Plaza Home Mortgage v. North American
Title Co.
Filed 4/19/13 Plaza Home Mortgage v. North American Title
Co. CA4/1
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
PLAZA HOME MORTGAGE, INC.,
Plaintiff and Respondent,
v.
NORTH AMERICAN TITLE COMPANY,
INC.,
Defendant and Appellant.
D059727
(Super.
Ct. No. 37-2007-7512-CU-CO-CTL)
APPEAL from a judgment of the Superior
Court of
County, Judith F. Hayes, Judge. Affirmed.
In April 2010, we reversed the
judgment in favor of escrow holder and settlement agent North American Title
Company, Inc. (North American) and remanded with instructions for the trier of
fact to determine whether North American breached the closing instructions
contract between it and wholesale residential mortgage lender Plaza Home
Mortgage, Inc. (Plaza), after North American distributed $53,853 to the
attorney in fact of the buyer of real property that was neither authorized by
the closing instructions nor disclosed to Plaza before North American made the
distribution. (See Plaza Home Mortgage, Inc. v. North American Title Co., Inc. (2010)
184 Cal.App.4th 130.) On remand, the
court sitting as trier of fact found North American breached the closing
instructions contract with Plaza and awarded Plaza $313,205.56 plus interest.
In this proceeding, North American challenges Plaza's entitlement to,
and award of, damages. North American
contends the award of all the funds North American was holding when it received
the last-minute escrow instruction from the seller was premised on a finding
that is unsupported by the record, namely that had North American advised Plaza
of the amended instruction, Plaza could have unwound the loan transaction and
recouped the funds in North American's possession/account. North American alternatively contends that,
as a matter of law, Plaza's damages should be limited to $53,853—the amount
unlawfully distributed by North American to the buyer's attorney in fact. We disagree with both contentions and affirm
the judgment entered in favor of Plaza.
BACKGROUND
Following a two-day bench trial, the
court issued the following detailed statement of decision:
"I. STATEMENT OF FACTS
"Plaintiff, Plaza, a Wholesale Residential Mortgage Lender,
borrows money from warehouse lenders to make loans on residential
properties. When the loan is funded,
Plaza then sells its loans to investors.
In March, 2007, Plaza loaned $1.1 Million Dollars to a Corrections
Officer named Oliver Aleta to finance the purchase of a home in Northridge,
California.
Mr. Aleta's attorney-in-fact, Edward Peregrino, signed most of the loan
documents, presumably on behalf of his client.
On March 1, 2007,
Plaza funded the purchase money loans by way of an $880,000.00 first trust deed
and a $220,000.00 second trust deed and wired those funds to the title company,
Investors Title. On March 2, 2007, after
the new deed of trust was recorded at 8:00 a.m., the title company sent one
wire to Wells Fargo in the amount of $769,788.05 to pay off the existing lien
[on the subject real property], and a second wire to the escrow, defendant
[North American], in the amount of $313,204.56, to make disbursements in
accordance with Plaza's closing instructions.
Plaza's closing instructions specified that [North American] would make
disbursements from escrow only in amounts and to people whom Plaza had
pre-approved:
"Attention
Settlement Agents:
"Plaza Home
Mortgage will not [disburse] funds to cover borrower fees that either do
not appear on the Estimated HUD-1 or fees that were not verified
by a Closer employed by Plaza Home Mortgage. . . .
"Please
thoroughly review the fees listed on our Truth-in-Lending Itemization and
verify that these fees match those on the final HUD-1 Settlement
Statement. The settlement agent cannot
change fee amounts after the final documents have been signed by the
borrower. . . .
"[Beneath
the acknowledgment signature by the [North American] settlement agent it says:]
'By signing, 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.' [¶] (Exhibit 34.)
"At 10:40 a.m. on
March 2, [North American] received, by fax, a new instruction from the seller
to pay the sum of $53,853.00 to the buyer's attorney, Edward Peregrino (Exhibit
40). The court finds that Plaza was
unaware of this proposed disbursement, which was not on the estimated HUD-1,
and there was no evidence that [North American] made any effort to inform Plaza
of this disbursement. Although escrow
officers at [North American] had available a business form called a Proceeds
Instruction Form, which escrow officers used to obtain the concurrence of
buyer, seller and lender, such a form was not used. On March
5, 2007, [North American] made the payment to Mr. Peregrino in the
amount of $53,853.00. The payment was
recorded on the final HUD-1 which was sent to Plaza three days later, on March
8th, when Plaza requested it. (Exhibit
39.)
