Stockwatch: Bitter home loan legal battlesXceed Mortgage in bitter home loan legal battles
2005-09-28 14:49 ET - Street Wire
by Stockwatch Business Reporter
Xceed Mortgage Corp. has come up significantly short on two properties that it provided financing for because the borrowers and a good portion of the money it advanced have vanished. In search of a remedy, the lender to "credit-challenged borrowers" has given chase to a lawyer, Solomon Orjiwuru, and two property appraisers, one for each problem mortgage. Xceed filed two statement of claims against Mr. Orjiwuru and the appraisors on March 16 and April 7, which were reported in Stockwatch on April 11. Now the aggrieved solicitor has responded with two statements of defence and crossclaims against the appraisors, which he filed in Toronto on July 22. As well, the co-defendants have filed their statements of defence and crossclaims.
First case
In Xceed's first statement of claim it charges Mr. Orjiwuru and appraiser Brigitte Shaw with negligence and breach of contract in connection with a $353,115 five-year mortgage registered on a property located at 267 Memorial Dr. in Brantford, Ont., dated Feb. 13, 2004. Xceed was the mortgagee, and Anthony Barret and Morris Forbes were the borrowers. The plaintiff hired Mr. Orjiwuru to act on its behalf as mortgage lender to the buyers. The statement of claim notes that Mr. Orjiwuru had a dual retainer, in that he represented both the purchasers and the mortgagee. Dorma Stephenson was the vendor in the deal. In his defence statement Mr. Orjiwuru says he has no truck with these claims. He says, however, he was hired by Xceed in January, while the plaintiff claims early February.
After the loan went into default on April 1, 2004, Xceed discovered that Mr. Forbes and Mr. Barrett had not entered "into the Mortgage" and were not "liable for the Deficiency as covenantors under the Mortgage." Xceed claims Mr. Orjiwuru did not verify the identities of his borrowing clients, Mr. Barrett and Mr. Forbes. No way, says Mr. Orjiwuru, claiming he acted as a good lawyer should "in the circumstance and denies that he was negligent in the performance of his duties." He notes that he sought and obtained personal identification of the buyers at the time he met with them to sign the closing documents.
Xceed alleges that it later discovered that the vendor, Ms. Stephenson, was flipping the Memorial Dr. property to Mr. Barrett and Mr. Forbes. Xceed alleges Mr. Orjiwuru knew the property was being flipped and that he failed to disclose this information. The defendant counters saying that in preparation for closing he conducted a subsearch of title to the property and discovered that it was not registered in the name of Ms. Stephenson and that he did in fact inform the plaintiff of the situation. Mr. Orjiwuru alleges that the lender to customers with poor or non-existent credit histories then instructed him to "proceed to close the transaction as long as the vendor became the registered owner of the Property prior to completing the purchase transaction." "In accordance with these instructions" Mr. Orjiwuru says he "confirmed with with the solicitor for the vendor that the vendor became the registered owner prior to closing." He denies that he was aware of the dollar amount that Ms. Stephenson had bought the property for as Xceed alleges he did.
Somebody made a nice piece of coin on this flip, about $75,000. Ms. Stephenson allegedly closed on the property for $274,000 ahead of selling it to the soon-to-vanish buyers later the same day for $353,115, an amount equal to what the plaintiff advanced as a first mortgage.
The solicitor defendant says Xceed, "at all time," was relying upon the co-defendant Brigitte Shaw to determine the property's worth and that "he had no duty or obligation to conduct investigations into the value of the Property."
Mr. Orjiwuru insists that if Xceed did suffer damages, "which is not admitted and is expressly denied," it was the result of the plaintiff's failure to take "regional" steps to mitigate the damages. As well, he notes that Xceed is in the business of providing alternative mortgage financing for 100 per cent of the purchase price without requiring downpayments from the purchasers. Accordingly, "the alleged mortgage deficiency or a large part therefore was caused by the risky nature of the transaction which the Plaintiffs chose to enter into and were not caused by any alleged negligence."
Mr. Orjiwuru says he therefore requests the claim against him in the matter of the Memorial Dr. property be dismissed with "costs on a substantial and indemnity basis."
Orjiwuru crossclaim
In his crossclaim Mr. Orjiwuru seeks to have co-defendant Brigitte Shaw, a professional real estate appraiser working in Brantford, Ont., pay any and all amounts that he might be held payable for by the plaintiff. He states that he "pleads and relies upon the allegations made against the co-defendant in the Statement of Claim."
