Court Opinion

ID: 6846029
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:29:20.548269+00
Date Added: 2024-06-11T16:04:58.684551
License: Public Domain

CHASE, Circuit Judge
(dissenting).
In doing that portion of its business which it claims gives it the standing of an insurance company for purposes of taxation, the plaintiff uses some of the language of insurance and of bargain and sale to put into being what seems to me, at least, no more than the obligation of a borrower on collateral security toward its so-called purchasers of mortgages. It has painted a word picture that creates an illusion of insurance, but the language is so transparent that it should not be allowed to obscure the real obligations assumed.
What this plaintiff really does is to lend money, in the first instance, on the security of real estate first mortgages which it approves and is paid by the borrower for approving. It then becomes necessary for it to tap the reservoir of money controlled by the investing public to replenish its funds for use for additional lending on first mortgages on real estate. To do this, it goes through the form of selling all, or a share only, of a mortgage it holds to some one who is willing to invest money at a rate of return one-half of 1 per cent, less than the plaintiff receives on its mortgage. In this way, it gets back the face amount of its mortgage in cash, often, if not always, more than it has withdrawn from its own funds to take the mortgage, as the fees charged its borrower have been deducted from the face of the loan it has made, and retains all its rights under the mortgage it appears to sell, including, of course, the sole right to collect both principal and interest. It has merely subjected the mortgage to reach by the “purchaser” in the event only that the plaintiff ultimately fails to repay that “purchaser” as it has promised. There can be no such default by.»the plaintiff until the expiration of a period of grace after the due dates of the mortgage both as to principal and interest; that is, its own obligation *107is fixed in time by a reference to tbe due dates of the mortgage. But, if it does not pay as it has agreed, it is as much in default if the mortgage has been fully paid and discharged as if it has not.
Although use is made of an elaborate verbal means to bring in the money the plaintiff uses in its business and it collects fees and “premiums” as the successive steps are taken both to place money on real estate loans and to obtain money to be so placed, the insurance business, which my brothers see so clearly, appears to me to be only an investment business disguised as insurance. Because of its own high credit and the borrowing power resulting from that, the plaintiff can, and does, become a borrower itself to the extent of the full face value of the mortgage it has obtained in making its loan and at a lower rate of interest than its own borrower has to pay, and this, upon no additional security than that of the mortgage it holds. Mere enlargement of business and the multiplication of such transactions can neither serve to spread the risk nor result in insurance of any kind, unless it can be said that the credit of a large and frequent borrower who makes a business 9f lending the money borrowed is for that reason alone better than the credit of one whose transactions of that nature are comparatively small and few; and so-, for some reason I cannot perceive, one who lends to the former gets some kind of insurance by volume. What one of the plaintiff’s “purchasers” gets is the promise of the plaintiff to pay unconditionally and this absolute obligation, unrelated to any default by the mortgagor, accrues merely with the lapse of time. The financial responsibility of the plaintiff is fortified by the security of the mortgage. Whatever recognition of the rights of a purchaser of a mortgage are first written into the contract, the plaintiff calls a policy and gives to those from whom it obtains money to use in its business are all written out before the end. The result is that a policyholder has only the’primary obligation of the plaintiff to repay the principal of the loan it has received; to pay the agreed rate of interest on it; and, by operation of law, the right to look to the collateral security of the mortgage if the plaintiff defaults.
The taxes the plaintiff has already paid were lawfully assessed and collected.
I would reverse the judgment and remand, with directions to enter judgment for the defendant.