United States District Court, N.D. Illinois, Eastern Division
FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Founders Bank, Plaintiff,
CHICAGO TITLE INSURANCE COMPANY, CHICAGO TITLE AND TRUST COMPANY, and PROPERTY VALUATION SERVICES, LLC, Defendants. Subject Property Purchaser Purchase Price, as Stated by Chicago Title Entities Founders's Loan Amount Founders's Deposit Purchaser Deposit Subject Property Founders's Deposit Purchaser Deposit Stated Purchase Price Actual Purchase Price Subject Property Amount Due to Founders at Date of Sale Founders's Credit Bid Amount of Deficiency Judgment
MEMORANDUM OPINION AND ORDER
R. Wood United States District Judge.
case concerns an escrow agent's alleged participation in
a series of fraudulent “flip” real estate
transactions. The flip transactions were designed to allow
the purchasers of the properties, who had borrowed money from
Founders Bank (“Founders”), to circumvent
Founders's requirement that they make a down payment on
the properties. Ultimately, these purchasers defaulted to the
detriment of Founders. Consequently, Plaintiff Federal
Deposit Insurance Corporation (“FDIC”), acting as
receiver for Founders, sued Defendants Chicago Title
Insurance Company and Chicago Title and Trust Company
(together, “Chicago Title Entities”), for their
conduct as the escrow agents for four such flip transactions.
Specifically, the FDIC claims that Chicago Title Entities
acted negligently and breached contractual and fiduciary
duties in their role as closing agent. Now before the Court
are the FDIC's motion for partial summary judgment on its
breach of contract claim (Dkt. No. 207) and Chicago Title
Entities' motion for summary judgment on the FDIC's
breach of contract and negligence claims (Dkt. No. 218). The
Court denies both motions in their entirety.
real estate transactions at issue (“Subject
Transactions”) involved four properties (“Subject
Properties”) located in Chicago, Illinois: 2218-24
North Bissell (“Bissell Property”), 851 North
LaSalle Street (“LaSalle Property”), 5408-10
North Campbell (“First Campbell Property”), and
5412-14 North Campbell (“Second Campbell
Property”). Founders acted as the lender for each of
the Subject Transactions. (Memo. Op. & Order at 2, Dkt.
four transactions all followed a similar pattern. Founders
extended a loan for the purchase of each Subject Property.
(Id.) The purchaser for each was a different limited
liability corporation. (Pl.'s Stmt. of Undisputed Mat.
Facts ¶¶ 5, 20, 36, 52, Dkt. No. 208.) A condition
for each of Founders's loans was that the purchaser would
pay 20% of the purchase price. (Id. ¶¶ 6,
21, 37, 53.)
Founders then deposited with Chicago Title Entities
approximately 80% of the stated purchase price, with the
balance paid to Chicago Title Entities by the purchasers.
(Id. ¶¶ 8, 23, 39, 55.) The loan amounts,
stated purchase prices, and deposits made by Founders for the
Subject Properties are shown below in Table 1.
1: Initial Deposit with Chicago Title Entities
Purchase Price, as Stated by Chicago Title
Founders's Loan Amount
2218-2224 North Bissell, LLC
$3, 250, 000
$3, 435, 332
$2, 636, 665
LaSalle and Chestnut, LLC
$3, 100, 000
$3, 347, 500
$2, 514, 050
First Campbell Property
5408-10 North Campbell LLC
$1, 165, 000
$1, 459, 373
Second Campbell Property
5412-14 North Campbell LLC
$1, 335, 000
$1, 508, 000
Title Entities then were to disburse the funds according to
the escrow trust instructions provided by Founders for each
transaction. Those escrow instructions, which were the same
for all of the Subject Transactions, provided as follows:
You [Chicago Title Entities] are then authorized and directed
to proceed as follows:
A. Prepare a RESPA (HUD-1) pursuant to financial information
provided by Lender [Founders] and Seller, if a sale
transaction . . . .
B. Obtain Lender [Founders's] approval of any Mortgagor
“Credits” above nominal or customary amount.
C. Pay net sale proceeds to Seller if a sale transaction,
pursuant to Buyer/Seller escrow instructions.
D. Deliver [subsequently listed documents] to the Lender
[Founders] . . . .
(Exs. 10, 24, 34, 43 to Pl.'s Stmt. of Undisputed Mat.
Facts, Dkt. Nos. 208-8, 208-18, 208-23, 208-29.) In each
transaction, Chicago Title Entities disbursed a significant
portion of the deposited funds to other entities that the
FDIC claims were closely related to the purchasers. Then
Chicago Title Entities transferred funds roughly
corresponding to Founders's deposits into a separate
escrow trust; those funds were then used to close on the
Subject Properties with the actual sellers.
essence, the alleged scheme was designed to allow the
purchasers to obtain the property with no down payment and
with Founders's loan proceeds paying for the entire
purchase. The purchasers would inflate the stated purchase
price of the property to the point that Founders's 80%
deposit would cover the actual purchase price of the
property. The purchaser would front 20% of the stated
purchase price to Chicago Title Entities, but Chicago Title
Entities would distribute that amount back to the purchaser
through entities that were closely related to the purchaser.
Details for each transaction follow.
Title Entities received a total of $3, 286, 665 from Founders
and 2218-2224 North Bissell, LLC. (Pl.'s Stmt. of
Undisputed Mat. Facts ¶¶ 8, 12, Dkt. No. 208.)
2218-2224 North Bissell, LLC received credits and repayments
totaling $125, 130. (Id. ¶ 12.) Chicago Title
Entities' disbursement statement said that they paid
$583, 506 to Sarmisegeturza Investments, L.L.C., but Chicago
Title Entities actually made that payment to 7000 South
Chappel, LLC. (Id. ¶ 13.) The manager of 7000
South Chappel, LLC was Gheorge Pop, who was also a member of
the purchaser 2218-2224 North Bissell, LLC. (Id.)
Pop also received a separate disbursement of $20, 000 from
Chicago Title Entities. (Id.) Finally, Chicago Title
Entities transferred $2, 588, 436 to another escrow trust.
(Id. ¶ 14.) That second escrow trust was used
in a second transaction with the actual sellers of the
property, where the purchase price was $2, 600, 000.
(Id. ¶ 15.)
Title Entities received a total of $3, 134, 050 from Founders
and LaSalle and Chestnut, LLC. (Id. ¶¶ 23,
27.) LaSalle and Chestnut, LLC received credits and
repayments totaling $75, 307. (Id.) Chicago Title
Entities' disbursement statement stated that they paid
$689, 675 to North Star Deferred Exchange, but Chicago Title
Entities actually made that payment to the aforementioned
7000 South Chappel, LLC, whose manager Gheorge Pop was also a
member of the purchaser LaSalle and Chestnut, LLC.
(Id.) Chicago Title Entities transferred $2, 353,
551 to another escrow trust. (Id. ¶ ...