Network Firm News

Wednesday, December 05, 2007

Client recovers "every penny" of subprime mortgage loan loss

An Akerman Senterfitt trial team led by shareholders Jim Miller and Scott Rostock recently received a $7+ million jury verdict in federal court in Miami for the defendant in a lender liability lawsuit. Akerman's client, Gateway Bank, FSB ("Gateway Bank"), recovered 100% of its loss under a repurchase agreement on a portfolio of 35 subprime mortgage loans.

Gateway Bank is a federal savings bank based in San Francisco, California. Under its proprietary program known as “Quick$ale,” Gateway Bank provides warehouse lending to licensed mortgage bankers to fund residential mortgage loans. Under this program, Gateway Bank funds loans (“Quick$ale loans”) that it has pre-approved and that the mortgage lender has already arranged for purchase by a designated takeout investor.

In June 2005, Gateway Bank and Beacon Financial Mortgage Bankers Corp. (“Beacon”) entered into a contract under which Gateway Bank would fund certain eligible residential mortgage loans originated by Beacon with the loans to be sold to takeout investors pre-arranged by Beacon within forty-five (45) days. Beacon’s principal, Juan Carlos Blanco (“Blanco”), executed a written guaranty in favor of Gateway Bank which unconditionally guaranteed Beacon’s obligations to Gateway Bank under the agreement.

In April 2006, Gateway Bank and Beacon entered into a second contract under which Gateway Bank was afforded the option to act as the takeout investor and purchase certain fully funded mortgage loans from Beacon that met Gateway Bank’s eligibility requirements.

In August 2006, Beacon preemptively filed suit against Gateway Bank in state court, alleging that Gateway Bank breached the second agreement. Gateway Bank removed the action to the United Stated District Court for the Southern District of Florida and subsequently asserted counterclaims against Beacon and Blanco. Gateway Bank alleged that Beacon breached both agreements and alleged that Blanco breached his personal guaranty. Beacon sought damages of approximately $20 million from Gateway Bank, while Gateway Bank sought damages of approximately $7 million from Beacon and Blanco.

After a seven-day jury trial before District Judge Cecelia Altonaga, on November 6, 2007 the jury returned a verdict in Gateway Bank’s favor on all counts after deliberating for only thirty (30) minutes. Specifically, the jury found that Gateway Bank was not liable for breach of the second agreement, found Beacon liable on for breach of both agreements, and found Blanco liable for breach of his personal guaranty. The jury awarded Gateway Bank the full amount of damages sought -- $7+ million.

In closing argument Miller asked the jury to award Gateway Bank the full amount of its damages, including the final penny. "Don't forget the penny," Miller requested. "It's up to you to enforce these contracts, and every penny is owed to my client under them." The jury awarded Gateway Bank $7,063,166.01.

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