Shaw defence
Ms. Shaw had been hired by Xceed to give it an appraisal of "fair market value" for the Memorial Dr. property in January, 2004. She says she was hired by Discount Mortgage Corporation on behalf of the plaintiff to perform an appraisal. The so-called sub-prime lender charges that Ms. Shaw "erroneously and significantly" overstated the value of the property, which she pegged at "$360,000 rounded." The Toronto Stock Exchange listed company claims that Ms. Shaw failed to exercise the degree of skill expected of a person "holding themselves out as accredited Appraisal Institute of Canada appraisers." Ms. Shaw, however, claims her appraisal report was "proper, reasonable and accurate." She states she performed her duties "without negligence and due care and attention" as any "prudent" appraiser would do.
Xceed insists, however, that the loss it incurred "could have been avoided had the defendants acted with the necessary prudence, caution and diligence." Xceed claims damages from the defendants in an amount equal to the deficiency owing under the mortgage, plus interest. Ms. Shaw denies that the Toronto-based company relied on her appraisal report for the purpose of advancing the mortgage. She say her appraisal report was only one component of necessary underwriting, others being a reliance upon the referring mortgage broker, reputation of the realtors involved, the ability of the borrowers to service the debt incurred and that the mortgage would be properly registered so as to ensure the loan was legitimate and the mortgagor would be protected. Ms. Shaw further notes that Xceed is a "sophisticated lender" and "understood the nature and condition of the Property and had its own conceptions concerning value of the Property which gave it the requisite comfort to make the loan."
Ms. Shaw denies that Xceed has a suffered a loss. She says if it has suffered a loss, "which is not admitted but is denied, such loss is vague, excessive, remote and unrecoverable at law. In the further alternative, the Plaintiff has failed to mitigate its loss." If the home mortgage company has suffered a loss, which Ms. Shaw denies, it has only itself to blame and she lists nine reasons why this is so. She states the lender relied on "erroneous" assumptions making an "imprudent" loan to "borrowers who were not appropriate for receiving such loans." She says Xceed "engaged solicitors who were negligent." It relied on representation made by the borrowers without making sufficient investigation. The plaintiff handed money over in excess of what a prudent mortgage broker would advance. Xceed failed to properly underwrite the mortgage and failed to verify the ability of the house buyers to meet obligations under the loan. As well, she states that Xceed "imprudently" sold the property and has "failed to pursue those responsible for the fraud perpetrated by the borrowers and others."
Ms. Shaw further states that Xceed made the loan through its agent, co-defendant Mr. Orjiwuru, "for whose actions the Plaintiff is responsible." She says she adopts those allegations made by Xceed against Mr. Orjiwuru.
Shaw crossclaim against Orjiwuru
The appraiser claims against Mr. Orjiwuru "indemnity for any loss attributed to" her and costs of the "main action and of this crossclaim." Ms. Shaw says she relies upon the allegations set out in Xceed's statement of claim.
Ms. Shaw seeks to change the venue of the trial to Brantford.
Representing her in this case is lawyer Mark R. Frederick.
Second case
In response to Xceed's second statement of claim against Mr. Orjiwuru, and its first against co-defendant appraisers William Hopkins, Harry Wilde and Hopkins-Lewis Ltd., the twice accused solicitor admits in his statement of defence to having been retained by Xceed with respect to mortgage financing in favour of Junior Taylor to purchase 16 Gailmount Crt., Brantford, Ont., and to also being retained by the borrower.
Also making a second appearance is Dorma Stephenson. She is identified as the seller to Mr. Taylor, the very same person who allegedly flipped 267 Memorial Dr. to Mr. Barrett and Mr. Forbes. The Gailmount mortgage, $192,400, was granted by Xceed and thought to have been registered on title on Feb. 3, 2004. The loan went speedily into "unremedied default" on March 1, 2004. The alternative lender sold the property under power of sale for $162,500 on Aug. 17, 2004, and ended up in the hole to the tune of $54,988.
Early in the Gailmount saga, the unhappy financial institution discovered that Mr. Taylor "did not enter into the Mortgage and is accordingly not liable for the Deficiency."
Xceed charges that Mr. Orjiwuru failed in his duty to the mortgagee to ensure that all documents trusted to his control were properly executed by "verifying the identity of the individual that attended before him." Xceed claims that Mr. Orjiwuru "did not obtain and review proper photo and other identification from the borrower."
