ComplaintsforMerchants Mortgage & Trust Corporation

• Initial Complaint

  12/28/2023

  Complaint Type:

  Order Issues

  Status:

  Answered

  More info

  By way of background: I have a loan for $760,500 from Merchants Mortgage and Trust Corporation (DBA Orchard Funding LLC), which covers two side-by-side properties I purchased as flips. On December 31st, 2022, a storm caused multiple trees to fall and damaged both properties. Insurance paid out approximately $112,000 which the Merchants withheld and refused to allow me to use for the repairs of the properties. The properties sat in disrepair, and I was unable to flip the properties. Due to the high interest rate Merchants was charging me, and the significant delay they caused (approximately 9 months of additional holding cost @ $11,000 per month), I couldnt afford to keep the properties. I found a buyer who was willing to purchase both properties at $850,000. Which should have left me with $89,500 after full repayment of Merchants loan. I called my closing title company who informed me they were sent a demand for $841,000. Which didnt at all match the letter I was sent, and was approximately $100,000 more than I owed. there were not even enough funds in the sale price for the house to close once realtor and title fees were included. So the sale was stuck in escrow, due to not having enough funds to close.When I confronted Merchants about their conflicting demand letters, they sent an email with a third conflicting closing number of $832,000 plus fees.Merchants refused to drop the fees or even lower their demand enough for the sale to close. Merchants offered a short sale. Since I did not have the money to add to the sale, I was forced to accept the short sale offer.Later Merchants recanted their "offer" of a short sale, and stated I would have to withdraw a complaint I filed with DFPI and forego all future litigation option in exchange for the short sale.Merchants has delayed the close ********************************************************* to drop my previous DFPI complaint. They are now threatening foreclosure if I don't drop the **** complaint.

  

  Business response

  03/11/2024

  Merchants, though its subsidiary, known in ********** as Orchard Funding, originated a commercial purpose loan to ******************************* to upgrade two (2) properties in **********. For ease of understanding, we will refer to Lender as Merchants.
  
  **************** reported to Merchants that a storm caused several trees to fall on the parcels covered by the loan, which caused some damage to the houses on the properties.   *************** filed an insurance claim to restore the damage (less his deductible).   As required by the loan documents, the insurance proceeds were paid to both **************** and the Lender.   Normally, a lender would simply have advanced the insurance proceeds to the Borrower as and when the Borrower completed the repairs that the insurance was supposed to cover, so that the collateral pledged to the lender would continue to have the same value i.e.either damaged property plus insurance funds, or repaired property, with insurance funds used for the repairs.
  
  In this case, the Borrower decided that he wanted to change the scope of work that he was going to do to the properties, after the damage.   This sort of mid-stream change could make sense, but it requires new underwriting of the loan based on the lost value due to the damage, the cost of the proposed repairs and the estimated value of the repaired/improved property.
  
  Having changed the scope of work from the approved budget to a larger budget, Merchants needed to ascertain how that would affect its collateral position.  Instead of cooperating and providing that information to Merchants, **************** decided to stonewall Merchants, and instead just demand that Merchants simply turn over the insurance funds to him.   When asked for proof of the work performed to replace the damaged collateral, his responses were evasive.
  
  Ultimately, after hiring third party inspectors, Merchants determined that its loan to value ratio was not significantly impacted by the losses, and agreed to release the insurance funds to ****************, without all the normally required backup documentation of proof of payment for the various work items.  By this time, **************** stopped making interest payments on his loan. When the loan matured, **************** asked for an extension of the maturity date. Even though he was in default in the payment of interest, Merchants agreed to give an additional 180 day extension of the loan term. After the Extension, **************** still failed to make further interest payments. The loan has been in default for many months. Merchants gave **************** the full additional 180 days before demanding the loan, and has now commenced foreclosure proceedings.
  
  In the interim, **************** has filed multiple complaints with the ** ********** of ********* Protection and Innovation (****), the governing body for Merchants license in that state. The **** determined that there was insufficient (if any) substance to ****************** complaint(s), and declined to take any action.
  
