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First American Title Insurance Co. v. XWarehouse Lending Corp.

August 28, 2009


(Contra Costa County Super. Ct. No. C0501859) Trial Judge: Hon. Joyce Cram.

The opinion of the court was delivered by: McGuiness, P.J.


Plaintiff First American Title Insurance Company (First American) sought a declaration that it had no duty under its title insurance policies to defend or indemnify defendant XWarehouse Lending Corporation formerly known as Access Lending Corporation (Access).*fn1 The trial court issued the requested declaration after ruling that Access was not an insured entitled to coverage under the policies. We agree, and accordingly, affirm the judgment.


A. Background

This litigation is part of the aftermath of a fraudulent loan scheme by CHL Mortgage Group, Inc. (CHL), now in Chapter 7 bankruptcy, and CHL's president Laurence Seidenfeld, who pleaded guilty to certain fraud offenses and is currently in federal prison. Access is one of the victims of CHL's fraud.

Access is a company that facilitates or "warehouses" real property loans*fn2 for a short period between the time a mortgage broker originates a loan with a borrower and the time the mortgage broker sells the loan to an investor in the secondary mortgage market. CHL, a mortgage broker that issued residential mortgage loans to individual borrowers, was a client of Access between 2002 and 2004 pursuant to Master Repurchase Agreements.

In the 2004 Master Repurchase Agreement (MRA), CHL agreed to originate mortgage loans to individual borrowers and then sell the loans to Access. CHL would obtain a promissory note and a deed of trust from the borrower as collateral for the loan, and then sell the note and assign the deed of trust to Access. Within a certain period of time, CHL was required to repurchase the loan from Access for sale and delivery to a predesignated investor in the secondary mortgage market.

CHL was required to send certain mortgage documents to Access, including: (1) the original mortgage note, endorsed in blank by CHL, (2) the original mortgage certified by the title company or closing agent to be a true copy of the original instrument sent for recording, (3) an original mortgagee title insurance commitment for each mortgage securing each loan, with CHL's "name, mortgagor's name, title policy amount and loan amount correctly delineated in Schedule A, paragraph one, no adverse liens, encroachments or overlapping of improvements and the inclusion of all valid Schedules A, B, C and D and insuring provisions"; and (4) an original mortgage assignment duly executed by CHL in blank.

The MRA also provided that at CHL's election, the purchase price for a loan could be funded by Access issuing its own check or wire transfer directly to the title company or closing agent's account on behalf of CHL, provided that CHL faxed to Access all specified documents and Access had verified to its satisfaction that CHL and the title company or closing agent were in possession of all mortgage documents relating to the loan, and had agreed to deliver all items to Access within three business days following the funding of the loan. If Access provided funds to close a loan and the loan did not close, CHL was required to arrange for the return of the funds to Access promptly.

At issue here are two 2004 CHL loans that Access allegedly purchased pursuant to the 2004 MRA. Specifically, CHL made one loan in the principal sum of $442,850 to a borrower named Martin Esparza and one loan in the principal sum of $550,000 was made to borrowers named Ajmer and Daljit Gill. Each promissory note in the principal sum of the loan from the named borrower to CHL was secured by a deed of trust on real properties allegedly held by the named borrowers as owners. After agreeing to purchase the loans, Access wired moneys directly to an escrow account created for the Esparza loan by the Alliance Title Company and an escrow account created for the Gill loan by the Ticor Title Company. At each loan closing, the escrow agents released the moneys "as a ‗payoff' " to CHL, who was to use the moneys to refinance the named borrowers' existing loans. First American issued title insurance policies for the mortgage loans with CHL designated as the named insured. However, CHL never disbursed any funds either directly to the named borrowers or otherwise used the funds to pay off any existing loans of the named borrowers.*fn3

While the promissory notes and trust deeds were in Access's possession, the named borrowers failed to make any payments to Access, and CHL failed to repurchase the notes and trust deeds regarding the Esparza and Gill loans as required by the MRA. Access, as attorney-in-fact for CHL, recorded assignments of the Esparza and Gill deeds of trust.

Access sought to recover its funds by foreclosing the mortgage purportedly securing the Esparza loan after advising CHL's bankruptcy trustee of its intention to commence the foreclosure proceeding. The Esparza property was sold for $300,000. Access's right to any money from the foreclosure sale has been challenged in a pending lawsuit commenced by HSBC Mortgage Services in Contra Costa County Superior Court. Access tendered its claim for litigation defense costs in the HSBC case to First American, which has refused to defend Access in that case.

Access also commenced a proceeding to foreclose the mortgage purportedly securing the Gill loan. That proceeding was aborted after Access received the Gills' affidavit declaring they had not signed the promissory note or the deed of trust, and they threatened litigation if Access proceeded with the foreclosure. The Gills commenced an action to quiet title against Access on the ground that the 2004 loan documents were forgeries. Access tendered its ...

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