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Community Banc Mortgage Corp. v. North Salem State Bank

United States District Court, C.D. Illinois, Springfield Division

July 3, 2017

COMMUNITY BANC MORTGAGE CORPORATION, an Illinois Corporation, Plaintiff,
v.
NORTH SALEM STATE BANK, an Indiana banking corporation, Defendant.

          OPINION

          SUE E. MYERSCOUGH UNITED STATES DISTRICT JUDGE

         This cause is before the Court on Defendant North Salem State Bank's Motion for Summary Judgment and request for oral argument (d/e 40) and Plaintiff Community Banc Mortgage Corporation's Motion for Summary Judgment (d/e 42). Plaintiff's Motion is GRANTED, and Defendant's Motion is DENIED. Defendant's request for oral argument is DENIED.

         Defendant breached its duty to indemnify Plaintiff when Plaintiff suffered a loss due to Defendant's failure to perform its obligations under the parties' agreement. Moreover, Plaintiff's action is not barred by either laches or waiver.

         I. JURISDICTION

         This Court has subject matter jurisdiction based on the diversity of the parties and because the amount in controversy exceeds $75, 000. See 28 U.S.C. § 1332(a)(1). Venue is proper in this district because a substantial part of the events or omissions giving rise to Plaintiff's claim occurred in this district. 28 U.S.C. § 1391(b)(2) (venue is proper in “a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred”); 28 U.S.C. § 1441(a) (providing that a state court action may be removed to the district court “for the district and division embracing the place where such action is pending”).

         II. FACTS

         The Court takes the following facts from the parties' Statement of Undisputed Facts and other materials in the record. See Fed.R.Civ.P. 56(c)(3) (“The court need consider only the cited materials, but it may consider other materials in the record.”).

         A. Plaintiff and Defendant are Parties to a Secondary Mortgage Market Agreement

         Plaintiff is an Illinois corporation engaged in the business of purchasing and servicing residential mortgage loans. Defendant is an Indiana banking corporation engaged in the business of providing retail banking services, including the origination of residential mortgage loans. Plaintiff and Defendant were parties to a Secondary Mortgage Market Agreement dated May 21, 1996, as amended by the Amendment to Secondary Mortgage Market Agreement dated effective November 1, 1996 (collectively, the Agreement). Defendant is referred to as “Third Party Lender” in the Agreement.

         After entering into the Agreement, Defendant originated residential mortgage loans and sold the loans to Plaintiff pursuant to the Agreement. Plaintiff then sold the loans to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and other secondary mortgage market participants. Under the Agreement, Defendant was a Level II Lender.

         The Agreement provided that eligible mortgage loans purchased by Plaintiff would be “10 to 30-year fixed, ARM and Balloon reset, 1-4 family, first lien, owner-occupied mortgages.” In addition, Defendant made a number of warranties to Plaintiff, including the following:

1. Mortgage loans are processed in compliance with all applicable Federal, State, and Local laws, and all FDIC, OCC, OTS, or Federal Reserve regulations applicable to real estate lending;
2. Mortgage loans are processed, packaged, and closed in accordance with Secondary Market guidelines;
3. Mortgage loans are originated, processed, and closed by Third Party Lender, or their authorized representative. Third Party Lender is responsible for actions of authorized representatives as if Third Party Lender had processed or closed the loan;
4. All documents and representations are true and correct.

         The Agreement also provided remedies for certain violations of the Agreement. Plaintiff reserved the right to terminate Third Party Lenders for “specifically, but not limited to” several reasons, including deviating from processing loans under specific guidelines; noncompliance with rules, laws, or regulations governing lending; imprudent lending practices; failure to deliver loans under mandatory commitments; or failure to meet deadlines. In addition, the Agreement provided that, if the “Third Party Lender does not deliver all required documents as required, without an approved extension of time by [Plaintiff], Third Party Lender shall, at [Plaintiff's] option, be required to repurchase the loan.”

         The Agreement also contained a checklist identifying each parties' responsibilities. Plaintiff reviewed title policy documents. Defendant closed and funded the loans, obtained releases, recorded the mortgages, recorded assignments, and returned all documents to Plaintiff. Plaintiff then verified that all documents were complete and correct per Freddie Mac requirements. The parties dispute whether the Agreement required Defendant to record the releases.

