Bank of America Corp. (BAC) sued Colonial Bancgroup Inc. (CNB) to protect its claim on certain loans after the troubled company refused to return more than $1 billion it owed to Freddie Mac (FRE).

Bank of America filed the lawsuit at a federal court in Florida, asking for a temporary restraining order prohibiting Colonial from using the proceeds it received from Freddie Mac for buying mortgage and other loans owned by Ocala Funding LLC.

Bank of America was the collateral agent for the Ocala Funding loans and Colonial held them as custodian, agent and bailee. On the whole, Bank of America was a trustee to parties that provided financing for Colonial's mortgage business.

On Thursday, the court decided in favor of Bank of America and ordered Colonial to freeze $1 billion in assets.

Colonial appears to be on the threshold of collapsing as a going concern

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