"The Court herein finds that [North American] had a contractual
duty to inform Plaza of the payment to Peregrino that [it] learned about during
the escrow but before the loan closed.
The Court finds the testimony of plaintiff's witnesses credible that,
had [it] known of this payment, [it] would not have made the Aleta loans. It was the obligation of North American to
disclose to Plaza any additional payoffs or fees that were not included in the
estimated HUD-1.
"In terms of proximate cause, this Court finds that, although the
failure to disclose the payment to Peregrino was not the only cause of
plaintiff's loss that it was a legal cause of plaintiff's injury.
"If Plaza had been alerted by [North American] to the instruction
to pay $53,853.00 to the borrower's agent, Plaza would have taken steps to
protect itself from a potentially fraudulent payoff. The Peregrino payment would have raised red
flags that the property was over-valued and the appraisal was inflated, or that
the loan was not an arm's length transaction, or that the seller's credits to
the buyer exceeded FNMA Guidelines. This
was especially true in light of the fact that the seller had previously agreed
to pay $10,000 towards the buyer's closing costs. Because [North American] failed to advise
Plaza about the proposed payment to Mr. Peregrino, Plaza remained ignorant of
this payout and Plaza allowed the loans to close without taking the steps
necessary to protect itself. Had Plaza
known of the payment, [it] would have taken steps to unwind the deal and
recover the payouts which had already occurred.
"While Plaza was trying to sell the Aleta loans, Mr. Aleta
defaulted on his third loan payment.
Even if Plaza had been able to sell the loan to an investor, because of
industry practices and explicit contractual terms in the sale agreement, it
would have had to repurchase the loans because the borrower defaulted after
only two payments.
"Plaza mitigated its loss by taking back from Mr. Aleta a Deed in
Lieu of Foreclosure (Exhibit 49) and then selling the property (Exhibit 71) for
the sum of $716,153.13 (Exhibit 72). The
Court finds Plaza's calculation of damages, based upon the loss suffered on
re-sale and costs of repair to the property, to be somewhat speculative but
finds that the loss suffered by Plaza in repairing, maintaining and marketing
the property in question was at least $313,205.56 as is more fully
discussed below.
"II. [NORTH AMERICAN'S] DUTY TO PLAZA
"Both of the arguments made by [North American] -- that it had no
duty to disclose this payment because it was the seller's money, and that the
kickback to Mr. Peregrino did not constitute a 'payoff' or 'fee' under the
terms of the closing instructions -- were rejected by the Court of Appeal in
its decision in this case reported at 184 Cal. App. 4th 130. There, after a review of the closing
instructions in light of the $53,853.00 payment, and the fact that the
instruction to pay Peregrino was not received by [North American] until
time when [North American] argues[] the money was owned by the seller, the
Court of Appeal ruled:
"'Instead,
we are concerned in the instant case with the duties and obligations of North
American to disclose to Plaza any "additional payoffs or fees" that
were not included in the estimated HUD-1 or otherwise disclosed by North
American. We conclude this duty to
disclose continued until the loans closed, and not, as North American argues
and the trial court concluded, when escrow closed.' [¶] At
138.
"To permit [North American] to make payments that Plaza did not
approve 'would actually encourage potentially illegal and unlawful conduct,
such as the "kickbacks" in Money
Store [Investment Corp. v. Southern
Cal. Bank (2002) 98 Cal.App.4th 722] or here, which Plaza claims was a
"red flag" that the subject property was overvalued and the appraisal
inflated.' [¶] At 140.
"[North American] had a duty to tell Plaza about the proposed
payment to Mr. Peregrino before it
made the payment, to give Plaza the opportunity to approve or disapprove the
payment. There was adequate time to give
Plaza notice, there was a business form available to give notice and to get
approval, and there was no lawful reason not to disclose the Peregrino payoff.
