Community Banc Mortgage Corporation v. North Salem State Bank
Filing
52
OPINION entered by Judge Sue E. Myerscough on 7/3/2017. Defendant North Salem State Bank's Motion for Summary Judgment, d/e 40 is DENIED and Plaintiff Community Banc Mortgage Corporation's Motion for Summary Judgment, d/e 42 is GRANTED. Judgment to be entered in favor of Plaintiff and against Defendant in the amount of $95,289.65 plus prejudgment interest at a rate of 5% per annum from the date of demand and costs of suit. This case is CLOSED. (MAS, ilcd)
E-FILED
Monday, 03 July, 2017 03:58:19 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
COMMUNITY BANC MORTGAGE
CORPORATION, an Illinois
Corporation,
Plaintiff,
v.
NORTH SALEM STATE BANK,
an Indiana banking corporation,
Defendant.
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No. 15-3051
OPINION
SUE E. MYERSCOUGH, U.S. 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
Page 1 of 36
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.”).
Page 2 of 36
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.
Page 3 of 36
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
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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
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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)
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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 disputes this fact on the basis that the support for this statement,
the declaration of Ben Comer, does not lay any foundation for his knowledge.
The Court disagrees. Comer is the President of Abstract & Title. Comer
Declaration ¶ 3. Comer indicated that he was familiar with the records
regarding the Wainman Loan, and that one of Abstract & Title’s
responsibilities was to tender the Request to Cancel to National City Bank. Id.
¶ 4. Plaintiff provides no evidence suggesting that the Request to Cancel was
not tendered on September 9, 2003. Therefore, the fact is undisputed.
1
The exact date of the assignment is unclear. The parties appear to agree to
two dates—September 4 and September 9, 2003. See Pl. Statement of
Undisputed Fact No. 11, Def. Statement of Undisputed Fact No. 10. The
2
Page 7 of 36
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 07bd-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
Assignment itself reflects that the mortgage was recorded on September 9,
2003 and reflects that the assignment was executed September 4, 2003. Def.
Ex. 9 (d/e 40-2). This dispute is immaterial.
Defendant disputes this fact without citation. Therefore, the Court accepts
the fact as true. See CDIL-LR 7.1(D)(2)(b)(2), (b)(6) (providing that each claim
of disputed fact must be supported by evidentiary documentations and the
failure to respond to any numbered fact will be deemed an admission of the
fact)’ see also Smith v. Lamz, 321 F.3d 680, 683 (7th Cir. 2003) (“We have
consistently held that a failure to respond by the nonmovant as mandated by
the local rules results in an admission.”).
3
Page 8 of 36
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
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the note prior to filing the foreclosure.4 On March 29, 2010,
Plaintiff assigned all of its rights in the mortgage to United
Community Bank.
During the foreclosure case, United Community Bank
discovered that the Line of Credit Mortgage had not been released
and that PNC Bank, N.A. (PNC), National City’s successor, claimed
the first mortgage position on the Property securing an
indebtedness of $11,986.75 plus interest, fees, and costs for sums
advanced to the Wainmans. In October 2010, United Community
Bank’s foreclosure lawyer sent an email to Craig Fricke of United
Community Bank stating the following:
The sale had to be cancelled on this matter. We were
granted a Default Judgment in error by the court as one
of the lienholders (PNC Bank) had answered. We didn’t
learn of this until later. In their answer, the lienholder
claims their interest is superior. We have and are
continuing to attempt to show the lienholder that they
are actually second, but they refused, at least at this
time, to sign an agreed entry allowing us to take the
property to sale tomorrow. As a result, we had to
remove the sale. We are attempting to get opposing
counsel to see reason for the next brief period of time
(we’ll probably give it about a week to communicate and
Plaintiff lists this fact as “disputed” and “immaterial” but then states that
the fact is undisputed and immaterial. See Pl. Resp. at 7 (d/e 45) (pertaining
to Defendant’s Undisputed Fact No. 20). Plaintiff provides no citation for any
assertion that the fact is disputed. Therefore, the Court accepts the fact as
true. See Footnote 3.