         The Agreement also required the parties to indemnify each other. Defendant agreed to indemnify and hold Plaintiff harmless as follows:

Third Party Lender fully indemnifies and agrees to hold [Plaintiff], its successors and assigns, harmless from and against any and all losses, claims, demands, actions, suits, damages, costs, and expenses (including reasonable attorney's fees) of every nature and character that may arise or be made against or incurred by [Plaintiff] as a result of the Third Party Lender's failure to perform its obligations, breach any warranties, or misrepresent any certifications in connection with this agreement.

         B. Defendant Originates the Wainman Loan and Sells the Loan to Plaintiff

         The dispute between the parties arises out of a mortgage loan originated by Defendant and sold to Plaintiff under the Agreement. Specifically, on September 4, 2003, Defendant originated a mortgage loan (the Wainman Loan) made to Stephen A. Wainman Jr., and Susan Wainman in the original principal amount of $100, 000 to be secured by a first mortgage on property owned by the Wainmans located at 624 East Walnut Street, Greencastle, Indiana (the Property).

         Prior to the closing of the Wainman Loan, the Property was encumbered by various pre-existing liens, including a first mortgage (First Mortgage) in favor of National City Bank of Indiana (National City) and a mortgage in favor of National City securing a line of credit (the Line of Credit Mortgage). The Line of Credit Mortgage was recorded on July 22, 1998.

         On September 4, 2003, the Wainmans executed a “Request to Cancel Line of Credit and Affidavit of Balance” (Request to Cancel) directed toward National City. The Wainmans requested that the open line of credit be closed and a Release of Mortgage be recorded. Abstract & Title of Putnam County, Inc., the entity that served as the escrowee and closing agent for the Wainman Loan, tendered the Request to Cancel to National City on September 9, 2003.[1]

         Abstract & Title tendered a check to National City in the amount of $11, 826.80 for the Line of Credit Mortgage. The memo line of the Abstract & Title check to National City contained the words, “PAYOFF.” In addition, the September 4, 2003 Settlement Statement showed that the Line of Credit Mortgage was paid in the amount of $11, 826.80.

         On either September 4 or September 9, 2003, Defendant assigned the Wainman Loan to Plaintiff.[2] On September 9, 2003, Plaintiff obtained a title policy with Lawyers Title Insurance Corporation, which insured the Wainman Mortgage in the first-lien position.

         On September 15, 2003, Plaintiff sold the Wainman Loan to Fannie Mae. Plaintiff retained the rights and obligations related to servicing the Wainman Loan.

         C. The Wainmans File for Bankruptcy

         On July 10, 2007, the Wainmans filed for bankruptcy protection in the Southern District of Indiana, Case Number 07-bd-80794. Plaintiff received notice of the Bankruptcy Case.

         United Community Bank and National City were listed as secured creditors in the Bankruptcy Case. Plaintiff asserts that United Community Bank is Plaintiff's parent company.[3]

         Schedule D to the bankruptcy petition showed that the National City Mortgage-a home equity line of credit in the amount of $12, 700-was opened in July of 1998 and “Last Active” on August 18, 2005. The parties appear to agree that this shows that the Wainmans continued to draw on the National City Line of Credit Mortgage even after Abstract & Title tendered the payoff amount and Request to Cancel to National City.

         The parties agree that, on November 10, 2007, the Wainmans filed a Reaffirmation Agreement agreeing to repay the First Mortgage. However, Defendant's Exhibit 13, which is attached in support of this statement of fact, is a Reaffirmation Agreement with National City for the debt totaling $12, 771.85.

         D. United Community Bank Files Foreclosure Action

         Ultimately, the Wainmans defaulted on the Wainman Loan. Sometime before March 5, 2010, Plaintiff transferred the note for the Wainman Loan to United Community Bank so that United Community Bank could foreclose on the mortgage.

         On March 5, 2010, United Community Bank filed a foreclosure complaint against the Wainmans. United Community Bank alleged it was the holder of and had an ownership interest in the note prior to filing the foreclosure.[4] On March 29, 2010, Plaintiff ...


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