NATIONWIDE ADVANTAGE Vs Draper Kramer

Case 1:09-cv-02648 Document 1 Filed 04/30/09 Page 1 of 16
IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
FILED: APRIL 30, 2009
NATIONWIDE ADVANTAGE ) 09CV2648
MORTGAGE COMPANY, an Iowa )
JUDGE BUCKLO
corporation, )
MAGISTRATE JUDGE BROWN
)
Plaintiff, ) BR
) Case No.
v. )
)
DRAPER AND KRAMER MORTGAGE )
CORP., d/b/a/ 1ST ADVANTAGE )
MORTGAGE, a Delaware corporation, )
)
Defendant. )
COMPLAINT
Plaintiff, NATIONWIDE ADVANTAGE MORTGAGE COMPANY (“NAMC”), for its
complaint against Defendant DRAPER AND KRAMER MORTGAGE CORPORATION
(“Draper and Kramer” or “Defendant”), doing business as 1ST ADVANTAGE MORTGAGE,
hereby states as follows:
Introduction
1. This is an action by NAMC arising out of Defendant’s breach of multiple terms of
a mortgage loan purchase agreement between the parties. NAMC seeks monetary damages for
all losses it has incurred as a result of Defendant’s breaches, as well as equitable relief in the
form of an order requiring specific performance of Defendant’s contractual obligation to
repurchase the mortgages and properties that are at issue in this action and to refund all
consideration paid by NAMC for the mortgages.

