Collings v. City First Mortg. Servs., LLC

• Decision Date: 29 July 2013
• Docket Number: Nos. 66527–8–I, 66820–0–I.,s. 66527–8–I, 66820–0–I.
• Citation: 175 Wash.App. 589,308 P.3d 692
• 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.

175 Wash.App. 589

308 P.3d 692

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.

July 29, 2013.

David R. Goodnight, Leonard J. Feldman, Stoel Rives LLP, 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 Appellant.

Jeffrey Alan Smyth, Attorney at Law, Shaunta M. Knibb, Howard Mark Goodfriend, Catherine Wright Smith, Smith Goodfriend PS, Seattle, WA, Sage Reeves, Serengeti Law, Bellevue, 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.

BECKER, J.

[175 Wash.App. 594]¶ 1 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

¶ 2 Donald Codings 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.

¶ 3 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.

¶ 4 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.

¶ 5 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.

¶ 6 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.

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

¶ 8 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–ARI. 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.

¶ 9 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.

¶ 10 Loveless defaulted. It was undisputed that the Loveless Loan amounted to illegal equity skimming. SeeRCW 61.34.020(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.

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

¶ 12 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 Organization 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.

¶ 13 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 Collings home, and quieted title in the Collingses as against U.S. Bank. City First and U.S. Bank appeal from the judgments entered against them.

CITY FIRST

ISSUE ONE: Nondisclosure of Settlement Agreement

¶ 14 After the verdict, City First moved unsuccessfully for a new trial under CR 59. One basis for the motion was City First's discovery of a previously undisclosed pretrial settlement. The Collingses, in exchange for Mullen's promise to pay $500, had agreed they would not execute any judgment they obtained against Mullen.

¶ 15 The litigation of City First's motion for a new trial and the order denying that motion focused primarily on whether the covenant not to execute against Mullen had the effect of releasing City First from its vicarious liability for the acts of Loveless or Mullen. The court concluded that if the settlement did release City First from any judgment rendered against Mullen, it did not release anyone else. The judgment against City First would stand to the extent it was based either on vicarious liability for the acts of Loveless or its own independent acts.²

¶ 16 On appeal, City First is concerned with the significance of the nondisclosure of the Mullen settlement, not with the argument that the settlement operated as a release. Mullen remained a defendant after the settlement, and his 70–page deposition was read into evidence in the plaintiffs' case. City First argues that the settlement was a collusive agreement and that its nondisclosure tainted the trial.

¶ 17 The order denying the motion for a new trial is reviewed for abuse of discretion. McCluskey v. Handorff–Sherman, 68 Wash.App. 96, 103, 841 P.2d 1300 (1992), aff'd,125 Wash.2d 1, 882 P.2d 157 (1994). A trial court abuses its discretion when its decision is manifestly unreasonable or based upon untenable grounds. Havens v. C & D Plastics, Inc., 124 Wash.2d 158, 168, 876 P.2d 435 (1994). A court also abuses its discretion when it “uses an incorrect standard of law or the facts do not meet the requirements of the standard of law.” Sherron Assocs. Loan Fund V (Mars Hotel) LLC v. Saucier, 157 Wash.App. 357, 361, 237 P.3d 338 (2010), review denied,171 Wash.2d 1012, 249 P.3d 1029 (2011).

[175 Wash.App. 599]¶ 18 City First contends the Mullen–Collings settlement was a “Mary Carter” agreement, one in which a defendant remains in the trial after settling with the plaintiff in exchange for a limitation of liability. The “Mary Carter” denomination derives from Booth v. Mary Carter Paint Co., 202 So.2d 8 (Fla.Dist.Ct.App.1967). “The key elements of a Mary Carter agreement are a limitation of the settling defendant's liability, a requirement that that defendant remain in the trial, and a guarantee of a certain sum of money to the plaintiff.” J. Michael Philips, Looking Out for Mary Carter: Collusive Settlement Agreements in Washington Tort Litigation, 69 Wash. L.Rev. 255, 257 (1994). Here the agreement did not require Mullen to remain in the trial, and it also did not give Mullen a financial interest in the Collingses' potential recovery from City...