A settlement was finalized March 5 between the nation’s second-largest bank and 22 investors who purchased $174 million in subprime mortgage-backed securities. Still haunted by the ghost of Countrywide Financial Corp. seven years after its acquisition, Bank of America Corp. (BofA) will finally be rid of the failed bank’s liabilities — to the tune of $8.5 billion. The settlement was approved by the New York Supreme Court Appellate Division.

The appellate court’s decision ends four years of hotly contested litigation in the case. In 2011, BofA agreed to the settlement to resolve claims from investors who purchased shaky mortgage-backed securities from Countrywide before it went belly up during the financial crisis.

A small group of investors, however, opposed the deal, claiming trustee Bank of New York Mellon (BNY) failed to show sufficient evidence that the settlement would adequately compensate them for their losses. A judge found that BNY failed to investigate claims regarding BofA’s obligations to repurchase modified loans, and BNY appealed.

The Bank of America building in New York.

The Bank of America building in New York City.

But the appellate court unanimously concluded that the lower court’s decision “disregarded the standard of deference due to a trustee’s exercise of discretionary judgment.” The court concluded that BNY properly obtained and considered the opinions of several highly respected outside experts, including not only the assessment of the money value of the claims, but also assessments of Countrywide’s ability to pay — estimated by experts as a maximum of $4.5 billion — and the likelihood of success of BofA’s defense against a claim of successor liability, a claim that experts warned had never been successfully applied in such a situation.

Writing on behalf of the five-judge panel, Associate Justice David B. Saxe stated, “Nothing in the trustee’s retention, or nonretention, of experts warrants the rejection of counsel’s assessment and advice or the trustee’s ultimate decision to accept the terms of the negotiated settlement. We therefore find that the trustee did not abuse its discretion in deciding to release the claims based on the failure to repurchase the modified mortgages, and we approve the settlement in its entirety.”

Saxe’s opinion also noted that “it would have been unreasonable to decline to enter into the settlement with the expectation of obtaining a much greater judgment after years of litigation, while knowing that attempts to enforce such a judgment would likely result in the actual collection of a lesser sum than that offered in the proposed settlement.”

BofA purchased the struggling Countrywide in 2008 for $4.1 billion. Since then, BofA has shelled out more than $45 billion to other private investors, regulators and consumers to settle disputes over Countrywide’s shoddy lending practices during the subprime mortgage crisis and resulting recession.

The company has not commented on the court’s decision.

Email Amy Swinderman.

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