Knights of Columbus Add New Claims To BNY Mellon Mortgage Suit

The Knights of Columbus, an organization tied to the Catholic Church, on Tuesday raised the stakes in its fight against Bank of New York Mellon Corp. (BK) for failures to carry out duties as a bond trustee and to detect violations by the servicer.

The Knights of Columbus, which hold $17 billion in assets, claim that Bank of New York violated terms of agreements on 18 residential mortgage-backed securities issued by Bank of America Corp.'s (BAC) Countrywide unit, including maintaining files on underlying loans and ensuring master servicer Countrywide was pursuing foreclosures without undue costs to investors.

The investors, led by Dallas-lawyer Talcott Franklin, are asking for unspecified damages, return of the price of their investments and relief from any future liability because of the alleged violations by Bank of New York.

The investors' amended lawsuit was filed in New York Supreme Court.

Because loan files weren't cared for, the Knights of Columbus "did not acquire residential mortgage-backed securities, but instead acquired securities backed by nothing at all," the lawsuit stated.

The amended lawsuit came less than three months after the Knights of Columbus sued to get more information on the loans in two residential mortgage security trusts where Bank of New York is trustee and Countrywide is servicer. The trustee is responsible for ensuring terms of the bond contract are met, and is the first point of action for investors.

It is the latest twist in the snowballing fight by investors against mortgage lenders and related parties that played a role in expanding mortgage credit until the housing bubble burst.

Wall Street banks intoxicated by volume and profits eased guidelines and waved in weaker loans that, in many instances, violated terms of the contracts shown to investors that bought related securities. Investors have previously cited trustees as hurdles to obtaining loan files, though some in the past year have become more responsive, according to analysts.

In June, Bank of America agreed to pay $8.5 billion to settle claims with BlackRock Inc. (BLK) and other large investors over faulty loans and servicing violations. But some investors are balking at the settlement, saying that the pact is unfair and that it could interfere with attempts to pursue other claims.

The Knights of Columbus are concerned that discovery of rushed foreclosure proceedings, known as robo-signing, have significantly delayed the process and added to costs that lower proceeds once a property is finally liquidated. They also said the trustee has breached its duties by not investigating robo-signing at Countrywide, illicit foreclosures and excessive fees.

Further, Bank of New York's failure to hold loan files calls into question the ownership of properties that have been sold after foreclosure, adding to potential liability of the Knights of Columbus, the lawsuit stated.

Known to some as "the strong right arm of the church," the Knights of Columbus allege Bank of New York's actions were "immoral, unethical, oppressive and/or unscrupulous."

-By Al Yoon, Dow Jones Newswires; 212-416-3216; albert.yoon@dowjones.com

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