Wells Fargo hit with $400M suit for breach of contract linked to robo-signing scandal

Bank accused of not performing duties as trustee of Taconic Capital’s RMBS portfolio, exposing it to “excessive losses”

Taconic Capital Advisors filed a $400 million suit against Wells Fargo alleging the financial giant failed to protect its investment in residential mortgage-backed securities, despite knowing many of the loans could be worthless.

In a complaint filed in New York Supreme Court, Taconic accused Wells Fargo of breach of contract for doing nothing to fix problematic documentation for a number of home loans that were bundled into trusts and resold to investors. The global investment firm poured $390 million into buying certificates for 27 of the trusts for which Wells Fargo was the trustee and contractually obliged to act in investors’ interest.

Taconic said the bank was fully aware that many of the loans that made up the trusts’ collateral had missing or fraudulent documentation. That meant if homeowners defaulted on their mortgages, the trusts would have to write off their losses because they wouldn’t be legally able to mitigate their losses by either foreclosing on the home or modifying the mortgage. To do either, the trust and any parties it hires to manage its portfolio of loans must show a prescribed set of documentation.

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