Camille Vill., LLC v. Fed. Nat'l Mortg. Ass'n
| Decision Date | 20 January 2022 |
| Docket Number | 2020-CA-00676-SCT |
| Parties | CAMILLE VILLAGE, LLC v. FEDERAL NATIONAL MORTGAGE ASSOCIATION and Barings Multifamily Capital, LLC |
| Court | Mississippi Supreme Court |
ATTORNEYS FOR APPELLANT: JOHN G. CORLEW, DAVID WAYNE BARIA, Bay St. Louis
ATTORNEYS FOR APPELLEES: ALAN LEE SMITH, SHERYL BEY, JUAN BENITO HERNANDEZ, Jackson
BEFORE RANDOLPH, C.J., ISHEE AND GRIFFIS, JJ.
ISHEE, JUSTICE, FOR THE COURT:
¶1. This is a foreclosure dispute between Camille Village, LLC, the owner of an apartment complex in Pass Christian, and the Federal National Mortgage Association and Barings Multifamily Capital, LLC (collectively, "the Lenders"). The dispute began with the failure of Camille Village to deposit additional money in escrow for repairs after it was demanded by the Lenders. The Lenders held Camille Village to be in default, lengthy settlement negotiations failed, and the amount demanded for repairs increased dramatically after additional inspections. After a trial, the chancery court concluded that Camille Village was in default and had failed to prove the Lenders had acted in bad faith. This appeal followed.
FACTS
¶2. Camille Village is an eighty-six-unit apartment complex located in Pass Christian, Mississippi. It is owned by North Street I, LLC, which is itself owned by Camille Village, LLC.1 Camille Village mortgaged the property in 2009 to secure a $1,725,000 loan. The mortgage called for an eighteen-year repayment period and, notably, included a Replacement and Reserve Agreement, which required Camille Village to contribute to an escrow account for necessary repairs to the property. The loan was immediately assigned to Fannie Mae and was serviced during the relevant times by Barings Multifamily Capital, LLC.
¶3. The dispute began after a March 2017 inspection by the Lenders. The 2017 Property Condition Assessment ("2017 PCA") concluded that approximately $106,000 of repairs were needed. The balance of the replacement reserve in May 2017 was about $114,000, but most of that was earmarked for long-term replacements. Thus, the Lenders sent Camille Village a "demand for cure," which demanded deposits of approximately $106,000 into the replacement reserve and the completion of the repairs outlined in the 2017 PCA. Camille Village began making repairs, but it balked at depositing the money in the replacement reserve, allegedly because it was concerned that the Lenders would not release escrow funds to pay it back for the repairs.
¶4. The Lenders regarded Camille Village's failure to deposit the demanded funds into the replacement reserve as a default and sent Camille Village a Notice of Default and Acceleration on August 22, 2017. At the same time, the Lenders initiated non-judicial foreclosure of the property and sought the appointment of a receiver in the United States District Court for the Southern District of Mississippi. Camille Village responded by seeking a temporary restraining order in the Chancery Court of Harrison County. The Lenders removed that cause to federal court, but due to ongoing settlement negotiations, all of the pending suits were voluntarily dismissed without prejudice.
¶5. The settlement negotiations ultimately failed. The Lenders commissioned a new inspection of the property in May 2018 that showed that the property required substantially more repairs than the prior inspection had—a total of $495,000. Subsequent inspections increased the estimate to $582,000 by November 2019.
¶6. Camille Village then filed the instant suit in the Harrison County Chancery Court, alleging (among other things) breach of contract and seeking an injunction against foreclosure. The Lenders counterclaimed for breach of contract, sought a declaratory judgment as to various facts entitling it to foreclose, and asked for the appointment of a receiver. The case went to trial, and after Camille Village presented its case, the chancellor granted a Mississippi Rule of Civil Procedure 41 dismissal of all of Camille Village's claims except for breach of contract. Following the conclusion of the trial, the chancellor found no breach of contract on the part of the Lenders and entered a declaratory judgment permitting foreclosure. This appeal followed.
