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Citimortgage, Inc. v. Royal Pacific Funding Corp.

United States District Court, E.D. Missouri, Eastern Division

July 21, 2017

CITIMORTGAGE, INC., Plaintiff,
v.
ROYAL PACIFIC FUNDING CORP., Defendant.

          MEMORANDUM AND ORDER

          PATRICIA L. COHEN UNITED STATES MAGISTRATE JUDGE.

         This matter is before the Court on the motion for summary judgment filed by Plaintiff CitiMortgage, Inc. (“CMI”) (ECF No. 46) and the motion to strike CMI's supplemental affidavit filed by Defendant Royal Pacific Funding Corp.[1] (ECF No. 68). Plaintiff's motion for summary judgment is granted as to liability and denied as to the amount of damages. Royal Pacific's motion to strike is denied.

         I. Factual Background

         CMI purchases closed mortgage loans from approved lenders, including lenders known as “correspondents, ”[2] under its Loan Purchasing Program. CMI functions as an investor in the secondary mortgage market and resells some of the purchased loans to Fannie Mae, Freddie Mac, and other investors in the secondary mortgage market.

         CMI used a standard contract, entitled “Correspondent Agreement Form 200, ” to purchase residential mortgage loans from loan originators and correspondents. The Form 200 expressly incorporated a longer document titled the CMI Correspondent Manual, which contained more detailed terms and conditions. (ECF No. 49-3, Pl.'s Ex. B, § 1 (incorporating the Manual); ECF Nos. 49-4 - 49-7), Pl.'s Exs. C-1 - C-4 (the Manual)).

         CMI and Royal Pacific entered into a Correspondent Agreement Form 200, DBA Addendum, and Delegated Underwriting Addendum on March 12, 2007, and a second, nearly identical Correspondent Agreement Form 200 on February 5, 2008 (collectively, “the Agreement”). The Agreement required Royal Pacific to deliver certain loan documentation to CMI for each loan it sold to CMI, and it gave CMI the right to require Royal Pacific to cure or repurchase any loan that CMI deemed defective. (ECF No. 49-3).

         In regard to Royal Pacific's obligation to cure or repurchase defective loans, Section 11, entitled “Cure or Repurchase, ” provided, in relevant part:

         If CMI, in its sole and exclusive discretion, determines any Loan purchased pursuant to this Agreement:

(i) was underwritten and/or originated in violation of any term, condition, requirement or procedure contained in this Agreement or the CMI Manual in effect as of the date CMI purchased such Loan,
(ii) was underwritten and/or originated on any materially inaccurate information or material misrepresentation made by the Loan borrower(s), [Royal Pacific], [Royal Pacific's] directors, officers, employees, agents, independent contractors and/or affiliates, or any other party providing information relating to said Loan. ….
(iv) must be repurchased from any secondary market investor (including but not limited to the Fannie Mae, Freddie Mac, FHA, VA, HUD or Government National Mortgage Association) due to a breach by [Royal Pacific] of any representation, warranty or covenant contained in this Agreement or the CMI Manual or a failure by [Royal Pacific] to comply in all material respects with the applicable CMI Manual terms, conditions, requirements and procedures;
….

         [Royal Pacific] will, upon notification by CMI, correct or cure such defect within the time prescribed by CMI to the full and complete satisfaction of CMI. If, after receiving such notice from CMI, [Royal Pacific] is unable to correct or cure such defect within the prescribed time, [Royal Pacific] shall, at CMI's sole discretion, either (i) repurchase such defective Loan from CMI at the price required by CMI (“Repurchase Price”) or (ii) agree to such other remedies (including but not limited to additional indemnification and/or refund of a portion of the Loan purchase price) as CMI may deem appropriate.

         (ECF No. 49-3, Agreement § 11). The CMI Correspondent Manual defined “Repurchase Price” as:

the sum of: (i) the current principal balance on the loan as of the paid-to date; (ii) the accrued interest calculated at the mortgage loan Note rate from the mortgage loan paid-to date up to and including the repurchase date; (iii) all unreimbursed advances (including but not limited to tax and insurance advances, delinquency and/or foreclosure expenses, etc.) incurred in connection with the servicing of the mortgage loan, (iv) any price paid in excess of par by CitiMortgage on the funding date, and (v) any other fees, costs, or expenses charged by or paid to another investor in connection with the repurchase of the mortgage loan from such investor but only to the extent such fees, costs and expenses exceed the total of items (i) through (iv) above.

