Bank of America Na v. Fidelity National Title Insurance Company

STATE OF MICHIGAN
COURT OF APPEALS
BANK OF AMERICA, NA, UNPUBLISHED
June 21, 2016
Plaintiff-Appellant,
v Nos. 311798, 312426, 313797
Oakland Circuit Court
FIDELITY NATIONAL TITLE INSURANCE LC No. 10-114319-CK
COMPANY,
Defendant-Appellee,
and
FIDELITY TITLE COMPANY, HARRY S.
ELLMAN, JEANENNE FOSTER KEELY,
formerly known as JEANENNE FOSTER,
FREEDOM FINANCIAL MORTGAGE
LENDING, LLC, JOHN HUSAR, FIRST
MORTGAGE CORPORATION, THOMAS R.
GRACZYK, and RONALD KELLER,
Defendants.
BANK OF AMERICA, NA,
Plaintiff/Counter-Defendant-
Appellant,
v No. 316538
Genesee Circuit Court
FIDELITY NATIONAL TITLE INSURANCE LC No. 11-095286-CZ
COMPANY, formerly known as LAWYERS
TITLE INSURANCE CORPORATION,
Defendant/Counter-Plaintiff-
Appellee,
and
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CHICAGO TITLE INSURANCE COMPANY,
formerly known as TICOR TITLE INSURANCE
OF FLORIDA,
Defendant/Counter-Plaintiff,
and
GREAT LAKES BROKER FUNDING, KURT W.
HEINTZ, MICHIGAN LAND DEVELOPMENT,
THOMAS KELLER, TITLE MICHIGAN
AGENCY, JEANENNE FOSTER KEELY,
STATE VALUE APPRAISALS, NATHAN B.
HOGAN, DOUGLAS K. SMITH, MORTGAGE
HOTLINE, INC., doing business as AMERICAN
MORTGAGE DECISIONS, JAMES D. LAMAR,
III, and JAMES J. FISH,
Defendants.
Before: METER, P.J., and SHAPIRO and O’BRIEN, JJ.
PER CURIAM.
In Docket No. 311798, plaintiff, Bank of America, NA (BOA), appeals as of right a final
order granting BOA’s motion to dismiss its remaining claims following an earlier order granting
summary disposition in favor of defendant, Fidelity National Title Insurance Company (FNTIC),
with respect to BOA’s breach of contract claims against FNTIC. In Docket No. 312426, BOA
appeals as of right an order granting FNTIC’s motion for costs and awarding FNTIC costs in the
amount of $19,580.04. In Docket No. 313797, BOA appeals as of right an order granting
FNTIC’s motion for attorney fees in the amount of $164,539.00. In Docket No. 3165381,
plaintiff, BOA, appeals as of right a final order dismissing BOA’s claims against defendant
Chicago Title Insurance Company (CTIC), formerly known as Ticor Title Insurance of Florida,
and dismissing CTIC’s counterclaims against BOA following an earlier order granting summary
disposition in favor of defendant FNTIC, formerly known as Lawyers Title Insurance
Corporation (LTIC), with respect to BOA’s breach of contract claims against FNTIC. The
appeals were consolidated to advance the efficient administration of the appellate process. Bank
of America, NA v Fidelity Nat’l Title Ins Co, unpublished order of the Court of Appeals, entered
August 6, 2015 (Docket Nos. 311798, 312426, 313797, 316538).
1
As reflected in the caption, the appeal in Docket No. 316538 arises from a different lower court
file than the appeals in Docket Nos. 311798, 312426, and 313797 arise.
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In Docket No. 311798, we reverse the order granting summary disposition to FNTIC
regarding BOA’s breach of contract claims, reverse the order denying BOA’s motion for
summary disposition concerning FNTIC’s counterclaims and affirmative defenses, and remand
for further proceedings consistent with this opinion. In Docket Nos. 312426 and 313797, we
vacate the order striking the case evaluation award and the orders awarding costs and attorney
fees to FNTIC. In Docket No. 316538, we reverse the order granting summary disposition to
FNTIC regarding BOA’s breach of contract claims, affirm the order denying BOA’s motion for
summary disposition concerning its breach of contract claims, affirm the order granting summary
disposition to BOA regarding FNTIC’s counterclaims and affirmative defenses, and remand for
further proceedings consistent with this opinion.
These cases arise from allegations of mortgage fraud perpetrated by various individuals
and entities against BOA, the mortgage lender that commenced both of the lower court actions
that led to the present appeals. Pertinent to these appeals, BOA filed breach of contract claims
against FNTIC, the title insurer that had issued closing protection letters (CPLs) that promised to
indemnify BOA for any actual losses arising from fraud or dishonesty in handling BOA’s funds
or documents on the part of the closing agent that was also the title agent of FNTIC, in each
action. In each underlying action, the trial court granted summary disposition to FNTIC on
BOA’s breach of contract claims, and BOA challenges those respective determinations on appeal
in Docket Nos. 311798 and 316538. In Docket Nos. 312426 and 313797, BOA challenges the
trial court’s order striking the case evaluation award and the trial court’s award of costs and
attorney fees to FNTIC in the same underlying action that led to the appeal in Docket No.
311798.
I. STANDARDS OF REVIEW
“This Court reviews de novo a trial court’s decision on a motion for summary
disposition.” Hackel v Macomb Co Comm, 298 Mich. App. 311, 315; 826 NW2d 753 (2012).
A motion under MCR 2.116(C)(8) tests the legal sufficiency of the
complaint on the basis of the pleadings alone to determine if the opposing party
has stated a claim for which relief can be granted. A reviewing court must accept
all well-pleaded allegations as true and construe them in the light most favorable
to the nonmoving party. The motion should be granted only if no factual
development could possibly justify a recovery.
A motion brought under MCR 2.116(C)(9) seeks a determination whether
the opposing party has failed to state a valid defense to the claim asserted against
it. A motion under MCR 2.116(C)(9) is analogous to one brought pursuant to
MCR 2.116(C)(8) in that both motions are tested by the pleadings alone, with the
court accepting all well-pleaded allegations as true. When a party’s defenses are
so untenable as a matter of law that no factual development could possibly deny
the plaintiff’s right to recover, the motion is properly granted. [Id. at 315-316
(citations and internal quotation marks omitted).]
“In reviewing a motion under MCR 2.116(C)(10), this Court considers the pleadings,
admissions, affidavits, and other relevant documentary evidence of record in the light most
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favorable to the nonmoving party to determine whether any genuine issue of material fact exists
to warrant a trial.” Walsh v Taylor, 263 Mich. App. 618, 621; 689 NW2d 506 (2004). “Summary
disposition is appropriate if there is no genuine issue regarding any material fact and the moving
party is entitled to judgment as a matter of law.” Latham v Barton Malow Co, 480 Mich. 105,
111; 746 NW2d 868 (2008). “A genuine issue of material fact exists when the record, giving the
benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable
minds might differ.” West v Gen Motors Corp, 469 Mich. 177, 183; 665 NW2d 468 (2003).
The interpretation of a contract presents a question of law that is reviewed de novo.
Kloian v Domino’s Pizza, LLC, 273 Mich. App. 449, 452; 733 NW2d 766 (2006).
In interpreting a contract, this Court’s obligation is to determine the intent of the
parties. This Court must examine the language of the contract and accord the
words their ordinary and plain meanings, if such meanings are apparent. If the
contractual language is unambiguous, courts must interpret and enforce the
contract as written. Thus, an unambiguous contractual provision is reflective of
the parties’ intent as a matter of law. [In re Egbert R Smith Trust, 274 Mich. App.
283, 285; 731 NW2d 810 (2007), aff’d 480 Mich. 19 (2008) (citations and internal
quotation marks omitted).]
II. FNTIC’S LIABILITY UNDER THE CPLS
To prevail on a breach of contract claim, a party “must establish by a preponderance of
the evidence that (1) there was a contract, (2) the other party breached the contract, and (3) the
breach resulted in damages to the party claiming breach.” Bank of America, NA v First
American Title Ins Co 499 Mich. 74, ___; ___ NW2d ___ (2016) (Docket No. 149599); slip op at
23 (FATCO).
A CPL is a contract between the title company and the lender whereby the
title insurance company agrees to indemnify the lender for any losses caused by
the failure of the title agent to follow the lender’s closing instructions. A CPL is
necessary because, while a title agent is the agent of the title insurance company
for purposes of selling the title insurance policy (and binding the company to the
insurance contract), that agency relationship does not extend to the title agent’s
conduct at the closing. As a result, a lender who also wants the title insurer to be
responsible for the agent’s acts in connection with escrow closing activities and
services must separately contract with the title insurer for such additional
protection by entering into an insured closing letter or closing protection letter.
