A trustee representing mortgage investors sued Morgan Stanley Mortgage Capital in a New York state court, claiming the firm made material misrepresentations about loans sold into a securitized trust.

The trustee in the case is US Bank, while the official trust plaintiffs include the Morgan Stanley Mortgage Loan Trust 2006-4SL and the Mortgage Pass-Through Certificates, Series 2006-4SL.

The plaintiffs claim Mortgage Stanley Mortgage Capital sold 5,400 mortgages with an unpaid principal balance of $300 million into the trust.

The complaint alleges misrepresentations were made about the quality of the loans and soon after the sale the loans allegedly went into default or became delinquent. 

"As of February 25, 2012, the trust has suffered losses of $140.7 million and an additional 12.7% of the collateral remains delinquent," the plaintiffs wrote in the suit. 

Morgan Stanley declined to comment on the case. 

In court filings, the plaintiffs claim two separate consultants found breaches in representations and warranties made about the quality of the loans in pooling and servicing agreements. 

One of the consultants claimed 2,370 loans in the trust breached a representation and warranty that stated each loan would fully amortize over the life of the loan.

The plaintiffs are suing to force the defendant to repurchase loans and to recover $142 million in damages for breaches of reps and warranties.

kpanchuk@housingwire.com