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MID America Mortgage Inc v. United Security Financial Corp.

United States District Court, N.D. Texas, Dallas Division

July 12, 2019

MID-AMERICA MORTGAGE, INC., Plaintiff,
v.
UNITED SECURITY FINANCIAL CORP., Defendant.

          MEMORANDUM OPINION AND ORDER

          A. JOE FISH SENIOR UNITED STATES DISTRICT JUDGE.

         Before the court is United Security Financial Corporation (“USFC”)'s motion to dismiss Mid-America Mortgage, Inc. (“Mid-America”)'s first amended complaint (docket entry 10) pursuant to Federal Rule of Civil Procedure 12(b)(6). See Motion to Dismiss (docket entry 13). For the reasons stated below, USFC's motion is granted in part and denied in part.

         I. BACKGROUND

         Mid-America is a foreign corporation authorized to do business in Texas, with its principal place of business in Dallas County, Texas. See First Amended Complaint at 1. USFC is also a foreign corporation authorized to do business in Texas, but its principal place of business is Utah. See Notice of Removal (docket entry 1) at 2. Both Mid-America and USFC participate in the mortgage business. First Amended Complaint at 2. In particular, the business operations of both Mid-America and USFC include the origination and servicing of mortgage loans associated with residential real estate. Id.

         As part of their business operations, USFC and Mid-America entered into two contracts, both titled “Servicing Rights Purchase and Sale Agreement” (collectively “Purchase Agreements”)-one dated October 31, 2016 and one dated March 22, 2017. Id.; Motion to Dismiss at 1. In general, the terms of the Purchase Agreements provided that USFC would transfer its rights to service certain loan portfolios subject to the Purchase Agreements-including loan portfolios guaranteed or insured by governmental agencies such as the Veteran's Administration or Ginnie Mae--to Mid-America in exchange for Mid-America's payment in excess of $10, 500, 000.00. First Amended Complaint at 2-3; Motion to Dismiss at 1. For Mid-America to properly service the loan portfolios it received from USFC, the Purchase Agreements also required that USFC provide Mid-America with a large quantity of information such as loan applications, required disclosures, promissory notes and other loan documents, mortgages, deeds of trusts, insurance and tax information, and guarantees from government and quasi-governmental agencies, among other things. First Amended Complaint at 2. Moreover, because this information was crucial to Mid-America's ability to service the loan portfolios, the Purchase Agreements also specified how the information was to be transferred. Id. The agreed upon procedures for transferring the information included preliminary data transfers, opportunities for quality control, and final reconciliations. Id.

         The Purchase Agreements also contained multiple provisions to protect Mid-America from certain risks involved in the transaction. Id. at 3. In pertinent part, the Purchase Agreements contained numerous representations, warranties, and covenants from USFC to Mid-America including, but not limited to, the following within referenced sections of the Purchase Agreements:

A. The delivery dates of loan files, updates, and other information (§ 2.06(a-d, f));
B. The accuracy of information transferred (§ 2.06(e));
C. The transfer of all escrow and custodial funds (§ 2.08);
D. The payment of interest on escrowed funds (§ 2.13);
E. That all required notices were sent, or would be sent, to borrowers (§ 2.12) and taxing authorities (§ 2.14);
F. That USFC would not refinance loans in the portfolios subject to the Purchase Agreements on or before certain specified dates(§ 3.04);
G. That all contingent liabilities had been disclosed (§ 4.01(j));
H. That the mortgage loans subject to the Purchase Agreements conformed to industry standards and the “Applicable Requirements” as defined in the Purchase Agreements, and that USFC had not impaired the value of the servicing rights being ...

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