MIAMI (11/8/12)--A federal appeals court Tuesday upheld the National Credit Union Administration's (NCUA) position after a Florida credit union filed a breach of contract lawsuit against NCUA, concerning mortgage loans. The ruling was made in the U.S. Court of Appeals for the 11th Circuit in Miami.
The National Credit Union Administration (NCUA) in March filed a notice to remove a $15 million breach of contract lawsuit filed by Power Financial CU to the U.S. District Court for the Southern District of Florida in Miami. The suit concerns an agreement to buy mortgage loans from a credit union now in conservatorship (News Now March 2).
Power Financial CU, Pembroke Pines, Fla., filed its complaint Feb. 14 in the 11th Circuit Court against Keys FCU, Key West, Fla. NCUA filed its notice of removal with the U.S. District Court on March 1, saying that the agency, as conservator of Keys FCU, is the real party to the case. Keys was placed into conservatorship on Sept. 24, 2009, according to court documents.
The case relates to a loan sale agreement that Power Financial and Keys Federal entered into on July 12, 2010, according to the original complaint filed in the 11th Circuit Court. The complaint said Power Financial agreed to purchase certain mortgage loans of Keys Federal and that the borrowers whose mortgage loans were to be purchased would automatically become members of Power Financial.
The central issue in the appeal is whether an agreement for Power Financial to purchase mortgages of non-members was unenforceable under Florida law, said the U.S. Court of Appeals for the 11th Circuit in Miami in its decision.
In making the ruling Tuesday, the federal appeals court stated: "After Power Financial sued to enforce the agreement, the district court granted summary judgment in favor of the Administration [NCUA] on the grounds that the agreement was unenforceable under Florida law. We affirm the summary judgment because the agreement was unenforceable and affirm the denial of a motion for enlargement of time for discovery because the denial of that motion was not an abuse of discretion."
On Aug. 27, 2010, Power Financial received a letter from Keys Federal that "expressly repudiated" the contract, explaining that the transaction was "no longer in the best interest" of Keys Federal.
It is "extremely difficult," said Power Financial's complaint, for it to purchase replacement mortgage loans because it "is limited by state regulation to specific preapproved geographic areas" related to its field of membership. "Mortgage loans available for purchase in the communities in which Power Financial has members are often not suitable for purchase because of the current real estate conditions in those communities," the document said.
The complaint noted that on Oct. 12, 2010 Power Financial received consent for the sale from the Florida Office of Financial Regulation, and on Oct. 19, 2010, Power notified Keys' attorneys of the approval, but never heard back on the matter.