As the overall market takes a breather from its three-day rally, investors appear to be heading into the weekend in the red. So too is Bank of America (NYSE:BAC) this morning, down 1.1% at 10:30 a.m. EDT. Though it may be following the pack as we close out the quarter, some new legal developments may also be pushing the bank further into negative territory.

Good news first
In a move that will likely help the bank stay away from litigation, a group of state and federal officials have notified the New York Attorney General's office that no enforcement action will be taken against B of A or Wells Fargo (NYSE:WFC) for violations of last year's $25 billion mortgage settlement terms. The NYAG had notified the states and the settlement's overseer that it intended to file suit against the banks for the violations, but it had been temporarily stymied by the banks' request for time to cure the alleged missteps.

Now, the stance of the federal and state parties that there will be no enforcement action takes some of the wing out from beneath the AG's wings. The latest from the Attorney General's office had cited numerous violations as reported by these other states as reason to press forward with the intended suit. But the current stance of the states and federal parties is to allow the banks to remedy the violations with homeowners directly, with the belief that reform of the process will come faster if litigation is avoided.

Though this is a win for B of A in that it may keep the bank out of the courtroom, it pales in comparison to the scale of the bank's other prominent legal battle.

Questionable news
Based on a letter filed by American International Group (NYSE:AIG), Bank of America refused new negotiations over its $8.5 billion settlement with investors following a suggestion by the judge presiding over the settlement hearing that the bank and investors should try mediation to determine the fairness of the settlement. This suggestion was given in a private meeting earlier in the month, before the hearing was put on hold because of the judge's heavy caseload.

The bank is confident that the hearing will be resolved in its favor, so mediation could be counter-productive and cost the bank more than the stated $8.5 billion. But for those with less confidence, the potential $60 billion price tag could prove to be troubling.

Bank of America has had a tough climb with all of its legal troubles weighing it down, but as a Foolish long-term investor, you have to decide if the bank's fundamentals are strong enough to carry it despite the added forces pulling it down.

Fool contributor Jessica Alling has no position in any stocks mentioned -- you can contact her here. The Motley Fool recommends American International Group, Bank of America, and Wells Fargo. The Motley Fool owns shares of American International Group, Bank of America, and Wells Fargo and has the following options: Long Jan 2014 $25 Calls on American International Group. Try any of our Foolish newsletter services free for 30 days.

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