Van Winkle • Baten Dispute Resolution

Principals of a mortgage brokerage company were convicted of diverting monies from a loan escrow account. The lenders deposited funds to be disbursed pursuant to HUD closing statements in an escrow account of the law firm with Bank “A”. The law firm, allegedly negligently, forwarded these funds directly to the mortgage brokers, a principal of which endorsed the checks and deposited them in Bank “B”. When presented with affidavits of forgery, Bank “A” returned the check to Bank “B”. Bank “A” brought an action against Bank “B” to recover its seven figure amounts of the checks returned, alleging that Bank “A” missed the “midnight deadline” and that the checks were in fact endorsed properly under the UCC in that the endorser was an officer of the mortgage company and the payee and was a “person entitled to enforce”. The law firm was joined for negligently forwarding the funds to the mortgage broker instead of disbursing the funds pursuant to the closing statements.