[Id. at ___; slip op at 27 (citations and internal quotation marks omitted).]
See also New Freedom Mtg Corp v Globe Mtg Corp, 281 Mich. App. 63, 80; 761 NW2d 832
(2008), overruled in part on other grounds by FATCO, 499 Mich. 74 (2016) (“ ‘A closing
protection letter is typically issued by a title insurance underwriter ‘t[o] verify the agent’s
authority to issue the underwriter’s policies and to make the financial resources of the national
title insurance underwriter available to indemnify lenders and purchasers for the local agent’s
errors or dishonesty with escrow or closing funds.’ ”) (citations and internal quotation marks
omitted).
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The CPLs issued for the closings at issue in Docket No. 311798 provided, in relevant
part, that FNTIC would reimburse BOA “for actual loss incurred by [BOA] in connection with
such closings . . . when such loss arises out of: . . . (2) Fraud or dishonesty of [the closing agent,
Fidelity Title Company (FTC)] in handling [BOA’s] funds or documents in connection with such
closings.” This contractual language plainly makes FNTIC liable if BOA suffered actual losses
arising out of FTC’s fraud or dishonesty in handing BOA’s funds or documents in connection
with the closings.
The common meaning of “dishonesty” is the opposite of “honesty;” it is “a
disposition to lie, cheat, or steal” or a “dishonest act; fraud.” . . . [T]he plain
meaning of “fraud” includes both actual fraud – an intentional perversion of the
truth – and constructive fraud – an act of deception or a misrepresentation without
an evil intent. Fraud may also be committed by suppressing facts – silent fraud –
where circumstances establish a legal duty to make full disclosure. Such a duty of
full disclosure may arise when a party has expressed to another some
particularized concern or made a direct inquiry. [FATCO, 499 Mich at ___; slip
op at 29-30 (citations and internal quotation marks omitted).]
A lender is not required to present evidence of concealed disbursements, shortages, or unpaid
prior lien holders in order to recover for a closing agent’s fraud or dishonesty if no such
restrictions are contained in the CPL. Id. at ___; slip op at 30.
In the case appealed in Docket No. 311798, there is evidence establishing a genuine issue
of material fact concerning whether BOA suffered actual loss arising out of the fraud or
dishonesty of FTC in handling BOA’s funds or documents in connection with the closings.
There is evidence that FTC or its agents were aware of misrepresentations in documents
submitted to BOA and that BOA’s funds were dishonestly or fraudulently distributed. The
evidence indicates that the loans at issue were sham transactions that used straw borrowers and
artificially inflated property values to induce BOA to lend significant sums of money, as well as
that FTC or its agents were aware of the misrepresentations and the fraudulent nature of the
transactions at the time of closing.
In particular, with respect to BOA’s loan to Jacqueline Buie (the Buie loan or
transaction), Buie agreed to purchase 5228 Deer Run Circle, Orchard Lake, Michigan, from
Robert Harden for $3.4 million. But, Harden purchased that property from Mike Awdish and
Raidah Awdish for a significantly smaller sum, $2.1 million, on August 16, 2005, a mere 10 days
before the Buie closing. The warranty deeds for both of these closings were notarized by
Jeanenne Foster Keely (Foster), who was FTC’s employee, and they were received for recording
at the register of deeds on the same date. Under FNTIC’s own guidelines, those facts suggest
that the Buie transaction was a so-called “property flip” transaction, i.e., “a conveyance of real
estate from A to B followed very shortly thereafter, or almost simultaneously, with another
conveyance at a much higher sale price from B to a third party, C.” The $1.3 million increase in
the sales price over 10 days and the lack of evidence of financing for the earlier transfer
indicated that FNTIC’s approval was required for the Buie transaction. Also, FTC prepared title
commitments for the Buie loan that listed Harden as the owner of 5228 Deer Run Circle before
August 16, 2005, i.e., when he did not yet own the property. A request to show an intermediary
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party such as Harden as the title owner is designated by FNTIC as a “red flag” to alert the
closing agent to a possible flip transaction.
Further, the United States Department of Housing and Urban Development Settlement
Statement (HUD-1 settlement statement) prepared by FTC and signed by Foster stated that Buie
made a down payment of $651,348.95 at closing. As purported documentation of Buie’s down
payment, the FTC closing file contained a copy of a purported Charter One cashier’s check for
$735,000.00 made out to FTC. A subpoena of Charter One records established that this check
was a counterfeit alteration of a check made out to State Farm in the amount of $137.33.
According to FTC’s ledger and check copies, Harden provided the $651,348.95 down payment
listed on the HUD-1 settlement statement as having come from Buie. As part of the Buie
closing, FTC issued three checks to Harden in the respective amounts of $651,348.95,
$517,584.01, and $2,115,667.04, and Harden then endorsed the check for $651,348.95 back to
FTC with the phrase “Buyer Funds” written on the front of the check. The $2,115,667.04 check
was endorsed back to FTC with the phrase “Funds to Purchase” written on the front of the check.
FTC’s owner, Harry Ellman, testified that Harden used the funds from BOA to pay off the prior
sellers, the Awdishes.
In short, these facts support inferences that the HUD-1 settlement statement prepared by
FTC was falsified with knowledge that the supposed down payment check drawn on Charter One
was counterfeit, and that Harden purchased the property in a so-called “double escrow”
transaction whereby Harden purchased the property from the Awdishes with the funds supplied
by BOA to finance Buie’s purchase from Harden. FNTIC’s own guidelines indicate that such
transactions, in which the first transaction is funded by proceeds from the second transaction, are
improper unless the first buyer comes to the first transaction with the funds necessary to close
that transaction before the second transaction commences. Ellman admitted that this requirement
was not complied with in the Buie transaction.
FTC’s ledger also showed a $10,000.00 disbursement to Sanford M. Hoskow as a
consulting fee in the Buie transaction even though Hoskow was not identified on the HUD-1
settlement statement. Ellman admitted that he was aware that Hoskow had been disbarred as an
attorney and that he had been warned by Oakland Circuit Court Judge Norman Lippitt in late
2004 or early 2005 that Hoskow had a “nefarious background[]” and to be “leery or careful” with
respect to Hoskow. Ellman also knew that Hoskow was a convicted felon who had served jail
time “for something having to do with checks.” Ellman nevertheless continued to do business
with Hoskow after learning of his background, including 97 transactions in which Hoskow
received disbursements, some of which were flip transactions.
With regard to BOA’s loan to Jon Holmes (the Holmes loan or transaction), Holmes
agreed to buy 2785 Cranbrook Ridge Court, Rochester, Michigan, for $5.4 million. BOA agreed
to provide a $3,780,000.00 loan for the transaction. The HUD-1 settlement statement signed by
Foster indicated that Holmes made a $1,787,824.91 down payment at closing. FTC’s closing file
contained a copy of a purported cashier’s check for $1.8 million made out to FTC as apparent
documentation of Holmes’s down payment. A subpoena of the bank from which the check was
to be drawn indicated that the check was a counterfeit alteration of a $10.00 check. In fact, the
receipts and disbursements ledger for the Holmes transaction indicated that the funds for
Holmes’s purported down payment actually came from one of FTC’s own accounts. In addition,
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FTC’s ledger showed a $10,000.00 disbursement to Hoskow, and Hoskow was not identified on
the HUD-1 settlement statement. Ellman admitted that FTC failed to list other payees on the
HUD-1 settlement statement, and this practice was frowned upon by 2005 because mortgage
fraud was becoming more prevalent.
Ellman testified that it was FTC’s practice to deposit a borrower’s down payment check
into an escrow account and to confirm that the check cleared, and he admitted that this was not
done in this case, which was improper. Ellman also acknowledged that all of the funds disbursed
in this case were BOA’s funds given that no down payments were actually made. Ellman
conceded that some employee of FTC must have known that the checks were counterfeit given
that the checks were never actually deposited.
The evidence described above supports a conclusion that FTC fraudulently or dishonestly
handled BOA’s funds or documents. In the Buie transaction, FTC participated in arranging a flip
transaction of the property with BOA’s funds used to finance the second sale based on an
inflated value of the property for that transaction, and FTC prepared the warranty deeds for both
sales in this flip transaction. FTC also prepared title commitments that listed Harden as the
owner before he owned the property, and FTC prepared a HUD-1 settlement statement
inaccurately showing a down payment made by Buie. FTC did not attempt to deposit a
counterfeit check submitted as a purported down payment for Buie, which was contrary to FTC’s
normal practice, suggesting knowledge by one or more FTC employees of the fraudulent
scheme. FTC made payments to Harden, apparently using BOA’s funds meant to finance the
second sale to help Harden pay the sales price for the first sale, in contravention of FNTIC’s own
guidelines. There was also a disbursement to Hoskow, a convicted felon who was not identified
on the HUD-1 settlement statement. Taken together, these facts support an inference that FTC
was aware of and participated in the fraudulent scheme, as well as that FTC thereby fraudulently
or dishonestly handled BOA’s funds or documents in the Buie transaction.