4
Page 10 of 36
reason with them), but will have to file a title claim if
they will not agree to a 2nd lien position. Attached is a
copy of their Answer. Please provide our office
authorization to file a title claim on your behalf should
we be unable to get PNC to agree to their proper
position. Thanks.
E.
Fannie Mae Requests That Plaintiff Repurchase the
Wainman Loan
In November 2011, Monica Spurling, then Vice President of
Loss Mitigation for Plaintiff, informed Fannie Mae of PNC’s claim of
a first lien. See Def. Ex. 15 (d/e 40-3) (identifying Spurling as the
Vice President of Loss Mitigation for Plaintiff). On November 29,
2011, Spurling sent an email to Tracy West5 with the subject line,
“A likely re-purchase from FNMA due to a long term pending title
claim.” The email provided:
We have notified FNMA as we are required to do on an
unresolved title claim. It appears the insurance will
cover the claim (see attached) it can just be very time
consuming and has been. This claim and length of
claim could not be avoided by UCB, but usually requires
a repurchase by the servicers. Our service
representative suggests a voluntary repurchase as it has
already been presented to FNMA but they have not ruled
on it.
The record is unclear whether West worked for Plaintiff or United
Community Bank. See Def. Fact No. 20 (identifying West as the Vice
President of United Community Bank); Pl. Ex. B-3 (identifying West as the
“SVP” for Plaintiff). Any dispute in this regard is immaterial.
5
Page 11 of 36
On November 30, 2011, United Community Bank’s
foreclosure counsel sent an email to Spurling indicating that the
documents needed to demonstrate equitable subrogation were not
included in the documents provided by “the Bank” and that an
additional request had been made for the documents.
On January 18, 2012, Fannie Mae tendered notice to Plaintiff
requesting Plaintiff repurchase the loan. The Notice asserted that
Plaintiff violated Fannie Mae’s 2002 Selling Guide Part V: Mortgage
and Property Insurance Chapter 2: Title Insurance Section 204:
Title Exceptions. The Notice stated that title to the Property must
be free and clear of liens and encumbrances. The Notice contained
the following findings:
Title Defect: It has come to our attention per the
foreclosure attorney Doyle Legal Corp that an
outstanding title issue is preventing the subject property
from going to foreclosure sale. An existing title claim
was filed against the title company and the foreclosure
is essentially on hold until the title claim is resolved.
There is a priority assertion of PNC on the mortgage
originated on 07/03/1998 and recorded 07/22/1998 in
the amount of $13,300.00. The title claim hold has
been effective since December 7, 2010. Since the
procedures in the Selling Guide have not been followed,
the subject property should be repurchased.
The Notice also identified the purported violation:
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Guideline Violation(s): 2002 Selling Guide Part V:
Mortgage and Property Insurance (06/30/02)
Chapter 2: Title Insurance (12/04/98) Section 204:
Title Exceptions (06/30/02) The title to the property
that secures the mortgage must be good and
merchantable and free and clear of all liens and
encumbrances (except for the outstanding first mortgage
lien, if we are purchasing or securitizing a second
mortgage). We will not purchase or securitize a
mortgage that has an unacceptable title impediment.
The regulation cited by Fannie Mae in the Notice also
contains the following language (although this language was not
included in the Notice):
We may accept other minor impediments to title if the
lender warrants that they do not materially affect the
marketability of the property and agrees to indemnify us
if we should later incur a loss that can be directly
attributed to the impediment(s). . . .
On or about April 20, 2012, Plaintiff complied with Fannie
Mae’s request and repurchased the Wainman Loan at a cost of
$110,002.02.6
F.
Mortgage Foreclosure Action is Completed
Defendant admitted that Plaintiff repurchased the Wainman Loan but
asserts the fact is immaterial. See Def. Resp. at 5 (d/e 47) (stating that
Plaintiff’s undisputed fact No. 20 was undisputed and immaterial). The Court
notes, however, that Defendant’s Statement of Undisputed Facts asserted that
United Community Bank repurchased the Wainman Loan from Fannie Mae, a
fact Plaintiff disputed.
6
Page 13 of 36
On May 22, 2012, counsel for PNC informed counsel for
United Community Bank that PNC would enter a stipulation of lien
priority indicating that the Wainman Loan was in first position.
