Recent Caselaw Helping Lenders

Finally, a break for the lenders.

In the recent Morilus v. Countrywide Home Loans, Inc., 2008 WL 5377627 (E.D. Pa. 2008) opinion, the U.S. District Court for the Eastern District of Pennsylvania dismissed loan origination claims against a lender arising exclusively from allegations of mortgage broker wrongdoing.

The Court examined whether the lender was liable for the broker’s action under an agency theory, the elements of which are manifestation by the principal that the agent shall act for him, the agent's acceptance of the undertaking, and the understanding of the parties that the principal is to be in control of the undertaking.

The lender argued that there was no evidence of a manifestation of intent for the broker to act on its behalf, nor was there ever any understanding between it and the broker.

Plaintiffs responded that the lender had exerted such a high level of control that the broker must be its agent and not an independent contractor.

The Court concluded that to be an agent, the control "must be of such a high degree that the purported agent is deemed to have had almost no independence" and that plainitffs could only demonstrate that if the broker worked for the lender, it was only was required to abide by certain of the lender’s guidelines.

Further, in rejecting the apparent agency claim, the Court ruled that the determination hinged on whether a principal "leads persons with whom his agent deals to believe he has granted certain authority which actually exceeds the scope of the agency" but that plainitffs failed to demonstrate any action by the lender indicating that the broker was its apparent agent. For example, the Court noted that the broker had the ability to submit the mortgage application to any lender in the industry and not just the lender that was ultimately selected.

Because many negligence, fraud, and Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1, et seq. violations claims against lenders stem from mortgage broker’s acts and omissions, Morilus will a tremendous help in getting claims dismissed.