The Parties
2. NAMC is a corporation organized under the laws of the State of Iowa with its
principal place of business in West Des Moines, Iowa. NAMC is in the business of originating
and servicing mortgages for residential home buyers throughout the country. As part of its
business, NAMC also purchases and services loans that have been originated by other lenders.
3. NAMC sells some of the loans that it purchases into loan pools that then form the
basis for mortgage-backed securities guaranteed by the Government National Mortgage
Association (“GNMA”). As part of the securitization transaction, NAMC assigns the mortgages
to GNMA. Only loans insured by the Federal Housing Administration (“FHA”), the Department
of Veterans’ Affairs (“VA”), or Rural Development (“RD”) can be sold into GNMA Mortgage-
Backed Security loan pools, and GNMA requires NAMC to repurchase any loans that do not
have this insurance out of the loan pool.
4. Upon information and belief, Draper and Kramer is a Delaware corporation with
its principal places of business in Chicago, Illinois, and Lombard, Illinois. Draper and Kramer is
a mortgage lender that arranges and originates commercial and residential mortgages. Draper
and Kramer then re-sells its loans to lenders such as NAMC.
Jurisdiction and Venue
5. The Court has subject-matter jurisdiction over this action pursuant to 28 U.S.C.
§§ 1332(a)(1) and (c)(1) because the amount in controversy exceeds $75,000, exclusive of costs
and interest, and there is complete diversity of citizenship between the parties.
6. Venue is proper in this District pursuant to 28 U.S.C. §§ 1391(a)(1) and (c)
because Defendant’s principal place of business is located within the Northern District of
Illinois. Venue is also proper pursuant to 28 U.S.C. § 1391(a)(2) because a substantial part of
2
the actions or omissions that placed Defendant in default of its contractual obligations to NAMC
took place in the Northern District of Illinois.
Factual Background: The Correspondent Lender Purchase Agreement
A. General Provisions
7. On or about January 5, 2007, NAMC and Defendant entered into a Correspondent
Lender Purchase Agreement (the “Purchase Agreement”), in which NAMC and Defendant
agreed that NAMC would purchase, and Defendant would sell, certain residential mortgages
originated by Defendant. (A copy of the Purchase Agreement is attached hereto as Exhibit A.)
8. The Purchase Agreement specified that NAMC was interested in purchasing loans
that were guaranteed by the VA or RD, or insured by the FHA. (Ex. A.) NAMC was
specifically interested in purchasing these types of loans because they offered NAMC protection
in the form of insurance or a guaranty in the event of a default by the borrower, and also because
only VA-, RD-, or FHA-insured loans are eligible for inclusion in GNMA Mortgage-Backed
Security loan pools.
9. Section 17(h) of the Purchase Agreement specified that the substantive law of
Iowa, determined without reference to Iowa’s choice of law rules, would govern the contract.
(Ex. A.)
B. The Repurchase Requirement
10. Under Section 8(a) of the Purchase Agreement, Defendant was required to
repurchase a mortgage loan, or the underlying property if title was held by NAMC, if any of the
following events occurred:
• Defendant failed to provide all documentation required by NAMC within 120 days of
the sale date;
3
• Defendant failed to provide an FHA Mortgage Insurance Certificate or VA Loan
Guaranty Certificate within 120 days of the sale date;
• NAMC determined, in its sole discretion, that the required FHA or VA insurance
certificate could not be obtained, or any private mortgage insurance or guaranty
lapsed, was rescinded, or a claim thereon was denied or not paid; or
• NAMC was legally obligated to repurchase any of the loans that it sold or assigned to
a third party (such as GNMA) due to a defect in the underlying mortgage that existed
as of the date the mortgage was sold by Defendant to NAMC. (Ex. A.)
11. Under Section 8(b) of the Purchase Agreement, upon the occurrence of any of the
above-listed events, Defendant was required not only to repurchase the loan or property for the
price specified in Section 8(b), but also to pay all of NAMC’s costs and expenses incurred in
enforcing Defendant’s repurchase obligation, including attorneys’ fees, plus the costs of repairs,
sale and advertising fees, service release premiums, premium pricing, and advances. (Ex. A.)
12. Section 8(e) of the Purchase Agreement specified that, aside from the repurchase
requirement, NAMC reserved all rights and remedies it might have at law or equity, including
specific performance, against Defendant. (Ex. A.)
13. Under Section 17(d) of the Purchase Agreement, Defendant’s repurchase
obligation survives the termination of the Purchase Agreement. (Ex. A.)
C. Indemnification
14. Under Section 12 of the Purchase Agreement, Defendant was required to
indemnify and hold NAMC harmless for all claims, losses, costs, and expenses, including