Also on May 22, 2012, West sent an email to Spurling providing as
follows:
I think they are missing the mission here. We have
booked the loss we want taken out of the loan amount
plus attorney fees. Had the title company done their job
Fannie could not put the property back on us. Who
knows what the house will sell for but the exposure
shifted from Fannie to us do [sic] to the title company.
We would be happy to turn the property over to them
once paid. Yes still forward all to Rick at Brown Hay.
On June 7, 2012, United Community Bank and PNC
stipulated that the mortgage held by United Community Bank was
a first and prior mortgage lien against the Property senior to any
interest of PNC. On August 1, 2012, an Amended In Rem Default
Judgment was entered in the foreclosure case. On March 6, 2013,
a sheriff’s sale was conducted. United Community Bank bought
the Property for $56,000.
United Community Bank thereafter sold the property for a net
sale price of $14,712.37. United Community Bank remitted the
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$14,712.37 to Plaintiff, thereby reducing Plaintiff’s loss to
$95,289.65.
G.
Plaintiff Demands Defendant Indemnify Plaintiff
On October 1, 2014, over four years after the foreclosure was
filed, the law firm of Brown, Hay & Stephens, LLP tendered
correspondence to Defendant demanding that Defendant indemnify
Plaintiff for the loss Plaintiff suffered on account of Defendant’s
breach of its warranties and obligations under the Agreement. The
Brown, Hay correspondence admits that Abstract & Title tendered
funds and a request that the Line of Credit Mortgage be terminated
and the mortgage released. The Brown, Hay correspondence was
the first time either Plaintiff or United Community Bank informed
Defendant that there was an alleged defect with the Wainman Loan
and/or the Property’s title.
III. LEGAL STANDARD
Summary judgment is proper if the movant shows that no
genuine dispute exists as to any material fact and that the movant
is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).
The movant bears the initial responsibility of informing the court of
the basis for the motion and identifying the evidence the movant
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believes demonstrates the absence of a genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). No
genuine issue of material fact exists if a reasonable jury could not
find in favor of the nonmoving party. Brewer v. Bd. of Trs. of the
Univ. of Ill., 479 F.3d 908, 915 (7th Cir. 2007). When ruling on a
motion for summary judgment, the court must consider the facts
in the light most favorable to the nonmoving party, drawing all
reasonable inferences in the nonmoving party's favor. Blasius v.
Angel Auto., Inc., 839 F.3d 639, 644 (7th Cir. 2016).
In this case, the parties filed cross-motions for summary
judgment pursuant to Rule 56 of the Federal Rules of Civil
Procedure. Therefore, this Court must view all facts and draw all
reasonable inferences in the light most favorable to the Plaintiff
when reviewing Defendant=s Motion and in the light most favorable
to the Defendant when reviewing Plaintiff=s Motion. See
Gazarkiewicz v. Town of Kingsford Heights, Ind., 359 F.3d 933,
939 (7th Cir. 2004).
IV. ANALYSIS
Plaintiff argues that no genuine issues of material fact exist
as to Plaintiff’s claim for indemnification from Defendant.
Page 16 of 36
Defendant argues that summary judgment is warranted in
Defendant’s favor for five reasons: (1) Defendant did not breach
the Agreement because there was no title defect; (2) even if there
were a title defect, the defect was minor and did not violate the
Fannie Mae regulation; (3) the Agreement did not require
Defendant to record the release, so Defendant did not breach the
Agreement; (4) Plaintiff’s action is barred by the doctrine of laches;
and (5) Plaintiff waived its rights to pursue Defendant under the
Agreement.
The Agreement between the parties required that Defendant
fully indemnify and hold Plaintiff
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 [Defendant’s] failure
to perform its obligations, breach any warranties, or
misrepresent any certifications in connection with this
agreement.
The parties agree that Illinois law governs the Agreement. To
establish a breach of contract, Plaintiff must prove (1) the
existence of a valid and enforceable contract; (2) performance by
Plaintiff; (3) breach of contract by Defendant; and (4) resultant
Page 17 of 36
injury to the Plaintiff. Burkhart v. Wolf Motors of Naperville, Inc.
ex rel. Toyota of Naperville, 61 N.E.3d 1155 (Ill. App. Ct. 2016).