  **************** has said he had found a buyer, and requested payoff information.  Merchants provided him with payoff numbers, that included all the accrued default interest since maturity plus other fees that had accrued and that were agreed to in the original loan documents. **************** had his lawyer send Merchants a letter claiming that he did not understand how the payoff amounts were calculated.  Merchants counsel responded to **************** and his lawyer and explained exactly how the amounts were calculated, and why they were perfectly consistent with the original loan demand, except that the passage of time and the application of default interest rate since maturity,had substantially increased the amount due.
  
  **************** claimed that the sale would not provide sufficient funds to repay Merchants in full, which as of January 30, 2024 would have been $863,628.35, and asked for a discount. Merchants offered him a significant discount in consideration of which *************** would agree to settle his claims against Merchants, put the matter to rest, and allow the sale to conclude. **************** refused, and instead let the buyer go, and walked away from the sale. **************** countered that he wanted a discount of approximately $300,000 in order to settle his claims, which Merchants rejected.
  
  **************** has acted irrationally, unreasonably and without regard to the terms of the loan and transparent business practice. While Merchants at one point was willing to offer him a substantial discount to simply put an end to this drama, **************** seems to want to play this out and will reach out to any free organization willing to lend him an ear, such as the BBB.  Merchants has already done what a lender should do, and more for this customer. In this instance, the proper venue for both parties is through the legal system, which Merchants has commenced.

  Customer response

  03/17/2024

   
  Complaint: 21069510
  
  I am rejecting this response because: It is a misrepresentation of the Merchants actions. I could pick apart just about every word they claim, but for times sake, I'm only going to address the main points. Merchants starts off by claiming in the 2nd paragraph that the "insurance proceeds were paid to both **************** and the Lender." Though both our names were on the checks, their were clarifying letters attached to each check which confirmed the funds were mine, and that the lenders' name was merely on the checks for endorsement. Yet Merchants insinuates the funds were just as much theirs as mine. Next they make the claim; "Normally, a lender would simply have advanced the insurance proceeds to the Borrower as and when the Borrower completed the repairs that the insurance was supposed to cover, so that the collateral pledged to the lender would continue to have the same value" This is not only very impractical to expect a home owner to fix his property without the funds to do so, but it is also false and illegal. Not only does CA law, case precedents, and our contract demand the funds be released to me, but I also spoke with representatives at ************, who stated they have never even heard of the "Normal" procedure Merchants is claiming. Merchants themselves even stated the opposite than what they are claiming now.  

  They continue by claiming; "The Borrower decided that he wanted to change the scope of work that he was going to do to the properties, after the damage." I was instructed, via email, by Merchants to provide a new scope of work, which was immediately approved. Their entire 3rd and 4th paragraphs is built off this lie. They also claim I stonewalled them and did not provide documents they needed. I have a few hundred emails, which show every time a document was requested they received it promptly. I would like Merchants to respond with the emails and specific documents which they are now claiming I did not send.

  Finally, they make these claims: "By this time, **************** stopped making interest payments on his loan.  When the loan matured, **************** asked for an extension of the maturity date. Even though he was in default in the payment of interest, Merchants agreed to give an additional 180 day extension of the loan term." I am almost unable to count the lies in that statement. I had not stopped making payments, I asked for an extension 3 months prior to the loan maturity, not "when the loan matured." I also was not in default, which is evident on their own documentation. Lastly, they did not just "*****" my extension, as if done out of great benevolence. They had already *****ed my extension 3 months prior when I requested it, and they attempted to retroactively withdraw my extension. When they were unable to do this, they were forced to ***** the extension. 

  "**************** has filed multiple complaints with the **************************************************** (****), the governing body for Merchants license in that state. The **** determined that there was insufficient (if any) substance to ****************** complaint(s), and declined to take any action." This is another lie. DFPI does not take direct action- so claiming innocence by stating "they declined to take any action," is intentionally misleading. Further, DFPI representatives actually called my cell phone and asked that I submit more complaints as the situation unfolds so Merchants could eventually be investigated for their actions.

  "Merchants counsel responded to **************** and his lawyer and explained exactly how the amounts were calculated, and why they were perfectly consistent with the original loan demand, except that the passage of time and the application of default interest rate since maturity, had substantially increased the amount due." Not sure why they would claim this, as they admitted in the response to DFPI that their numbers were inaccurate. Their fraudulent numbers actually locked the sale in escrow. Merchants refused to correct their numbers and allowed the buyers to walk away after about 3 months of attempting to close. Merchants again touts benevolence by saying "Merchants at one point was willing to offer him a substantial discount to simply put an end to this drama." The "discount" they offered was a price reduction off the admitted fraudulent number they used to lock the house in escrow, which was over $10,000 more than what I owed. That's not including the hundreds of thousands of dollars they cost me with their illegal and unfair business practices.
  

  Merchants has never given a straight, verifiable account or justification of their actions.

  Sincerely,
  *******************************

  

  Business response

  03/26/2024

  Merchants is providing the below based on the BBB's request to PLEASE PROVIDE A RESPONSE THAT ADDRESSES: "I would like Merchants to respond with the emails and specific documents which they are now claiming I did not send."

  As previously described in greater detail, rather than use the insurance proceeds to reconstruct the property / collateral exactly as it was prior to the casualty loss, Borrower requested a change in scope to its remodel / reconstruction, wishing to use the insurance funds for a different purpose. Lender required information / evidence of the existence of the funds required to complete the revised scope of work. ********'s budget for the revised scope of work was $137k, but ****** had only received ~$85k of insurance proceeds checks, which is a significant shortfall. ******** stated multiple times that he will not come out of pocket (was not financially able to) for the difference and that insurance will cover the shortfall, but Borrower did not provide evidence that the insurance carrier actually would do so. The Insurance carrier's cost estimates were based on a different scope of work than ********'s, which creates risk. Attached here is an email exemplifying the above.

  Due to pending litigation, the parties' attorneys may no longer advise / permit further communications involving third parties such as the BBB.

   

  Customer response

  03/30/2024

   
  Complaint: 21069510
  
  I am rejecting this response because: Merchants not only failed to respond to the questions asked, but they also provided no solution to resolve this complaint.

  Merchants was asked to provide evidence of their claim that I "stonewalled them and refused to send them information they requested." However, their evidence which was attached, was an email from them stating there was supposed to be another $60,000 in remitted insurance funds, which was never discussed, and I refuted immediately as being false. What they've done is attempted to create a strawman- substituting "refusing to send documents" with "No evidence of an additional $60,000." However, not only was there no evidence presented for their original argument, but even their argument against the strawman failed to show any kind of noncooperation on my part. All of our communication after February 17th (or thereabouts) was done solely over email, so if I had said something previously about the $60,000 they claim I touted, than they would have attached that email as evidence instead of the pointless one they chose. However, no such email exists. 

  Merchants makes the claim that I did not provide proof of additional insurance funds. However, the insurance documents were sent with the checks they withheld. I pointed those documents out to Merchants early on, there were several line items which the insurance could not pay out on "until cost was incurred," so I did not have access to those additional funds because Merchants refused to send me the first round of funds. Further, these items would not have negatively affected the new scope of work (which I was instructed to create by Merchants), because the amount was self-adjusting. If these projects incurred a lower cost, than the following insurance checks would have been smaller, and if the incurred cost was higher than quoted, than the checks would have been higher. So there is no possible way this issue could have any effect on Merchants' collateral. They have been aware of this from the beginning, and had all related documents from the beginning. Further, once I finally did incur the cost on these additional line items (which I did out of my own pocket, which Merchants is now claiming I refused to do), the insurance sent the exact dollar amount which was predicted. Then, even after they had all the money, they still refused to release it. The money went right into their pockets. 

  Merchants also makes the claim there was a "significant shortfall" in the budget. This is not true. The proposed repairs and upgrades in the new scope of work had $11,000 in excess of the proposed budget. The budget was approved by Merchants the same day. The only "shortfall" was the delayed insurance funds, which Merchants themselves is responsible for delaying, as explained in the above paragraph. 

  I understand there are sometimes honest mistakes in business. But when "mistakes" are made in a company's favor to the tune of hundreds of thousands of dollars, and the company resorts to lies and excuses as opposed to making things right, it becomes evident these mistakes were not honest in nature, but fraudulent. 

  Merchants has made no genuine attempt to resolve this matter. I would like to hear Merchants' solution to this problem which they've caused.

  Sincerely,

  *******************************

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