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Suntrust Mortgage, Inc. v. North Shore Bank

United States District Court, E.D. Virginia, Richmond Division

February 20, 2015

SUNTRUST MORTGAGE, INC., Plaintiff,
v.
NORTH SHORE BANK, Defendant.

MEMORANDUM OPINION

JAMES R. SPENCER, Senior District Judge.

THIS MATTER is before the Court on Plaintiff's Motion for Summary Judgment ("Plaintiff's Motion" or "SunTrust's Motion") (ECF No. 26) and Defendant's Motion for Summary Judgment ("Defendant's Motion" or "North Shore's Motion") (ECF No. 23). For the reasons set forth below, Plaintiff's Motion is hereby GRANTED and Defendant's Motion is DENIED.

I. BACKGROUND

a. Statement of Facts [1]

On September 23, 2004, SunTrust Mortgage, Inc. ("SunTrust") and North Shore Bank, FSB ("North Shore") entered into a Correspondent Loan Purchase Agreement (the "Agreement") (Compl. Ex. A). SunTrust's Correspondent Seller Guide (defined in the Agreement as the "Manual")[2] is incorporated by reference into the Agreement. Under the Agreement, North Shore agreed to sell mortgage loans to SunTrust and SunTrust agreed to purchase mortgage loans from North Shore, subject to the terms and conditions of the Agreement. Specifically, North Shore is responsible for the accurate preparation and completion of the loan application packages and to ensure they are in full compliance with the terms of the Agreement and the Manual. Pursuant to paragraph 22 of the Agreement, North Shore agreed to indemnify SunTrust against any all claims or losses resulting from, inter alia, a breach of the Agreement.

North Shore originated, underwrote, and closed a Mortgage Loan to Therese Hounsell (the "Loan") in the principal amount of $181, 600.00, secured by a mortgage on property located at 4926 Harris Avenue, Sarasota, Florida (the "Subject Property").[3] On November 14, 2006, SunTrust paid North Shore $2, 724.00 to purchase the Loan. The Loan was sold to SunTrust pursuant to the Manual's "No Ratio" documentation option. SunTrust also paid a service release premium to North Shore for the Loan in the amount of $1, 816.00. Additionally, as part of the closing, SunTrust charged Hounsell $245 to review the Loan Closing Package to ensure that the Loan file contained all of the required loan closing documents and security instruments.

SunTrust, as servicer of the Loan, subsequently completed a Forbearance Agreement with Hounsell, allowing for "non-payment" of four payments, September 2008 to December 2008. Additionally, SunTrust completed a Loan Modification Agreement on December 22, 2008, which increased the principal amount of the loan, extended the maturity date and modified the interest payments.

On December 26, 2006, SunTrust sold the Loan to the Federal National Mortgage Association ("Fannie Mae"). SunTrust allegedly made its own warranty to Fannie Mae that the Loan met the guidelines as of the date of the sale. Hounsell subsequently defaulted on her payment obligations for the Loan.

On November 15, 2012, SunTrust received a Loan Repurchase Notice from Fannie Mae demanding that SunTrust repurchase the Loan due to insufficient documentation of Hounsell's assets in the loan file. ( See Mem. in Supp. of Pl.'s Mot. Ex. B.) Upon receipt of this Notice, SunTrust conducted its own review of the Hounsell Loan file and determined that it was not underwritten in accordance with SunTrust's underwriting guidelines.

According to the HUD-1 Settlement Statement ( id. at Ex. E), Hounsell paid $1, 201.12 to close the Hounsell Loan, made up of a $1, 000 earnest money deposit check on the sale contract for the Subject Property (the "Earnest Money Deposit") and $201.12 in funds brought to closing (the "Closing Cash") (collectively, the "Funds to Close"). SunTrust alleges that because the funds from the Earnest Money Deposit were necessary to close the Loan, the Manual required that North Shore verify and document that the Earnest Money Deposit cleared the drawer's account. Additionally, because the Closing Cash was necessary to close the Loan, SunTrust alleges that the Manual required that North Shore verify and document the source of the funds comprising the Closing Cash. Although the parties do agree that the loan file contained a copy of the $1, 000 check, the Loan file submitted by North Shore to SunTrust at the time North Shore sold the loan to SunTrust did not contain any other documentation. Furthermore, Hounsell's Uniform Residential Loan Application represented that Hounsell had liquid assets of $10, 839.40 (the "Liquid Assets"). ( See id. at Ex. F.) SunTrust alleges that the Manual also required North Shore to verify the Liquid Assets; however, the Loan file did not contain such documentation either.[4]

