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Franklin American Mortgage Co. v. University National Bank of Lawrence

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

December 14, 2017

FRANKLIN AMERICAN MORTGATE COMPANY, Plaintiff,
v.
THE UNIVERSITY NATIONAL BANK OF LAWRENCE Defendant.

          OPINION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

          BERNARD A. FRIEDMAN, SENIOR UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the parties' cross motions for summary judgment [docket entries 67 and 69] and defendant's motion to strike excess pages [docket entry 76]. As this matter is fully briefed, the Court will decide these motions without a hearing.

         FACTS

         The following facts are summarized from the complaint and the parties' briefing. Plaintiff is a Tennessee mortgage company and defendant is a Kansas bank. In 2005, the parties signed a Correspondent Loan Purchase Agreement (“the Agreement”). The Agreement provides for the sale of residential mortgage loans from defendant (the Seller) to plaintiff (the Buyer) and outlines the parties' respective obligations. Several provisions of the Agreement are pertinent here:

Section 6: At all times the Seller makes the following representations and warranties: . . .
6.2 Complies With Agency[1] Requirements: There is no fact or circumstance with respect to the Mortgage Loan that would entitle: a) an Agency to demand repurchase of a Mortgage Loan; [or] c) . . . an Agency[], to claim indemnification . . . .
6.20 PMI: Each Mortgage Loan required to have private mortgage insurance has a policy that a) complies with the Agency Guide and the Manual; and b) is issued by an insurer acceptable to the Agency and the Buyer.
Section 8: Seller agrees to repurchase one or more Mortgage Loans from Buyer, upon terms and conditions hereinafter set forth, in the event that: . . .
b) Buyer is required to repurchase the Mortgage Loan after it has been sold to an Agency or a Private Investor due to a deficiency in or omission with respect to any documents, instrument, or agreement pertaining to the Mortgage Loan . . .
Any such repurchase shall occur within thirty (30) business days after written demand by Buyer . . . .
Section 10: In addition to the repurchase obligation of Seller and any and all other rights and remedies available to Buyer, Seller shall indemnify the Buyer . . . against any and all losses . . . that the Buyer may incur . . . arising out of:
a) Any misrepresentation made by the Seller in . . . any information provided to the Buyer, [or]
b) Any breach by the Seller of any of the Seller's representations, warranties, or obligations . . . .

         In sum, § 8 and § 10 require defendant to, under certain circumstances, repurchase or indemnify plaintiff for defective mortgage loans. This case is about two defective loans that defendant refuses to repurchase or indemnify plaintiff for: the Salvino loan and the Turner loan.

         Defendant originated the Salvino loan in early 2006. On June 30, 2006, defendant sold the Salvino loan to plaintiff, who immediately resold it to Wells Fargo. In March 2010, Wells Fargo notified plaintiff of underwriting defects in the Salvino loan, including misrepresentations of the Salvinos' income and credit score. Plaintiff's contract with Wells Fargo-similar to the Agreement-contains repurchase and indemnification clauses. Plaintiff asked defendant to explain the underwriting defects. At the same time, plaintiff appealed Wells Fargo's determination within Wells Fargo. In August 2010, Wells Fargo denied plaintiff's appeal. In September 2010, Wells Fargo demanded that plaintiff repurchase the Salvino loan, which plaintiff did for $116, 000 in early November 2010. Plaintiff immediately demanded that defendant repurchase or indemnify it for the Salvino loan, but defendant refused. Plaintiff then sold the Salvino loan for $42, 000 on the “scratch and dent” secondary market.

         Defendant originated the Turner loan in mid-2007. On September 5, 2007, defendant sold it to plaintiff, who immediately resold it to Wells Fargo. In February 2010, Wells Fargo notified plaintiff of lapsed insurance and underwriting defects in the Turner loan, including misrepresentations of the Turners' income. From then until December 2010, the parties and Wells Fargo exchanged correspondence regarding the Turner loan. Plaintiff appealed Wells Fargo's determination within Wells Fargo, but eventually Wells Fargo denied plaintiff's appeal. Plaintiff indemnified Wells Fargo in November 2010, for $116, 689.94.[2] Defendant has refused to indemnify plaintiff.

         Plaintiff filed the instant action in October 2013. In February 2016, it filed its amended complaint, which asserts two breach-of-contract claims-one as to the Salvino loan and the other as to the Turner loan. The parties have now filed cross motions for summary judgment.

         LEGAL STANDARD

         Under Fed.R.Civ.P. 56(a), summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” “[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine dispute as to any material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original). Viewing the evidence in the light most favorable to the opposing party, summary judgment may be granted only if the evidence is so one-sided that a reasonable factfinder could not find for the opposing party. See Id. at 248-50; Street v. J.C. Bradford & Co., 886 F.2d 1472, 1478-80 (6th Cir. 1989). In other words, “[a] material issue of fact exists where a reasonable jury, viewing the evidence in the light most favorable to the non-moving party, could return a verdict for that party.” Vollrath v. Georgia-Pacific Corp., 899 F.2d 533, 534 (6th Cir. 1990).

         DISCUSSION

         I. LAW

         “In a diversity action such as this one, [the Court must] apply the law, including the choice of law rules, of the forum state.” Stenger v. Freeman, 683 F. App'x 349, 350 (6th Cir. 2017) (internal quotation marks omitted). In Tennessee, a “plaintiff alleging breach of contract must prove: (1) the existence of an enforceable contract, (2) non-performance amounting to a breach of the contract, and (3) damages caused by the breached contract.” Nw. Tenn. Motorsports Park, LLC v. Tenn. Asphalt Co., 410 S.W.3d 810, 816-17 (Tenn. Ct. App. 2011) (internal quotation marks omitted). Here, only elements (2) and (3) are at issue. In Tennessee, the

cardinal rule for interpretation of contracts is to ascertain the intention of the parties and to give effect to that intention, consistent with legal principles. The intention of the parties is to be gleaned from the four corners of the contract, and the contract's terms are to be given their “ordinary meaning” in the absence of any ambiguity. The court, at arriving at the intention of the parties to a contract, does not attempt to ascertain the parties' state of mind at the time the contract was executed, but rather their intentions as actually embodied and expressed in the contract as written.

United States v. Tennessee, 632 F.Supp.2d 795, 800-01 (W.D. Tenn. 2009) (citations and quotation marks omitted). The Court will enforce “unwise or burdensome” contracts. Id. at 801.

         II. ANALYSIS

         A. Liability

         1. Salvino Loan

         Regarding the Salvino loan, defendant breached its contract obligations under § 8 and § 10. Fannie Mae regulations require underwriters to calculate borrower income by averaging the borrower's income information in his W-2 form from the previous year and a current pay stub. Pl.'s Docs. 690.[3] Defendant did not accurately average the Salvinos' W-2s and current pay stubs: for example, defendant disregarded Ms. Salvino's W-2s, overrepresenting the Salvinos' income by over 20% and underrepresenting their debt-to-income ratio by 16%.[4] Def.'s Docs. 35-36, 123, 283-89; Pl.'s Docs. 20-21, 689, 797-98. ...


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