Justices reinstate judgment for loan broker, reject ‘fraud’ finding

A loan brokerage company will be permitted to collect a roughly $3,000 consultant’s fee from a client that rejected its financing offer, the Indiana Supreme Court has ruled, overturning a lower court’s finding that the broker asked the client to commit fraud in order to obtain financing.

The case of Neal Bruder v. Seneca Mortgage Services, LLC, 22S-PL-195, began when general contractor Neal Bruder entered into a consulting agreement with Seneca Mortgage Services. Bruder flips homes, while Seneca provides financing “in creative ways, or where conventional financing wouldn’t be available.”

Per the terms of the agreement, Bruder was required to pay Seneca a consultant’s fee equivalent to 2% of the loan value whenever he consummated a transaction for which Seneca had “directly,” “indirectly” or “through [its] efforts” procured financing. The fee was required even if Bruder did not accept Seneca’s financing offer.

In April 2019, Bruder texted Seneca President David Rusk about a “fix and flip” loan for a property in Indianapolis. Rusk found a lender willing to give Bruder $142,000, but the lender wanted him to pay for certain permits on the property before closing.

Bruder pushed back and ultimately arranged financing through a different company in which he is a minority owner. The original lender eventually dropped the permit requirement, but Bruder told Rusk it was too late.

After Bruder closed on the property with the alternate lender, Seneca sought to collect a $2,840 consultant’s fee. Bruder refused to pay, so Seneca sued for breach of contract.

Bruder argued at a subsequent bench trial that he had refused the permit requirement “because my relationship with the city is very important, and I would be committing fraud to say that I owned something and pulled a permit on it that I didn’t [own] yet.” Rusk, however, said it was not unusual for lenders to ask clients to pay for permits to show their commitment to closing.

The Marion Superior Court ruled in Seneca’s favor and denied Bruder’s subsequent motion to correct error, but the Court of Appeals of Indiana reversed. The COA determined Seneca could not recover a consultant’s fee for presenting Bruder with an offer that was contingent on what “would otherwise be a fraudulent and/or illegal act.”

Seneca sought transfer, which the Supreme Court granted in its Tuesday opinion reinstating judgment in the broker’s favor. The justices rejected the COA’s conclusion that Bruder was being asked to commit fraud in order to receive Seneca’s proposed financing.

“The record is devoid of evidence that would support this sua sponte holding,” according to the Tuesday per curiam opinion. “There is no indication as to what types of permits Bruder filed, nor does the record include any proposed financing terms or documents beyond the text messages between Bruder and Rusk in which they discussed the permit requirement. There is also no evidence that Seneca asked Bruder to ‘pull’ the permits, rather than merely pay for them.

“Moreover, the Court of Appeals provides no citation to support its holding that a permit applicant breaks the law by requesting that the permit issue before a real estate transaction closes,” the opinion continues. “Bruder himself, an experienced contractor, testified that he was unaware of any specific legal or financial penalties associated with pulling permits before closing on a property, while Rusk testified that this requirement isn’t unusual from the lender’s side.

“… Because the contract provided for the payment of a two percent Consultant’s Fee even if Bruder rejected Seneca’s proposed financing, and because the record reveals nothing in Seneca’s demands that would require Bruder to commit an illegal act, we affirm the trial court’s judgment in Seneca’s favor in all respects.”