The parties only appear to dispute whether Defendant breached its
contractual duty to indemnify Plaintiff.
Whether Defendant breached its contractual duty to
indemnify requires that Plaintiff prove: (1) that the repurchase of
the Wainman Loan from Fannie Mae is encompassed within the
language of the indemnification provision requiring that Defendant
indemnify Plaintiff for “any and all losses, claims, demands,
actions, suits, damages, costs, and expenses (including reasonable
attorney’s fees) of every nature and character”; and (2) that the loss
on the repurchase of the Wainman Loan from Fannie Mae arose,
was made against it, or was incurred by Plaintiff as a result of
Defendant’s “failure to perform its obligations, breach any
warranties, or misrepresent any certifications” in the Agreement
between the parties.
“In Illinois, an indemnity provision is interpreted in the same
manner as any other contractual term” in that “the intention of the
parties controls.” Jackson Nat. Life Ins. Co. v. Gofen & Glossberg,
Inc., 882 F. Supp. 713, 722 (N.D. Ill. 1995); see also Hobbs v.
Page 18 of 36
Hartford Ins. Co. of the Midwest, 823 N.E.2d 561, 564 (Ill. 2005)
(providing that the primary objective for interpreting contracts is to
ascertain and give effect to the parties’ intention as expressed in
their contract). The contract is construed as a whole. Smith v.
Clark Equip. Co., 483 N.E.2d 1006, 1010 (Ill. App. Ct. 1985).
If the words used in the contract are unambiguous, the court
must give the words their plain and ordinary meaning and apply
the contract as written, unless it violates public policy. Thompson
v. Gordon, 948 N.E.2d 39, 47 (Ill. 2011); Rich v. Principal Life Ins.
Co., 875 N.E.2d 1082, 1090 (Ill. 2007). If, however, the words in a
contract are reasonably susceptible to more than one meaning, the
words are ambiguous and will be strictly construed against the
drafter. Rich, 875 N.E.2d at 1090. A contract is not ambiguous,
however, solely because the parties disagree on its meaning.
Central Ill. Light Co. v. Home Ins. Co., 821 N.E.2d 206, 214 (Ill.
2004). In addition, indemnity provisions are strictly construed
against the indemnitee. Jackson Nat’l, 882 F. Supp. At 722.
Page 19 of 36
A.
The Repurchase of the Wainman Loan Constituted a Loss,
Claim, Demand, Action, Suit, Damage, Cost or Expense
The first issue is whether Plaintiff’s repurchase of the
Wainman Loan from Fannie Mae is encompassed within the
language of the indemnification provision requiring that Defendant
indemnify Plaintiff for “any and all losses, claims, demands,
actions, suits, damages, costs, and expenses (including reasonable
attorney’s fees) of every nature and character.” The undisputed
facts show that it is.
In January 2012, Fannie Mae sent Plaintiff a Notice
requesting that Plaintiff repurchase the Wainman Loan. In April
2012, Plaintiff repurchased the loan from Fannie Mae for
$110,002.02. Under the plain language of the indemnity
provision, Plaintiff suffered a loss.
Defendant argues, however, that Plaintiff’s loss does not fall
within the losses for which Defendant must indemnify Plaintiff.
Defendant first asserts that Fannie Mae did not demand that
Plaintiff repurchase the loan but that Fannie Mae’s correspondence
was “a mere notice.” However, Fannie Mae clearly requested that
Plaintiff repurchase the Wainman Loan, which constituted a claim,
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if not an outright demand, that Plaintiff complied with by
repurchasing the Loan.
Defendant also argues that Plaintiff voluntarily repurchased
the Wainman Loan and that Defendant is not responsible for
indemnifying Plaintiff for Plaintiff’s voluntary decisions.