The plaintiff further maintains that Mr. Orjiwuru was in breach of his duty to Xceed by failing to disclose information in his possession that the mortgagor's vendor, Ms. Stephenson, had bought the Gailmount property for $145,000 earlier the very same day as Mr. Taylor was purchasing the property. "Although Orjiwuru had this important information in his file prior to completing the Mortgage transaction, he failed to disclose it to his client, Xceed."
In his defence filing the charged solicitor insists he acted as a prudent lawyer should "in the circumstances" and denies any negligence in the performance of his duties. He claims he sought and obtained Mr. Taylor's personal identification at the time he met with him "to execute the closing documentation."
Mr. Orjiwuru states that he did a subsearch of the title to the Gailmount property and discovered it was not registered to Ms. Stephenson. Upon making this discovery he claims he advised Xceed of the situation and was told to proceed to close the transaction as long as the vendor became the registered owner of the property before closing. The defendant further states that he was specifically advised by the plaintiff that it had obtained an appraisal on the property and was satisfied with the determination of value. In accordance with the plaintiff's instructions, Mr. Orjiwuru says he confirmed with Ms. Stephenson's solicitor that she had become the registered owner prior to closing. Mr. Orjiwuru also denies that he was aware of the price, $145,000, that Ms. Stephenson was paying for the Gailmount property
At all times, Mr. Orjiwuru alleges, Xceed was relying on the co-defendants to satisfy themselves as to the value of the property. He claims he had no duty or obligation to conduct an investigation into the worth of the property.
The accused solicitor states that the claim for damages is excessive, and if indeed Xceed did suffer damages, "which is not admitted and is expressly denied," the plaintiff failed to take steps to mitigate such damages. Mr. Orjiwuru states that the alleged mortgage deficiency was caused by the risky nature of the deal which the plaintiff chose to enter into and were not caused by any alleged negligence.
Mr. Orjiwuru seeks to have this action against him dismissed.
Orjiwuru crossclaim against appraisers
In his crossclaim Mr. Orjiwuru seeks to have co-defendants William Hopkins, Harry Wilde and Hopkins-Lewis Ltd., professional real estate appraisers, pay any and all amounts that he might be held payable for by the plaintiff. He states that he "pleads and relies upon the allegations made against the co-defendants in the Statement of Claim."
Appraisers defence
In their statement of defence and crossclaim, Mr. Hopkins, Mr. Wilde and Hopkins-Lewis Ltd. (HWL) state they were hired by Discount Mortgage Corp. on behalf of Xceed to appraise the Gailmount property in January, 2004. They determined the property was worth $183,000.
Xceed charges that the appraisers "significantly" overstated the value of 16 Gailmount in their written report, and, in doing so, "failed to exercise the degree of skill expected of professional appraisers." HWL counter that their appraisal report was "proper, reasonable and accurate ... and compiled without negligence ... in accordance with the standards of reasonable and prudent appraisers."
HWL state that if the plaintiff suffered a loss, which they do not admit but deny, such loss is due to the non-traditional lender's negligent conduct in making and administering the mortgage. HWL state that Xceed made its own erroneous lending assumptions. The appraisers insist Xceed encouraged poor lending practices, making it susceptible to fraud. They claim the mortgagee "engaged solicitors who were negligent." They further claim the plaintiff did not investigate the representations made by the borrowers sufficiently. HWL state that Xceed's staff failed to properly underwrite the mortgage and failed to verify the ability of the borrowers to meet obligations under the loan.
HWL argue the loan should never have been made given the apparently fraudulent circumstances surrounding its making.
Appraisers crossclaim
HWL claim against the the defendant Mr. Orjiwuru contribution and indemnity for any loss attributed to them. HWL maintain that any loss was "occasioned by the negligence of Orjiwuru and by the negligence of the Plaintiffs." HWL say they rely upon the allegations set out in the statement of claim as against Mr. Orjiwuru.
HWL seeks to have this case tried in Brantford.
For both suits acting for the plaintiff and defendant are lawyers David S. Ward. and M. Scott Martin. Representing HWL is solicitor Mark R. Frederick.
Mr. Orjiwuru has not been found guilty of any wrongdoing in a court of law. His response to accusations made against him in the two crossclaims will be covered by Stockwatch when he files them.