DISCUSSION
¶7. Camille Village's first issue is a cursory argument about the interpretation of the contract. Camille Village points out that Section 2 of the Replacement and Reserve Agreement provided:
Loans with Terms Over Ten Years. If the Loan term exceeds 10 years, then, no earlier than the 9th month of the year which commences on the 10th Anniversary of the date of this Agreement (and the 20th anniversary of the date of this Agreement if the Loan term exceeds 20 years), a physical needs assessment shall be performed on the Property by Lender at the expense of Borrower, which expense may be paid out of the Replacement Reserve. If determined necessary by Lender, after review of the physical needs assessment, Borrower's required Monthly Deposits to the Replacement Reserve set forth above shall be adjusted for the remaining Loan term so that the Monthly Deposits will create a Replacement Reserve that will in Lender's determination be sufficient to meet required Replacements (defined below).
¶8. Camille Village argues that this provision, which required the lender to perform a physical needs assessment every ten years and permitted it to make adjustments to the replacement reserve "if determined necessary" following the physical needs assessment, is in conflict with other provisions of the agreement that allowed the Lenders to make adjustments to the replacement reserve at other times. According to Camille Village, "the restriction controls," or, alternatively, this conflict created an ambiguity that should be resolved against the drafter (i.e., the Lenders).
¶9. The chancellor rejected this argument, finding:
While Section 2 of the Reserve Agreement sets forth a mechanism which essentially requires Fannie Mae to evaluate and adjust the Replacement Reserve on the tenth anniversary of the loan if necessary, the loan documents do not preclude, and in fact, they allow, other opportunities to do the same at other times during the life of the loan.
¶10. In its reply brief, Camille Village also points to Windmill Run Associates, Ltd. v. Federal National Mortgage Association (In re Windmill Run Associates, Ltd.) , 566 B.R. 396, 409-10 (Bankr. S.D. Tex. 2017), in which the Bankruptcy Court for the Southern District of Texas found that a lender and servicer had acted in bad faith by demanding excessive funds be deposited in a reserve accounts for repairs. The bankruptcy court did look at a provision that was substantially identical to Section 2 of the Replacement Reserve Agreement, quoted above, and it quoted some other provisions of the agreement that appear to be identical to those in this case. See id. And it did conclude that the lenders lacked the authority to perform additional inspections and adjustments. Id. at 447.
¶11. Despite its factual similarities to today's case, Windmill Run appears to be founded on the particular arguments made in that case, i.e., that the unscheduled discretionary inspections authorized throughout the loan documents were actually themselves "physical needs assessments," which are supposed to be done every ten years on a schedule laid out in Section 2. See id. at 419. That argument has not been made in this case. Instead, as the Lenders point out in their brief on appeal, Section 10 of the Replacement and Reserve Agreement provides:
(Emphasis added.)
¶12. Section 5.1(d) of the Replacement and Reserve Agreement states in relevant part:
If at any time during the term of the Loan , Lender determines that replacements not listed on Exhibit A [of the reserve agreement] are advisable to keep the Property in good order and repair and in a good marketable condition, or to prevent deterioration of the Property ... Lender may send Borrower written notice of the need for making Additional Replacements.
(Emphasis added.)
¶13. And Section 7(a)(4) of the Deed of Trust, which states in relevant part:
Borrower shall deposit with Lender ... an additional amount sufficient to accumulate with Lender the entire sum required to pay, when due .... amounts for other charges and expenses which Lender at any time reasonably deems necessary to protect the Mortgaged Property , to prevent the imposition of liens on the Mortgaged Property, or otherwise to protect Lender's interests, all as reasonably estimated from time to time by Lender.
(Emphasis added.)
¶14. And Section 13 of the Deed of Trust states:
¶15. After reviewing the contract documents in their entirety, we agree with the chancellor that Section 2 of the Replacement and Reserve Agreement only specifies that a "physical needs assessment" and accompanying adjustment must be done every ten years; it does not limit the Lenders’ authority to adjust the replacement...
To continue reading
Request your trial