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Appellate Court Rules Originating Lender Not Liable for Alleged Bad Acts by Mortgage Broker

Posted By USFN, Monday, April 15, 2019

by Jeffrey M. Knickerbocker, Esq.

Bendett & McHugh, PC
USFN Member (CT, MA, ME, NH, RI, VT)

 

In Bank of America v. Gonzalez, 187 Conn.App. 511 (2019), the Connecticut Appellate Court upheld a decision by the trial court whereby the trial court found the originating lender was not liable for the alleged bad actions of the mortgage broker.  The complaint stated that on or about March 20, 2006, the defendant executed a note (the “note”) in favor of Mortgage Capital Group, LLC (“Mortgage Capital”).  On the same day, to secure the Note, defendant executed a mortgage (the “mortgage”) on the property that was the subject of the foreclosure. 

The defendant filed an answer and special defenses and pleaded that the note and mortgage were unenforceable because of alleged fraudulent inducement, negligent misrepresentation, equitable estoppel, unconscionability, duress and unclean hands.  Each of the special defenses alleged misconduct by David J. Bigley, an alleged employee and/or agent of the original lender and mortgagee, Mortgage Capital.  Bigley was actually a mortgage broker for a company named Main Street Mortgage, LLC.  Bigley, and the closing attorney, Thomas Battaglia, are cousins, which is a fact that was not disclosed to defendant.  Further, Bigley held a mortgage on the property that would be paid off by the sale of the property to defendant, another fact not disclosed to defendant.  In order to prevail on these special defenses, the defendant was required to prove that Bigley was an agent or employee of Mortgage Capital. See CitiMortgage, Inc. v. Coolbeth, 147 Conn. App. 183, 192, 81 A.3d 1189 (2013), cert. denied, 311 Conn. 925, 86 A.3d 469 (2014).

The matter went to trial and the court found that the plaintiff had presented prima facie evidence to support the judgment of strict foreclosure. The court rejected the defendant’s special defenses, finding that the defendant had not satisfied his burden of proving that Bigley was an agent or employee of Mortgage Capital.  The appellate court reviewed the evidence presented in the trial court to determine if the evidence supported the trial court’s decision.  The appellate court considered the mortgage loan origination agreement, signed by the defendant on January 30, 2006, which identified Main Street Mortgage, LLC, as an independent contractor and licensed mortgage broker under the laws of the state of Connecticut. This document provided in relevant part: “In connection with this mortgage loan we are acting as an independent contractor and not as your agent. We will enter into separate independent contractor agreements with various lenders.”

Similarly, the mortgage broker fee disclosure, signed by the defendant on January 30, 2006, provided in relevant part: “The mortgage broker will submit your application for a residential mortgage loan to a participating lender with which it from time to time contracts upon such terms and conditions as you may request or a lender may require.... The mortgage broker may be acting as an independent contractor and not as your agent.”

Finally, the mortgage broker fee disclosure also provided: “You may work with the mortgage broker to select the method [by] which it receives its compensation depending on your financial needs, subject to the lender’s program requirements and credit underwriting guidelines.” The “Good Faith Estimate,” also signed by the defendant on January 30, 2006, provided that it was “being provided by Main Street Mortgage, LLC, a mortgage broker, and no lender has yet been obtained.”

On cross examination, the defendant testified he had no evidence that Mortgage Capital set Bigley’s hours or supplied any office supplies to Bigley. He further testified that he had no evidence that Mortgage Capital provided or told Bigley who to get as customers.  In short, there was no evidence that the mortgage broker and originating lender had anything other than an independent contractor relationship.

This case shows the importance of maintaining the origination file.  The origination documents were instrumental in establishing the relationship between the originating broker and the lender.

 

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