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Hsbc Mortgage Services, Inc v. Equisouth Mortgage

June 1, 2012


The opinion of the court was delivered by: Hon. Harry D. Leinenweber


Before the Court is Plaintiff's Motion for Summary Judgment. For the reasons stated herein, the Motion is granted as to the liability of both Defendants and denied as to the issue of appropriate damages.


In 2001, when home mortgages were not regarded as suspiciously as they are now, Plaintiff HSBC Mortgage Services, Inc. ("HSBC") and Defendant Equisouth Mortgage, Inc. ("Equisouth") signed a "flow loan agreement" (the "FLA"). The parties were known by different names then, but all agree that the contract survived their name changes.

The FLA provided that HSBC would buy mortgages from Equisouth, a loan originator, and be entitled to the resultant payments due under those mortgages. HSBC made its purchase of those mortgages conditional on several guarantees, not the least of which was the personal guaranty agreement of the principal of Equisouth, Defendant Morris Capouano.

HSBC also conditioned the agreement on nine representations and warranties by Equisouth as to Equisouth's condition, and thirty-eight warranties by Equisouth as to the condition of the underlying mortgages. The parties agree on this.

The FLA also provided that, if any warranty as to the condition of a mortgage were breached "as determined by Buyer [HSBC]," Equisouth would repurchase that mortgage. Three mortgages that were purchased by HSBC from Equisouth defaulted: The Ferro loan (original amount $68,500), the Rasberry loan (original amount $226,000) and the Lozano loan (original amount $36,000).

HSBC assigned investigators to these three mortgages, who uncovered evidence that, at least in HSBC's eyes, showed material misrepresentations had been made by the mortgagors in securing the mortgages. HSBC demanded repurchase by Equisouth; Equisouth refused. This too, the parties agree on.

However, Equisouth disputes it has an absolute duty to warranty the underlying mortgages. It contends the warrantee only required it to have no knowledge of any falsehoods or fraud by mortgagors. As evidence of this, Equisouth offers into evidence the handwritten notation of a single word ("knowingly") next to the warranty paragraph regarding misrepresentations by mortgagors.

Interestingly, Equisouth does not contend and offers no proof that the notation was on the contract before either party signed on to it.

Equisouth also offers evidence tending to show mortgagors did not make material misrepresentations on the loans.

HSBC seeks to enforce the repurchase clause and a clause calling for Equisouth to reimburse it for attorneys fees and reasonable expenses. It asks for summary judgment as a matter of law.


Summary judgment is appropriate when the "pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED R. CIV. P. 56(c) and Diamantopoulos v. Am. Family Mut. Ins. Co., 10-2522, 2012 U.S. Dist. LEXIS 26519 at *2-3 (N.D. Ill. February 27, 2012). The moving party bears the initial burden of demonstrating there is no genuine issue of material fact. Once it does, the non-moving party must offer more than a mere scintilla of evidence to survive summary judgment. Id. All evidence must be viewed in the light most favorable to the non-moving party. Contract interpretation lends itself to summary judgment because the interpretation of a contact is a matter of law. See Cent. States, Southeast & Southwest Areas Pension Fund v. Waste Management of Michigan, Inc., 10-3286, 2012 U.S. App. LEXIS 4074 at *7-8 (7th Cir. February 29, 2012).


A. Defendants Local Rule 56.1(b) Violations

As a preliminary matter, the Court must decide whether Defendants' response to Plaintiff's Motion for Summary Judgment should be stricken due to (I) its undisputed untimeliness and (ii) its noncompliance with Local Rule 56.1(b).

The Court is willing to overlook the lateness of the filing, but Local Rule 56.1(b) is a harsh mistress not so easily pacified. The rule provides:

(b) Opposing Party. Each party opposing a motion filed pursuant to Fed.R.Civ.P. 56 shall serve and file-

(1) any opposing affidavits and other materials referred to in FED.R.CIV.P. 56(e);

(2) a supporting memorandum of law; and

(3) a concise response to the movant's statement that shall contain:

(A) numbered paragraphs, each corresponding to and stating a concise summary of the paragraph to which it is directed, and

(B) a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, ...

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