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Lender Collapses Amid Litigation

1st Republic Mortgage sued by Firstrust, Financial Freedom

Jan. 23, 2009

By JERRY DeMUTH



A New York-based mortgage company -- accused in separate lawsuits filed by a warehouse lender and a reverse mortgage lender of stealing more than $5 million -- has gone out of business.

1st Republic Mortgage Bankers has shut down.

Calls to its Floral Park, N.Y., headquarters and some of its branches were answered during business hours with a recording stating, "The office is now closed." Calls were ended when attempts were made to reach extensions.

The phone message at another office stated: "The company is closed today. Please contact us next week." A call to another branch office was answered by someone who said the office was empty, that the company had shut down and that she had been hired simply to take messages.

Its Web site simply stated: "We are currently not accepting any applications."

A call to the home of 1st Republic President Scott Sisskind was not returned.

1st Republic, according to its Web site, was licensed as a direct mortgage lender in 11 states and was an approved as an FHA, VA, Fannie Mae and Freddie Mac lender.

In 2007, according to Lending Tree, 1st Republic processed 1,242 loan applications totaling $411,456,000.

A job search Web site that listed several openings at the company said 1st Republic had 50 employees.

The closure occurred in the wake of a $5.5 million judgment against it requested by Firstrust Bank -- which alleged that loans pledged under a warehouse agreement it had with 1st Republic were also pledged to another warehouse lender.

1st Republic admitted it owed the money to Conshohocken, N. Y.-based Firstrust. Its attorney, Wilbur L. Kipnes, in a confession of judgment dated Jan. 14, stated that he was appearing for the mortgage company to "confess judgment in favor of plaintiff Firstrust Bank and against defendant, for the sum of $5,495,977.00 due on the amended [mortgage] note (as defined in the complaint), together with interest at the contract rate (currently $763.33 per diem) from and after Jan. 14, 2009, costs of suit and attorneys' fees to be determined hereafter by the court."

The judgment was formally entered Tuesday in U.S. District Court for the Eastern District of Pennsylvania, six days after the court clerk had been asked by Firstrust to enter the judgment.

On Jan. 15, the next day, 1st Republic shut down.

According to Firstrust's suit, when its representatives were auditing its warehouse loan and loan documents at 1st Republic's Jericho, N.Y. office on Jan. 13, "Firstrust discovered that proceeds of assets pledged as collateral to Firstrust in order to secure Firstrust's loan to 1st Republic were paid to a third party or parties to which the same warehoused mortgages were also hypothecated and not to Firstrust, in violation of the Warehousing agreement.

"Firstrust then realized that assets collateralizing its loan had been double hypothecated, i.e., the assets that had been used as collateral for Firstrust's loan had also been pledged to a second creditor."

The suit further alleges that 1st Republic defaulted under the terms of the warehousing agreement "by, among other things: (a) paying to third parties more than $2,000,000.00 in proceeds of collateral pledged to plaintiff; and (b) hypothecating to third parties collateral pledged to plaintiff."

In addition to its suit seeking money under terms of the warehouse agreement between the two, Firstrust filed another suit in the U.S. District Court of Eastern New York seeking "an injunction prohibiting defendants from transferring their assets in violation of the New York Debtor and Creditor Law and an order setting aside and/or disregarding the fraudulent conveyances made by defendants."

Another lawsuit filed Tuesday against 1st Republic and two of its sister companies and their officers by Financial Freedom Senior Funding Corp. alleges that the defendants converted "for their own personal use and interests" a total of no less than $337,862.56 from an escrow account maintained for Financial Freedom "instead of disbursing the funds as Financial Freedom had directed."

The funds were to have been disbursed to two persons who had obtained reverse mortgages, according to the suit filed in U.S. District Court for the eastern district of New York. The loans had been originated by 1st Republic with its sister company Lenders Abstract & Settlement Service acting as closing agent. It also maintained an escrow account for the funds.

"By the time Financial Freedom had discovered that funds had been stolen," the suit states, "Lenders Abstract and 1st Republic had both closed their offices and ceased doing business."

Financial Freedom had wired the funds to Lenders Abstract on Jan. 14, the day before 1st Republic and its sister companies shut down.

That suit -- which alleges fraud, unjust enrichment, breach of fiduciary duty and breach of contract -- also named as defendants Dream Makers Real Estate LLC , Lenders Abstract CEO John Reiwer and Scott Sisskind, as an officer of both 1st Republic and Lenders Abstract and the founder of Dream Makers.

The Financial Freedom suit states that one person, after not having received her reverse mortgage's funds and her call to Lenders Abstract was not answered, drove to their office on Jan. 16. "She arrived to a locked-up building with a sign that read '1st Republic is no longer in business,'" the suit noted.

Last October, the Connecticut Department of Banking suspended 1st Republic's license after the company's surety bond was canceled.



Financial Freedom Senior Funding Corp., plaintiff, v. Lenders Abstract & Settlement Services Inc., 1st Republic Mortgage Bankers Inc., Dream Makers Real Estate, LLC, John Reiwer; and Scott Sisskind, defendants
.
Case No.: CV 09 0221, Jan. 20, 2009 (U.S. District Court, Eastern District of New York)

Firstrust Bank, plaintiff, v. 1st Republic Mortgage Bankers, Inc. a/k/a First Republic Mortgage Bankers, Inc. and Scott Sisskind, defendants.
Case No.: CV-09 177, Jan. 16, 2009 (U.S. District Court, Eastern District of New York)

Firstrust Bank, plaintiff, v. First Republic Mortgage Bankers, Inc., a/k/a 1st Republic Mortgage Bankers, Inc., defendant.
Civil Action No.: 09-0192, Jan. 14, 2009 (U.S. District Court for the Eastern District of Pennsylvania)

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]

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