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Saxon Mortgage, Inc. v. United Financial Mortgage Corporation

March 24, 2000


The opinion of the court was delivered by: Justice Hartman

Appeal from the Circuit Court of Cook County.

Honorable Lee Preston, Judge Presiding.

Plaintiff Saxon Mortgage, Inc. (Saxon), appeals from the circuit court's order granting defendant United Financial Mortgage, Corporation's (UFM) motion to dismiss, under section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619 (West 1998)), and dismissing with prejudice Saxon's breach of contract complaint against UFM, based upon the doctrine of res judicata. All questions on appeal emanate from the pleadings, motions and responses, and supporting materials.

Saxon questions whether the circuit court erred in (1) dismissing Saxon's state court action based upon res judicata; (2) failing to recognize certain exceptions to res judicata as applied to the present facts; and (3) failing to find disputed factual issues surrounding the application of res judicata, requiring denial of UFM's section 2-619 motion to dismiss.

On December 14, 1998, Saxon filed a complaint for breach of contract against UFM in the circuit court of Cook County (state action), which is the subject of this appeal, from which the following facts are derived.

Saxon, a Virginia corporation, is engaged in the business of purchasing and securitizing*fn1 residential mortgage loans. UFM, an Illinois corporation, is engaged in the business of originating, selling and servicing residential mortgage loans.

On February 28, 1994, UFM and Saxon's predecessor in interest, Saxon Mortgage Funding Corporation (collectively Saxon), entered into a sales and servicing agreement (Agreement), pursuant to which Saxon agreed to purchase mortgages from UFM on the terms and conditions set forth in the Agreement and in Saxon's Seller/Servicer Guide (Guide), which was specifically incorporated into the Agreement.

Section 550 of the Guide provides that if a mortgage loan purchased by Saxon from UFM is prepaid in full within the first 180 days following the purchase, UFM must reimburse Saxon for the premium paid for that mortgage loan.

Between October 1996 and April 1998, eight of the mortgage loans purchased by Saxon from UFM were paid off within 180 days, allegedly entitling Saxon to a return of premiums in the amount of $70,455.77, pursuant to the Agreement and section 550 of the Guide. Attached to Saxon's complaint are the Agreement, section 550 of the Guide, a schedule of the specific mortgage loans involved and sections 180 (representations and warranties) and 190 (indemnification) of the Guide.*fn2

UFM is alleged by Saxon to have refused unreasonably and vexatiously to repay Saxon, despite Saxon's demands, and is in breach of the Agreement and Guide, entitling Saxon to prejudgment interest, attorney fees, and other costs, fees and expenses incurred.

Saxon alleged further that on about May 1, 1997, it had filed suit against UFM in the United States District Court for the Northern District of Illinois, Case No. 97-CV-3257 (federal action). The seven-count federal complaint, contained in the record on appeal in this case, involved a delinquent loan, identified as the "Stulka" loan. Saxon there alleged breach of contract, breach of implied covenant of good faith and fair dealing, breach of express warranty, express indemnification, intentional misrepresentation, and negligent misrepresentation, and sought damages based on section 400 of the same contract involved in the state court action. The federal action dealt with the investment quality of the loans sold by UFM to Saxon, rather than early mortgage redemption under section 550, the subject matter of the state court action. Attached to the federal complaint, also as exhibits, were the aforementioned Agreement and Guide.*fn3

The federal complaint further alleged that prior to its filing of the federal court action, Saxon demanded that UFM repurchase the Stulka loan, which it had purchased from UFM on about March 28, 1995, under the terms and conditions set forth in the Agreement and Guide, or indemnify Saxon against its losses. In addition to seeking damages in the amount of $118,196.27, which represented the losses claimed by Saxon as a result of UFM's breach of its obligations in connection with the Stulka loan and the resultant default on that loan, Saxon also prayed for prejudgment interest, attorney fees and costs.

On about October 14, 1998, the district court entered summary judgment in favor of Saxon and against UFM in the amount of $122,858.70 in the federal action.

In a letter from Saxon to UFM dated July 11, 1997, contained in the record on appeal, Saxon set forth the list of loans that were paid off early (footnote 2), and reasserted its demand for reimbursement under the Agreement and Guide, having a total due of $67,815.76. Saxon requested payment by July 31, 1997. The letter further indicated that although some discussions were held about the possibility of mitigating the amounts owed, no arrangement materialized. Subsequent letters between the parties followed. For example, in a letter from Saxon to UFM dated September 8, 1997, also contained in the record, Saxon outlines an agreement between the parties regarding the repayment of these sums in which UFM is alleged to have agreed to attempt to reduce its indebtedness to Saxon based on future loans sales between the parties. UFM wrote Saxon on November 25, 1997, that, although it could not fulfill "perimeters [sic] they spoke about," Saxon was requested to call "so we can come up with a better solution." Almost one year later, after a continuing series of letters, UFM wrote Saxon, on September 3, 1998, in part: "Please note that UFMC has every intention to consummate its obligation given it is provided with ...

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