Justice Benjamin: Ruling good for plaintiffs, bad for honest businesses

By John O'Brien | Jun 26, 2013

CHARLESTON – A recent ruling by the state Supreme Court will make it easier for plaintiffs in mortgage cases while harming honest lenders, according to Justice Brent Benjamin.

On June 21, Benjamin became the second justice to issue a dissenting opinion in two cases involving Hartford Fire Insurance Co., which has been told it must pay the entire amounts of two default judgments issued against now-defunct companies without ever having a chance to fight the claims.

Justice Menis Ketchum wrote the first dissenting opinion, stating the majority decision “ignores the plain language of our statutory law” and is unfair to insurance companies.

Benjamin agreed.

“The majority’s ruling, akin to a strict liability standard, adversely impacts the surety market by allowing plaintiffs to collect up to the full amount of the bond without ever having to prove a case,” Benjamin wrote.

“Now claimants’ attorneys can merely sue a defunct mortgage lender, obtain default judgment and present the judgment to a surety for satisfaction.

“This will undoubtedly increase the risk of writing such bonds in West Virginia and make it harder for honest, legitimate lenders to obtain the bonds.”

In the two cases, borrowers filed lawsuits over their mortgages. Micah and Angela Curtis claimed Calusa Investments made misrepresentations that caused them to refinance their mortgage on unfavorable terms, while Jerry Lee Rhodes and Bonnie Cochran claimed Equity South Mortgage brokered oppressive home improvement loans to them.

After Calusa became defunct, the Curtises obtained a default judgment of almost $100,000. When Equity South became defunct, Rhodes and Cochran obtained a $56,300 default judgment.

The Hartford, the surety on the bonds, was not a party to either lawsuit and refused to pay the judgments. Rhodes and Cochran filed a lawsuit against The Hartford and won a judgment of $50,000 – the amount of the bond.

The Kanawha County Circuit Court also denied The Hartford’s motion to have money paid by other defendants in the original lawsuit in settlements credited toward the judgment.

The majority opinion, released June 5, said the bonds on which The Hartford was the surety were judgment bonds – bonds in which the surety agrees to be liable for judgments based on a specific violation covered the bond.

The opinion held that the surety on a judgment bond is liable for default judgments like the ones obtained by the Curtises and Rhodes/Cochran.

Benjamin wrote the majority opinion was based on the “faulty” premise that the bonds were judgment bonds. They were actually performance bonds, he said, because they were conditioned upon the bond principal failing to faithfully conform to and abide by the provisions of the Mortgage Lender, Broker and Servicer Act.

The conditions are found in the third paragraph of the agreement between Calusa and The Hartford:

“NOW THEREFORE, if the said principal CALUSA INVESTMENTS, LLC shall conform to and abide by the provisions of said Act and of all rules and orders lawfully made or issued by the Commissioner of Banking thereunder, and shall pay to the State and shall pay to any such person or persons properly designated by the State any and all moneys that may become due or owing to the State or to such person or persons from said obligor in a suit brought by the Commissioner on their behalf under and by virtue of the provisions of said Act, then this obligation shall be void, otherwise it shall remain in full force and effect.”

Benjamin said a plain reading of the bonds establishes that they do not guarantee payment unconditionally.

“Here, there has been no determination that the principals failed to comply with the laws and regulations applicable to them, and the surety had no opportunity to assert applicable defenses or challenge the amount of damages,” he wrote.

“Under the language contemplated in the bonds, the surety should have been given opportunity to defend.”

Courts in Georgia and Wisconsin have recently held that mortgage broker and lender bonds are not judgments, he added.

From the West Virginia Record: Reach John O’Brien at jobrienwv@gmail.com.

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