Bryce v. Lawrence (In re Bryce), Bankruptcy No. 09–48516.

Citation491 B.R. 157
Decision Date01 March 2013
Docket NumberBankruptcy No. 09–48516.,Adversary No. 10–04099.
CourtUnited States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Western District of Washington
PartiesIn re Brian John BRYCE and Catherine Grace Bryce, Debtors. Brian John Bryce and Catherine Grace Bryce, Plaintiffs, v. Brett Thomas Lawrence and Jane Doe Lawrence, husband and wife and their marital community; James Spooner and Jane Doe Spooner, husband and wife and their marital community; and Excel Funding, Inc., a corporation licensed to do business in the State of Washington. Defendants.

OPINION TEXT STARTS HERE

Richard C. Kimberly, Bellingham, WA, for Debtor.

MEMORANDUM DECISION

PAUL B. SNYDER, Bankruptcy Judge.

Trial was held in this matter on September 10, 11, 12, November 19 and 20, and December 14, 2012. Brian John Bryce and Catherine Grace Bryce (Plaintiffs) seek judgment against Brett and Jane Doe Lawrence, husband and wife; James and Jane Doe Spooner, husband and wife; and Excel Funding, Inc. (collectively referred to as Defendants).1 At the conclusion of the trial, the Court took the matter under advisement. Based on the evidence, arguments of counsel, and pleadings submitted, this Memorandum Decision shall constitute findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052. In the event constitutional authority is determined to be lacking, this Court's proposed findings of fact and conclusions of law shall be submitted to the U.S. District Court for the Western District of Washington for entry of a final order or judgment as required by 28 U.S.C. § 157(c).

IPROCEDURAL HISTORY AND RELEVANT FACTS

The Plaintiffs own real property and improvements purchased in 1990 and located at 21447 Bucoda Hwy SE, Centralia, Washington (Property). In September 2006, the Plaintiffs were in default on their residential mortgage loan held by Centex Home Equity Company (Centex). The monthly mortgage payment on the Centex loan was approximately $711, and the balance owing was approximately $82,170. The Plaintiffs are unsophisticated in finance. Ms. Bryce is currently employed in the restaurant business and attended one year of college. Mr. Bryce is employed as a woodworker and has a high school education. This appears to be the first home they have purchased.

In September 2006, the Plaintiffs contacted Defendant James Spooner (Spooner) at Excel Funding, Inc. (Excel) about refinancing the Centex residential mortgage loan on their Property. The Plaintiffs were referred to Spooner by loan officers at Washington Mutual Bank when they attempted, but did not receive, conventional refinancing. Excel is owned entirely by Defendant Brett Lawrence (Lawrence).

Spooner received the necessary financial information concerning the Plaintiffs over the telephone and used it to prepare a Uniform Residential Loan Application, subsequently signed by the Plaintiffs on October 18, 2006. An appraisal was performed on the Property, and Spooner testified that he advised the Plaintiffs that some basic home repairs would need to be completed. There was no evidence presented by either party as to the exact cost or extent of the repairs requested. The appraisal obtained by Spooner valued the Plaintiffs' Property at $210,000.

After obtaining the requisite financial information, Spooner advised the Plaintiffs that he was unable to find a conventional lender willing to refinance the loan, but that they might be able to obtain refinancing through a private lender. Unbeknownst to the Plaintiffs, the private lender that Spooner had in mind was Brett Lawrence, the owner of Excel. Spooner acknowledged that he did not meet with the Plaintiffs prior to closing, nor did he go over or explain the paperwork that they would need to sign at closing. Further, Lawrence never met or talked with the Plaintiffs prior to closing the loan. Before signing, the Plaintiffs did receive through the mail and signed on October 18, 2006, a Good Faith Estimate, an Estimated HUD–1 Settlement Statement, and a document captioned “New LoanNotice of Right to Cancel.”

On or about October 23, 2006, the Plaintiffs attended a “Courtesy Signing” of the loan documents at Stewart Title Company of Lewis County (Stewart Title). The Plaintiffs did not receive copies of the documents to be signed or many of the required disclosures prior to closing, nor was Spooner, Lawrence or anyone involved in the preparation of the loan documents available to assist them or answer their questions at closing. The closing was attended by one of Stewart Title's Limited Practice Officers, who was not familiar with the transaction, could not render advice, and merely handed them the original documents to be signed. As they departed, the Plaintiffs received unsigned copies of the documents they believed had just been signed.