Specifically, Defendant argues that there was no title defect
because the Line of Credit Mortgage was released by operation of
law or by the doctrine of equitable subrogation. See U.S. Bank
Nat’l Ass’n v. Seeley, 953 N.E.2d 486, 489 (Ind. App. Ct. 2011)
(holding that, where evidence shows the parties intended the payoff
of a line of credit mortgage to terminate the mortgage, the line of
credit mortgage is deemed terminated); Fin. Ctr. Fed. Credit Union
v. Brand, 967 N.E.2d 1080, 1084 (Ind. App. Ct. 2012) (discussing
equitable subrogation and noting that a refinancing lender who
provides the funds to pay off an existing mortgage stands in the
shoes of the senior lien and retains its priority status so long as
the refinancing lender is not culpably negligent). Defendant claims
that Plaintiff would not have had to repurchase the Wainman Loan
if Plaintiff had just explained to Fannie Mae that there was no title
defect or that the title defect was minor.
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Defendant presents no evidence suggesting that Fannie Mae
would not have requested repurchase of the Wainman Loan had
Plaintiff explained that there was no title defect or that the title
defect was minor. A party cannot defeat a motion for summary
judgment with conclusory allegations or speculation. Heft v.
Moore, 351 F.3d 278, 283 (7th Cir. 2003); Borcky v. Maytag Corp.,
248 F.3d 691, 695 (7th Cir. 2001) (speculation is insufficient to
defeat summary judgment). In fact, the only evidence in the record
suggest that Fannie Mae did not find the defect was minor, as
evidenced by Fannie Mae’s Notice.
Therefore, the Court finds that Plaintiff’s repurchase of the
Wainman Loan constituted a “loss” as that term is used in the
indemnity provision.
B.
Plaintiff’s Loss Arose, Was Made Against, or Was Incurred
as a Result of Defendant’s Failure to Perform its
Obligations, Breach Any Warranties, or Misrepresent Any
Certifications
The more difficult question is whether Plaintiff’s loss arose or
was incurred as a result of Defendant’s failure to perform its
obligations, its breach of any warranties, or its misrepresentation
Page 22 of 36
of any certifications. The Court finds that the undisputed facts
answer this question in the affirmative.
The Agreement defined eligible mortgage loans to be
purchased by Plaintiff as “10 to 30-year fixed, ARM and Balloon
reset, 1-4 family, first lien, owner-occupied, mortgages.” Therefore,
Defendant was responsible for providing Plaintiff with first-lien
mortgages. Defendant also warranted that the mortgage loans
would be processed in compliance with all applicable laws and
processed, packaged, and closed in accordance with Secondary
Market Guidelines. Finally, Defendant agreed it was responsible
for obtaining all releases.
Defendant did not fulfill its obligations, and the Wainman
Loan did not meet these requirements. The relevant Fannie Mae
regulations provided that the title to the property securing the
mortgage must be free and clear of all liens and encumbrances,
other than the first mortgage lien. Title to the Property securing
the Wainman Loan was not free and clear of all liens and
encumbrances. Defendant did not obtain a release of the Line of
Credit Mortgage to the extent it still appeared as an encumbrance
on the Property.
Page 23 of 36
Defendant argues that the Agreement did not specifically
require that Defendant record any releases. Even if true, the fact
remains that Defendant did not obtain a release of the mortgage
such that title to the Property was free of all liens and
encumbrances.
Defendant also argues that it did, in fact, provide a first-lien
mortgage by operation of Indiana law and equitable subrogation.
Defendant asserts, and Plaintiff does not dispute, that Indiana law
governs the rights and obligations of the parties related to the
Property, title, and title defect for the Property.
Defendant cites Seeley, 953 N.E.2d at 489, which holds that,
where the evidence shows the parties intended the payoff of a line
of credit mortgage to terminate the mortgage, the line of credit
mortgage is deemed terminated. Defendant contends that such
evidence is present here, where the Wainmans requested in writing
that National City terminate the Line of Credit Mortgage and the
mortgage was paid in full. Defendant also cites to the doctrine of
equitable subrogation, which holds that a refinancing lender who
provides the funds to pay off an existing mortgage stands in the
shoes of the senior lien and retains its priority status so long as
Page 24 of 36
the refinancing lender is not culpably negligent. See Brand, 967
N.E.2d at 1084; Bank of N.Y. v. Nally, 820 N.E.2d 644, 653 (Ind.
