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Franklin American Mortgage Co. v. JFK Financial, Inc.

United States District Court, M.D. Tennessee, Nashville Division

December 16, 2016

FRANKLIN AMERICAN MORTGAGE COMPANY, Plaintiff,
v.
JFK FINANCIAL, INC., d/b/a EQUITY DIRECT FUNDING, Defendants.

          MEMORANDUM AND ORDER

          WAVERLY D. CRENSHAW, JR. UNITED STATES DISTRICT JUDGE

         Franklin American Mortgage Company (“Franklin”) filed this mortgage put-back action against JFK Financial, Inc. d/b/a Equity Direct Funding (“JFK”), alleging breach of a Correspondent Loan Purchase Agreement (“CLPA”). The Court has jurisdiction over this action under 28 U.S.C. § 1441. Now pending are the parties' cross-motions for summary judgment. (Doc. No. 48, 53.) For the reasons stated below, both motions (Doc. No. 48, 53) are DENIED.

         I. UNDISPUTED MATERIAL FACTS

         Franklin and JFK entered into the CLPA (Doc. No. 1-1 at 9) on August 28, 2007. The CLPA contemplates an ongoing transfer of a series of residential mortgage loan purchase agreements from JFK to Franklin, potentially in perpetuity. (Id. at 1, 11.) The CLPA contains representations and warranties by JFK generally applicable to all the mortgage loans it sold to Franklin. (Id. at 5-6.) The CLPA also defines the term “Event of Default” as any representation or warranty “made by…Seller in any…Contract Documents [that] prove to have been false or incorrect in any material respect at the time it was made.” (Id. at 2.)

         The CLPA makes available to Franklin specific remedies upon the occurrence of an Event of Default. First, Section Eight contemplates repurchase or indemnification, at Franklin's option, as a remedy for default. (Id. at 6-7.) Notably, the indemnification option contemplates a separate, written indemnification agreement. (Id.) Second, in addition to the repurchase obligation, the CLPA contemplates that Franklin may recover damages resulting from the Seller's breach of any representations and warranties or other contract obligations. (Id. at 7-8.)

         On December 27, 2007, JFK issued a mortgage loan to Joan Cline (“Cline Loan”), a refinance mortgage loan secured by a deed of trust on real property. (Doc. No. 66 at 9.) JFK sold the Cline Loan to Franklin pursuant to the CLPA on January 9, 2008. (Id. at 10.) Franklin obtained physical possession of files related to the Cline Loan, including underwriting materials, on January 10, 2008. (Id. at 11.) Franklin sold the Cline Loan to Wells Fargo, N.A. (“Wells Fargo”) on January 16, 2008. (Id. at 12.)

         On March 1, 2011, Wells Fargo notified Franklin of alleged defects in the underwriting materials pertaining to the Cline Loan and made a “soft” demand that Franklin repurchase the Cline Loan. (Id. at 13.) Franklin asserts that the defects in the underwriting materials constitute a breach of the representations and warranties made by JFK in the CLPA. (Id.) On March 3, 2011, Franklin notified JFK of the discovery of the alleged defects. (Id. at 14.)

         On April 11, 2011, Wells Fargo made a formal demand to Franklin that it repurchase the Cline Loan. Franklin repurchased the Cline Loan from Wells Fargo on May 2, 2011. (Id.)

         On May 25, 2011, Franklin formally demanded that JFK repurchase the Cline Loan. (Id.) After JFK denied responsibility and refused to repurchase, Franklin sold the Cline Loan to Goshen Mortgage, LLC on August 30, 2011. (Id. at ¶ 18.)

         On February 5, 2014, Franklin filed this suit, more than six years after the Cline Loan closed in January 2008 but less than six years after JFK refused the demand to repurchase the loan. Franklin seeks damages incurred as a result of JFK's refusal to repurchase the Cline Loan.

         II. STANDARD OF REVIEW

         In reviewing a motion for summary judgment, this Court will only consider the narrow question of whether there are “genuine issues as to any material fact and [whether] the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The Court is required to view “the facts and reasonable inferences in the light most favorable to the nonmoving party . . . .” Ferrari v. Ford Motor Co., 826 F.3d 885, 891 (6th Cir. 2016) (citing Cass v. City of Dayton, 770 F.3d 368, 373 (6th Cir. 2014)).

         III. DISCUSSION

         A. JFK's Motion for ...


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