Collings v. City First Mortg. Servs., LLC

• Decision Date: 18 November 2013
• Docket Number: Nos. 66527–8–I, 66820–0–I.,s. 66527–8–I, 66820–0–I.
• Citation: 177 Wash.App. 908,317 P.3d 1047
• Court: Washington Court of Appeals
• Parties: Donald COLLINGS and Beth Collings, husband and wife, Respondent, v. CITY FIRST MORTGAGE SERVICES, LLC, a Utah limited liability company f/k/a City First Mortgage Services, L.C.; U.S. Bank National Association as Trustee for the Greenpoint Mortgage Funding Trust Mortgage Pass–Through Certificates, Series 2007–ARI, Appellants, Home Front Holdings, LLC, a Utah limited liability company; Robert P. Loveless and Rebecca Loveless, husband and wife; Andrew J. Mullen and “Jane Doe” Mullen, husband and wife; Gavin Spencer and Margaret Elizabeth Spencer, husband and wife; First American Title Insurance Company, a California corporation, Trustee; “MERS” Mortgage Electronic Registration Systems, Inc., a Delaware corporation; and John Does 1—12, unnamed co-conspirators, Defendants, Executive Trustee Services, LLC, a foreign company, Third–Party Defendant.

177 Wash.App. 908

317 P.3d 1047

Donald COLLINGS and Beth Collings, husband and wife, Respondent,

v. CITY FIRST MORTGAGE SERVICES, LLC, a Utah limited liability company f/k/a City First Mortgage Services, L.C.; U.S. Bank National Association as Trustee for the Greenpoint Mortgage Funding Trust Mortgage Pass–Through Certificates, Series 2007–ARI, Appellants,Home Front Holdings, LLC, a Utah limited liability company; Robert P. Loveless and Rebecca Loveless, husband and wife; Andrew J. Mullen and “Jane Doe” Mullen, husband and wife; Gavin Spencer and Margaret Elizabeth Spencer, husband and wife; First American Title Insurance Company, a California corporation, Trustee; “MERS” Mortgage Electronic Registration Systems, Inc., a Delaware corporation; and John Does 1—12, unnamed co-conspirators, Defendants,Executive Trustee Services, LLC, a foreign company, Third–Party Defendant.

Nos. 66527–8–I, 66820–0–I.

Court of Appeals of Washington, Division 1.

Nov. 18, 2013.

David R. Goodnight, Leonard J. Feldman, Stoel Rives LLP, Seattle, WA, Aric Hamilton Jarrett, Attorney at Law, Seattle, WA, Rochelle L. Stanford, Pite Duncan LLP, San Diego, CA, Jesse A.p. Baker, Pite Duncan, LLP, Mercer Island, WA, for Appellants.

Jeffrey Alan Smyth, Attorney at Law, Shaunta M. Knibb, Smyth & Mason, Howard Mark Goodfriend, Smith Goodfriend PS, Sage Reeves, Serengeti Law, Bellevue, WA, Catherine Wright Smith, Smith Goodfriend PS, Seattle, WA, for Respondent/Cross–Appellant.

Stewart Andrew Estes Keating, Bucklin & McCormack, Inc., P.S. Seattle, WA, Amicus Curiae on behalf of Washington Defense Trial Lawyers.

ORDER GRANTING MOTION FOR RECONSIDERATION IN PART, WITHDRAWING AND SUBSTITUTING OPINION, AND DENYING MOTION TO FILE SUPPLEMENTAL BRIEFING

BECKER, J.

¶ 1 City First Mortgage Services LLC has filed a motion for leave to submit supplemental briefing addressing Barton v. State Department of Transportation, No. 86924–3. The panel has determined this motion should be denied.

¶ 2 City First has also moved for reconsideration on two issues: first, whether nondisclosure of the covenant not to execute warrants a new trial, and second, whether the court should set aside the jury's award of punitive damages under Washington's Credit Services Organizations Act, chapter 19.134 RCW.

¶ 3 As to the first issue, reconsideration is denied.

¶ 4 As to the second issue, City First's opening brief of appellant raised the issue insofar as it relates to being licensed under state law, and this court failed to address it. Accordingly, the original opinion filed on July 29, 2013, will be withdrawn and a substitute opinion will be issued, in which the court will address the issue by inserting an additional section beginning on page 20, before “U.S. Bank,” as follows:

CITY FIRST

ISSUE FOUR: Credit Services Organizations Act

¶ 5 City First contends that the Collings' claim that City First violated the Credit Services Organizations Act, chapter 19.134 RCW, fails as a matter of law. City First argues that it was excluded from the Act's coverage under RCW 19.134.010(2)(b)(i) because it was subject to regulation by WashingtonState, having been licensed as a consumer loan company by the Washington State Department of Financial Institutions. City First first raised the argument below in its trial brief and in a motion for judgment as a matter of law that was presented to the trial court after the court heard exceptions to the instructions.

¶ 6 Collings' brief of respondent in response to City First argues that the Act does permit a violation to be found in the circumstances of this case, where the City First branches from which Loveless and Mullen operated in Utah were not licensed by Washington's Department of Financial Institutions.

