Flagstar Bank Fsb v. Money Wise Investments Inc
328332
| Mich. Ct. App. | Nov 22, 2016Background
- Money Wise (seller) had a 1998 broker agreement to sell mortgage loans to Flagstar (buyer), which could resell loans to third parties.
- In 2005 Money Wise originated the Girgis loan and sold it to Flagstar; Flagstar later sold the loan to Fannie Mae in 2006.
- The loan defaulted (last payment 2009); Fannie Mae foreclosed and later (Sept. 2013) demanded reimbursement from Flagstar, alleging undisclosed prior mortgages and borrower misrepresentation that breached Flagstar’s warranty to Fannie Mae.
- Flagstar repurchased the loan in March 2014 and paid Fannie Mae; it then demanded indemnification from Money Wise under the broker agreement; Money Wise refused.
- Flagstar sued; the trial court granted Flagstar summary disposition under MCR 2.116(C)(10). Money Wise appealed, arguing (1) Flagstar must prove actual liability because it settled without tendering defense, (2) the underlying warranty claim was time‑barred by the six‑year statute of limitations, and (3) Flagstar’s sale to Fannie Mae assigned away Flagstar’s indemnity rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard for recovering indemnity after settlememt without tendering defense — actual vs potential liability | Flagstar: Fannie Mae’s Sept. 2013 letter shows Flagstar was actually liable; therefore indemnity is recoverable. | Money Wise: Because Flagstar settled without tendering its defense, it must prove actual liability; it cannot because of SOL defense. | Court: Grand Trunk rule applies — settlement without tender requires proof of actual liability; Flagstar’s unrebutted evidence (Fannie Mae letter) sufficed to show actual liability. |
| Statute of limitations on Fannie Mae’s underlying warranty claim | Flagstar: The warranty breach accrued when discovered (post‑default/credit report), so the claim was timely. | Money Wise: Breach accrued at delivery (2006); six‑year SOL expired in 2012, barring the claim. | Court: Warranty breach accrues when discovered per MCL 600.5833; default and the 2013 letter show discovery occurred later, so SOL did not bar the claim on this record. |
| Whether Flagstar’s sale to Fannie Mae assigned away Flagstar’s indemnity rights under the broker agreement | Flagstar: Sale assigned only rights relating to that mortgage; broker agreement requires written notice to assign broader agreement rights. | Money Wise: The contract language automatically assigns all Flagstar rights on sale of a loan, including indemnity. | Court: Contract plain language distinguishes (1) assignment of the Agreement (requires written notice) and (2) succession to rights "with respect to such mortgage loans" on sale; sale did not assign Flagstar’s broader indemnity rights. |
Key Cases Cited
- Miller-Davis Co. v. Ahrens Const., 495 Mich. 161 (Mich. 2014) (analyzing whether indemnity clause covers the underlying claim)
- Grand Trunk W. R.R., Inc. v. Auto Warehousing Co., 262 Mich. App. 345 (Mich. Ct. App. 2004) (settlement without tender requires proof of actual liability unless indemnitor had notice and refused to defend)
- Ford v. Clark Equip. Co., 87 Mich. App. 270 (Mich. Ct. App. 1978) (policy favoring settlement; potential liability standard when defense tender refused)
- Tankrederiet Gefion A/S v. Hyman-Michaels Co., 406 F.2d 1039 (6th Cir. 1969) (reasoning that settling party should tender defense and allow indemnitor to accept or refuse; if refused, indemnitee may show potential liability and reasonableness of settlement)
- Seyburn, Kahn, Ginn, Bess, Deitch & Serlin, P.C. v. Bakshi, 483 Mich. 345 (Mich. 2009) (breach‑of‑contract accrual principles)