On November 21, 2012, SunTrust notified North Shore of Fannie Mae's repurchase request regarding the Hounsell Loan and requested that North Shore provide SunTrust with the missing documentation to persuade Fannie Mae to withdraw the repurchase request. (Mem. in Supp. of Pl.'s Mot. Ex. G; Def.'s Mem. in Supp. of Mot. Ex. 2(I).) North Shore did not provide SunTrust with any new documentation, but rather claimed that it reviewed the loan file and it was their "recollection that this was a no doc program that didn't require asset verification." (Mem. in Supp. of Pl.'s Mot. Ex. H.)

On November 29, 2012, SunTrust sent a letter to Fannie Mae that stated "[t]he borrower satisfactorily met the EZ Option guidelines.... According to the EZ Option guidelines, the borrower was not required to document the $1, 201 of funds used to close the subject mortgage." (Def.'s Mem. in Supp. of Mot. Ex. 2(J).) By letter dated January 16, 2013, Fannie Mae rejected SunTrust's arguments. ( Id. at Ex. 2(K).) SunTrust was given until January 31, 2013 to appeal the Fannie Mae decision. ( Id. ) SunTrust did not appeal Fannie Mae's letter and did not inform North Shore about the deadline for such appeal. ( Id. at Ex. 2 ¶ 68, 69.)

On April 16, 2013, SunTrust incurred a loss on the Hounsell Loan when it paid $248, 620.92 to Fannie Mae to repurchase the Loan. On May 17, 2013, SunTrust notified North Shore of its obligation to repurchase the Hounsell Loan from SunTrust. (Mem. in Supp. of Pl.'s Mot. Ex. I; Def.'s Mem. in Supp. of Mot. Ex. 2(L).) On May 28, 2013, North Shore emailed SunTrust asking for a breakdown of the repurchase amount "so that we [sic] set up this account online to reflect current servicing data" and that the repurchase needed to occur "no later than the end of next week (May 31st)." (Def.'s Mem. in Supp. of Mot. Ex. 2(N).) On that same day, the Subject Property was sold to a third party buyer through a pre-arranged short sale for $80, 000.00, with net sale proceeds of $67, 285.53 credited towards the unpaid balance of the Hounsell Loan. On June 6, 2013, SunTrust wrote to North Shore, informing North Shore that the Subject Property had been sold through a short sale and SunTrust demanded payment of $183, 151.39. (Mem. in Supp. of Pl.'s Mot. Ex. J.)

b. Procedural Posture

SunTrust filed its Complaint against North Shore on May 30, 2014 in this Court pursuant to 28 U.S.C. § 1332. The one-count Complaint alleges breach of contract and seeks to enforce SunTrust's contractual rights to be indemnified for losses sustained on the Loan purchased from North Shore. SunTrust seeks damages in the amount of $183, 151.39, an award for attorneys' fees, as well as all pre-judgment and post-judgment interest permitted by law.[5] The parties attended a settlement conference with Magistrate Judge David J. Novak on December 12, 2014. However, the parties failed to settle their claims.

A bench trial was scheduled to begin on February 17, 2015. Pursuant to this Court's Pretrial Order (ECF No. 19), the parties timely filed their present Motions for Summary Judgment on January 8, 2015. Once the issues were fully briefed, the Court held a hearing on February 5, 2015.

II. LEGAL STANDARD

When faced with cross-motions for summary judgment, the Court applies the same standard as that applied to individual motions for summary judgment. See Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003). The Court must consider "each motion separately on its own merits to determine whether either of the parties deserves ...


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