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Note: Beginning in October 2005, Michael Osmon, Kela Holmes, Craig Dimond, Tony Denardo, and Marcus Bancroft (Collectively, Fraudsters) promised Cynthia Louise Brown (Victim) that they would obtain a standby LC in the amount of USD 15,000,000 for a fee of approximately USD 500,000. Upon receiving the fee, Fraudsters were to have 21 banking days to obtain the standby LC. Relying on these representations, Victim paid Fraudsters USD 20,000 and obtained a USD 500,000 secured loan from New Century Mortgage (Lender 1).

At closing, Lender 1 mistakenly paid off Victim’s outstanding USD 370,000 mortgage on her home. Victim then paid USD 98,000 of the loan proceeds to Fraudsters. Victim then obtained an advance of USD 380,000 from one of the Fraudsters which was used to reduce the Fraudsters’ fee and signed a promissory note agreeing to pay Fraudster USD 380,000 and a deed of trust pledging her residence as collateral for the advance.

Afterwards Victim obtained a secured loan for USD 880,000 from Home Loan Mortgage Corp. (Lender 2) in order to pay off the note. Loanlenders of America, Inc. (Broker), a mortgage loan brokerage firm operating under the license of Martin Foigelman (Broker Licensor) acted as the broker for Lender 2’s loan. After the closing, The Bank of New York Mellon (Lender 3) purchased the note and deed of trust securing Lender 2’s loan. The proceeds of Lender 2’s loan was used to pay off Lender 1’s loan and the advance money note to Fraudster.

Applicant never received the standby LC from Fraudsters. In total, Applicant was defrauded of approximately USD 500,000.

Victim filed an original complaint against Lender 3 on 31 October 2008 for cancellation of instruments and to quiet title on the property which did not name Broker and Broker Licensor. Victim amended the complaint on February 24th, 2009 adding Broker and Broker Licensor for eight causes of action (1) fraud; (2) breach of fiduciary duty; (3) willful misconduct; (4) tortious interference with economic advantage; (5) broker, lender, escrow misconduct; (6) cancellation of instruments; (7) conversion; and (8) quiet title. After several rounds of demurrers and amendments, Victim proceeded to trial on her fifth amended complaint. At trial, the Superior Court of Orange County, William, J. granted summary judgment for all defendants. On appeal, the Court of Appeal of the State of California, Fourth Appellate District, Division Three, Ikola, J., affirmed.

The trial judge had noted that “[i]t didn’t seem like [Lender 3 or its predecessors in interest] did anything wrong. They just happened to fund a loan for [USD] 880,000.” Broker and Broker Licensor did not claim any interest in Victim’s instruments or title and were granted summary judgment on the claims of cancellation of instruments and quiet title. The judge concluded that there was substantial evidence that Victim had failed to file suit against Broker and Broker’s Licensor within the three year statute of limitations after Victim discovered the factual circumstances of Fraudster’s conduct. The judge subsequently denied Victim leave to file a sixth amended complaint.

The Appellate Judge affirmed the summary judgment because there was no evidence that Lender 3 or its predecessor, Lender 2, were involved in the fraud and because Victim signed the note and deed of trust without forgery. The Appellate Jourt also noted that the statute of limitations had run for Broker and Broker Licensor since it “begins to run when the plaintiff has information which would put a reasonable person on inquiry.”

[GJL/MJK]

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.