United States District Court, C.D. Illinois, Springfield Division
COMMUNITY BANC MORTGAGE CORPORATION, an Illinois Corporation, Plaintiff,
NORTH SALEM STATE BANK, an Indiana banking corporation, Defendant.
MYERSCOUGH UNITED STATES DISTRICT JUDGE
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
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.
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”).
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.”).
Plaintiff and Defendant are Parties to a Secondary Mortgage
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.
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.
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
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.
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.”
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
Agreement also required the parties to indemnify each other.
Defendant agreed to indemnify and hold Plaintiff harmless as
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.
Defendant Originates the Wainman Loan and Sells the Loan to
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).
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.
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,
& 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.
either September 4 or September 9, 2003, Defendant assigned
the Wainman Loan to Plaintiff. On September 9, 2003, Plaintiff
obtained a title policy with Lawyers Title Insurance
Corporation, which insured the Wainman Mortgage in the
September 15, 2003, Plaintiff sold the Wainman Loan to Fannie
Mae. Plaintiff retained the rights and obligations related to
servicing the Wainman Loan.
The Wainmans File for Bankruptcy
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.
Community Bank and National City were listed as secured
creditors in the Bankruptcy Case. Plaintiff asserts that
United Community Bank is Plaintiff's parent
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
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.
United Community Bank Files Foreclosure Action
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.
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. On March 29, 2010, Plaintiff