Burke v. Nationstar Mortgage, LLC (IL)


Burke v. Nationstar Mortgage, LLC, 2022 WL 888811 (N.D.Ill. 2022)

Facts: Plaintiffs (the Burkes) were attempting to refinance their mortgage loan with the defendant (Nationstar). The escrow agent was supposed to be Title365, an affiliate of Nationstar. The refinancing entailed paying off an old loan. During the closing stages of the transaction, a fraudster began impersonating the loan officer and sent wire instructions to the Burkes. The Burkes placed their wire in the fraudster's account and were informed several days later that there was likely fraud on the account, and it was frozen. 

The Burkes had lost $30,000 of the $130,000 they deposited with the bank. The Burkes sent a letter to Nationstar, questioning what happened with the payment of the old loan and the status of the new loan. Nationstar’s stated that it completed an investigation and that Nationstar was not at fault. The borrowers sued Nationstar and Title365, alleging failure to comply with the Real Estate Settlement Procedures Act (RESPA), negligence, aggravated negligence, aiding and abetting fraud, and breach of fiduciary duty. 

Holding: The Burke’s RESPA claim was based on their letters to Nationstar requesting information regarding the errors in the servicing of their loan. RESPA requires a timely and specific response to questions by a mortgage servicer to a mortgagor. The act has a remedy provision that allows for damages, actual or statutory, because of the failure to answer. The court denied the motion to dismiss this complaint, holding that the letters fell under the statute and that Nationstar’s response was not adequate. It held that damages needed to be proved for the claim to succeed on remand. 

The court denied the motion to dismiss the negligence claims. It reasoned that there was enough evidence provided that Nationstar did not take enough procedural steps to protect customers and failed to provide warnings to protect its customers from outside parties. It also held that Title365 could be negligent because of an abdication of its duty as the escrow agent to supervise the closing. There was a material issue of fact and law. 

The court granted the motion to dismiss the aiding and abetting claim. Aiding and abetting requires the defendant to know of and support the act. The evidence showed that both parties found out about the fraud at the same time, making aiding and abetting an impossibility. 

The court also denied the motion to dismiss the breach of fiduciary duty claim. It held that a mortgagor and mortgagee almost never have a fiduciary relationship, but certain facts and settings can create the relationship if one party comes to rely on the other. Whether those facts existed here needed closer examination. It also expounded that an escrow agent has a fiduciary duty when it receives money, but there remains open the question of if they are a fiduciary if they never received the money. 

This case should be a cautionary warning to notify clients about the threat of wire fraud in real estate closings. 

Opinion Year: 
By: ATG Underwriting Department | Posted on: Thu, 10/27/2022 - 3:33pm