Opinion ID: 6444
Heading Depth: 2
Heading Rank: 2

Heading: The Closing Transactions

Text: 4 The unit purchases were closed by Stewart. Many of the investors purchased multiple units which were closed in simultaneous closings. As part of its closing instructions, Congressional directed Stewart to provide, inter alia, executed HUD-1 settlement statement forms summarizing the closing transaction. Congressional did not instruct Stewart to verify the payments of earnest money deposits, which were equal to 10% of the purchase price. Nor did it require that Stewart ensure execution of the escrow agreement. Instead, Congressional provided Stewart with executed Contracts of Sale (the contracts) and signed Federal National Mortgage Association Affidavits of Purchaser and Vendor (the FNMA affidavits) showing that the earnest money deposits equal to ten percent of the purchase price had been paid directly to the seller. These documents also specifically recited that no secondary financing had been obtained on the properties and contained an agreement that: 5 If this loan exceeds 80% of the appraised value of the purchase price of the property ... no lien or charge upon such property has been given or executed or has been contracted or agreed to be so given or executed by the Property Purchaser to any person, including Property Vendor, except for (1) liens disclosed in [the financial terms portion of the affidavit], or (2) liens or charges which will be discharged from the proceeds of subject mortgage. 6 As noted above, Congressional had agreed to finance 90% of the purchase price, and so this provision was applicable. As part of the closing instructions, Stewart was directed to notarize the FNMA vendor/purchaser affidavits and return them to Congressional. 7 At closing, Stewart's escrow agent, Marilyn Baker (Baker), finalized the HUD-1 statements, which HGIC and United Postal claim showed that the earnest money deposits had been paid at settlement. 3 Baker followed the closing instructions given by Congressional, including notarizing the FNMA affidavits and issuing checks to HGIC for the mortgage insurance premiums, and returned the documents to Congressional for final review before disbursement of the funds, as she was directed to do. Upon receipt of the documents, Congressional then made the final distribution of funds, executed the final certificates of insurance, and, according to HGIC, submitted the executed certificates and FNMA affidavits to HGIC. 8 Prior to closing, the purchasers apparently executed promissory notes in favor of the developer or its subsidiary which operated as second liens. These notes represented the 10% earnest money/downpayments which had never been paid. At various times outside of the closings, Baker was presented with these second lien deeds of trust. Baker testified at her deposition that the sales representatives and borrowers who presented the documents for notarization were also involved with other condominiums in the area which she did not close. Baker notarized the documents, and they were subsequently recorded in March of 1984, several months after the closings (the second liens). 9 Shortly after the closings, on December 21, 1983, United Postal purchased sixty-eight of the mortgages from Congressional and succeeded to the mortgage insurance provided by HGIC covering those loans. Subsequently, the buyers mass-defaulted on their first payments due under the mortgages, and United Postal made claims upon HGIC under the policies.