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Provident Bank v. Community Home Mortgage Corp.

May 7, 2007


The opinion of the court was delivered by: Joseph F. Bianco, District Judge


Plaintiff Provident Bank ("Provident") brings the instant action alleging breach of contract, fraudulent representation and breach of guaranty, and requesting an accounting and appointment of a receiver, against defendants Community Home Mortgage Corp. and Community Home Funding Group, Ltd. (collectively, "Community") and Ira Silverman ("Silverman") (collectively, "defendants"). Intervenor-plaintiffs Southwest Securities Bank, formerly known as First Savings Bank, FSB ("Southwest"), Warehouseone Acceptance Company IV, LLC ("Warehouseone") and NetBank ("NetBank") intervened in the action to assert claims against Community and each other.

NetBank asserts a cross-claim against Southwest for a declaratory judgment in Netbank's favor; in addition, Southwest asserts counter-claims against NetBank for constructive trust, unjust enrichment, conversion, and for a declaratory judgment in Southwest's favor.

Southwest now moves, under Federal Rule of Civil Procedure 56, for summary judgment as to NetBank's cross-claim and its own counter-claim for a declaratory judgment, or, in the alternative, for relief pursuant to the Court's equity powers. NetBank cross-moves for summary judgment, seeking a declaratory judgment in its favor as to its cross-claim and Southwest's counter-claim. For the reasons that follow, Southwest's motion for summary judgment is denied. NetBank's motion for summary judgment is granted.


A. The Facts

The following facts are taken from the parties' depositions, declarations, exhibits and respective Local 56.1 statements of facts.*fn1

Defendant Community was a mortgage banker authorized to conduct mortgage banking operations in New York, as well as other states. (Southwest's 56.1, ¶ 5.) Community originated residential mortgage loans. (Id.) Southwest and RBMG, Inc. ("RBMG") did business with Community - Southwest, as a "warehouse lender,"*fn2 and RBMG as a "correspondent lender." (Southwest's 56.1, ¶¶ 2-3.) Intervenorplaintiff NetBank is a successor in interest to RBMG, Inc. (Stagg Aff., ¶ 1.)

In order to obtain the money to fund the mortgages it originated, Community entered into agreements with banks such as Southwest and RBMG to fund a portion of the purchase price associated with the loans. (Southwest's 56.1, ¶ 6; Ex. A.) In a Mortgage Purchase Agreement ("MPA") between Community and Southwest, the parties provided that Community would sell a loan it had originated to Southwest, and that the purchase price paid by Southwest would be used by Community to fund the closing of the loan.*fn3 (Southwest's 56.1, ¶ 7, Ex. A.) Community would then be obligated to sell the loan within 60 days in order to repay Southwest, plus interest and fees. (Southwest's 56.1, ¶ 8, Ex. A.) Similarly, under RBMG's Correspondent Mortgage Purchase Agreement ("CMPA") with Community, RBMG agreed to purchase mortgage loans from Community. (NetBank's 56.1, ¶ 2; Southwest's 56.1, Ex. W.)

Community allegedly engaged in a scheme known as "double-booking."*fn4 (Southwest's 56.1, ¶ 13.) Pursuant to this scheme, each mortgage borrower executed duplicate original promissory notes and mortgage assignments.*fn5 (Southwest's 56.1, ¶ 14.) Community thereby obtained duplicate funding for one loan from two different warehouse lenders, and retained the entire value of the loan for its own purposes. (NetBank's Intervenor Compl., ¶ 48.) After the loan was sold to a permanent investor, only one of the warehouse lenders would be paid in full. (NetBank's Intervenor Compl., ¶ 49.) As a result, the investor and the unpaid warehouse lender would have conflicting recorded mortgages and assignments. (NetBank's Intervenor Compl., ¶ 49.) In the case of nine loans, one original note and assignment was sold to Southwest, and duplicate original documents were sold to RBMG.*fn6 (Southwest's 56.1, ¶ 14.) As a result of Community's fraud, there are a total of nine loans which were sold to both Southwest and RBMG and for which each now claims a priority interest:

(1) The Brockman loan, in the amount of $246,050;

(2) The Duhigg loan, in the amount of $238,000;

(3) The Kassorla loan, in the amount of $300,000;

(4) The Martinez loan, in the amount of $236,000;

(5) The Matterson loan, in the amount of $284,500;

(6) The McDuffie loan, in the amount of $177,050;

(7) The Nienstedt loan, in the amount of $195,000;

(8) The Ladioray loan, in the amount of $238,000; and

(9) The Musgrove loan, in the amount of $251,000.

(Wicker Aff., Exs. B-J.)

When Southwest purchased mortgages from Community it, inter alia, took possession of the original notes and received and recorded assignments of the mortgages. (Southwest's 56.1, ¶ 9, Ex. A.) Southwest took possession of its notes after RBMG in the case of all but the Kassorla loan, which it received on the same day. (NetBank's 56.1, ¶ 9.) Community did not endorse any of the notes provided to Southwest. (NetBank's 56.1, ¶ 6.) Southwest recorded its assignments of the mortgages before RBMG in the case of five loans: the Duhigg, Kassorla, Martinez, Ladioray, and Musgrove loans. (Southwest's 56.1, Exs. B-S.)

RBMG received the original note and assignment for each of the nine disputed loans. (NetBank's 56.1, ¶ 4.) Seven of the notes (for the Brockman, Duhigg, Kassorla, Martinez, Matterson, McDuffie and Nienstedt loans) were endorsed by Community through defendant Daniel Silverman, its Executive Vice-President. (NetBank's 56.1, ¶ 5, Exs. BH.) Daniel Silverman made the endorsements by stamping the last page of each note as "[p]ayable to ...

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