Surprise: Mortgage Transaction Goes Wrong

The buyer of a mortgage whose seller (Citi) failed to deliver the note caused the buyer damages as a matter of law, according to the Seventh Circuit in Cogswell v. CitiFinancial Mortgage Co., 2010 U.S. App. LEXIS 20490 (7 th Cir. October 5, 2010).

The breach portion of the case is interesting, as it discusses whether the sale of the mortgage by Citi necessarily included a duty (not expressed in the written agreement) to deliver the note. Because the buyer could not produce the note, it was unable to foreclose the mortgage. The court found that whether the contract required delivery of the note was a factual question, and remanded to the district court for a determination..

Next, Citi argued that even if it breached the agreement by failing to deliver the note, there were several alternative methods for the buyer to prove its ownership, so the breach did not cause the damages. Judge Diane Sykes, writing for a unanimous panel, noted that the buyer had litigated the foreclosure issue all the way up the Illinois state courts and lost because it could not produce the note. Under those circumstances, Citi’s breach caused the damages as a matter of law.

FGS