A California appellate court has thrown out a lower court’s decision in favor of a wholesale lender who had sought to hold a mortgage broker liable for a defaulted loan because the income was not verified. The fraudulent income was discovered during the approval process for a loan modification.
The decision came out of the Court of Appeals of California, Second District, Division Seven, on Tuesday.
The case centers on a $328,500 mortgage made to Jorge Ramon in 2007.
The mortgage broker in the transaction, Young America Mortgage, packaged the loan, submitted it to ING Bank and obtained approval. The broker fee was $8,000.
In February 2008, several months after the loan closed, Ramon defaulted.
The borrower subsequently requested a loan modification and, after reviewing his tax returns as part of the modification qualification process, ING determined that the borrower had lied on his original application. Reported taxable income was just a third of what the borrower had originally stated.
So in addition to suing the borrower, ING filed a lawsuit during September 2008 in the Superior Court of the County of Los Angeles against the broker for breach of contract, fraud and negligence. ING claimed that by failing to verify the borrower’s salary, Young America had breached a broker origination agreement signed in 2005 and committed fraud.
ING cited a clause in the contract that said Young America could not “submit a loan application package where the information contained in the application … is not true, correct and undisputed and does not reflect full, correct and accurate information as the matter represented.” Another clause in the contract indicated the broker would “immediately repurchase, on demand, any loan which may be affected by such failure.”
The lower court agreed with ING and issued a summary judgment in favor of the wholesaler.
So Young America appealed the ruling.
The broker claimed that the agreement it had with ING did not require it to verify the borrower’s income. Young America also asserted that ING had not established that it was damaged by the alleged breach of contract. In addition, Young America said that there is a triable issue of fact about whether it knew or should have known that Ramon misstated his salary information on the loan application.
“We reverse the trial court’s grant of summary judgment, concluding that ING has failed to introduce evidence demonstrating that there is no triable issue of fact regarding any of its claims,” the decision from the Court of Appeals said.
ING BANK, FSB, a Delaware corporation, Plaintiff, v. YOUNG AMERICA MORTGAGE CORP., Defendant.
September 2008 (Superior Court of the County of Los Angeles).
Decision published by Leagle.com.
