A California appeals court has ruled in favor of a wholesale lender that was a victim of mortgage fraud. At issue was the settlement agent’s failure to advise the lender of an unauthorized disbursement.
Residential wholesaler Plaza Home Mortgage Inc. funded a first mortgage for $800,000 and a $220,000 second mortgage in March 2007 for Oliver Aleta, a corrections officer, to purchase a home in Northridge, Calif.
But, unbeknownst to Plaza, North American distributed $53,853 to Edward Peregrino, who was the attorney in fact for the buyer of the property.
Aleta defaulted on his third payment.
Turns out that the home purchase involved a fraudulent mortgage transaction.
Plaza said its closing instructions mentioned nothing about the $53,853 cash disbursement. Had it known about the disbursement, a red flag would have been raised that it wasn’t an arms-length transaction and that the property was over-valued. With such knowledge, Plaza could have backed out of the transaction since it would have taken steps to protect itself from a potentially fraudulent payoff. Plaza would have also been aware that seller credits exceeded the maximum allowed by Fannie Mae — especially since the seller had agreed to pay $10,000 of the buyer’s closing costs.
Plaza cut its losses on the deal by obtaining a deed in lieu of foreclosure from Aleta and selling the property for $716,153.
After factoring in costs for repair, maintenance and marketing, total losses came to at least $313,206.
A judgment was originally issued in favor of the title company. But in April 2010, the Court of Appeals of California reversed the decision and remanded the case. A subsequent judgment was entered in favor of Plaza for $313,206 plus interest.
North American appealed judgment amount, saying it should only be liable for the $53,853 and not the larger judgment amount.
But the appeals court disagreed with North American.
“The court herein finds that [North American] had a contractual duty to inform Plaza of the payment to Peregrino that [it] learned about during the escrow but before the loan closed,” the unpublished decision stated. “The court finds the testimony of plaintiff’s witnesses credible that, had [it] known of this payment, [it] would not have made the Aleta loans.
“It was the obligation of North American to disclose to Plaza any additional payoffs or fees that were not included in the estimated HUD-1.”
The judgment was affirmed, and Plaza was awarded its costs on appeal.