The basic terms of the Promissory Note signed by the Plaintiffs are as follows: principal loan amount of $117,000; fixed interest rate of 12%; monthly principal and interest payment of $1,210.68; monthly payment to begin December 1, 2006; balloon payment due April 1, 2008; balloon payment default penalty of $6,000; a five year prepayment penalty of six month interest unless refinanced through Excel; late fee charge of $60.53 if any one installment payment was more than five days late; and a default interest rate of 18%. The Plaintiffs testified that although they had defaulted on the Centex loan where payments were almost $500 less per month, they thought they could reduce their personal expenses to afford this new increased loan payment. The Plaintiffs also believed that they would be able to refinance at a lesser rate prior to or soon after April 1, 2008, the due date of the loan, particularly considering the equity they felt they had in the Property and given that they would have established a satisfactory payment history. The Plaintiffs testified that they believed that this loan was their only option for saving their Property from foreclosure by Centex. It is unclear as to the promises, if any, Spooner made as to the Plaintiffs' ability to refinance.

According to one of two “Final” unsigned HUD–1 Settlement Statements (Settlement Statement) dated October 23, 2006, the following fees were associated with the loan and paid to Excel: (1) an origination fee of $2,942.50; (2) $16 for a credit report (actual cost was $10.02); (3) $999 underwriting fee; and (4) $375 processing fee. Lawrence also received a “lender fee” of $4,708. The Settlement Statement also disclosed a “CONSTRUCTION HOLDBACK” of $2,915.65, and an “ADD'L CONSTRUCTION HOLDBACK” of $304.74.

There was a discrepancy between the Settlement Statement and the Promissory Note as to the principal amount of the loan. The Settlement Statement and Good Faith Estimate indicate that the principal amount of the loan from Lawrence was $117,700, while the Promissory Note states $117,000.

The Plaintiffs timely made payments during the term of the loan in excess of the required monthly payment. The required payment was $1,210.68, but the Plaintiffs generally tendered monthly payments of $1,215. The payments made by the Plaintiffs, however, were incorrectly recorded in Lawrence's account ledger as $1,210.68, resulting in a small underreporting of their payments. During this period, the Plaintiffs never received a monthly mortgage statement or escrow statement indicating that amounts were being held by Lawrence in his personal account as a “construction holdback.” There is no indication of the purpose of either of the construction holdbacks in the documentation. These funds were never received by the Plaintiffs, but were instead held in an account under the control of Lawrence with interest being charged to the Plaintiffs as an amount still due and owing. The Plaintiffs were unaware that Lawrence was holding these funds and charging them interest as an amount owed.

In May 2008, Mr. Bryce had a job slow down and the Plaintiffs were unable to make timely monthly payments in full; accordingly, the loan went into default. The Plaintiffs contacted Spooner and requested his assistance in obtaining immediate refinancing of the Lawrence loan. The Plaintiffs believed that because they had been current for the term of the loan, they would be able to get conventional financing. Spooner testified that he attempted to place the Plaintiffs with at least one lender, but was unsuccessful because needed repairs to the Property were never completed despite his requests and offers to help. Spooner never attempted to place them with a FHA lender because he believed they would not qualify.

After May 2008, the Plaintiffs' payments to Lawrence became sporadic and were generally for less than the normal installment payment. In July 2009, the Plaintiffs received a letter of default dated June 8, 2009. The default letter advised the Plaintiffs that a principal amount of $126,490.95 was now due and owing for failure to pay a balloon payment due April 1, 2009. The default letter also indicated that the Plaintiffs had incurred a late payment of $6,000 and additional attorney fees of $500. The total amount demanded by July 13, 2009, was $132,990.95.

A Trustee's Sale was scheduled for October 30, 2009. On October 29, 2009, the Plaintiffs, through counsel, sent Lawrence a Qualified Written Request. The Defendants responded on November 2, 2009, with an accounting of the requested loan payoff amounts. In comparing the requested information with the Defendants' response, it is clear that the Defendants' response was incomplete. For example, copies of the Defendants' loan file, signed copies of the closing papers, and construction account balance were not provided as requested. Further, Lawrence supplied the Plaintiffs' attorney with a payoff and breakdown of principal and interest indicating the Plaintiffs paid interest on the loan in 2008 of $8,639.61. No explanation was provided for why this amount differed from the amount stated as mortgage interest received from the Plaintiffs in 2008 on Form 1098 filed with the Internal Revenue Service....

To continue reading

Request your trial
5 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT