Duke v. Nationstar Mortg., L.L.C.

• Decision Date: 30 August 2012
• Docket Number: Civil Action No. 2:12–cv–00157–AR.
• Parties: Kent DUKE and Jacqueline C. Duke, Plaintiffs, v. NATIONSTAR MORTGAGE, L.L.C., Defendant.
• Court: U.S. District Court — Northern District of Alabama

893 F.Supp.2d 1238

Kent DUKE and Jacqueline C. Duke, Plaintiffs,

v.NATIONSTAR MORTGAGE, L.L.C., Defendant.

Civil Action No. 2:12–cv–00157–AR.

United States District Court,

N.D. Alabama,

Southern Division.

Aug. 30, 2012.

Lange Clark, Law Office of Lange Clark, PC, Frank J. Russo, Robert C. Keller, Russo White & Keller PC, Birmingham, AL, for Plaintiffs.

David A. Elliott, Rachel R. Friedman, Zachary D. Miller, Burr & Forman LLP, Birmingham, AL, for Defendant.

MEMORANDUM OPINION AND ORDER

WILLIAM M. ACKER, JR., District Judge.

This case illustrates the shortcomings, even the dangers, of the once mighty global secondary mortgage loan market, with its arcane methods of doing business, conceived by ambitious, super-sophisticated, big-brained, short-sighted financiers and their lawyers, who did not realize that they were creating a Frankenstein for everybody involved except the lawyers. Based on the number of somewhat similar cases pending in various federal and state courts, the roof has come crashing down, and its restoration remains in doubt. Because of the complexities of the system and of the overall facts of this case, the court will do its best to limit itself to the single issue before it.

When this case began, there were two named defendants, MorEquity, Inc. (“MorEquity”) and Nationstar Mortgage, LLC (“Nationstar”). The action as against MorEquity was dismissed with prejudice on March 15, 2012, leaving Nationstar as the only defendant. For some unexplained reason, the parties are still filing papers that include MorEquity as a defendant. To resolve any doubt, the order of March 15, 2012, is hereby AMENDED pursuant to Rule 54(b) to direct the entry of final judgment in favor of MorEquity and against plaintiffs, Kent Duke and spouse, Jacqueline C. Duke (“the Dukes”, “Mrs. Duke” or “Mr. Duke”, as appropriate), the court expressly determining that there was on March 15, 2012, and still is, no reason for delay.

Before the court is a narrowly focused motion for summary judgment (Doc. 22) by Nationstar, claiming that the Dukes' claims are barred by the doctrine of res judicata. Also pending is the Dukes' motion to strike (Doc. 26) the declaration of A.J. Loll and its attachments (“Loll Declaration”), submitted by Nationstar in support of its Rule 56 motion. There is no pending challenge to the Dukes' action on any basis except res judicata. Therefore, the court need not consider of any evidence except that relevant to the defense of res judicata. For the reasons that follow, the Dukes' motion to strike and Nationstar's motion for summary judgment will both be denied.

BACKGROUND¹

On April 27, 2004, Mrs. Duke borrowed $293,600.00 from something calling itself “Wilmington Finance, a division of AIG Federal Savings Bank” (“Wilmington Finance”). She signed a promissory note payable to Wilmington Finance, securing the said sum with a mortgage on her home. The record does not contain a copy of the note. Mr. Duke, as spouse, executed the mortgage with Mrs. Duke in favor of Wilmington Finance. It is unknown whether Wilmington Finance was at that time a juridical entity (something it would have been if it was a corporate subsidiary of AIG, or which it would not have been under Alabama land law if it was, in fact, “AIG, d/b/a Wilmington Finance”). The answer to this enigma does not appear from the record. The loan transaction began with this potential problem, which, fortunately, has been resolved, inasmuch as the parties do not complain about the status of the original lender-mortgagee. The court will therefore, assume, with the parties, that Wilmington Finance was a legal entity, and was the actual lender-mortgagee.

Wilmington Finance assigned its note and mortgage on or about April 29, 2004, to MorEquity, Inc. (“MorEquity”).

