Content area
Full Text
Mortgage company breached contract by using improper appraisal methods and once breached, subsequent appraisals did not matter
Nationwide Advantage Mortgage Corporation (NAMC) and MidCountry Bank entered into an agreement wherein MidCountry agreed to sell to NAMC some of the mortgage loans it made to customers. NAMC would then sell those loans on the secondary mortgage market to the Federal National Mortgage Association (FNMA) and other similar mortgage buyers. Accordingly, in 2008, NAMC bought a mortgage loan in the principal amount of $346,500 from MidCountry, then sold it to FNMA.
Shortly thereafter, the mortgage went into default, which prompted FNMA to complete a "loss mitigation review" of the property. FNMA determined that the appraisal MidCountry used in making its loan, which valued the property at $387,000, used improper appraisal methods, violated FNMA's investor guidelines, and resulted in an inflated property value. Consequently, FNMA made a demand to NAMC for reimbursement.
NAMC paid FNMA a reimbursement of $171,454.82, pursuant to their agreement, and then NAMC sought to collect its losses from MidCountry, alleging that MidCountry breached two parts of its original agreement with NAMC. MidCountry disputed the claims that it breached its contract with NAMC and that it had a duty to indemnify NAMC.
The first part of the contract that NAMC claimed MidCountry breached was a clause requiring MidCountry to conduct its business in compliance with FNMA's guidelines. NAMC argued that once FNMA determined its guidelines were not followed, the contract was breached. The court agreed with NAMC, reasoning that FNMA had the ultimate authority to determine whether its own guidelines were breached, as there was no better party to decide what FNMA had intended by its guidelines. The court did not question the validity of FNMA's findings, nor did it elaborate on what the improper appraisal methods were.
MidCountry argued that it had submitted subsequent appraisals after FNMA first contested the original appraisal, and those subsequent appraisals suggested the original valuation was accurate and not inflated. However, the court was unpersuaded, noting that once FNMA made a determination that its investor guidelines were violated, the contract was breached, and subsequent attempts to remedy it did not alter the fact that a breach had already occurred.
The second part of the contract that NAMC claimed...