"III. BREACH OF DUTY
"[North American] presented no evidence at
trial that it disclosed to Plaza the proposed payment to Mr. Peregrino. The payment was not recorded on the estimated
HUD-1. Plaza was not advised about the
payment to Mr. Peregrino until [it] saw it in the final HUD-1 which was not
sent to [it] until three days after the loan closed and [North American] had
disbursed all the funds. Based upon this
evidence, the Court finds that [North American] breached the Closing
Instructions Contract.
"IV. CAUSATION
"Plaza carried the burden of proving that its losses were caused
by [North American's] breach of contract.
According to Plaza's evidence, Plaza would have unwound the loans if it
had learned of the planned payment of $53,853.00 to Mr. Peregrino before all
the funds were disbursed. Plaza's CFO
testified he would have contacted Wells Fargo and unwound the loan transaction
and gotten the money back from Wells Fargo.
Plaza had done it in the past and the CFO testified it could have been
done in this case. The Court finds the
testimony of plaintiff's CFO and expert both to be credible in this
regard. At the very least, Plaza could
have frozen the money still in [North American's] Account ($313,204.56) and
mitigated its loss.
"Despite evidence presented by [North American] as to the risky
nature of the loans to Mr. Aleta, three of the five trial witnesses (Fontaine,
Johnson, and Jacobs) concurred that the types of loans in question were common
in the industry in 2007, that billions of dollars of such loans were made by
lenders of all types, and that some of the red flags could not have been known
by the lender until after the loans
closed. [North American's] expert opined
that Plaza was a victim of loan fraud, that loan fraud occurs in spite of a
lender's exercise of due diligence, and that Mr. Aleta had all the
characteristics of a typical loan fraudster called the 'straw buyer.'
"Plaza does not have to prove that [North American's] breach was
the only cause of its loss; where, as
here, there are several contributing causes for the loss, Plaza must prove
[North American's] breach was a substantial
factor.
"[']In all
cases involving problems of causation and responsibility for harm
. . . the plaintiff's total injury may have been the result of many
factors in addition to the defendant's tort or breach of contract. Must the defendant pay damages equivalent to
the total harm suffered? Generally the
answer is Yes, even though there were contributing factors other than his [or
her] own conduct. . . .
In order to establish liability the plaintiff must show that the
defendant's breach was a "substantial factor" in causing the
injury.['] [¶] Bruckman
v. Parliament Escrow Corp. (1987) 190 Cal.App.3d 1051, 1063.
"Plaza has met this burden of proof: [North American's] breach of contract was a
substantial factor in the cause of Plaza's damages.
"If [North American] had forewarned Plaza while [North American]
was still in possession of $313,204.56, Plaza would have frozen those funds and
mitigated its losses. The purpose of the
closing instructions was to permit Plaza to dictate who got paid what, and the
purpose of [North American's] duty to disclose was to allow Plaza to approve
any disbursement changes. [North
American's] failure to alert Plaza, as it should have, did cause Plaza to lose
the opportunity to intercept the fruits of the fraud before they were disbursed
to the Fraudsters. [North American's]
contractual duty to give notice was Plaza's last line of defense against a
fraudulent loan.
"V. DAMAGES
"Plaza's damages are
$313,205.56. Had Plaza been given notice
of the Peregrino payment before [North American] disbursed all the funds, Plaza
could have frozen [North American's] escrow account and mitigated its
losses. If the closing instructions are
to have any effect at all, they must permit the lender to prevent the giveaway
of monies to parties not previously approved.
Failing to hold [North American] liable for this breach would, in
effect, reward it for creating the 'legal holiday' noted by the Court of
Appeal.
"VI. DECISION
"The Court awards Judgment to Plaza Home Mortgage, Inc. and
against North American Title Company in the amount of $313,205.56 plus interest
from September 26, 2007 and allowable costs.
"IT IS SO ORDERED."
DISCUSSION
I
North American first contends there is insufficient evidence in the
record to support the finding that if it
had advised Plaza of the last-minute escrow instruction, Plaza could have
unwound the loan transaction.
A. Standard
of Review
"Under
the substantial evidence standard
of review, 'we must consider all of the evidence
in the light most favorable to the prevailing party, giving it the benefit of
every reasonable inference, and resolving
conflicts in support of the [findings].