In the Holmes transaction, there was again a counterfeit check in FTC’s file as
documentation of the purported down payment of the borrower, and FTC never deposited that
check as would have been its normal practice, suggesting awareness by one or more FTC
employees that the check was counterfeit. The funds for Holmes’s supposed down payment
actually came from one of FTC’s own accounts. There was again a disbursement to Hoskow,
who was not identified on the HUD-1 settlement statement, and Ellman admitted that other
payees were not identified on the HUD-1 settlement statement. These facts suggest that FTC
participated in the scheme and fraudulently or dishonestly handled BOA’s funds or documents.
FNTIC likens the facts of this case to those of New Freedom, but the evidence in this case
suggests that FTC both had knowledge of and participated in the fraudulent scheme as described
above. In New Freedom, 281 Mich. App. at 83, this Court found no evidence that the closing
agent committed any fraud or dishonesty in handling the lender’s funds or documents because
there was no evidence the closing agent was aware at closing that the borrower did not intend to
occupy the property and because discrepancies in the HUD-1 settlement statement did not matter
given that the document did not belong to the lender. And, with respect to another transaction in
New Freedom, this Court found no evidence of fraud or dishonesty in handling the lender’s funds
or documents because there was no evidence that the closing agent was aware of the borrower’s
false assertion on the loan application that he intended to occupy the property. Id. at 84. By
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contrast, there was extensive evidence here that one or more FTC employees had knowledge of
and participated in the fraudulent scheme for the reasons discussed above at considerable length.
New Freedom is therefore distinguishable. Given the evidence that these were sham transactions
from the outset and that one or more FTC employees participated in the fraudulent schemes, a
trier of fact could reasonably conclude that FTC dishonestly or fraudulently handled BOA’s
funds or documents. See Walsh Securities, Inc v Cristo Prop Mgt, Ltd, 858 F Supp 2d 402, 419
(D NJ, 2012), recon gtd on other grounds 2012 WL 3629045 (D NJ, 2012) (finding CPL
coverage existed where there was a fraudulent scheme involving a straw buyer and an inflated
appraised value of the property resulting in a mortgage loan for an amount far greater than the
true value of the property, with full knowledge and participation by the closing attorneys in the
fraudulent scheme); First American Title Ins Co v Vision Mtg Corp, Inc, 298 NJ Super 138, 144;
689 A2d 154 (1997) (Vision Mtg) (the closing agent’s fraud eliminated the possibility of
recouping a foreclosure loss through a deficiency proceeding against the mortgagor, given that
the case involved “a sham transaction from the outset[]” and there was no bona fide mortgagor,
thus triggering CPL liability).2
A genuine issue of material fact also exists concerning whether BOA’s losses arose out of
FTC’s fraud or dishonesty. As discussed above, the CPLs require FNTIC to reimburse BOA if
BOA’s loss “arises out of” FTC’s fraud or dishonesty in handling BOA’s funds or documents.
In general, the phrase “arises out of” does not mean proximate cause in the strict legal sense;
rather, almost any causal connection will suffice if it is more than merely incidental or fortuitous.
See People v Johnson, 474 Mich. 96, 100-101; 712 NW2d 703 (2006); Scott v State Farm Mut
Auto Ins Co, 483 Mich. 1032, 1033-1035 (2009) (KELLY, C.J., concurring); Schultz v Blue Cross
Blue Shield, unpublished opinion per curiam of the Court of Appeals, issued March 18, 2010
(Docket Nos. 288128, 288224, 288225, 288423), p 23, citing Shinabarger v Citizens Mut Ins Co,
90 Mich. App. 307, 313-314; 282 NW2d 301 (1979); Lawyers Title Ins Corp v New Freedom Mtg
Corp, 285 Ga App 22, 30; 645 SE2d 536 (2007) (“[W]here a contract provides that a loss must
‘arise out of’ a specified act, it ‘does not mean proximate cause in the strict legal sense’ but
instead encompasses almost any causal connection or relationship.”). Here, a trier of fact could
find that a causal connection exists between FTC’s fraud or dishonesty and BOA’s losses. It is
reasonable to infer that if FTC had disclosed the true nature of the transactions, then BOA would
not have funded the transactions. Even FTC’s owner, Ellman, and its employee, Foster, claimed
that they would not have closed the transactions if they had known of the counterfeit checks or
the fraudulent nature of the transactions. And this causal connection is not negated by any
deficiency in BOA’s underwriting process. See JP Morgan Chase Bank, NA v First American
Title Ins Co, 795 F Supp 2d 624, 632-633 (ED Mich, 2011), aff’d 750 F3d 573 (CA 6, 2014) (a
lender’s allegedly negligent underwriting is irrelevant in a breach of contract action under a
CPL); Lawyers Title Ins Corp, 285 Ga App at 30 (concluding that indemnification was required
under a CPL even if the lender’s own negligence may have partially caused its loss).
2
Although this Court is not bound by decisions of federal courts or courts of other states, we
may consider them persuasive. Mettler Walloon, LLC v Melrose Twp, 281 Mich. App. 184, 221, n
6; 761 NW2d 293 (2008); People v Jackson, 292 Mich. App. 583, 595, n 3; 808 NW2d 541
(2011).
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Accordingly, for the foregoing reasons, the trial court erred in granting FNTIC’s motion
for summary disposition on BOA’s breach of contract claim under the CPLs in Docket No.
311798. Genuine issues of material fact exist concerning BOA’s breach of contract claim.
Therefore, a trial is required.
Next, the trial court in Docket No. 311798 erred in denying BOA’s motion for summary
disposition concerning FNTIC’s counterclaims and affirmative defenses that were based on
BOA’s allegedly deficient underwriting. In its counterclaims, FNTIC alleged that BOA failed to
employ objectively reasonable underwriting standards and that BOA failed to inform FNTIC that
the Holmes and Buie loans did not meet objectively reasonable underwriting standards. FNTIC
sought to rescind the CPLs on the grounds that BOA or its agents made fraudulent
misrepresentations or omissions or on the basis of contractual mistake related to BOA’s
purported failure to use objectively reasonable underwriting standards. FNTIC also sought a
declaratory judgment that FNTIC was not liable to BOA under the CPLs because of BOA’s
failure to follow objectively reasonable underwriting standards, as well as because BOA failed to
give prompt notice of its claims and thereby prejudiced FNTIC. Further, in its affirmative
defenses to BOA’s complaint, FNTIC asserted that BOA’s claims were barred by BOA’s
contributory or comparative negligence. The affirmative defenses also sought rescission on the
same grounds as the counterclaim and asserted that BOA failed to satisfy the duty of good faith
and fair dealing given the failure to use objectively reasonable underwriting standards.
FNTIC’s counterclaims and affirmative defenses based on BOA’s allegedly deficient
underwriting fail as a matter of law. “Rescission of a contract is an equitable remedy to be
exercised in the sound discretion of the trial court.” Schmude Oil Co v Omar Operating Co,
GHO, 184 Mich. App. 574, 587; 458 NW2d 659 (1990). In order to rescind a contract on the
basis of fraudulent inducement, a party must show that:
(1) the defendant made a material representation; (2) the representation was false;
(3) when the defendant made the representation, the defendant knew that it was
false, or made it recklessly, without knowledge of its truth and as a positive
assertion; (4) the defendant made the representation with the intention that the
plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the
plaintiff suffered damage. [Custom Data Solutions, Inc v Preferred Capital, Inc,
274 Mich. App. 239, 243; 733 NW2d 102 (2006) (citations and internal quotation
marks omitted).]
FNTIC is unable to satisfy the materiality requirement because BOA’s underwriting practices are
not material to the terms of the CPLs. See Fifth Third Mtg Co v Chicago Title Ins Co, 758 F
Supp 2d 476, 487-488 (SD Ohio, 2010) (Fifth Third I), aff’d 692 F3d 507 (CA 6, 2012); JP
Morgan Chase, 795 F Supp 2d at 632-633.
In Fifth Third I, 758 F Supp 2d at 486, the federal district court noted that the terms of the
title policy at issue in that case did not mention underwriting practices or requirements.
