Judgment Vacated in Warehouse Lending Case

The Pennsylvania Supreme Court has vacated a $350 million judgment against a Philadelphia national bank that interrupted a secondary-market transaction and denied a warehouse lender $1.7 million from the proceeds of a residential mortgage sale.Former warehouse lender Pioneer Commercial Lending, Los Angeles, maintained that the loan proceeds were protected by a bailee letter. But the state justices ruled that unusual circumstances surrounding the transaction "contradicted" the bailee letter. Pioneer's attorney Maurice Mitts is seeking a rehearing. If that fails, Mr. Mitts said an appeal would be filed with the U.S. Supreme Court. "This is a disaster for the mortgage industry," Mr. Mitts said, because lenders and warehouse lenders can no longer be sure a bailee letter will protect their ownership rights in the notes they are trying to sell. The $1.7 million was mistakenly wired to a lender's account instead of Pioneer's, according to Mr. Mitts. However, Corestates Bank NA, Philadelphia, seized the funds to cover losses from a massive check-kiting scheme by one of the lender's principals. Mr. Mitts is with the Philadelphia law firm of Frey, Petrakis, Deeb, Blum, Briggs & Mitts. Corestates is now owned by Wachovia Bank NA, Charlotte. N.C. In July 2000, a trial judge ordered Corestates to refund the $1.7 million to Pioneer and pay $13.5 million for contributing to the destruction of Pioneer's business and $337.0 million in punitive damages.