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Federal Deposit Insurance Corp. v. Chicago Title Insurance Co.

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

December 19, 2016

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for Founders Bank, Plaintiff,
v.
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

          Andrea R. Wood United States District Judge.

         This 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.

         BACKGROUND

         The 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. No. 183.)

         The 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.)[1] 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.

         Table 1: Initial Deposit with Chicago Title Entities [2]

Subject Property
Purchaser
Purchase Price, as Stated by Chicago Title Entities
Founders's Loan Amount
Founders's Deposit
Purchaser Deposit
Bissell Property

2218-2224 North Bissell, LLC

$3, 250, 000
$3, 435, 332
$2, 636, 665
$650, 000
LaSalle Property

LaSalle and Chestnut, LLC

$3, 100, 000
$3, 347, 500
$2, 514, 050
$620, 000
First Campbell Property

5408-10 North Campbell LLC

$1, 165, 000
$1, 459, 373
$917, 328
$330, 000
Second Campbell Property

5412-14 North Campbell LLC

$1, 335, 000
$1, 508, 000
$981, 085
$273, 950

         Chicago 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.

         In 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.

         Bissell Property

         Chicago 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.)

         LaSalle Property

         Chicago 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. ΒΆ ...


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