App. Ct. 2005),
Yet, even if these doctrines applied, the fact remains that,
when Defendant sold the Wainman Loan to Plaintiff, Defendant did
not provide title to the Property that was free and clear of
encumbrances. See, e.g., Wells Fargo Bank, N.A. v. Bank of Am.,
N.A., No. 11 Civ. 4062 (JPO), 2013 WL 372149, at *8 (S.D. N.Y.
Jan. 31, 2013) (finding that the potential right to subrogation did
not demonstrate that the defendant did not breach the provision in
the agreement to provide a first prior lien free and clear of any
liens, claims or encumbrances or the warranty that plaintiff had
the ability to foreclose on the property and realize the benefits of a
party with a first lien). During the mortgage foreclosure
proceedings, United Community Bank had to litigate the issues of
PNC’s mortgage lien, which delayed the mortgage foreclosure for a
significant period of time. Because Defendant did not ensure that
the release from National City was obtained—whether by recording
the mortgage, preparing a release document for recording, or
ensuring that a release was recorded—an encumbrance remained
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on the title. Clearly, the intent of the parties in their Agreement
was to, in part, avoid issues pertaining to title and require
indemnification when such issues did arise. Therefore, regardless
of whether equitable subrogation would apply or whether the facts
are such that a court would find that the Line of Credit Mortgage
terminated by operation of law, Defendant was already in breach
when it sold a loan to Plaintiff that was secured by property
encumbered by the Line of Credit Mortgage.
Defendant next asserts that, even if a title defect existed, the
defect was minor and did not violate the Fannie Mae Regulation.
Defendant argues that Fannie May recognizes that some conditions
are minor impediments to the title that do not affect the
marketability of the property.
However, Defendant’s argument is belied by the undisputed
fact that Fannie Mae did not see the defect as minor. On January
18, 2012, Fannie Mae sent Plaintiff a Notice requesting that
Plaintiff repurchase the loan. The Notice reflects that an
outstanding title issue prevented the subject property from going
to foreclosure sale. Because the procedures in the Selling Guide
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were not followed, “the subject property should be repurchased.”
Fannie Mae did not view the defect as minor.
In opposition to Plaintiff’s motion for summary judgment,
Defendant also asserts that Plaintiff’s loss is attributable to
Plaintiff’s failure to act diligently. Defendant argues that if Plaintiff
had completed the foreclosure action or resolved the title dispute
within a reasonable time, Fannie Mae would not have requested
that Plaintiff repurchase the Wainman Loan. Defendant also
argues that had Plaintiff timely informed Defendant of the loss,
Defendant could have resolved the alleged title issue or simply paid
PNC what it requested on its mortgage lien.
However, Defendant cites no factual support for its assertion.
As noted above, a party cannot defeat a motion for summary
judgment with conclusory allegations or speculation. Heft, 351
F.3d at 283; Borcky, 248 F.3d at 695 (speculation is insufficient to
defeat summary judgment). Because the undisputed facts show
that Plaintiff suffered a loss as a result of Defendant’s failure to
perform its obligations under the Agreement, Plaintiff is entitled to
summary judgment unless Defendant’s affirmative defenses of
laches or waiver bar Plaintiff’s claim.
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C.
Plaintiff’s Claim is Not Barred by Laches
Defendant argues that Plaintiff’s claim for indemnification is
barred by laches.
Laches bars an action where unreasonable delay in bringing
suit causes prejudice to the opposing party. Madigan v. Yballe,
920 N.E.2d 1112, 1122–23 (Ill. App. Ct. 2009). Although not
raised by Plaintiff, the Court notes that laches has generally
applied to actions in equity while statutes of limitation have
applied to actions at law. Sundance Homes, Inc. v. Cnty. of Du
Page, 746 N.E.2d 254, 263 (2001). Although Illinois no longer
mechanically applies laches only to equitable actions, Illinois
courts and the Seventh Circuit, applying Illinois law, have not
extended laches to a breach of contract claim seeking only money
damages. See West Bend Mut. Ins. Co. v. Procaccio Painting &
Drywall Co., Inc. 794 F.3d 666, 678 (7th Cir. 2015) (“[W]e have yet
to find a case in which an Illinois court has applied laches to bar a
breach-of-contract suit seeking only monetary damages.”); Gen.
