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Gateway Bank Awarded 100% of Loss on Subprime Portfolio By Miami Jury
By James Comtois
A Miami jury returned a verdict in the favor of the defendant, Gateway Bank FSB, a San Francisco-based federal savings bank, awarding it more than $7 million. This verdict is the result of a seven-day trial in November concerning a lender liability suit involving losses under a repurchase agreement on a portfolio of 35 subprime mortgage loans.
According to Akerman Senterfitt, the law firm that represented Gateway Bank, Beacon Financial Mortgage Bankers Corp., a Miami-based mortgage lender, sued Gateway Bank after the two parties had entered into two contracts. In June 2005, Gateway Bank and Beacon entered into a contract under which Gateway Bank would fund certain eligible residential mortgage loans originated by Beacon with the loans to be sold to takeout investors pre-arranged by Beacon within 45 days.
Under the agreement, Beacon's principal executed a written guaranty in favor Gateway Bank that unconditionally guaranteed Beacon's obligations to Gateway Bank.
In April 2006, Gateway Bank and Beacon entered into a second contract under which Gateway Bank was afforded the option to act as the takeout investor and purchase certain fully funded mortgage loans from Beacon that met Gateway Bank's eligibility requirements.
In August 2006, Beacon preemptively filed suit against Gateway Bank in state court, alleging that Gateway Bank breached the second agreement. Gateway Bank removed the action to the U.S. District Court for the Southern District of Florida and subsequently asserted counterclaims against beacon and its principal, alleging that Bacon breached both agreements and that its principal breached his personal guaranty.
Beacon sought damages of approximately $20 million from Gateway Bank, while Gateway sought damages of $7 million from Beacon and its principal.
The jury ultimately found that Gateway Bank was not liable for breach of the second agreement, found Beacon liable for breach of both agreements and found Beacon's principal liable for breach of his personal guaranty.
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