attorneys’ fees, incurred as a result of any breach of the Purchase Agreement by Defendant.
(Ex. A.)
4
15. Under Sections 12 and 17(d) of the Purchase Agreement, Defendant’s obligation
to indemnify NAMC survives the termination of the Purchase Agreement. (Ex. A.)
D. Termination of the Purchase Agreement
16. As will be set forth in greater detail below, during the life of the Purchase
Agreement, Defendant repeatedly failed to perform its contractual duties, including its duty to
obtain and provide appropriate mortgage insurance certificates, and refused to perform its duty to
repurchase loans upon the occurrence of any of the events listed in Section 8(a) of the Purchase
Agreement. These breaches persisted despite NAMC’s repeated demands that Defendant
perform its contractually-mandated obligations.
17. As a result of Defendant’s multiple failures to adhere to the terms of its agreement
with NAMC, NAMC terminated the Purchase Agreement with Defendant by written notice
pursuant to Section 16(b) of the Purchase Agreement on June 16, 2008. (A copy of this
correspondence is attached hereto as Exhibit B.)
COUNT I: MILWAUKEE LOAN - BREACH OF CONTRACT1
18. NAMC re-alleges and incorporates Paragraphs 1-17 above.
19. Pursuant to the Purchase Agreement between the parties, Defendant sold NAMC
residential mortgage loan # 2172597, secured by real property located in Milwaukee, Wisconsin,
on or about November 21, 2007 (“the Milwaukee loan”). NAMC paid Defendant $203,693.09
for the loan.
20. Pursuant to the terms of the Purchase Agreement, Defendant received payment in
full from NAMC for the Milwaukee loan on the November 21, 2007, sale date. (see Ex. A, Sec.
1 Throughout this Complaint, the loans are identified only by loan number and the geographic
location of the underlying property in order to protect the privacy of the borrowers.
5
1(h) (defining “sale date” as the date on which the correspondent lender receives payment in full
for the loan).) NAMC subsequently sold the Milwaukee loan into a mortgage-backed security
pool guaranteed by GNMA. As part of the securitization transaction, NAMC assigned the
mortgage to GNMA.
21. Defendant represented that the Milwaukee loan would be an FHA-insured loan.
22. Despite this representation, Defendant failed to deliver an FHA Mortgage
Insurance Certificate (“MIC”) on the Milwaukee loan within 120 days of the November 21,
2007, sale date. In fact, the loan was never insured by the FHA and could not be insured because
the borrower defaulted on his first payment.
23. Defendant’s failure to deliver an MIC triggered Defendant’s obligation to
repurchase the loan under Part (ii) of Section 8(a) of the Purchase Agreement.
24. Defendant’s duty to repurchase the loan was also triggered under Part (iii) of
Section 8(a) when NAMC, relying on information provided by the FHA, determined that the
loan could not be insured as the Purchase Agreement required.
25. Defendant’s duty to repurchase the loan was again triggered under Part (iv) of
Section 8(a) when NAMC was required to repurchase the Milwaukee loan from the GNMA loan
pool because the loan was defective.
26. On April 17, 2008, NAMC informed Defendant that the loan could not be insured
and that the loan was delinquent. NAMC provided Defendant with a statement of the repurchase
price of the loan and demanded that Defendant repurchase the loan as required by the Purchase
Agreement. On May 14, 2008, NAMC again demanded that Defendant comply with its
repurchase obligation.
6
27. Defendant has refused to repurchase the Milwaukee loan. This constitutes a
breach of its contractual obligation under Section 8(a) of the Purchase Agreement. NAMC has
been harmed by Defendant’s breach because it now holds title to an uninsured loan that is in
default. NAMC has been forced to incur the cost and expense of instituting foreclosure
proceedings in order to obtain title to the underlying property. NAMC is likely to incur further
losses when the property is sold.
28. Specific performance of the repurchase agreement is necessary to force Defendant
to take title to the defaulted loan and relieve NAMC of the ongoing costs, expenses, and
uncertainty of foreclosure proceedings and the possibility of further losses.
29. Under Section 12 of the Purchase Agreement, Defendant is obligated to
30. To date, Defendant has failed to indemnify NAMC for any of the claims, losses,
costs, and expenses NAMC has incurred because of Defendant’s failure to obtain FHA insurance
on the Milwaukee loan.
31. NAMC has been harmed by Defendant’s breach of its duty to indemnify because
NAMC has been forced to absorb costs and losses associated with the Milwaukee loan for which
it should have been indemnified by Defendant.
32. In addition to the damages alleged above, NAMC has incurred additional costs
and expenses, including attorneys’ fees, in enforcing Defendant’s obligations under the Purchase
Agreement.
7
WHEREFORE, NAMC respectfully requests the following relief:
(A) An order requiring Defendant to specifically perform its contractual obligation to
repurchase the Milwaukee loan from NAMC for the May 14, 2008, repurchase
price of $209,709.19, and ordering Defendant to pay interest on the May 14,
2008, repurchase price at the maximum allowable rate for the period beginning
May 14, 2008, and ending on the date that Defendant complies with the Court’s
order by repurchasing the loan;
(B) A judgment in NAMC’s favor and against Defendant in the amount of:
(1) All costs, expenses, and attorneys’ fees that NAMC has incurred in
enforcing Defendant’s repurchase obligation;
(2) All damages that NAMC has incurred as a result of Defendant’s failure to
comply with its obligation to obtain FHA insurance on the Milwaukee
loan, including costs, expenses, and attorneys’ fees associated with the
foreclosure proceedings and sale and all other damages arising out of the
default of the uninsured Milwaukee loan; and
(C) Any other relief that the Court deems just and appropriate.
COUNT II: FARIBAULT LOAN - BREACH OF CONTRACT
residential mortgage loan # 2157444, secured by property located in Faribault, Minnesota, on or
about October 26, 2007 (“the Faribault loan”). NAMC paid Defendant $131,395.64 for the loan.
full from NAMC for the Faribault loan on the October 26, 2007, sale date. (see Ex. A, Sec. 1(h)
(defining “sale date” as the date on which the correspondent lender receives payment in full for
8
the loan).) NAMC subsequently sold the Faribault loan into a mortgage-backed security pool
guaranteed by GNMA. As part of the securitization transaction, NAMC assigned the mortgage
to GNMA.
36. Defendant represented that the Faribault loan would be an FHA-insured loan.
37. Defendant failed to provide an MIC within 120 days of the October 26, 2007, sale
date. An MIC was eventually issued with a date of July 22, 2008. However, NAMC learned
from the FHA that the MIC was issued in error because the borrower was delinquent on his loan
payments prior to the time that the MIC was issued. Therefore, the Faribault loan was never
validly insured by the FHA, and could not be insured due to the borrower’s default.
38. Defendant’s failure to provide an MIC within 120 days of the October 26, 2007,
sale date triggered its duty to repurchase the loan under Part (ii) of Section 8(a) of the Purchase
Agreement.
Section 8(a) of the Purchase Agreement when NAMC, relying on information from the FHA,
determined that the Faribault loan was never validly insured and could not be insured as required
due to the borrower’s default.
Section 8(a) of the Purchase Agreement when NAMC was required to repurchase the Faribault
loan from the GNMA loan pool because the loan was defective.
41. On May 14, 2008, NAMC informed Defendant that the Faribault loan could not
be insured. NAMC provided Defendant with a statement of the repurchase amount and
demanded that Defendant repurchase the loan as required by the Purchase Agreement.
9
42. Defendant has refused to repurchase the Faribault loan. This constitutes a breach
of Defendant’s contractual obligation under Section 8(a) of the Purchase Agreement. NAMC
has been harmed by Defendant’s breach because it was forced to institute foreclosure
proceedings on the Faribault loan. The foreclosure process has been completed and NAMC now
holds title to the Faribault property. As a result, NAMC has incurred costs and expenses related
to the foreclosure proceeding and is likely to incur further additional losses.
to take title to the Faribault property and relieve NAMC of the ongoing costs, expenses, and
uncertainty associated with holding title to the property and the possibility of further losses.
on the Faribault loan.
NAMC has been forced to absorb costs and losses associated with the Faribault loan for which it
should have been indemnified by Defendant.
Agreement.
10
repurchase the Faribault property from NAMC for the May 14, 2008, repurchase
price of $132,205.97, and ordering Defendant to pay interest on the May 14,
2008, repurchase price at the maximum allowable rate for the period beginning
May 14, 2008, and ending on the date that Defendant complies with the Court’s
order by repurchasing the property;
(1) All costs, expenses, and attorneys’ fees that NAMC has incurred in
enforcing Defendant’s repurchase obligation;
comply with its obligation to obtain FHA insurance on the Faribault loan,
including costs, expenses, and attorneys’ fees associated with the
default of the uninsured Faribault loan; and
COUNT III: KYLE LOAN - BREACH OF CONTRACT
residential mortgage loan # 2048676, secured by property located in Kyle, Texas, on or about
April 6, 2007 (“the Kyle loan”). NAMC paid Defendant $92,110.37 for the loan.
full from NAMC for the Kyle loan on the April 6, 2007, sale date. (see Ex. A, Sec. 1(h)
(defining “sale date” as the date on which the correspondent lender receives payment in full for
11
the loan).) NAMC subsequently sold the Kyle loan into a mortgage-backed security pool