ECF No. 49-7, Manual at 2301-6).

         The Agreement made clear that Royal Pacific bore the risk of defective loans, as Section 1 stated:

CMI may purchase Loans with or without conducting a complete review of the Loan documentation. CMI's review of, or failure to review, all or any portion of the Loan documentation shall not affect CMI's right to demand repurchase of a Loan or any other CMI right or remedy provided by the Agreement.

(ECF No. 49-3, Agreement § 1). In addition, the Agreement contained an indemnification provision, which provided:

[Royal Pacific] agrees to indemnify and hold CMI harmless from any and all claims, actions and costs, including reasonable attorneys' fees and costs, arising from (i) [Royal Pacific's] performance or failure to perform under the terms, conditions or obligations of this Agreement or the CMI Manual . . .; [and/or] (ii) any fraud, misrepresentation or breach of any representation, warranty or covenant contained in this Agreement or the CMI Manual . . . .

(ECF No. 49-3, Agreement § 10).

         Since 2007, Royal Pacific has sold to CMI under the Agreement over 1, 480 loans, “the combined funded amount of which total[ed] over $382, 185, 000.00.” (ECF No. 49, ¶ 24). CMI determined that eight of the loans (“Loans”) it purchased from Royal Pacific contained material misrepresentations and misstatements or were otherwise defective.[3] (ECF No. 49, ¶ 43-70).

         CMI sent “Citing Notification Letters” to Royal Pacific identifying the defects in each of the eight Loans and providing Royal Pacific “the opportunity to investigate the loan discrepancies.” (ECF No. 49, ¶¶ 83-84, Exs. F-3, G-3, H-3, I-3, J-3, K-3, L-3, M-3). The letters further advised that Royal Pacific had thirty days to “investigate the loan discrepancies” and “provide a satisfactory resolution to the issues cited[, ]” after which time “repurchase of this loan may be required per Section 11 of the [Agreement][.]” (Id.).

         CMI subsequently sent Royal Pacific “Initial Repurchase Letters, ” providing another notice of the loan defects, demanding repurchase of the Loans pursuant to Section 11 of the Agreement, and requesting that Royal Pacific “confirm the repurchase date” on or before thirty days from the date of the letter. (ECF No. 49, ¶¶ 81-82, Exs. F-4, G-4, H-4, I-4, J-4, K-4, L-4, M-4). Royal Pacific failed to correct or cure the Loans, and CMI issued Final Repurchase Letters. (ECF No. 49, ¶¶ 87-88, Ex. F-5, G-5, J-5, I-5, J-5, K-5, L-5, M-5). Royal Pacific did not repurchase the Loans. (ECF No. 49, ¶ 90).

         II. Procedural Background

         A. CMI's motion for summary judgment

         On February 16, 2016, CMI filed an action for breach of contract. (ECF No. 1). In its complaint, CMI alleged that: Royal Pacific sold CMI the eight defective Loans in violation of the Agreement; CMI determined that the Loans were defective, notified Royal Pacific of the alleged defects, and demanded Royal Pacific either cure the defects or repurchase the Loans; and Royal Pacific failed to either cure or repurchase. (Id.). CMI further asserted that it was required to repurchase the Loans from Fannie Mae and Freddie Mac. (Id. at ¶¶ 31-39). In its first amended complaint, CMI claimed that Royal Pacific's “breaches of the Agreement pertaining to the … [Loans] have resulted in total amounts due to CMI in excess of $1, 350, 000.00, excluding interest and other amounts [Royal Pacific] owes CMI.” (ECF No. 44 at ¶ 29). Royal Pacific filed an answer and affirmative defenses to CMI's first amended complaint. (ECF No. 53).

         Following the close of discovery, CMI filed a motion for summary judgment, along with a memorandum in support of the motion for summary judgment and statement of uncontroverted material facts. (ECF Nos. 46, 48, 49). CMI asserts that it is “entitled to summary judgment on its claim against Royal Pacific because the material facts are not at issue, and the facts demonstrate that Royal Pacific breached its Agreement with CMI regarding the Loans.” (ECF No. 46 at ...


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