¶ 7 Instruction 19 sets forth the requirement that “each branch” had to be licensed in order to be exempt under the Act. City First did not take exception to instruction 19. Moreover, as Collings argues, the Department's regulations support the “each branch” interpretation of the statute provided by instruction 19. We conclude the trial court did not err in denying City First's motions for judgment as a matter of law as to the issue of coverage under the Credit Services Organizations Act.

¶ 8 Now, therefore, it is hereby

¶ 9 ORDERED that appellants' motion for leave to submit supplemental briefing is denied. It is further

¶ 10 ORDERED that appellants' motion for reconsideration is granted in part. And it is further

¶ 11 ORDERED that the opinion filed July 29, 2013, is withdrawn and a substitute published opinion be filed in accordance with this order.

¶ 12 This consolidated case originated in a foreclosure rescue scheme. The trial court quieted title in the homeowners. One appellant, ordered to pay damages and attorney fees, contends a new trial should be granted because the homeowners did not disclose a settlement they reached pretrial with another defendant. Because no prejudice was shown, we reject this argument. The other appellant contends it holds a superior interest in the home. But that appellant was not a bona fide purchaser of the note and deed of trust it possesses. The judgments are affirmed.

FACTS

¶ 13 Donald Collings and his wife, Beth, purchased their Redmond home in 1998. In 2005, a reduction in their income caused them to become concerned about falling behind in their payments on the home.

¶ 14 The appraised value of the home was $510,000, and Collings owed about $377,000 on it when, in early 2006, a flier came in the mail from appellant City First Mortgage Services LLC, advertising a program for people with credit problems. City First is a small mortgage company engaged in transacting the business of residential mortgage loans. Beth Collings called City First. Gavin Spencer, an employee at a City First branch in Utah, offered to help. Ms. Collings applied for a loan over the phone. Soon, Spencer reported the loan was approved. Weeks later, after the purported closing date had been pushed back several times, Spencer told the Collingses the loan had not actually been approved but that his manager might be able to help. Spencer introduced the Collingses to Paul Loveless, a City First branch manager, and Andrew Mullen, a branch manager and loan officer.

¶ 15 According to Mr. Collings, Loveless said, “What we can do is buy your home. We will put it in my name.” ¹ Loveless proposed to buy the Collings home for its appraised value of $510,000, take out a mortgage on it, and then lease it back for $2,970 per month, using these funds to make payments on the mortgage. Collings would pay Loveless an up-front fee of $78,540 and sign a lease-back agreement with an option to repurchase the home after three years for $510,000.

¶ 16 According to Collings, he agreed to the deal on condition that the lease would prohibit Loveless from refinancing the home and from further encumbering it with a home equity line of credit. Loveless obtained title to the home and, as planned, took out a mortgage on it with City First. The deal closed in June 2006.

¶ 17 In July 2008, a foreclosure notice appeared on the house. Collings, who had timely made all the required monthly lease payments, contacted Loveless. Loveless threatened to evict the Collingses if they did not send him more money. Collings discovered that Loveless, in December 2006, had refinanced the loan with City First and had taken out a home equity line of credit, all in violation of the lease prohibition. This transaction, referred to as “the Loveless Loan,” is at the center of the ensuing controversy. Collings stopped paying Loveless and obtained legal representation.

¶ 18 In March 2009, Collings sued City First, Loveless, Mullen, Spencer and other parties who were later dismissed. The complaint sought damages and injunctive relief.

¶ 19 Meanwhile, City First had sold the Loveless Loan. The note and deed of trust passed into the hands of appellant U.S. Bank National Association as trustee for the Greenpoint Mortgage Pass–Through Certificates, Series 2007–AR1. The notice of foreclosure posted on the Collings home was part of a nonjudicial foreclosure instituted in response to Loveless' failure to make payments. Collings filed a lis pendens. Through a court order, he was able to stop the pending foreclosure.

¶ 20 In August 2009, U.S. Bank was granted the right to intervene. U.S. Bank sought a declaration that its security interest, as evidenced by its deed of trust, remained a viable, first priority encumbrance of record in the official records of King County and that it was entitled to payment in full of the debt secured by the deed of trust.

¶ 21 Loveless defaulted. It was undisputed that the Loveless Loan amounted to illegal equity skimming. SeeRCW 61.34.020(1)(b)(i)-(iv). In February 2010, the court found that Loveless, despite his name on the record title, held only an equitable mortgage. As against Loveless, title to the property was quieted in Collings, subject to any applicable valid and subsisting liens.

¶ 22 Trial began in September 2012. The jury was charged with two tasks. First, resolve the claims alleged in the Coilings complaint. Second, issue advisory findings in the U.S. Bank case.

¶ 23 In the City First case, the jury returned a verdict finding Loveless, Mullen, and City First liable to the Collingses. The verdict held Loveless and City First liable for $40,311 in compensatory damages and also imposed $80,622 in punitive damages against the two of them under the Washington Credit Services Organizations Act, chapter 19.134 RCW. The jury assessed $8,000 in punitive damages against Mullen, but no compensatory damages. The court denied City First's posttrial motions and entered a judgment against it.

¶ 24 The trial court also entered judgment in favor of the Collingses in the U.S. Bank case. The court declared the deed of trust held by U.S. Bank void and unenforceable, permanently enjoined U.S. Bank from foreclosing on the Coilings home, and quieted title in the...