guaranteed by GNMA. As part of the securitization transaction, NAMC assigned the mortgage
to GNMA.
51. Defendant represented that the Kyle loan would be an FHA-insured loan.
52. Defendant failed to provide an MIC within 120 days of the April 6, 2007, sale
date. In fact, the loan was never insured by the FHA and could not be insured because the
borrowers were delinquent in their payments before insurance could be obtained.
53. Defendant’s failure to provide an MIC triggered its duty to repurchase the loan
under Part (ii) of Section 8(a) of the Purchase Agreement.
Section 8(a) of the Purchase Agreement when NAMC, relying on information from the FHA,
determined that the Kyle loan could not be insured as required due to the borrowers’ default.
Section 8(a) of the Purchase Agreement when NAMC was required to repurchase the Kyle loan
from the GNMA pool because the loan was defective.
56. On February 25, 2008, NAMC informed Defendant that the Kyle loan was
delinquent and could not be insured. NAMC provided Defendant with a statement of the
repurchase amount and demanded that Defendant repurchase the loan as required by the
Purchase Agreement. On May 14, 2008, NAMC again demanded that Defendant comply with
its repurchase obligation.
57. Defendant has refused to repurchase the Kyle loan. This constitutes a breach of
Defendant’s contractual obligation under Section 8(a) of the Purchase Agreement. NAMC has
been harmed by Defendant’s breach because it was forced to institute foreclosure proceedings on
12
the Kyle loan. The foreclosure process has been completed and NAMC now holds title to the
Kyle property. As a result, NAMC has incurred costs and expenses related to the foreclosure
proceeding and is likely to incur further additional losses.
to take title to the Kyle property and relieve NAMC of the ongoing costs, expenses, and
uncertainty of holding title to the property and the possibility of further losses.
on the Kyle loan.
NAMC has been forced to absorb costs and losses associated with the Kyle loan for which it
should have been indemnified by Defendant.
Agreement.
repurchase the Kyle property from NAMC for the May 14, 2008, repurchase price
of $93,797.11, and ordering Defendant to pay interest on the May 14, 2008,
repurchase price at the maximum allowable rate for the period beginning May 14,
13
2008, and ending on the date that Defendant complies with the Court’s order by
repurchasing the property;
(1) All costs, expenses, and attorneys’ fees NAMC has incurred in enforcing
Defendant’s repurchase obligation;
comply with its obligation to obtain FHA insurance on the Kyle loan,
including costs, expenses, and attorneys’ fees associated with the
default of the uninsured Kyle loan; and
COUNT IV: UNJUST ENRICHMENT UNDER IOWA LAW
the following loans: residential mortgage loan # 2048676 (“the Kyle loan”) on April 6, 2007;
residential mortgage loan # 2157444 (“the Faribault loan”) on October 26, 2007; and residential
mortgage loan # 2172597 (“the Milwaukee loan”) on November 21, 2007.
65. Under the terms of the Purchase Agreement, NAMC paid Defendant in full for
each loan on the sale date. Defendant received $92,110.37 for the Kyle loan, $131,395.64 for the
Faribault loan, and $203,693.09 for the Milwaukee loan. Defendant was therefore enriched by
its sale of the loans to NAMC.
66. Defendant represented that each loan would be an FHA-insured loan.
14
67. Defendant failed to obtain FHA insurance on any of the three loans. In fact, none
of the loans was insurable. Defendant also failed to indemnify NAMC for the losses, costs, and
expenses NAMC incurred as a result of Defendant’s breach of its duties under the Purchase
Agreement, which Defendant was required to do under Section 12 of the Purchase Agreement.
68. Each of the borrowers defaulted. Foreclosure proceedings are under way on the
Milwaukee property, while NAMC has completed foreclosure proceedings and holds title to the
Faribault and Kyle properties. NAMC has incurred, and is likely to incur in the future,
significant losses and costs in connection with the three defaulted loans. By failing to perform
its duties under the Purchase Agreement, Defendant has been enriched at NAMC’s expense.
69. It is unjust to allow Defendant to retain the benefit of these transactions with
NAMC under the circumstances, as NAMC is currently bearing costs, expenses, and losses that
would have been avoided had Defendant performed its obligations under the Purchase
Agreement. Defendant has been paid handsomely and has given NAMC nothing of value in
return.
70. Under the circumstances, the consideration paid by NAMC to Defendant for each
of the three loans has been inequitably retained by Defendant.
WHEREFORE, NAMC respectfully asks this Court for an order requiring Defendant to
refund the full purchase price, including service release premiums, premium pricing, and
advances, that was paid by NAMC for the Kyle, Faribault, and Milwaukee loans.
15
Dated: April 30, 2009 Respectfully submitted,
NATIONWIDE ADVANTAGE MORTGAGE