Therefore, the plaintiff-lender’s underwriting guidelines were irrelevant under the terms of the
policy. Id. Nonetheless, the defendant-title insurer filed a rescission counterclaim alleging that
the plaintiff defrauded the defendant by implicitly representing that the plaintiff followed
reasonable underwriting standards. Id. at 487. The federal district court reasoned that the title
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policy did not mention underwriting or require the plaintiff to provide documentation of its
underwriting standards. Id. The court found that if the underwriting standards were material to
the defendant’s decision to issue the policy, then the policy would have expressly provided that
the underwriting would be subject to the defendant’s approval. Id. at 488. The court thus
granted summary judgment to the plaintiff with respect to the defendant’s counterclaim for
rescission. Id. In Fifth Third Mtg Co v Chicago Title Ins Co, 692 F3d 507, 511, 513 (CA 6,
2012) (Fifth Third II), the federal appellate court affirmed the decision in Fifth Third I,
concluding that the title policy said nothing about the plaintiff’s underwriting obligations and
noting that the alleged misrepresentation in failing to disclose underwriting practices was not
written into the policy itself. See also JP Morgan Chase, 795 F Supp 2d at 632-633 (concluding
that the title insurer could not avoid its indemnification obligations under a CPL by arguing that
the lender was negligent in underwriting the loan because such negligence was irrelevant and
contributory negligence was not a valid defense in a breach of contract case). In the present
case, the CPLs do not mention BOA’s underwriting practices. Therefore, BOA’s underwriting
was not material to the terms of the CPLs. FNTIC thus cannot establish the materiality element
required for rescission on the basis of fraudulent inducement.
FNTIC’s reliance on the implied covenant of good faith and fair dealing is similarly
misplaced. “It has been said that the covenant of good faith and fair dealing is an implied
promise contained in every contract that neither party shall do anything which will have the
effect of destroying or injuring the right of the other party to receive the fruits of the contract.”
Hammond v United of Oakland, Inc, 193 Mich. App. 146, 151-152; 483 NW2d 652 (1992)
(citation and internal quotation marks omitted). “However, Michigan does not recognize a cause
of action for breach of the implied covenant of good faith and fair dealing.” Fodale v Waste Mgt
of Mich, Inc, 271 Mich. App. 11, 35; 718 NW2d 827 (2006). Moreover, the failure to refer to
underwriting guidelines in a title policy does not constitute a gap to be filled by the implied duty
of good faith and fair dealing when the policy is clear and specific regarding the parties’ rights
and obligations. Fifth Third I, 758 F Supp 2d at 490. FNTIC fails to identify any lack of clarity
or specificity in the CPLs that warrants resort to the implied covenant in this case. See also Van
Arnem Co v Mfr Hanover Leasing Corp, 776 F Supp 1220, 1223 (ED Mich, 1991) (“The implied
covenant of good faith under Michigan law, as well as under the law of other jurisdictions having
persuasive effect, neither overrides nor replaces any express contractual term.”).
A contract may also be rescinded on the basis of a mutual mistake of the parties. Shell
Oil Co v Estate of Kert, 161 Mich. App. 409, 421; 411 NW2d 770 (1987). A mutual mistake is
“an erroneous belief, which is shared and relied on by both parties, about a material fact that
affects the substance of the transaction.” Ford Motor Co v City of Woodhaven, 475 Mich. 425,
442; 716 NW2d 247 (2006). “A court need not grant rescission in every case in which the
mutual mistake relates to a basic assumption and materially affects the agreed performance of the
parties.” Lenawee Co Bd of Health v Messerly, 417 Mich. 17, 31; 331 NW2d 203 (1982). In the
present case, there is no evidence that the parties shared and relied on a mutual mistake
concerning BOA’s underwriting standards nor that this mistake affected the substance of the
transaction. Even accepting FNTIC’s claim that it assumed BOA had agreed to use different or
more stringent underwriting standards, there is no evidence from which to conclude that BOA
shared this belief or that it affected the substance of the parties’ transaction. Hence, there is no
basis to rescind the CPLs on the ground of a mutual mistake of the parties. Accordingly, BOA is
entitled to summary disposition with respect to FNTIC’s counterclaim for rescission.
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Summary disposition for BOA is also required for the portion of FNTIC’s declaratory
judgment counterclaim that alleges the same underlying theory as the rescission counterclaim,
i.e., that BOA failed to employ objectively reasonable underwriting standards. Summary
disposition shall also be granted to BOA on FNTIC’s fifth affirmative defense asserting that
BOA is entitled to rescind the CPLs due to fraudulent misrepresentations or contractual mistake,
FNTIC’s 11th affirmative defense asserting that BOA failed to satisfy the duty of good faith and
fair dealing when it approved loans that did not meet objectively reasonable underwriting
standards, and FNTIC’s 12th affirmative defense asserting that BOA’s claims are barred by
contributory or comparative negligence. See JP Morgan Chase, 795 F Supp 2d at 633 (noting in
the context of CPL claims that “contributory negligence is not a valid defense in a breach of
contract case.”), citing Nelson v Northwestern Savings & Loan Ass’n, 146 Mich. App. 505, 509;
381 NW2d 757 (1985).
BOA is also entitled to summary disposition with respect to the portion of FNTIC’s
declaratory judgment counterclaim asserting that BOA failed to provide prompt notice of its
damages claims to FNTIC as required by the CPLs and that FNTIC was thereby prejudiced.
Paragraph E of the “conditions and exclusions” section of the CPLs provides as follows: “Claims
shall be made promptly to [FNTIC] . . . . When the failure to give prompt notice shall prejudice
[FNTIC], then liability of [FNTIC] hereunder shall be reduced to the extent of such prejudice.”
Provisions in liability insurance contracts requiring the insured to give the
insurer immediate or prompt notice of accident or suit are common, if not
universal. The purpose of such provisions is to allow the insurer to make a timely
investigation of the accident in order to evaluate claims and to defend against
fraudulent, invalid, or excessive claims. [Wendel v Swanberg, 384 Mich. 468,
477; 185 NW2d 348 (1971).]
It is the insurer’s burden to demonstrate prejudice arising from the lack of prompt notice. Id. at
478. “[P]rejudice will be found if the insurer demonstrates that a delay in providing notice
materially impaired the insurer’s ability to contest its liability to an insured.” Triple Investment
Group, LLC v Hartford Steam Boiler Inspection & Ins Co, 71 F Supp 3d 733, 740 (ED Mich,
2014). The insurer is not required to prove that it would have avoided liability but for the delay.
Id.
An insurer must do more than simply claim that evidence was lost,
physically altered, or has otherwise become unavailable and that witnesses have
died, disappeared, or their memories have faded. Instead, an insurer must
establish what is in fact lost by the missing evidence, how this prejudices its
position, and why information available from other sources is inadequate.
The question of prejudice is generally to be left to the trier of fact.
However, where the facts are so clear that one conclusion only is reasonably
possible, the question is one of law.
In determining whether an insurer’s position has actually been prejudiced
by the insured’s untimely notice, courts consider whether the delay has materially
impaired the insurer’s ability: (1) to investigate liability and damage issues so as
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to protect its interests; (2) to evaluate, negotiate, defend, or settle a claim or suit;
(3) to pursue claims against third parties; (4) to contest the liability of the insured
to a third party; and (5) to contest its liability to its insured. [Id. (citations and
internal quotation marks omitted).]
In this case, the parties agree that BOA became aware of the fraudulent scheme at some
point in 2006. The parties disagree about when BOA provided notice of its claim to FNTIC.
BOA argues that it provided notice of its CPL claims to FNTIC in February 2008. FNTIC
argues, however, that it did not receive notice until BOA commenced this action on October 20,
2010. FNTIC acknowledges that BOA provided written notice of potential claims to FNTIC in
February 2008 but asserts that BOA never provided further details regarding its potential claims
in response to FNTIC’s April 15, 2008 (for the Buie loan) and June 12, 2008 (for the Holmes
loan) written requests for more complete descriptions of the basis of BOA’s claims. However,
FNTIC’s own letters from April and June of 2008 reflect that BOA’s February 2008 claim letters
provided notice of both the property and the borrower at issue for each loan, that BOA was
alleging that FTC failed to comply with BOA’s written instructions, and that FNTIC committed
fraud or dishonesty in handling BOA’s funds. FNTIC fails to articulate why this was insufficient
to provide the notice required by the CPLs. We conclude that BOA’s February 2008 claim
letters provided the requisite notice of BOA’s claims to FNTIC such that FNTIC could
commence its investigation.
FNTIC has failed to demonstrate a genuine issue of material fact as to whether it was
prejudiced by BOA’s delay in providing notice. In his deposition, FNTIC’s corporate
representative, David Golub, referred vaguely to the fading of memories and the loss of
documents and asserted a lack of knowledge about whether the brokers who produced the loans
were contractually obligated to repurchase the loans. FNTIC suggests this loss of documents and
fading of memories may have impaired FNTIC’s right of subrogation under the CPLs. FNTIC
also notes the deposition testimony of BOA’s corporate representative, Vicky Olson, indicating
that BOA’s original loan files and the files of its mortgage brokers had been lost. FNTIC’s
assertions fail to demonstrate with a sufficient level of specificity “what is in fact lost by the
missing evidence, how this prejudices its position, and why information available from other
sources is inadequate.” Triple Investment Group, LLC, 71 F Supp 3d at 740. In addition, the
purported failure of BOA’s senior underwriter, Shirley Robert, to remember at deposition certain
aspects of BOA’s underwriting training or procedures does not establish prejudice given the
irrelevancy of BOA’s underwriting practices as explained earlier. Accordingly, BOA is entitled
to summary disposition on this aspect of FNTIC’s declaratory judgment counterclaim.
In Docket No. 316538, BOA argues that the trial court erred in denying BOA’s motion
for summary disposition on its CPL claims against FNTIC. FNTIC, on the other hand, contends
that BOA’s CPL claims fail as a matter of law, thereby entitling FNTIC to summary disposition
in its favor on this basis even if, as discussed below, this Court reverses the trial court’s
determination regarding the applicability of the full credit bid rule on the basis of which the trial
court granted summary disposition to FNTIC. We conclude that genuine issues of material fact
exist precluding summary disposition for either party on BOA’s CPL claims. The language of
the CPLs issued by FNTIC’s predecessor, LTIC, in Docket No. 316538 is identical in all relevant
respects to the language of the CPLs issued by FNTIC in Docket No. 311798. There is evidence
demonstrating a genuine issue of material fact concerning whether the closing agent in Docket
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No. 316538, Wolverine Title Agency, Inc. (WTA), was aware of and participated in the
fraudulent scheme and whether BOA sustained actual loss arising out of WTA’s fraud or
dishonesty in handling BOA’s funds or documents.
With respect to BOA’s loan to Giles Marks (the Marks loan or transaction), WTA closed
Marks’s purchase from Michigan Land Development (MLD) of 9430 Highland Court, Davison,
Michigan, in January 2006 for a purported sales price of $1,150,000.00, with BOA loaning
$920,000.00 to fund the purchase. This property was purported to be Marks’s intended
residence. The HUD-1 settlement statement indicated that Marks made a down payment of
$235,086.59. The loan went into default because the loan payment due on December 1, 2006,
was not made. Warranty deeds reflect that this transaction was a same-day property flip. MLD
purchased the property from Michael Jarvinen and Lamis Jarvinen on January 11, 2006, for
$548,000.00. On the same date, MLD sold the property to Marks for $1,150,000.00. Foster, a
WTA employee, notarized both warranty deeds in the flip transaction. WTA prepared a title
commitment dated August 8, 2005, signed by WTA’s owner, Amira Butler, showing MLD as the
owner of the property even though the Jarvinens owned the property on that date and MLD did
not obtain title to this property until January 11, 2006, the date of the Marks closing. Butler
invoked the Fifth Amendment’s privilege against compelled self-incrimination when questioned
at deposition about WTA’s knowledge of the same-day property flip.
In an affidavit, Marks explained that he was approached by loan officer James Lamar
about buying this property as an investment opportunity. Marks did not intend to occupy the
property and was told that he would not be responsible for making loan payments. Marks did not
make the down payment shown on the HUD-1 settlement statement. At his deposition, Marks
confirmed that he had provided the facts stated in his affidavit. Butler again invoked the Fifth
Amendment when questioned about these matters. The facts concerning this fraudulent scheme
are also set forth in a felony information against Thomas Keller, the principal of MLD, and a
guilty plea agreement filed in the United States District Court for the Eastern District of
Michigan, in which Keller pleaded guilty to one count of financial institution fraud, 18 USC
1344. The plea agreement set forth the following factual basis for the plea:
[MLD] purported to be a real estate investment company doing business in the
State of Michigan. Defendant Thomas Keller operated MLD and used it to
facilitate the purchase and sale of properties with fraudulently inflated appraised
values and false buyer asset and income information.
From in or about December 2005 through January 2006, Defendant
Thomas Keller devised a scheme to defraud Bank of America, a financial
institution in the Eastern District of Michigan. On January 11, 2006, Keller used
MLD to purchase 9430 Highland Court in Davison, Michigan for $548,000. On
that same day, using a false and inflated appraisal for the property, Keller sold
9430 Highland Court to a straw buyer for $1,150,000. In addition to the inflated
appraisal Keller help[ed] arrange for the straw buyer’s asset and income
information to be grossly inflated on the loan application. The lending institution
was Bank of America which relied on the material and false appraisal and asset
and income information in approving and disbursing the loan. The resulting
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illegally gained proceeds were split between Keller and others involved in the
fraud.
Although Keller is pleading guilty to one instance of financial institution
fraud, he admits that he was involved in other instances of fraudulent conduct
which have been used as relevant conduct in calculating his sentencing guidelines
and for which he will be responsible for paying restitution. The parties agree that
the fraud loss will be more than $1 million and less than $2.5 million.
WTA’s disbursement summary indicated that Butler’s company, Centurion Land
Management (CLM), was paid $236,586.59 as part of the Marks closing. This disbursement was
not shown on the HUD-1 settlement statement. Butler invoked the Fifth Amendment in response
to deposition questions about this payment to CLM. An appraisal later obtained by BOA
indicated that the true value of the property on the date of the origination appraisal was
$370,000.00. BOA sold the property for $189,000.00 in April 2010 in an effort to mitigate its
losses.
As for BOA’s loan to Nicklas Williams (the Williams loan or transaction), on January 13,
2006, WTA closed Williams’s purchase of 3231 Rivershyre Parkway, Davison, Michigan, from
MLD for the supposed sales price of $1.2 million, with BOA loaning $960,000.00 to fund the
purchase. The HUD-1 settlement statement indicated that Williams made a down payment of
$244,776.71. Williams signed a document indicating that he intended to occupy the property.
This transaction was supported by an appraisal that valued the property at $1.2 million. The
Williams loan went into default because the November 1, 2006 loan payment was not made.
Public records reflect that the Williams transaction was a same-day property flip as well.
Warranty deeds show that MLD purchased the property from Brad Townsend and Kyra
Townsend for $469,000.00 on January 13, 2006; on the same date, MLD sold the property to
Williams for $1.2 million. WTA assisted in the preparation of both warranty deeds, with Foster
notarizing both deeds. WTA prepared a title commitment for this property, signed by Butler and
dated December 12, 2005, showing MLD as the owner of the property, even though the
Townsends owned the property on that date and MLD did not obtain title to the property until
January 13, 2006. Butler invoked the Fifth Amendment when questioned about this matter.
WTA’s disbursement summary indicates that Butler’s company, CLM, was paid $281,276.71 as
part of the Williams transaction, but this payment was not shown on the HUD-1 settlement
statement. The disbursement summary also reflects other payments by WTA that are not shown
on the HUD-1 settlement statement, including a payment of $20,000.00 to WTA “3 MOS
PAYMENT[.]” Williams owed $19,646.70 to BOA for the first three months of loan payments.
Again, Butler invoked the Fifth Amendment when questioned about these payments.
In his deposition, Williams admitted that the information about his income and assets on
the loan application was overstated, that he only saw the property one time and never entered it,
that he viewed the transaction as an investment, that he was paid $20,000.00 to make loan
payments, and that he did not have the money needed to make the down payment. Butler
invoked the Fifth Amendment when questioned about these facts. BOA ultimately obtained
another appraisal indicating that the property was worth $385,000.00 on the date of the
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origination appraisal. After foreclosure, BOA sold the property for $190,000.00 in an effort to
mitigate its losses.
This evidence presents a material factual dispute concerning whether WTA fraudulently
or dishonestly handled BOA’s funds or documents. The Marks transaction was a same-day
property flip with an inflated appraisal, a significantly higher sum for the second sale, and
misrepresentations on the HUD-1 settlement statement indicating that Marks made a substantial
down payment. WTA assisted in preparing the warranty deeds for both sides of the flip
transaction, with Foster notarizing both deeds. WTA prepared a title commitment incorrectly
showing MLD as the owner of the property when the Jarvinens still owned it. Another
participant in the scheme has pleaded guilty to financial institution fraud in relation to this loan.
WTA disbursed $236,586.59 to Butler’s company as part of the Marks transaction, a
disbursement that was not shown on the HUD-1 settlement statement.
Likewise, the Williams transaction was a same-day property flip with an inflated
appraised value for the property and overstated information concerning Williams’s income and
assets on the loan application. Williams did not intend to live on the property as his primary
residence. WTA prepared the warranty deeds for both sides of the flip transaction, with Foster
notarizing both deeds, and WTA prepared a title commitment that incorrectly listed MLD as the
owner of the property when it was still owned by the Townsends. WTA made disbursements
that were not shown on the HUD-1 settlement statement, including a disbursement of
$281,276.71 to Butler’s company and a disbursement to WTA of $20,000.00 to pay the first
three months of Williams’s loan payments.
