Banking, Fraud, Impairment of Security Interest, Slander of Title
In 2006, the individual defendant and borrower secured a loan in order to purchase a $2.2. million home. The borrower was the president and sole shareholder of HomeLoanAdvisors.com (HLA), which was the loan originator. The Promissory Note and Deed of Trust were assigned to Citibank, the Trustee of a residential mortgage backed securitized trust into which thousands of residential mortgage loans were transferred and used as investment tools. Pursuant to the Pooling and Servicing Agreement, which governed the operation of the trust, Wells Fargo acted as the custodian, securities administrator and master servicer. As custodian, Wells Fargo held the Promissory Note, a copy of the Deed of Trust and other documents related to the borrower’s mortgage loan.
The assignment of defendant’s mortgage loan into the trust was not recorded in the public records, but the transfer was registered in MERS. Defendant reconveyed the Deed of Trust to himself from HLA when he realized that the assignment had not been recorded. He then conveyed the Deed of Trust to his girlfriend. In 2010, the girlfriend sold the house to third parties, Jennifer Schnorr and Maria Alva, who borrowed money from Wells Fargo in order to finance the home purchase. Wells Fargo recorded a $1.125 million deed of trust on title to the property to secure repayment of the loan. Proceeds from the sale were paid to defendant’s girlfriend in the amount of $1.6 million instead of being paid to Citibank, which held a $1.5 million unrecorded mortgage on the house. At no time did the borrower defendant disclose that Citibank still held the mortgage.
Plaintiff claimed that defendant borrower impaired plaintiff’s security interest by reconveying property to himself and selling property and accepting sales proceeds without notifying buyer of plaintiff’s lien. Plaintiff further claimed that plaintiff was entitled to a first position lien on the property, ahead of Wells Fargo’s $1.125 million lien.
Defendants claimed that the Note and Deed of Trust were not assigned or transferred to plaintiff and that plaintiff had no standing. Defendant Wells Fargo claimed that it was a bona fide encumbrancer.
Length, five days; Deliberation, five minutes.
After a jury trial, the jury awarded Citibank the full amount requested against borrower defendant, $1,795,000. The jury unanimously concluded that borrower defendant impaired Citibank’s security interest and slandered its title to the property. Sarah Combs was dismissed from the action at the end of trial.
After the trial of the legal issues to the jury, Citibank proceeded with the bench trial phase of the case against Wells Fargo. Citibank sought to impose a $1.5 million first position equitable lien on the subject property, ahead of Wells Fargo’s recorded $1.125 million deed of trust.
At the outset of the bench trial, Wells Fargo made a Motion for Judgment. Wells Fargo argued that Wells Fargo is a bona fide encumbrancer as a matter of law due to the court’s Summary Adjudication, in November 2012, that defendant borrowers, Jennifer Schnorr and Maria Luz Alva, are bona fide purchasers. Alternatively, Wells Fargo argued that the elimination of the borrowers via Summary Adjudication meant that the court could not possibly craft any of the equitable relief sought by Citibank without necessarily impacting the property owned by the borrowers. The court granted Wells Fargo’s Motion for Judgment. Judgment for Wells Fargo on all of Citibank’s equitable claims against Wells Fargo.
November 18, 2011