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Plaza Home Mortgage, Inc. v. North American Title Company

April 27, 2010

PLAZA HOME MORTGAGE, INC., PLAINTIFF AND APPELLANT,
v.
NORTH AMERICAN TITLE COMPANY, INC. DEFENDANT AND RESPONDENT.



APPEAL from a judgment of the Superior Court of San Diego County, Luis R. Vargas, Judge. Reversed with instructions. (Super. Ct. No. 37-2007-7512-CU-CO-CTL).

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

CERTIFIED FOR PUBLICATION

Plaza Home Mortgage, Inc. (Plaza), appeals the motion of judgment granted by the trial court after it found: (1) North American Title Company, Inc. (North American), did not breach the closing instructions contract between Plaza, a wholesale lender, and North American, the settlement agent; and (2) even if North American did breach that contract, there was no showing by Plaza that North American proximately caused Plaza's damages.

Plaza sued North American after North American distributed $53,853 to the attorney in fact of the buyer of real property-a payment Plaza refers to as a "kickback"-that was neither authorized by the closing instructions nor disclosed by North American before it made the payment. North American made the $53,853 payment after escrow closed, based on a last-minute escrow instruction it received from the owner of the property at or near the time of the closing of escrow.

As we explain, we conclude the court erred both when it found there was no breach of the closing instructions contract with Plaza because escrow had closed and when it failed to consider whether North American breached the closing instructions contract when it disbursed the $53,853 payment and closed the two loans to the buyer/borrower without first notifying Plaza of the last minute escrow instruction.

We thus reverse the judgment and remand with instructions for the trier of fact to determine-consistent with this opinion-whether North American breached the closing instructions contract and if so, whether the breach proximately caused damage to Plaza.

FACTS AND PROCEDURAL BACKGROUND

The relevant facts are not in dispute. Plaza is a wholesale residential mortgage lender. In March 2007, Plaza loaned $1.1 million to Oliver Aleta for the purchase of a residence located in Northridge, California, and owned by Monette Santillian (subject property). Aleta's part of the transaction was handled largely by Edward Peregrino, who acted as Aleta's attorney in fact. Plaza lent Aleta 100 percent of the purchase price, and funded the transaction by way of two loans secured by an $880,000 first deed of trust and a $220,000 second deed of trust. The first lien was a "five-year hybrid option adjustable rate mortgage" that gave Aleta the option to make an interest-only, or a minimum, monthly payment.

North American acted as the escrow holder and settlement agent, and Investors Title Company (Investors) served as the subescrower in the transaction. In connection with the loans, North American prepared and delivered to Plaza a Good Faith Estimate or estimated HUD-1*fn1 that set forth the terms, the estimated costs and disbursements at closing, of the loans.

On March 1, 2007, Plaza disbursed the loan proceeds to Investors, which paid off (in what the parties call the "sub-escrow") the then- existing liens on the subject property. Investors sent the balance of the loan proceeds to North American for distribution in accordance with the closing instructions contract between Plaza and North American. As discussed post, among other things North American represented that by signing the addendum to the closing instructions, the settlement "agent certifies that there are no additional payoffs or fees that were not disclosed to the lender either verbally or on an Estimated HUD-1." (Italics added.)

The subject property was transferred from Santillian to Aleta by grant deed, which was recorded at 8:00 a.m. on March 2, 2007, and escrow was closed. At some point in time before the balance of the loan proceeds was disbursed by North American, Santillian sent a written instruction to North American requesting that it pay $53,853 to Peregrino, Aleta's attorney in fact.*fn2 North American complied and made the distribution to Peregrino on March 5, 2007. Because the $53,853 payment was not included on the estimated HUD-1, and because North American distributed the money to Peregrino without first disclosing it to Plaza, Plaza did not have actual or constructive knowledge of the payment until March 8, 2007, when it received the final HUD-1, or Final Settlement Statement,*fn3 prepared by North American. The final HUD-1 disclosed for the first time the $53,853 payment to Peregrino under the rubric "Additional Settlement Charges."

Peregrino made the first two monthly mortgage payments on behalf of Aleta, who never moved into the subject property and defaulted on the third mortgage payment. As discussed post, Plaza was unable to sell the Aleta loans on the secondary market, as it had anticipated, and mitigated its losses by settling with Aleta, taking back the subject property and selling it with the help of a broker. Because of the precipitous decline in the real estate market, Plaza sold the subject property in late 2007 for $760,000.

Plaza sued North American for breach of contract, negligence and equitable indemnity.*fn4 Plaza alleged that North American was contractually obligated to advise Plaza of "all . . . expected closing costs and disbursements prior to closing so that [Plaza] would be advised about the destination of its loan monies." Plaza further alleged North American breached that obligation when, without the knowledge of Plaza, North American disbursed $53,853 to Peregrino despite the fact that payment was not included in the estimated HUD-1. Plaza alleged that had it known of the request for such payment, and/or the fact that Peregrino had signed virtually all of the loan and closing documents on behalf of Aleta, it would have investigated this "irregular transaction" further and potentially not funded the loans at all.*fn5

The case proceeded to a bench trial. After Plaza rested, North American moved for motion for judgment under Code of Civil Procedure section 631.8. The trial court granted the motion, reasoning:

"The Court agrees with defense counsel that we have an action by the escrow company [North American] that occurred after the closing, not inconsistent with section 5 of the closing instructions, because funding has concluded and the instructions there were only for duties prior to the funding. [ΒΆ] And, further, I also find that there is no causation in that we clearly can see that there's no causation as it relate[s] to Greenwich [a potential purchaser of the loans]. And, second, it is clear to this Court that there were several reasons that this loan would have been rejected ...


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