Investor claims mortgage lender tried to defraud it with faulty loans

An investment company sued a brokerage for selling it faulty loans totaling close to $6 million. The lawsuit coincides with a flurry of recent litigation activity in which lenders have sued brokers and lending partners for failing to repurchase loans with defects.

Per a lawsuit filed in North Carolina, Churchill Funding accused Easy Financial, LLC of reneging on a master mortgage loan purchase agreement both companies signed in 2020, which outlined that properties sold to the investment group would be unencumbered and that the loans would be senior to any other loan related to a mortgaged property.

This, according to Churchill, was not the case in some of the loans it purchased from the firm. Easy Financial allegedly sold the company loans wherein borrowers stopped paying their mortgage, or where a loan was not senior on the property it was tied to.

An investigation by the investment group in March claimed it found that Easy Financial and its managing member, Benjamin Donel, were hiding defaults of some of the loans it sold "by making interest payments on behalf of the borrowers and making it look like the borrowers were making the payments."

The lawsuit also hones in on one property that was purchased called the Church Street Property, which cost over $4 million. Churchill claims investigation uncovered a senior lien encumbering the property and that the property was also previously sold by Easy Financial to another investor in 2019. 

These alleged discoveries by Churchill point to a "larger scheme by Easy Financial to defraud investors and enrich itself," the suit said.

Churchill Funding voluntarily moved to dismiss the case without prejudice. The defendant, Benjamin Donel, claims allegations in the case were false and has himself filed a suit against Churchill.

The investment company had claimed it reached out to Easy Financial and Donel to get an explanation about what it discovered and that Donel "admitted to the scheme to resell loan mortgages that had been sold to other buyers."

The investment group stated that it informed Donel's company in early March that it must repurchase loans which are in breach of their previously signed contract, but Easy Financial never followed through with what was asked of it.

In the dismissed lawsuit, Churchill has asked Easy Financial to repurchase the faulty loans it sold, which is pursuant to the terms of the repurchase agreement. The investment firm also notes that until the loans in question have been repurchased it will suspend any and all payments, including interest payments.