Although the other evidence described above suffices to support BOA’s claims, we note
that, in a civil action, Butler’s invocation of the Fifth Amendment privilege against compulsory
self-incrimination gives rise to a legitimate inference that Butler was engaged in criminal
activity. Baxter v Palmigiano, 425 U.S. 308, 318; 96 S. Ct. 1551; 47 L. Ed. 2d 810 (1976); Phillips
v Deihm, 213 Mich. App. 389, 400; 541 NW2d 566 (1995); Davis v Mut Life Ins Co of New York,
6 F3d 367, 384 (CA 6, 1993). BOA is thus entitled to an adverse inference that WTA was
complicit in the fraudulent scheme given Butler’s assertion of the Fifth Amendment.
Taken together, the evidence summarized above supports an inference that WTA was
aware of and participated in the fraudulent scheme for both the Marks and the Williams
transactions, and that WTA thereby fraudulently or dishonestly handled BOA’s funds or
documents in those transactions. New Freedom is distinguishable because the evidence here
suggests that WTA had knowledge of and participated in the fraudulent schemes in the ways
described above. Given the evidence that these were sham transactions from the outset and that
WTA personnel participated in the fraudulent schemes, a trier of fact could reasonably conclude
that WTA dishonestly or fraudulently handled BOA’s funds or documents. See Walsh
Securities, Inc, 858 F Supp 2d at 419; Vision Mtg Corp, Inc, 298 NJ Super at 144. And, a
material factual dispute exists regarding whether BOA’s losses arose out of WTA’s fraud or
dishonesty, i.e., whether there is a causal connection between WTA’s fraud or dishonesty and
BOA’s losses. See Johnson, 474 Mich. at 100-101; Scott, 483 Mich. at 1033-1035 (KELLY, C.J.,
concurring); Lawyers Title Ins Corp, 285 Ga App at 30. It is reasonable to infer that if WTA had
disclosed the true nature of the transactions, then BOA would not have funded the transactions.
As discussed above, such a causal connection is not negated by any deficiency in BOA’s
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underwriting process. See JP Morgan Chase, 795 F Supp 2d at 632-633; Lawyers Title Ins
Corp, 285 Ga App at 30.
Accordingly, for the foregoing reasons, the trial court erred in granting FNTIC’s motion
for summary disposition on BOA’s breach of contract claim under the CPLs in Docket No.
316538. Genuine issues of material fact exist concerning BOA’s breach of contract claim.
Therefore, a trial is required.
Although BOA presented sufficient evidence to avoid summary disposition in favor of
FNTIC on BOA’s CPL claims, we are not convinced by BOA’s argument in Docket No. 316538
that BOA is entitled to summary disposition in its favor on its CPL claims. It is for the trier of
fact to assess credibility; a jury may choose to credit or discredit any testimony. Taylor v
Mobley, 279 Mich. App. 309, 314; 760 NW2d 234 (2008), citing Kelly v Builders Square, 465
Mich. 29, 38-39; 632 NW2d 912 (2001). That is, a jury is free to disbelieve and to discredit the
testimony offered in support of a plaintiff’s case. Taylor, 279 Mich. App. at 314. A trial court in
ruling on a summary disposition motion may not weigh evidence, Hines v Volkswagen of
America, Inc, 265 Mich. App. 432, 437; 695 NW2d 84 (2005), or make credibility determinations,
White v Taylor Distrib Co, Inc, 275 Mich. App. 615, 625; 739 NW2d 132 (2007), aff’d 482 Mich.
136 (2008). As discussed, much of the evidence that supports BOA’s claims is comprised of
witness testimony. It is for the trier of fact to decide whether to credit this testimony. Also,
causation is generally a question for the trier of fact, although it may be decided by the court as a
matter of law if no issue of material fact exists. Holton v A+ Ins Assoc, Inc, 255 Mich. App. 318,
326; 661 NW2d 248 (2003). BOA fails to demonstrate that there are no material issues of fact
concerning whether CPL coverage is triggered in this case. It is for the trier of fact to assess the
evidence at trial and to determine whether BOA’s losses arose out of WTA’s fraud or dishonesty
in handling BOA’s funds or documents; the issue is not amenable to resolution as a matter of
law. Accordingly, BOA is not entitled to summary disposition on its CPL claims.
In Docket No. 316538, FNTIC suggests other alternative grounds on which to grant
summary disposition to FNTIC. Because, as discussed below, the trial court’s grant of summary
disposition to FNTIC on the basis of the full credit bid rule must be reversed, and because
FNTIC raised in the trial court the alternative grounds that it now asserts on appeal, we will
address those alternative grounds for granting summary disposition to FNTIC. See Peterman v
Dep’t of Natural Resources, 446 Mich. 177, 183; 521 NW2d 499 (1994) (a litigant who raised an
issue below should not be punished for the trial court’s failure to address the issue).
FNTIC’s first alternative ground for granting summary disposition in its favor is that
BOA suffered no actual loss because it sold the loans “without recourse” to third-party investors
on the secondary mortgage market. FNTIC notes that BOA relinquished “all the right, title, and
interest” in the mortgage loans. FNTIC argues that the mortgage loan purchase agreements
(MLPAs) did not require BOA to repurchase the loans due to a title agent’s fraud; therefore,
FNTIC reasons, any loss it suffered did not arise out of an act protected by the CPLs. FNTIC
suggests that BOA voluntarily repurchased the loans from the third-party investors and that any
loss was thus due to BOA’s own voluntary actions. FNTIC contends that BOA cannot recover in
a breach of contract action payments that BOA voluntarily made.
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In responding to this argument below, BOA explained that it repurchased the loans from
the third-party investors after discovering that the loans were fraudulent based on BOA’s
contractual obligation to do so. Under the MLPAs, BOA sold the loans to Banc of America
Funding Corporation (BAFC). As part of the MLPAs, BOA made representations and
warranties, including that there was “no default, breach, violation or event of acceleration
existing under the [mortgages or mortgage notes].” BOA further explained that it was required
to cure the breach or repurchase a defective mortgage loan when it discovered a breach of the
representations and warranties in the MLPAs that had a material adverse effect on the value of
the loan. BAFC then sold “without recourse” all of BAFC’s right, title, and interest in the loans
that it purchased from BOA, including BAFC’s rights under the MLPAs, to trustees for the
benefit of certificate holders of mortgage-backed securities. The pooling and servicing
agreements (PSAs) governing the sales of the loans by BAFC to the trustees contain language
effectively providing that the representations and warranties in the MLPAs survived delivery of
the mortgage files to the trustees, thereby carrying over BOA’s obligation to repurchase
defective mortgage loans after the loans were sold to the trustees under the PSAs.
In May 2007, BOA referred the loans at issue for further review after learning of
potential fraud. Less than 30 days after this internal review was initiated, BOA repurchased the
loans at issue. Judy Lowman, who was, at the time of these transactions, a BOA vice-president
transaction manager working with mortgage-backed securities, testified that BOA did not have a
choice about whether to repurchase the loans; she indicated that the repurchase was due to a
breach of the representations in light of the fraud in connection with the origination of the loans
and that BOA was contractually obligated to repurchase the loans. BOA prepared repurchase
reports for each of the loans that also indicate that BOA repurchased the loans due to the
fraudulent nature of the loans. The repurchase reports set forth BOA’s internal findings that the
loans were fraudulent and indicate that Lowman agreed that the loans should be repurchased.
After Lowman authorized the repurchases, a BOA employee calculated the amounts owed to the
investors, and the amounts were disbursed to the investors.
FNTIC identifies no evidence and presents no argument disputing that BOA repurchased
the loans at issue after learning of the fraud associated with those loans. FNTIC instead contends
that BOA voluntarily repurchased the loans and therefore cannot recover in this breach of
contract action for payments that it voluntarily made. But the evidence summarized above
provides support for BOA’s contention that it repurchased the defective loans due to what BOA
understood to be its contractual obligation to do so. Moreover, in arguing that BOA suffered no
actual loss because it voluntarily repurchased the loans, FNTIC again fails to appreciate that the
“arises out of” language in the CPLs does not require proximate cause in the strict legal sense,
and that, rather, almost any causal connection that is more than incidental or fortuitous is
sufficient. Johnson, 474 Mich. at 100-101; Scott, 483 Mich. at 1033-1035 (KELLY, C.J.,
concurring); Lawyers Title Ins Corp, 285 Ga App at 30. As discussed earlier, evidence exists of
a causal connection between WTA’s fraud or dishonesty and BOA’s losses. The fact that BOA
sold the loans and then later repurchased the loans after concluding that it was contractually
obligated to do so does not require a conclusion as a matter of law that the requisite causal
connection has been negated or rendered incidental or fortuitous. See generally Holton, 255
Mich. App. at 326 (causation is typically a question for the trier of fact). FNTIC cites no authority
establishing that the existence of other possible causes precludes a conclusion that a lender’s
losses arose out of a closing agent’s fraud or dishonesty under a CPL claim. Moreover, it has
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been recognized that an entity may sustain actual losses for the purpose of CPL claims if it
repurchased loans that it had previously sold. See Walsh Securities, Inc, 858 F Supp 2d at 419
(noting, in the context of CPL claims, that the plaintiff, a mortgage loan wholesaler, “would only
have sustained actual losses if it repurchased the twenty-one aforementioned mortgage loans.”).
