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When Plantation, Fla.-based mortgage lender First Mortgage Network Inc. decided to jump onto the Internet highway, it needed a catchy name that would easily work in cyberspace. It found that name in Mortgage.com, a domain that already belonged to Credit.com, a San Francisco-based online service that provides credit reports, loan information and other services. So the two companies struck a deal in January 1999, when Credit.com agreed to sell the Mortgage.com name to First Mortgage Network. As part of the 10-year deal, Credit.com was to market, advertise and promote the Mortgage.com site and, in return, would receive a fee for loans generated by that marketing effort. The deal was expected to generate about $2.5 million a year for Credit.com. Not anymore. Now, the deal is falling apart in a dispute that serves as a caution to companies that are selling their Web site domain names, says James Gale, of Feldman Gale & Weber, who represents Credit.com. “The lesson is, you had best make sure that you don’t give up control of [your] Web site until such time as the royalty stream has been completed,” Gale said. The dispute has landed the dot-coms in U.S. District Court in Miami, where Mortgage.com filed suit last month, claiming Credit.com breached its contract by failing to promote and advertise Mortgage.com’s Web site. Credit.com has fired back with a counter suit alleging it was Mortgage.com that violated the agreement. The dispute comes as Mortgage.com — which declined to comment about the case via its attorney, Abbey Kaplan of Kluger Peretz Kaplan & Berlin in Miami — is beginning to rethink its business strategy. In March, the company, faced with $78 million in net losses and a plunging stock price, announced it would abandon its strategy of targeting consumers directly and instead would target businesses and middlemen such as real estate agents and home builders. As a result, say lawyers for Credit.com, the lender has changed the rules of its agreement and is trying to back out of its contract, which they say is worth millions to their client. “If they want to go in a new direction, that’s fine. But they don’t get to leave their contractual obligations behind,” said Feldman Gale’s Michael Weber, who also represents Credit.com. Specifically, Credit.com claims that Mortgage.com — which has asked U.S. District Judge Ursula Ungaro-Benages to clarify the definition of the term “completed loan application” — is trying to change the definition of that term. The two companies are disputing over whether a fee must accompany the loan application in order for it to be considered complete. Credit.com says no; Mortgage.com says yes. It’s not clear when Mortgage.com began requiring an application fee. Originally, Credit.com was to be paid from $50 to $275 per application, based on the number of “funded mortgage loans” that originated from Credit.com’s Web site. The fee structure changed last June, claims Credit.com, when the two renegotiated the contract. Under the new fee structure, Mortgage.com was to pay Credit.com $80 for every completed loan application “regardless of whether the application resulted in a closed loan,” according to court documents. The new arrangement also called for Credit.com to give up its interest in the Mortgage.com name in exchange for $1.5 million, plus continued revenues that were generated under the marketing agreement. Mortgage.com claimed the amendment was necessary so that First Mortgage Network could file to go public, which it did last summer. For it to go public, First Mortgage Network needed to own the dot-com name outright. The new agreement seemed to be working fine, until last month, when Mortgage.com changed its online application process, according to the suit. The new process required a full underwriting and approval of the loan before the fee to Credit.com would be paid. That month, Credit.com submitted an invoice for the month of April to Mortgage.com, indicating 869 loan applications had originated from its site and, as a result, requesting payment of $69,520. Mortgage.com balked at the amount. It said it was obligated to pay Credit.com only if the person attempting to get a mortgage pays an application fee and only if the loan application originates from Credit.com’s Web sites, and not affiliated Web sites. As a result, it sent Credit.com a check for $20,000 claiming only 250 of the 869 applications qualified under the new deal. Credit.com claims Mortgage.com wants the court to say an application fee is required for the loan application to be considered complete only so it can get away with paying less money to Credit.com. “Redefining the term ‘completed loan application’ by requiring payment of an application fee will further dramatically reduce the number of users who submit a completed loan application,” the suit states. In addition, Credit.com claims that Mortgage.com plans to provide its own online mortgage application on other affiliate Web sites, thereby “eroding its contractual obligations to use the Mortgage.com Web site as its exclusive site for direct-to-consumer lending,” according to the suit, which seeks unspecified monetary damages.

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