Union National Bank of Little Rock v. Federal National Mortgage Association

860 F.2d 847, 1988 U.S. App. LEXIS 14705, 1988 WL 115035
CourtCourt of Appeals for the Eighth Circuit
DecidedNovember 2, 1988
Docket87-2063
StatusPublished
Cited by23 cases

This text of 860 F.2d 847 (Union National Bank of Little Rock v. Federal National Mortgage Association) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Union National Bank of Little Rock v. Federal National Mortgage Association, 860 F.2d 847, 1988 U.S. App. LEXIS 14705, 1988 WL 115035 (8th Cir. 1988).

Opinion

HEANEY, Circuit Judge.

Union National Bank of Little Rock (Union) appeals from an order of the district court granting Federal National Mortgage Association’s (FNMA) motion for summary judgment, denying Union’s motion for preliminary injunctive relief as moot, and dismissing Union’s second amended complaint. We affirm in part, reverse in part, and remand for further proceedings.

I. BACKGROUND

Union is a federally chartered bank with its principal offices in Little Rock, Arkansas. As part of its banking activities, it engages in the business of originating mortgage loans and selling them to purchasers in a “secondary” market. Typically, after Union sells a mortgage it retains the right to “service” the loan for a fee. 1 FNMA is a federally chartered, but privately owned, mortgage bank with its national headquarters in Washington, D.C. FNMA is a very large participant in the secondary market for mortgage loans, purchasing mortgage loans from hundreds of lending institutions throughout the nation.

On January 3, 1983, FNMA and Union entered into an agreement by which Union became “approved” by FNMA (hereinafter Contract). The Contract consists of a twenty-three page printed form distributed by FNMA to lenders. Pursuant to the Contract, FNMA agrees to conferring upon the lender “approved” status. Such status allows a lender to sell mortgage loans to FNMA and to service loans held by FNMA. 2

*849 The Contract is supplemented by an FNMA publication called “FNMA’s Guides to Lenders” (hereinafter Guides). The Contract provides that the Guides may be amended at the sole discretion of FNMA by furnishing amendments or supplementary matter to the lender. See Contract § 1(C). 3 The Contract also contains a section in which the lender makes certain warranties concerning any interests it may sell to FNMA. 4 One of the warranties is that mortgage loans sold to FNMA conform to all applicable requirements in the Guides and in the Contract. Contract § IV(A)(1). The Contract provides that in the event of a breach of a warranty, FNMA may require the lender to repurchase the mortgage. Contract § IV(B). Finally, the Contract provides that it may be terminated either by FNMA or by the lender with or without cause. 5

Apparently, FNMA was not satisfied with Union’s performance under the Contract and, by letter dated May 13, 1985, informed Union of its intention to terminate the Contract “for cause.” The letter also requested a meeting at which Union and FNMA could attempt to settle disputes concerning Union’s performance under the Contract. In June of 1985,' Union and FNMA reached an agreement whereby Union would sell its servicing rights to 11,253 mortgage loans owned by FNMA to another approved lender. In addition, FNMA agreed to allow Union to retain servicing rights to approximately one million dollars in mortgage loans and to continue as an FNMA approved lender. 6 As a result of *850 this agreement, Union subsequently transferred the servicing rights to some $236 million in FNMA owned mortgage loans to FirstSouth Savings and Loan of Pine Bluff, Arkansas (FirstSouth). At the time of the transfer, Union paid FNMA a transfer fee of $216,528.16. Also pursuant to the agreement, Union retained the servicing rights to thirty-three FNMA owned mortgage loans.

After the transfer was completed, FNMA informed Union that eleven of the loans transferred to FirstSouth, with a face value of approximately $493,000, were in default and that Union had breached the warranties Union gave FNMA on those loans. Therefore, FNMA requested that Union repurchase the loans. 7 In response, Union took the position that FNMA’s losses on the loans did not result from any breaches of the Contract or warranty provisions. In addition, Union argued that as part of the loan transfer, FirstSouth agreed to assume all responsibility for the loans, including any liability arising out of a breach of a warranty contained in the Contract. In other words, Union argued that by purchasing its FNMA owned loan portfolio, FirstSouth agreed to accept responsibility for good and bad loans, and Union was released from any liability arising out of the transferred loans. 8 Accordingly, Union refused to repurchase the defaulted loans. On January 21, 1987, FNMA sent Union a letter informing it that FNMA considered Union's refusal to repurchase the loans a breach of the Contract and that “unless Union National repurchases the loans by January 31,1987, we intend to terminate the Contract and Union National’s current servicing thereunder for cause by the end of February 1987” (emphasis added).

On February 9, 1987, Union filed a petition in the district court requesting an injunction prohibiting FNMA from terminating the Contract. On February 10, 1987, FNMA sent Union a letter informing it that, due to its refusal to repurchase the loans, “the Selling and Servicing Contract between Fannie Mae and Union National Bank is terminated for cause, effective immediately” (emphasis added). FNMA then filed a motion to dismiss Union’s petition as moot, contending that the termination had already occurred. On February 17, 1987, the district court held an emergency hearing at which the parties agreed to an order staying the effect of the February 10 termination letter pending expedited adjudication of the underlying dispute. See District Court Order at 3.

On March 9, 1987, FNMA filed a response to Union’s petition and a counterclaim seeking damages for Union’s breach of the Contract. In addition, FNMA brought a motion for summary judgment on the issue of its right to terminate the Contract for cause. See Designated Record at 56-57 (FNMA Motion For Summary Judgment at paragraphs 1-5). As part of its argument in support of its summary judgment motion FNMA stated:

Although Fannie Mae terminated this Contract for cause, it clearly could have been terminated at will, yet Union’s complaint asks that Fannie Mae even be enjoined from doing that.

Designated Record at 83 (FNMA Brief in Support of Motion for Summary Judgment at 25).

On March 30, 1987, Union responded, arguing that the June 10, 1985, agreement to transfer the servicing rights to the bulk of Union’s FNMA owned mortgage loans *851 worked a modification of the Contract. In essence, Union argued that in exchange for transferring the bulk of its FNMA owned loan portfolio to FirstSouth, FNMA agreed to allow Union to retain approximately one million dollars in FNMA loans, and hence remain an FNMA approved lender until such time as Union’s servicing of the retained loans gave FNMA cause to terminate the contract or until the last of the loans had been repaid.

In support of its assertion, Union introduced the affidavits of two of its employees who were involved in the June 1985 transfer negotiations.

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Bluebook (online)
860 F.2d 847, 1988 U.S. App. LEXIS 14705, 1988 WL 115035, Counsel Stack Legal Research, https://law.counselstack.com/opinion/union-national-bank-of-little-rock-v-federal-national-mortgage-association-ca8-1988.