NEW YORK ( TheStreet) -- Bank of America's ( BAC) twisted legal entanglements related to the fallout from Ocala Funding brings to light the reverberations and complexities created by such special-purpose vehicles. Deutsche Bank ( DB) and BNP Paribas filed suit against Bank of America on Wednesday, alleging that the Charlotte, N.C.-based lender failed to make good on $1.7 billion worth of secured notes issued by Ocala. Deutsche Bank claims it is owed $1.2 billion, while BNP Paribas claims it is owed $480.7 million. In another lawsuit tied to Ocala in August, Bank of America asked a judge to block Colonial BancGroup from selling over $1 billion worth of loans held by the vehicle. Deutsche Bank and BNP Paribas claim that Bank of America owes them money because the bank acted as collateral agent, custodian, indenture trustee and depositary for the notes. Bank of America claimed that Colonial held the underlying loans as custodian, agent and bailee, but that even when bailee letters were terminated, Colonial refused to return proceeds to BofA. All of the lawsuits stem from the failure of Taylor, Bean & Whitaker Mortgage Corp. in August, and have been exacerbated by Colonial's seizure by the Federal Deposit Insurance Corp. later that month. The FDIC became receiver for Colonial, making it in charge of collateral payments. It sold some of the bank's assets to BB&T ( BBT) later that month. Ocala was created as a liquidity facility for Taylor, Bean & Whitaker. The vehicle relied on mortgage loans as collateral, pending their sale to Freddie Mac ( FRE). However, Taylor, Bean & Whitaker was delisted as an approved seller of mortgages to Freddie Mac shortly before its bankruptcy.
The delisting triggered a default of the notes, meaning they are immediately due. But a few months later, and it's still unclear what will happen to the assets underlying the complex investment vehicle. Due to the cobweb of investment relationships, it's also unclear who owes what to whom. Banks with exposure to its assets have been forced to write down their holdings, and put the matter in the hands of the courts. -- Written by Lauren Tara LaCapra in New York.