In the complicated world of the high risk mortgage industry as it existed at all times here pertinent, the answer to a question as simple as “who is the owner of a mortgage?” is not always apparent from a review of the land records where the real property is located. In fact, the term “owner” may mean “a hundred owners” involved in a joint or divided undertaking or investment where the original homeowner-borrower is unaware of who the “real” “owners” are. This complexity is exacerbated when the “owner” or “owners” begin to split up and transfer the mortgage and note willy-nilly, often effectuating the transfer by simply endorsing the note in blank, affixing an allonge to it, and assuming that the mortgage security and right to foreclose will pass with the note by operation of law. As recently as June 22, 2012, the Alabama Court of Civil Appeals decided Coleman v. BAC Servicing, agent for the Secretary of Veterans Affairs, an officer of the United States of America, 104 So.3d 195, 2012 WL 2362617 (Ala.Civ.App.2012), not yet released for publication. This court does not fully understand the impact of Coleman, but is bound by it to the extent it may apply to this case. Any defect in MorEquity's title by virtue of its possible lack of physical possession of the note at the time of foreclosure, was cured by the res judicata bar that the court has already found as to MorEquity. After withdrawing its first opinion that, if available, might help to understand the Court's second opinion, two of the five judges of the Court of Civil Appeals concurred only in the result. To the extent this court understands the Court of Appeals, it held that in Alabama the assignee and actual possessor of a note secured by a mortgage automatically becomes the mortgagee, even if there is no recorded assignment of the mortgage, and therefore has the right to foreclose in the event of default. Whatever interesting question Coleman might present elsewhere, the ownership of this note and mortgage has been established by res judicata.

MorEquity was its own “servicer” of the mortgage until January 2011, at which time it mailed a “Notice of Assignment, Sale, or Transfer of Servicing Rights” to the Dukes. This letter stated that “effective February 1, 2011 the servicing of [the Dukes'] loan, that is the right to collect payments from you, will be assigned, sold, or transferred from MorEquity, Inc. to Nationstar Mortgage LLC.” The letter neither mentioned MorEquity nor explained MorEquity's continued role as owner with a right to foreclose. It did not inform Mrs. Duke of the entity to whom her checks or money orders were to be made payable. This also becomes academic, because at the time she received this letter, Mrs. Duke was already delinquent. On June 30, 2011, the Dukes received a letter from MorEquity indicating that because of their default it had instructed its law firm to foreclose. It made no mention of Nationstar or any role Nationstar would play in the proceedings. After the requisite notices required by the original mortgage had been published by MorEquity, the Dukes' property was sold for the loan balance to MorEquity at a foreclosure sale conducted on July 25, 2011.

On August 1, 2011, MorEquity filed an ejectment action against the Dukes in the Circuit Court of Shelby County, Alabama, demanding possession. On October 27, 2011, MorEquity filed a motion for summary judgment. After a hearing and briefing, in which the Dukes participated pro se, the state court granted MorEquity's motion for summary judgment and awarded possession of the premises to MorEquity on December 8, 2011. On January 6, 2012, after retaining counsel, the Dukes filed a motion to alter, amend, or vacate the summary judgment. The Dukes' motion raised several issues, pertaining both to MorEquity and to Nationstar, but Nationstar was never named as a party in the Shelby County case. On February 13, 2012, the Shelby County court entered an order holding that its judgment was to remain in full force and effect, that the matter was “settled”, and that the Dukes' motion to vacate was “withdrawn.” What the purported “settlement” consisted of is nowhere reflected. As a matter of Alabama law and procedure, the motion to vacate never existed insofar as it, if not withdrawn, may have sought relief of any kind from Nationstar. The MorEquity judgment against the Dukes was final. The Dukes did not appeal from the state court's final judgment, and the Dukes, as ordered, have vacated the premises.

On January 17, 2012, the Dukes filed the present action against both MorEquity and Nationstar. In their complaint, the Dukes initially claimed a violation of the Fair Debt Collection Practices Act by Nationstar and state law claims of breach of contract; negligent hiring, training, and supervision; negligence; wantonness; wrongful foreclosure; outrage; and invasion of privacy against both parties. MorEquity and Nationstar, represented by the same law firm, filed a joint motion to dismiss on the grounds that the Dukes' claims are barred by the Rooker–Feldman doctrine and the doctrine of res judicata (Doc. 8). After briefing and a hearing, this court entered an order dismissing with prejudice the Dukes' action as against MorEquity on the basis of res judicata. (Doc. 16). Nationstar's motion to dismiss was denied. The court indicated that further evidence would be needed to support Nationstar's argument for a dismissal on the ground of res judicata arising out of alleged privity between Nationstar and MorEquity.

Nationstar has now offered two key pieces of evidence in support of its current motion for summary judgment, the Loll Declaration and the Subservicing Agreement (“Servicing Agreement”). The Loll Declaration, to which the Servicing Agreement is an exhibit, generally outlines the owner/servicer relationship between MorEquity and others as Co-owners and Servicers, and Nationstar as Sub–Servicer. It covers the Dukes' mortgage loan and loans owned by others. The Servicing Agreement reflects that MorEquity was one of the “Owners” and “Servicers” of the Dukes' mortgage loan and that Nationstar was the “Sub-servicer.” As Sub-servicer, Nationstar was to service the...