Auto Serv. Station, LLC v. Garrett, 50 N.E.3d 1114, 1148 (Ill. App.
Ct. 2016 (“No court has applied laches to a breach of contract
action between private parties where the relief sought was limited
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to money damages.”). Instead, Illinois courts have only extended
laches to actions at law where the relief sought was quasiequitable or where civil servants seek backpay. See Nature
Conservancy v. Wilder Corp. of Del., 656 F.3d 646, 650-51 (7th
Cir. 2011).
Because Plaintiff brings a breach-of-contract action seeking
solely money damages, laches does not apply, and the cause of
action is governed solely by the statute of limitations. This Court
previously found that Plaintiff brought its cause of action within
the statute of limitations. See Opinion (d/e 14).
Even if the doctrine of laches applied to this cause of action,
Defendant has failed to meet its burden. To establish laches,
Defendant must show a lack of due diligence by Plaintiff in
asserting its claim against Defendant and prejudice to Defendant.
See People v. McClure, 843 N.E.2d 308, 316 (Ill. 2006). In January
2012, Fannie Mae requested Plaintiff repurchase the Wainman
Loan. Plaintiff repurchased the loan in April 2012, but did not
learn the exact amount of its damages until the completion of the
sale of the Property. See Settlement Statement dated January 17,
2014. Plaintiff filed this lawsuit on February 19, 2015 alleging
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that Defendant breached its obligation to indemnify Plaintiff for the
loss.
Even assuming these facts constituted unreasonable delay,
Defendant has not shown prejudice due to the delay between April
2012, when Plaintiff repurchased the Wainman Loan, and
February 19, 2015, when Plaintiff filed this lawsuit. Defendant
argues that Plaintiff should have notified Defendant sooner of the
alleged title defect, in which case Defendant could have paid the
outstanding mortgage or warranted to Fannie Mae that the alleged
impediment was minor and agree to indemnify Fannie Mae if it
incurred a loss.
But laches bars recovery for a litigant whose unreasonable
delay in bringing an action or asserting a right prejudices the
opposing party. See People v. Hawkins, 690 N.E.2d 999, 1005 (Ill.
1998); In re Marriage of Benson, 33 N.E.3d 268, 276 (Ill. App. Ct.
2015). Plaintiff’s “action” or “right” is one seeking indemnification
for Plaintiff’s repurchase of the Wainman Loan, which occurred in
April 2012. Plaintiff is not bringing an action on Defendant’s
purported breach to perform its obligations under the Agreement
that led to the alleged title defect. Therefore, Defendant’s
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argument that Plaintiff should have notified Defendant of the
alleged title defect earlier is inapposite. The cause of action did not
accrue any earlier than April 2012 when Plaintiff repurchased the
Wainman Loan from Fannie Mae.
To demonstrate prejudice, Defendant must submit some
evidence that Plaintiff’s delay misled Defendant or that Defendant
would have pursued a different course of action. Cannella v. Vill.
of Bridgeview, 673 N.E.2d 394, 398 (Ill. App. Ct. 1996). Defendant
has not presented any evidence of prejudice due to the delay
between April 2012 and the filing of the lawsuit in February 2015.
See id. (“Speculation that a party might have proceeded differently
is insufficient to prove harm as a result of an opposing party’s
delay.”) Therefore, laches does not apply. See Univ. Healthcare
Consortium v. UnitedHealth Group, Inc., 68 F. Supp. 3d 917, 926
(N.D. Ill. 2014) (noting that while laches typically involves
questions of fact, the court may resolve the issue on summary
judgment where the facts are not genuinely disputed).
Page 31 of 36
D.
Plaintiff Did Not Waive its Claim for Indemnification
Lastly, Defendant argues that Plaintiff’s actions are
inconsistent with any intention other than waiving its rights to
pursue Defendant under the Agreement.
Waiver is the intentional relinquishment of a known right.
Ryder v. Bank of Hickory Hills, 585 N.E.2d 46, 49 (Ill. 1991).
Under Illinois law, a waiver may be express or implied from a
party’s conduct. Id.
