as Exhibit A), pursuant to which Merrillpurchased Mortgage Loans from ResMAE;
 
The Mortgage Loan Sale and Assignment Agreement (each, a “Sale Agreement”) (copiesof which for each Trust are attached hereto as Exhibit B), pursuant to which MerrillSponsor transferred the Mortgage Loans to an affiliated entity Merrill Lynch MortgageInvestors, Inc. that acted as a depositor; and
 
The Pooling and Servicing Agreement (each, a “PSA”) (copies of which for each Trustare attached hereto as Exhibit C), pursuant to which Merrill Depositor transferred theMortgage Loans to the Plaintiff Trusts.(collectively, the “Trust Agreements”).4.
 
To facilitate the sale of the Certificates to investors, who had no independentmeans of verifying the characteristics of the underlying mortgage loans, Merrill and ResMAEmade extensive representations and warranties in the securitization documents about the quality
 
 3and characteristics of the Mortgage Loans underlying the corresponding Certificates. Theaccuracy of the representations and warranties were a key component to closing a securitizationtransaction because, among other reasons—unlike Merrill and ResMAE—investors were notgiven access to the related loan origination files and could not have independently confirmed theloans’ credit characteristics. Accordingly, the veracity of these representations and warrantieswere the drivers of the loans’ risk profile.5.
 
In the Purchase Agreement, pursuant to which Merrill purchased the loans fromResMAE, the loan originator, ResMAE represented, among other things, that the loans compliedwith underwriting criteria, were issued to borrowers with sufficient income to repay them, andwere backed by properties valuable enough to allow investors to recoup the value of the loanthrough foreclosure. If any of the loans were found to breach representations and warranties,ResMAE committed to buy back the loan. Merrill’s rights against ResMAE were then assignedto the Trusts.6.
 
In the securitization process, Merrill also made its own representations andwarranties in the Sale Agreements concerning loans’ quality, restating many of ResMAE’spromises verbatim for the benefit of the Trusts (listing specific representations and providing thatsuch representations “are hereby restated by the Sponsor as of the Closing Date”). In addition,Merrill contractually guarantied ResMAE’s performance under the Purchase Agreement,ensuring that the risk of non-conformance with representations and warranties was not borne bythe Trusts. The right to enforce Merrill’s representations and warranties was assigned to theTrusts.7.
 
Merrill’s promises were designed to give investors comfort that not just ResMAEbut also Merrill ultimately stood behind the quality of the loans. If the loans did not hold up to

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