[Citations.] [¶] It is not our task to weigh conflicts and
disputes in the evidence; that is the province of the trier of fact. Our authority begins and ends with a
determination as to whether, on the entire record, there is any
substantial evidence, contradicted or uncontradicted, in support of the
judgment.'" (ASP Properties
Group, L.P. v. Fard, Inc. (2005) 133 Cal.App.4th 1257, 1266.)
B.
Plaza's CFO Michael Fontaine testified as
follows:
"Q. [Plaza's counsel] Now, if at the point in time, March 2, North
American was given the instruction by the seller to pay [$]53,000-plus dollars
to Mr. Peregrino, if Plaza had been advised of that on [Friday] March 2, what
steps could Plaza have taken to protect itself?
"A. [Fontaine] We would have told them to stop the
transaction.
"Q. Is that something that
happens from time to time?
"A. Yes, it has happened.
"Q. What's involved in
that?
"A. We would notify the
settlement agent [e.g., North American] to not disburse funds that were there
in [its] possession, if any, and if not, if they had already disbursed
everything, we would tell them to unwind the transaction.
"Q. Has Plaza been able to
do that in the past?
"A. Yes.
"Q. Did Plaza have any
type of a business relationship with the lienholder [of the real property]?
"A. Yes.
"Q. That was Wells
[Fargo]?
"A. Correct.
"Q. What was the business
relationship between Plaza and Wells [Fargo] at that time?
"A. Wells Fargo is an
investor we sell a pretty large amount of our loans to.
"Q. At that time?
"A. Yes."
North American contends the above testimony merely shows that Plaza
would have told North American to
unwind the transaction, but it does not support the finding that Plaza
Indeed,
the court—sitting as trier of fact—also found that had Plaza known of
the kickback to Peregrino, it would have taken steps to stop the loan, as opposed to unwind it, and, at a minimum, frozen
the assets then in North American's possession/account. In making this finding, the court found the
testimony of Fontaine credible. As a
court of review, we do not reweigh the evidence or
evaluate the credibility of witnesses, but rather defer
to the trier of fact. (See Lenk v. Total-Western, Inc. (2001) 89 Cal.App.4th 959, 968; see
also Howard v. Owens Corning (1999)
72 Cal.App.4th 621, 631.) We
conclude this finding is supported by
substantial evidence in the record, as shown by the above testimony of
Fontaine.
In addition, we note that because North American failed to notify
Plaza of the change in escrow, Plaza in fact lost the opportunity to stop the
transaction because by the time Plaza was informed of the unauthorized $53,853
payment to Peregrino, North American already had distributed the loan proceeds
in its possession/account. As the trial
court noted, North American's contractual duty to give notice was Plaza's last
line of defense against a fraudulent loan.
Thus, to the extent that North American complains there is
insufficient evidence in the record to support the finding that Plaza could
have stopped this specific loan
transaction, we conclude the lack of such evidence was a direct result of North
American's breach of the closing instructions contract. (See GHK Associates v. Mayer Group, Inc.
(1990) 224 Cal.App.3d 856, 873–874 ["[D]amages may be computed even if the
result reached is an approximation," particularly "where
. . . it is the wrongful acts of the defendant that have created the
difficulty in proving the amount of loss . . . ."].)
In addition, the instruction to pay Peregrino $53,853 raised a red
flag in this particular loan transaction because the instruction came so late
in the process, after the loan had funded, the lienholder had been paid and the
balance of the remaining loan proceeds were in North American's
possession/account. Moreover, as the
trial court noted, the payment to Peregrino raised even more suspicions because
the seller already had agreed to pay $10,000 towards the buyer's closing costs,
and thus any additional payment to the buyer (or his agent) suggested the sale
of the real property may not have been an arm's length transaction. Under these circumstances, we conclude there
is substantial evidence in the record to support the finding that had Plaza
been timely notified of the requested payout to Peregrino, Plaza would have taken
steps to investigate the transaction for potential mortgage fraud.
We thus conclude substantial evidence supports the finding of the
trial court that had North American fulfilled its contractual duty under the
closing instructions, at a minimum, Plaza could have moved to stop the loan
transaction and frozen the remaining loan proceeds then in the
possession/account of North American.
II
North American next contends that, as a matter of law, Plaza's damages
should be limited to $53,853—the amount of the unauthorized payout to
Peregrino. As noted ante, the trial court awarded Plaza damages of $313,205.56, which
was equal to the entire amount
name="_ftnref1" title="">[1] that was
in North American's possession/account when it received the last-minute escrow
instruction authorizing the payout to Peregrino.
