The U.S. District Court of New Jersey has sided with Sperry Associates Federal Credit Union in a case involving a CUMIS fidelity bond and whether fraud committed by two mortgage companies impacted coverage.
In 2006, the $307 million Sperry in Garden City Park, N.Y., entered into a mortgage loan servicing agreement with CU National Mortgage, which also agreed to assist in selling any mortgages to the secondary market, according to Sperry’s complaint. The agreement did not authorize CUN or its parent company, U.S. Mortgage Corp., to endorse, assign or sell any mortgages without Sperry’s consent.
Both mortgage companies, along with officials overseeing the entities, were later charged with fraud for selling the loans belonging to Sperry and other credit unions without their consent. The mortgages were then sold to Fannie Mae.
In February 2009, Sperry notified CUMIS of its losses related to the CUN and U.S. Mortgage scheme. In August of that same year, CUMIS filed an action that it did not have duty to indemnify Sperry or any of the other 25 credit unions that were involved in the mortgage fraud case.
Since 2009, the case went through a series of proceedings and amended complaints.
On March 1, the New Jersey U.S. District Court ruled for Sperry. The decision could be good news for the other credit unions impacted by CUN, said Ken Pagliughi, an attorney representing Sperry.
“In addition to this case where Sperry received a favorable decision as to coverage under its CUMIS Bond, Picatinny Federal Credit Union has a matter currently pending in the U.S. District Court of New Jersey and Suffolk Federal Credit Union has a matter pending in U.S. District Court for the Eastern District of New York,” Pagliughi told Credit Union Times. “Both the Picatinny and Suffolk matters have the same coverage issues in contention as were decided by the court in the Sperry matter.”
Pagliughi said CUMIS has not filed a notice of appeal but it has indicated that it is likely an appeal will be filed. A comment from CUNA Mutual Group, CUMIS’ parent company, was not immediately available.
Since being issued an NCUA letter of understanding in May 2010 to correct several problems, Sperry said it eliminated positions, implemented its net worth restoration plan, and reduced operating expenses.