Accordingly, FNTIC has failed to establish that BOA’s sale and subsequent repurchase of the
loans requires a conclusion as a matter of law that BOA suffered no actual losses that arose out
of WTA’s fraud or dishonesty.
As a related alternative ground for granting summary disposition in its favor, FNTIC
argues that BOA lacks standing to make claims under the CPLs because BOA sold its interest in
the CPLs to investors and no evidence exists that BOA ever repurchased its interest in the CPLs.
We disagree. “[A] litigant has standing whenever there is a legal cause of action.” Lansing Sch
Ed Ass’n v Lansing Bd of Ed, 487 Mich. 349, 372; 792 NW2d 686 (2010). FNTIC fails to
explain why, even if BOA had not repurchased the loans, BOA would lack standing to pursue the
CPL claims on behalf of the third-party investors in its capacity as a servicer of the loans.
FNTIC identifies no language in the CPLs that required BOA to retain its loans in order to bring
claims under the CPLs. Also, BOA repurchased the loans. FNTIC asserts that BOA’s
repurchase of the loans did not return to BOA the interest in the CPLs, but FNTIC fails to cite
authority establishing that the interest in a CPL is not reacquired when a loan is repurchased.
A party may not leave it to this Court to search for authority to sustain or reject its
position. An appellant may not merely announce his position and leave it to this
Court to discover and rationalize the basis for his claims, nor may he give issues
cursory treatment with little or no citation of supporting authority. Argument
must be supported by citation to appropriate authority or policy. An appellant’s
failure to properly address the merits of his assertion of error constitutes
abandonment of the issue. [Peterson Novelties, Inc v City of Berkley, 259 Mich
App 1, 14; 672 NW2d 351 (2003) (citations and internal quotation marks
omitted).]
Missing from FNTIC’s cursory argument is any articulation of why BOA’s repurchase of
the loans excluded any rights under the CPLs that had been transferred when BOA sold the
loans. There is no evidence that the trustees retained any rights associated with the loans after
BOA repurchased the loans, such as the ability to pursue CPL claims against FNTIC after BOA
repurchased the loans. No document has been presented explicitly saying that the interest in the
CPLs was transferred back to BOA, but this does not preclude a conclusion that, in these
circumstances, BOA reacquired any rights under the CPLs when it repurchased the loans. Cf.
Burkhardt v Bailey, 260 Mich. App. 636, 658; 680 NW2d 453 (2004) (If “a legal instrument fails
to create an assignment but the circumstances clearly establish the assignor’s intent to presently
transfer an interest, an equitable assignment may arise.”).
Next, FNTIC asserts that an alternative ground for denying BOA’s request for summary
disposition in Docket No. 316538 is that FNTIC was prejudiced by BOA’s failure to provide
prompt notice of its claims as required by the CPLs. This issue is not properly before this Court
because FNTIC did not file a cross-appeal and is requesting greater relief than it received below.
The trial court dismissed FNTIC’s counterclaims, which included FNTIC’s declaratory judgment
counterclaim asserting in relevant part that FNTIC was prejudiced by BOA’s failure to provide
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prompt notice of its CPL claims. Although an appellee need not file a cross-appeal in order to
assert an alternative ground for affirmance, “an appellee that has not sought to cross-appeal
cannot obtain a decision more favorable than was rendered by the lower tribunal.” ABATE v
Public Serv Comm, 192 Mich. App. 19, 24; 480 NMW2d 585 (1991). In this argument, FNTIC is
effectively seeking to reverse in part the trial court’s dismissal of FNTIC’s declaratory judgment
counterclaim, which would thereby result in a decision more favorable to FNTIC than was
rendered below. Therefore, because FNTIC did not file a cross-appeal, FNTIC may not properly
seek a partial reversal of the order dismissing its counterclaims by making the argument at issue.
But, even if this argument were properly before this Court, we would conclude that
FNTIC’s argument is devoid of merit. Condition and Exclusion (F) of the CPLs in Docket No.
316538 contains the following notice provision: “Claims shall be made promptly to [FNTIC’s
predecessor, LTIC] . . . . When the failure to give prompt notice shall prejudice [LTIC], the
liability of [LTIC] hereunder shall be reduced to the extent of such prejudice.” As discussed
earlier, it is FNTIC’s burden to demonstrate prejudice arising from the lack of prompt notice.
Wendel, 384 Mich. at 478.
An insurer must do more than simply claim that evidence was lost,
physically altered, or has otherwise become unavailable and that witnesses have
died, disappeared, or their memories have faded. Instead, an insurer must
establish what is in fact lost by the missing evidence, how this prejudices its
position, and why information available from other sources is inadequate. [Triple
Investment Group, LLC, 71 F Supp 3d at 740.]
FNTIC argues that BOA waited more than four years after learning of the alleged fraud to notify
FNTIC of the CPL claims. In suggesting that it was prejudiced, FNTIC references BOA’s
destruction of its original loan files, the borrowers’ destruction of their copies of documents, the
cessation of operations by WTA and by BOA’s broker, the disappearance of WTA’s original
files for these transactions, and the deaths of one LTIC employee and one WTA employee.
FNTIC has failed to demonstrate a genuine issue of material fact that it was prejudiced by
BOA’s delay in providing notice. FNTIC asserts in a conclusory fashion that the loss of
evidence and deaths of witnesses have prejudiced FNTIC’s ability to investigate liability and
damages and impaired its ability to evaluate or settle BOA’s claims. FNTIC’s assertions fail to
demonstrate with a sufficient level of specificity “what is in fact lost by the missing evidence,
how this prejudices its position, and why information available from other sources is
inadequate.” Id. Accordingly, BOA was properly granted summary disposition on the aspect of
FNTIC’s counterclaim asserting prejudice arising from the alleged failure to give prompt notice.
FNTIC also argues that BOA impaired FNTIC’s right of subrogation by failing to
confirm the value of the properties and the borrowers’ ability to repay the loans and by
approving the loans without independently verifying the accuracy of the inflated appraisals.
Condition and Exclusion (B) of the CPLs provided that FNTIC’s predecessor, LTIC, was
subrogated to all rights and remedies that BOA would have had and provided for the reduction of
LTIC’s liability to the extent that BOA knowingly and voluntarily impaired the value of the
subrogation right. FNTIC fails to cite any pertinent authority in support of its argument on this
issue and also fails to present an argument that BOA knowingly and voluntarily impaired the
subrogation right as required to reduce FNTIC’s liability under the language of the CPLs.
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FNTIC’s cursory appellate presentation results in abandonment of this issue. Peterson Novelties,
Inc, 259 Mich. App. at 14. In any event, FNTIC’s argument is devoid of merit. There is no
evidence that BOA knowingly and voluntarily impaired the value of FNTIC’s subrogation right.
BOA’s purported failure to confirm the value of the properties or the borrowers’ ability to repay
the loans constituted at most mere negligence. FNTIC’s suggestion that the value of its
subrogation right was impaired because BOA made full credit bids for the properties, thereby
precluding FNTIC from pursuing deficiency judgments against the borrowers, is unsupported.
FNTIC identifies no evidence that the borrowers possessed assets from which any deficiency
judgments could be collected. It is thus groundless for FNTIC to assert that BOA’s full credit
bids impaired the value of FNTIC’s subrogation right.
III. FULL CREDIT BID RULE
Next, BOA argues in Docket Nos. 311798 and 316538 that the trial court in each case
erred in concluding that the full credit bid rule barred one or both of BOA’s breach of CPL
claims. We agree.
