UPDATE 1-BofA $8.5 bln settlement to move forward; AIG loses bid to delay

NEW YORK, Feb 19 (Reuters) - A New York state judge declined to delay court approval of Bank of America Corp's $8.5 billion settlement with investors in mortgage-backed securities, rejecting a move by American International Group Inc.

At a hearing on Wednesday, Justice Saliann Scarpullo, of New York State Supreme Court, ordered the judgment by her predecessor in the case, Barbara Kapnick, to be officially recorded.

"It's very straightforward," Scarpullo told lawyers for AIG, which was one of the investors in the mortgage securities. "Judge Kapnick issued the order. ... If you don't like it, your remedy is to appeal."

Kapnick approved the settlement on Jan. 31, her last day overseeing the case before she was elevated to a state appeals court, and ordered a five-day delay before it was officially recorded. AIG on Feb. 4 asked Scarpullo, the new judge on the case, to delay recording of the judgment, saying Kapnick had left some matters unresolved.

"Judge Kapnick told me the five-day stay she put in was merely a convenience to the parties," Scarpullo said. "She had no intention of leaving anything open."

Bank of America agreed to the settlement in June 2011 to resolve claims by investors who bought mortgage-backed securities issued by Countrywide Financial before the U.S. housing crisis. The investors said Countrywide, acquired by Bank of America in 2008, misrepresented the quality of the underlying home mortgages, which went sour in the crisis.

The settlement was agreed to by 22 institutional investors.

The case is In re Bank of New York Mellon, New York State Supreme Court, New York County, No. 651786/2011.