COMPANY
By: /s/ Marla Tun Conneely
James H. Mutchnik, P.C. (ARDC # 66201681)

Marla Tun Conneely (ARDC # 6276076)
Jonathan Lahn (ARDC # 6293184)
KIRKLAND & ELLIS LLP
300 N. LaSalle St.
Chicago, IL 60654
Phone: 312-862-2000
Facsimile: 312-862-2200
Counsel for Plaintiff
16

NATIONWIDE ADVANTAGE Vs Draper Kramer

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NATIONWIDE ADVANTAGE Vs Draper Kramer

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Case 1:09-cv-02648 Document 1 Filed 04/30/09 Page 1 of 16

IN THE UNITED STATES DISTRICT COURT

Plaintiff, NATIONWIDE ADVANTAGE MORTGAGE COMPANY (“NAMC”), for its

complaint against Defendant DRAPER AND KRAMER MORTGAGE CORPORATION

(“Draper and Kramer” or “Defendant”), doing business as 1ST ADVANTAGE MORTGAGE,

hereby states as follows:

1. This is an action by NAMC arising out of Defendant’s breach of multiple terms of

form of an order requiring specific performance of Defendant’s contractual obligation to

consideration paid by NAMC for the mortgages.

basis for mortgage-backed securities guaranteed by the Government National Mortgage

have this insurance out of the loan pool.

and Kramer then re-sells its loans to lenders such as NAMC.

Jurisdiction and Venue

6. Venue is proper in this District pursuant to 28 U.S.C. §§ 1391(a)(1) and (c)

took place in the Northern District of Illinois.

Factual Background: The Correspondent Lender Purchase Agreement

7. On or about January 5, 2007, NAMC and Defendant entered into a Correspondent

Security loan pools.

B. The Repurchase Requirement

following events occurred:

the sale date;

• Defendant failed to provide an FHA Mortgage Insurance Certificate or VA Loan

Guaranty Certificate within 120 days of the sale date;

certificate could not be obtained, or any private mortgage insurance or guaranty

lapsed, was rescinded, or a claim thereon was denied or not paid; or

specific performance, against Defendant. (Ex. A.)

13. Under Section 17(d) of the Purchase Agreement, Defendant’s repurchase

obligation survives the termination of the Purchase Agreement. (Ex. A.)

14. Under Section 12 of the Purchase Agreement, Defendant was required to

D. Termination of the Purchase Agreement

perform its contractually-mandated obligations.

correspondence is attached hereto as Exhibit B.)

COUNT I: MILWAUKEE LOAN - BREACH OF CONTRACT1

18. NAMC re-alleges and incorporates Paragraphs 1-17 above.

for the loan.

22. Despite this representation, Defendant failed to deliver an FHA Mortgage

the borrower defaulted on his first payment.

23. Defendant’s failure to deliver an MIC triggered Defendant’s obligation to

loan could not be insured as the Purchase Agreement required.

pool because the loan was defective.

losses when the property is sold.

28. Specific performance of the repurchase agreement is necessary to force Defendant

uncertainty of foreclosure proceedings and the possibility of further losses.

29. Under Section 12 of the Purchase Agreement, Defendant is obligated to

on the Milwaukee loan.

it should have been indemnified by Defendant.

WHEREFORE, NAMC respectfully requests the following relief:

(A) An order requiring Defendant to specifically perform its contractual obligation to

order by repurchasing the loan;

enforcing Defendant’s repurchase obligation;

comply with its obligation to obtain FHA insurance on the Milwaukee

default of the uninsured Milwaukee loan; and

COUNT II: FARIBAULT LOAN - BREACH OF CONTRACT

33. NAMC re-alleges and incorporates Paragraphs 1-17 above.

residential mortgage loan # 2157444, secured by property located in Faribault, Minnesota, on or

due to the borrower’s default.

to the foreclosure proceeding and is likely to incur further additional losses.

43. Specific performance of the repurchase agreement is necessary to force Defendant

44. Under Section 12 of the Purchase Agreement, Defendant is obligated to

on the Faribault loan.

should have been indemnified by Defendant.

WHEREFORE, NAMC respectfully requests the following relief: