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Lasalle Commercial Mortgage Securities, Inc. v. Bank of America, N.A.

United States District Court, N.D. Illinois, Eastern Division

August 21, 2014

LASALLE COMMERCIAL MORTGAGE SECURITIES, INC., SERIES 2006-MF4 TRUST, acting by and through its Master and Special Servicer, MIDLAND LOAN SERVICES, a division of PNC Bank, National Association, and whose Trustee is WELLS FARGO BANK, N.A., Plaintiff,
v.
BANK OF AMERICA, N.A. as successor in interest to LaSalle Bank National Association, Defendant.

MEMORANDUM OPINION AND ORDER

JOHN Z. LEE, District Judge.

Plaintiff LaSalle Commercial Mortgage Securities, Inc., Series 2006-MF4 Trust, acting by and through its Master and Special Servicer, Midland Loan Services, a division of PNC Bank, National Association, has sued Defendant Bank of America, N.A. ("Defendant") as successor in interest to LaSalle Bank National Association ("LaSalle"). Plaintiff alleges that LaSalle breached various representations and warranties provided in a contract under which LaSalle sold Plaintiff a pool of securitized mortgage loans. Defendant moves to dismiss the Second Amended Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth herein, the Court denies Defendant's motion.

Factual Background[1]

In 2006, LaSalle sold Plaintiff a pool of securitized commercial real estate mortgage loans worth over $450.9 million, which LaSalle had previously originated for the purpose of securitization and sale. 2d Am. Compl. ¶¶ 1-2, 21. Plaintiff and LaSalle conducted this sale pursuant to two written agreements, the Mortgage Loan Purchase Agreement ("MLPA") and the Pooling and Servicing Agreement ("PSA"). Id. ¶¶ 1-2. The MLPA includes a list of representations and warranties that LaSalle made with respect to the loans sold, incorporated by reference into the PSA. Id. ¶ 61. These representations and warranties serve to ensure the quality of the loans, and breach of a representation and warranty decreases a loan's value by increasing its riskiness. Id. ¶¶ 6-8, 61. The PSA further provides that, within ninety-days' notice of breach of any representation and warranty materially and adversely affecting a loan, LaSalle or its successor in interest must either cure the breach or buy back the affected loan at the purchase price. Id. ¶ 63; see PSA § 2.03(b), id., Ex. 1 at 72.

Alleging that LaSalle breached three of the representations and warranties in the MLPA, Plaintiff first claims that LaSalle breached Representation and Warranty 10 with respect to twenty-one loans in the pool. 2d Am. Compl. ¶ 30. Representation and Warranty 10 provides:

The Mortgage Loan documents for each Mortgage Loan contain enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the practical realization against the Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or non-judicial foreclosure.

Id. ¶ 29(a) (emphasis added). Plaintiff's theory is that LaSalle breached Representation and Warranty 10 by failing to include sufficient power-of-sale language in the loan documents to allow for non-judicial foreclosure of Oklahoma and Washington properties securing loans in the pool. Id. ¶ 30.

Next, Plaintiff claims that LaSalle breached Representations and Warranties 24 and 36 with respect to 282 loans in the pool.[2] Id. ¶¶ 39, 50. Representation and Warranty 24 provides:

The origination, servicing and collection practices used by the Seller... with respect to [each] Mortgage Loan have been in all material respects legal and have met customary industry standards.

Id. ¶ 29(b) (emphasis added). In turn, Representation and Warranty 36 provides:

An appraisal of the related Mortgaged Property was conducted in connection with the origination of [each] Mortgage Loan, and such appraisal satisfied the guidelines in Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as in effect on the date such Mortgage Loan was originated.

Id. ¶ 29(c) (emphasis added). Plaintiff alleges that LaSalle breached Representation and Warranty 24 by failing to meet customary industry standards in its origination of 282 loans in the pool, and that LaSalle breached Representation and Warranty 36 by using appraisal practices that violated Title XI of the Financial Institutions Reform, Recovery and Enforcement Act[3] with respect to the same 282 loans. Id. ¶¶ 39, 43, 50.

On September 5, 2012, Plaintiff provided Defendant with written notice of the alleged breaches, as agreed under the PSA. Id. ¶¶ 63-64. Defendant, however, has neither cured the alleged breaches nor paid Plaintiff the purchase price for the 282 loans in question. Id. ¶ 65. In response, Plaintiff has brought suit for breach of contract, seeking judicial enforcement of the parties' agreement. Id. ¶ 68. Defendant now moves to dismiss ...


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