FindLaw |

Find a Lawyer. Find Answers.

Banks Escape Liability in Mortgage Scam Suit

A federal judge in Philadelphia has dismissed a suit alleging two banks are responsible for the activities of a mortgage broker who stole borrowers' loan payments.

U.S. District Judge James Giles ruled April 10 that Countrywide Home Loans Inc. and SunTrust Mortgage Inc. were not responsible for nonparty mortgage broker Wesley Snyder's theft of loan payments.

Douglas A. and Andrea M. Jones sued Countrywide and SunTrust in September in the U.S. District Court for the Eastern District of Pennsylvania after learning that Snyder had been perpetrating a fraudulent scheme with their mortgage payments.

According to the opinion, Snyder helped the Joneses take out mortgages on two properties from the defendant banks.

The plaintiffs said they made their monthly loan payments directly to Snyder, who they believed held the mortgages and credited the payments against the balances due.

The Joneses allegedly learned that Snyder had been running a fraud scheme when he filed for bankruptcy in September 2007.

They said the broker did not properly credit all their payments to their mortgages and instead used some of the funds to cover other clients' monthly mortgage payments and for his personal expenses.

After Snyder filed for bankruptcy, the plaintiffs determined that Countrywide and SunTrust actually held their mortgages, the suit said.

The banks allegedly began demanding duplicates of payments the Jones already had sent to Snyder.

The plaintiffs claimed that Snyder had been acting as the loan servicing agent for the banks and that the institutions knew they made the payments directly to him.

The banks violated the Real Estate Settlement Procedures Act by failing to credit the Joneses for the payments they made to Snyder, who acted on the banks' behalf, the suit said.

RESPA sets forth the duties of loan-servicing entities.

The plaintiffs further alleged that Countrywide and SunTrust failed to supervise Snyder to make sure he was handling the payments properly.

They sought a court order directing the banks to credit their loans with the payments made to Snyder.

The banks moved to dismiss, arguing that the suit failed to state a claim for relief. They said Snyder did not work for them as a loan servicer, so they were not obligated to supervise him.

Judge Giles granted the dismissal motion, saying the terms of the plaintiffs' mortgage documents established the proper identity of the loan-servicing entity, that is, Countrywide or SunTrust, and that payments were to be sent to them.

The banks are the loan servicers and did not employ Snyder as their servicing agent on the loans, Judge Giles said. As a result, neither bank had a responsibility to supervise him, the judge said.

To comment, ask questions or contribute articles, contact West.Andrews.Editor@Thomson.com.