Before addressing the substance of this issue, we note that in Docket No. 316538, the trial
court had initially rejected FNTIC’s argument that the full credit bid rule applied but later
revisited that determination and agreed with FNTIC’s argument. BOA contends that the trial
court lacked authority to do this because the trial court had already denied FNTIC’s motion for
summary disposition on this issue and FNTIC’s motion for reconsideration of that decision. But,
we agree with FNTIC that the trial court had authority to revisit its earlier determination
concerning the applicability of the full credit bid rule. MCR 2.604(A) provides that “an order or
other form of decision adjudicating fewer than all the claims, or the rights and liabilities of fewer
than all the parties, does not terminate the action as to any of the claims or parties, and the order
is subject to revision before entry of final judgment adjudicating all the claims and the rights and
liabilities of all the parties.” “As a general matter, courts are permitted to revisit issues they
previously decided, even if presented with a motion for reconsideration that offers nothing new
to the court.” Hill v City of Warren, 276 Mich. App. 299, 307; 740 NW2d 706 (2007). A party is
permitted to file more than one motion for summary disposition. MCR 2.116(E)(3); Dep’t of
Social Servs v Baayoun, 204 Mich. App. 170, 176-177; 514 NW2d 522 (1994). The denial of a
motion for summary disposition does not preclude such a motion on the same ground from being
granted later in the same case. See Goodrich v Moore, 8 Mich. App. 725, 728; 155 NW2d 247
(1967). In this case, although the trial court exhibited a lack of awareness that it had previously
denied FNTIC’s motion for reconsideration of the order denying FNTIC’s first motion for
summary disposition, the trial court nonetheless had authority to revisit its previous
determination regarding the applicability of the full credit bid rule. A final judgment had not yet
been entered, and FNTIC had filed another motion for summary disposition again raising the
issue of the full credit bid rule as permitted by court rule. Thus, the trial court possessed
authority to revisit the issue.
Nevertheless, we agree with BOA that the trial courts in Docket Nos. 311798 and 316538
erred in concluding that the full credit bid rule barred some of BOA’s breach of CPL claims.
Our Supreme Court recently provided guidance in this area of the law. In FATCO, 499 Mich at
___; slip op at 11-12, our Supreme Court explained the full credit bid rule as follows:
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A mortgagee who bids on the property at a foreclosure sale is not required
to bid the full amount of the debt. If a mortgagee bids a lower amount, it may
then pursue a deficiency judgment against the debtor, subject to the limitations set
forth in the anti-deficiency statute [MCL 600.3280]. However, a mortgagee can
make a full credit bid—i.e., a credit bid in an amount equal to the unpaid principal
and interest of the mortgage debt, together with costs, fees, and other expenses of
the foreclosure. If a mortgagee’s full credit bid is successful, i.e., results in the
acquisition of the property, the lender pays the full outstanding balance of the debt
and costs of the foreclosure to itself and takes title to the security property,
releasing the borrower from further obligations under the defaulted note.
Under the full credit bid rule, a lender who takes title following a full
credit bid is precluded for purposes of collecting its debt from later claiming that
the property is actually worth less than the bid. This is because the mortgagee
who enters such a bid is deemed to have irrevocably warranted that the value of
the security foreclosed upon was equal to the outstanding indebtedness and not
impaired. Thus, the full credit bid rule makes a properly conducted nonjudicial
foreclosure sale the dispositive device through which to resolve the question of
value. And, in its most direct application, the rule bars a mortgagee who takes
title at a nonjudicial foreclosure sale following a full credit bid from pursuing a
deficiency judgment against the mortgagor. [Citations and internal quotation
marks omitted.]
In FATCO, our Supreme Court held “that the New Freedom panel erred to the extent it held that
the full credit bid rule bars contract claims against nonborrower third parties, such as defendants
in this case. Therefore, the Court of Appeals in the instant case erred by concluding that
plaintiff’s full credit bids barred its contract claims against the nonborrower third-party
defendants.” Id. at ___; slip op at 2. Our Supreme Court in FATCO further explained as
follows:
[T]he full credit bid rule is related to the anti-deficiency statute, and its purpose is
merely to resolve the question of the value of the property for purposes of
determining whether the mortgage debt was satisfied. It is not concerned with the
relationship between the lender and third parties and was simply not intended to
cut off all remedies a mortgagee might have against nonborrower third parties.
* * *
In sum, although the full credit bid rule is not a creature of statute, we are
cognizant of its relationship to the foreclosure by advertisement and anti-
deficiency statutes. Those statutes are carefully designed to govern the
relationship between, and establish the rights and liabilities of, the mortgagee and
mortgagor – not nonborrower third parties. . . . [W]e conclude that there is no
justification for extending the protections of the rule to alter the contractual rights
and liabilities between a mortgagee and nonborrower third parties. Therefore, we
hold that the full credit bid rule does not bar contract claims by a mortgagee
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against nonborrower third parties, and we overrule New Freedom to the extent
that it conflicts with our decision today. [Id. at ___; slip op at 19, 21-22.]
In Docket No. 311798, the trial court partially premised its grant of summary disposition
to FNTIC on the fact that BOA made a full credit bid in the Buie transaction, and in Docket No.
316538, the trial court likewise granted summary disposition to FNTIC on the ground that BOA
made full credit bids in the Marks and Williams transactions. In other words, the trial court in
each lower court action applied the full credit bid rule to bar one or both of BOA’s CPL claims.
As the above quotations from FATCO reflect, however, our Supreme Court has now clarified
that the full credit bid rule is inapplicable to a mortgagee’s claims against nonborrower third
parties. Indeed, the claims at issue in the present cases, i.e., breach of CPL claims against a title
insurer related to a closing agent’s fraud or dishonesty, were among the types of claims at issue
in FATCO and with respect to which our Supreme Court held that the full credit bid rule was
inapplicable. See FATCO, 499 Mich App at ___; slip op at 21-22. Therefore, the trial courts in
the present cases erred in holding that some of BOA’s breach of CPL claims against FNTIC were
barred by the full credit bid rule.
IV. CASE EVALUATION, ATTORNEY FEES, & COSTS
In light of our resolution of the above issues, we need not address the substance of the
remaining issues raised by BOA on appeal, which are raised in Docket Nos. 312426 and 313797,
and which arise from the same lower court file as Docket No. 311798. Specifically, BOA argues
that the trial court erred in striking the case evaluation award. The trial court’s decision to strike
the case evaluation award was premised on the fact that it had granted summary disposition to
FNTIC with respect to BOA’s claims against FNTIC and its view that it was thus inappropriate
for the case evaluation to have been held on the dismissed claims. Because we have concluded
that the trial court erred in granting summary disposition to FNTIC, it follows that the trial
court’s decision to strike the case evaluation award premised on what we have concluded was an
erroneous grant of summary disposition to FNTIC must be vacated. Thus, it is unnecessary for
us to address whether the decision to strike the case evaluation award would otherwise have been
appropriate if the grant of summary disposition had been proper.
Likewise, we need not address the substance of BOA’s arguments challenging the award
of attorney fees to FNTIC. The offer-of-judgment sanctions at issue here were imposed on the
ground that the order granting summary disposition to FNTIC was more favorable to FNTIC, the
offeror, than the average offer, thereby entitling FNTIC to recover its costs and attorney fees
under MCR 2.405(D). But, because, as discussed earlier, we are reversing the order granting
summary disposition to FNTIC, the award of sanctions premised on that grant of summary
disposition must be vacated, thereby making it unnecessary to address the specific issues
concerning sanctions raised by BOA. Cf. McManamon v Redford Charter Twp, 273 Mich. App.
131, 141; 730 NW2d 757 (2006) (“ ‘[I]t is the ultimate verdict that the parties are left with after
appellate review is complete that should be measured against the mediation evaluation to
determine whether sanctions should be imposed on a rejecting party pursuant to MCR 2.403(O).’
”), quoting Keiser v Allstate Ins Co, 195 Mich. App. 369, 374-375; 491 NW2d 581 (1992). In
other words, because we are reversing the order granting summary disposition to FNTIC, this
action has not yet proceeded to verdict, and the sanctions award must therefore be vacated.
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V. CONCLUSION
In sum, in Docket No. 311798, we reverse the order granting summary disposition to
FNTIC regarding BOA’s breach of contract claim, reverse the order denying BOA’s motion for
summary disposition concerning FNTIC’s counterclaims and affirmative defenses, and remand
this matter for further proceedings consistent with this opinion. In Docket Nos. 312426 and
313797, we vacate the order striking the case evaluation award and the orders awarding costs and
attorney fees to FNTIC. In Docket No. 316538, we reverse the order granting summary
disposition to FNTIC regarding BOA’s breach of contract claim, affirm the order denying
BOA’s motion for summary disposition concerning its breach of contract claim, affirm the order
granting summary disposition to BOA regarding FNTIC’s counterclaims and affirmative
defenses, and remand for further proceedings consistent with this opinion.
Affirmed in part, reversed in part, vacated in part, and remanded for further proceedings
consistent with this opinion. We do not retain jurisdiction. BOA, as the prevailing party, may
tax costs pursuant to MCR 7.219.
/s/ Patrick M. Meter
/s/ Douglas B. Shapiro
/s/ Colleen A. O’Brien
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