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October 13, 1998


The opinion of the court was delivered by: MAROVICH


 Plaintiff, SMFC Funding Corporation ("SMFC"), filed this action against Defendant, United Financial Mortgage Corporation ("United"), alleging, inter alia, that United breached its contract with SMFC by selling it a loan that was not "investment quality." SMFC now moves for summary judgment on Counts I (breach of contract) and III (breach of express indemnification) of its Amended Complaint. For the reasons set forth below, the Court grants SMFC's motion.


 Unless otherwise noted, the following facts are undisputed. SMFC is a Virginia based corporation which is engaged in the purchase and securitization of investment quality mortgage loans. United is an Illinois corporation which conducts much of its operations in the mortgage loan business.

 SMFC executes the purchase of mortgage loans through a program known as the Mortgage Purchase Program ("MPP"). Included in the MPP is the Seller/Servicer Guide (the "Guide") adopted by SMFC to govern its relationship and transactions with sellers and servicers of investment quality mortgage loans. This Guide is the basic contract between SMFC and the Sellers and Servicers, and sets forth the terms, conditions and requirements which govern that relationship. SMFC alleges that the Guide is incorporated by reference in all Seller/Servicing Agreements entered into by SMFC.

 On or about February 28, 1994, United and SMFC entered into a Sales/Servicing Agreement ("Agreement") under which United agreed to sell mortgage loans to SMFC. The Agreement between SMFC and United was subject to the conditions of the Guide, which was incorporated by reference and was part of the Agreement between the parties.

 According to SMFC, one of the chief requirements of the Guide is that the mortgage loans sold to SMFC must be of "investment quality." Under the Guide, a mortgage loan is of investment quality,

only if there do not exist any circumstances or conditions with respect to the Mortgage Loan, the mortgaged premises or the borrower's credit standing that can be expected to cause private institutional investors to regard the loan as an unacceptable investment, cause the Mortgage Loan to become delinquent or adversely affect the value or marketability of the Mortgage Loan.

 The Guide further provides that a loan is of "investment quality,"

only if neither the borrower nor any person or entity involved in the loan transaction or documentation (including without limitation the Seller, any appraiser, broker, third-party originator, credit reporting agency or any other provider of underwriting information) has made any false representation or failed to provide information that is true, complete and accurate in connection with the transaction, whether or not Seller was a party to or had knowledge of such misrepresentation or incorrect information.

 The Guide further provides that, upon breach by the Seller of any requirement, representation or warranty included in the Guide, the Seller must, within 30 days of discovery of the breach or within 30 days of the notice of the breach by SMFC, completely cure the breach or repurchase the Mortgage Loan. The Guide also includes an indemnification clause which states, in sum, that the Seller of a Mortgage Loan agrees to indemnify and hold harmless SMFC from and against any and all claims, losses, damages, fines, penalties, forfeitures, legal fees, judgments and any other costs, fees and expenses relating to a breach by the Seller or its agent of any representation, warranty or obligation contained in or made pursuant to the Guide or the Agreement between the parties.

 On or about March 28, 1995, United sold to SMFC the "Stulka Loan." SMFC insists that the Stulka Loan was sold under the terms and conditions set forth in the Agreement and the Guide. After the loan was purchased by SMFC, it went into default. United advised SMFC of deficiencies with respect to the loan origination and documentation. SMFC later learned that the Stulka Loan was wholly fraudulent from its inception. *fn1" Both parties currently agree that the Stulka Loan was not of investment quality.

 After realizing that the Stulka Loan was not of investment quality -- it had gone into default -- SMFC made a written demand on United to repurchase the loan or indemnify SMFC against its losses. United refused to do either, thereby triggering the present lawsuit.

 SMFC filed suit claiming losses of $ 122,858.70 for the Stulka loan -- a figure reached by calculating the unpaid principal balance (plus delinquent interest), and subtracting the proceeds received from the sale of the mortgaged property. *fn2" SMFC now seeks summary ...

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