A. Governing Law
Civil Code section 3300 sets forth the standard measure of damages in
an action for breach of contract. It provides:
"For the breach of an obligation arising from contract, the measure
of damages, except where otherwise expressly provided by this code, is the
amount which will compensate the party aggrieved for all the detriment
proximately caused thereby, or which, in the ordinary course of things, would
be likely to result therefrom."
(Civ. Code, § 3300.) "Damages are awarded in an action for
breach of contract to give the injured party the benefit of his [or her]
bargain and insofar as possible to place him [or her] in the same position he
[or she] would have been in had the promisor performed the contract. [Citations.]
Damages must be reasonable, however, and the promisor is not required to
compensate the injured party for injuries that [the promisor] had no reason to
foresee as the probable result of his [or her] breach when he [or she] made the
contract. [Citations.]" (Coughlin
v. Blair (1953) 41 Cal.2d 587, 603.)
"Where the fact of damages is certain, the amount of
damages need not be calculated with absolute certainty. [Citations.]
The law requires only that some reasonable basis of computation of
damages be used, and the damages may be computed even if the result reached is
an approximation. [Citation.]"
Group, Inc., supra,
224 Cal.App.3d at pp. 873-874.)
B. Brief Additional Background and Analysis
Plaza at trial submitted evidence of losses totaling $441,461.89 based
on North American's breach of contract.
Specifically, Plaza sought to prove its damages by subtracting the
proceeds from the sale of the subject property ($716,153.13) from the loan
amount ($1.1 million), and then adding in additional sums it spent in
connection with the subject property including: interest payments on money it
had borrowed to fund the loan ($54,480.01), property insurance ($2,750) and
various other miscellaneous costs (e.g., utility payments while it held the
property) to arrive at its damage figure of $441,461.89.
Here, we conclude the trial court did not err when it awarded Plaza
damages that were less than the
difference between the proceeds from the sale of the subject property and the
loan amount (e.g., $1.1 million, less $716,153.13, or $383,846.87). (See GHK Associates v. Mayer Group, Inc., supra, 224 Cal.App.3d at p.
873.)
As we noted ante, the
seller's last-minute instruction to North American to pay Peregrino $53,853 was
a clear signal that the entire loan transaction was potentially
fraudulent. If North American had
fulfilled its contractual obligation and timely disclosed the payoff, Plaza at
least would have had the opportunity to investigate further the loan and freeze
the proceeds then in North's American possession/account to determine whether
the sale of the subject property was the product of an arm's length transaction
between the buyer and the seller.
That $53,853 was the actual amount of the payoff to Peregrino that North
American failed to disclose to Plaza does not change our conclusion regarding
the court's damage award. Under Civil
Code section 3300, Plaza was entitled to damages equal to "all the
detriment proximately caused" by North American's breach of the closing
instructions contract. In this case, the
detriment was not merely the unauthorized payoff to Peregrino, but rather the
fact that the last-minute change in escrow instructions by the seller was a
clear signal that something might be
amiss in connection with this loan, namely that the buyer and the seller were
not dealing in a bona fide, arm's length transaction (e.g., mortgage
fraud).
We recognize that in the end, both Plaza and North American were
victims of a fraudulent transaction involving a loan that both parties admit
was risky, but nonetheless was not uncommon at the time the loan was made. However, as the settling agent of the loan,
North American undertook a contractual duty to notify Plaza of any changes to
the escrow instruction and not to distribute loan proceeds that were not
reflected on the estimated HUD-1. Given
North American's potential exposure based on such an obligation, North American
could have, but did not, limit its liability by including in the closing
instructions contract a limitation of liability clause, which "have long
been recognized
California" under certain conditions.
(See Markborough California, Inc.
v. Superior Court (1991) 227 Cal.App.3d 705, 714.)
DISPOSITION
The judgment is affirmed. Plaza is awarded its costs on appeal.
BENKE, Acting P. J.
WE CONCUR:
HALLER,
J.
O'ROURKE,
J.
name="_ftn1" title="">[1] In fact, the record shows the court's damage award was a
dollar more than the entire amount of loan proceeds held by North American for
distribution.