Implied waiver “must be proved by a clear, unequivocal, and
decisive act of the party who is alleged to have committed the
waiver.” Ryder, 585 N.E.2d at 49. Essentially, the issue is
whether, based on the circumstances, the “person against whom
the waiver is asserted has pursued such a course of conduct as to
sufficiently evidence an intention to waive a right or where his
conduct is inconsistent with any other intention than to waive it.”
Ryder, 585 N.E.2d at 49 (internal quotation marks omitted).
Inaction alone is insufficient. See Washburn v. Union Nat’l Bank
& Trust Co. of Joliet, 502 N.E.2d 739, 742 (Ill. App. Ct. 1986)
(finding that inaction by the bank did not constitute an implied
waiver of its rights as a secured lender).
Page 32 of 36
If the parties do not dispute the material facts alleged in
support of the waiver claim and the facts support only one
reasonable inference, the existence of waiver is a question of law.
Anderson v. Holy See, 878 F. Supp. 2d 923, 933 (N.D. Ill. 2012),
aff'd sub nom. Anderson v. Catholic Bishop of Chicago, 759 F.3d
645 (7th Cir. 2014) (citing Illinois cases). If there is a dispute
regarding the material facts or if reasonable minds could differ as
to the reasonable inferences to be drawn, then the issue of waiver
is a question of fact. Id.
Defendant asserts that implied waiver applies here because
Plaintiff’s actions are inconsistent with any intention other than
waiving its rights to pursue Defendant under the Agreement.
Defendant first argues that Plaintiff could have required Defendant
repurchase the Wainman Loan if Defendant did not tender the
documents necessary to complete the sale of the loan to Plaintiff.
By failing to do so, according to Defendant, Plaintiff waived its
ability to recover from Defendant.
However, the Agreement did not require that Plaintiff demand
that Defendant repurchase the loan. Paragraph D(8) of the
Agreement provided as follows:
Page 33 of 36
In the event 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.
Because repurchase of the loan was at Plaintiff’s option, Plaintiff’s
decision not to request that Defendant repurchase the loan is still
consistent with a decision to seek indemnification. See, e.g.,
Washburn, 502 N.E.2d at 742 (finding that inaction by the bank
did not constitute an implied waiver of its rights as a secured
lender).
Defendant also argues that Plaintiff’s delay in seeking
indemnification can only be interpreted as an intention of waiving
Plaintiff’s right to indemnification under the Agreement. The Court
disagrees.
Waiver can be inferred from the delay in asserting a right.
UIDC Mgmt., Inc. v. Sears, Roebuck & Co., 520 N.E.2d 1164, 1167
(Ill. App. Ct. 1994). For instance, when a contractual provision
requires performance within a definite period time and a party acts
inconsistently with that time provision, the provision may be
considered waived. See id. (describing situation where waiver
commonly occurs but finding that defendant allowing the plaintiff
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to maintain the premises for nine years did not constitute conduct
inconsistent with an intention to insist upon its right to maintain
its property during the remaining 25 years of the contract). Here,
however, Plaintiff had no obligation under the Agreement to notify
Defendant of the alleged title defect within a particular period of
time.
Moreover, Plaintiff did not repurchase the loan until April
2012 and did not determine the final amount of its loss until
January 2014. See Settlement Statement (dated January 2014),
Ex. B-6 (d/e 43-2). Plaintiff sought indemnification from
Defendant in October 2014. The delay under the circumstances
here does not constitute conduct inconsistent with an intention to
seek indemnification. Therefore, because the relevant facts are not
in dispute, the Court finds as a matter of law that Plaintiff did not
waive enforcement of the indemnification provision.
V. CONCLUSION
For the reasons stated, Defendant North Salem State Bank’s
Motion for Summary Judgment (d/e 40) is DENIED and Plaintiff
Community Banc Mortgage Corporation’s Motion for Summary
Judgment (d/e 42) is GRANTED. The Clerk is DIRECTED to enter
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judgment in favor of Plaintiff and against Defendant in the amount
of $95,289.65 plus prejudgment interest at a rate of 5% per
annum from the date of demand and costs of suit. THIS CASE IS
CLOSED.
ENTER: July 3, 2017
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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