Hinson v. Countrywide Home Loans, Inc. (In re Hinson)

• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Writing for the Court: J. RICH LEONARD
• Citation: Hinson v. Countrywide Home Loans, Inc. (In re Hinson), 481 B.R. 364 (Bankr. E.D. N.C. 2012)
• Decision Date: 17 April 2012
• Docket Number: Adversary No. 11–00328–8–JRL.,Bankruptcy No. 10–07415–8–JRL.
• Parties: In re David L. HINSON and Debra A. Hinson, Debtors. David L. Hinson and Debra A. Hinson, Plaintiffs v. Countrywide Home Loans, Inc.; Bank of America Corporation; BAC Home Loans Servicing, LP; The Shoaf Law Firm, P.A.; Federal National Mortgage Association; Substitute Trustee Services, Inc., in its capacity as Substitute Trustee; and C.T. Salyer, in his capacity as Substitute Trustee, Defendants.

481 B.R. 364

In re David L. HINSON and Debra A. Hinson, Debtors.David L. Hinson and Debra A. Hinson, Plaintiffs

v.Countrywide Home Loans, Inc.; Bank of America Corporation; BAC Home Loans Servicing, LP; The Shoaf Law Firm, P.A.; Federal National Mortgage Association; Substitute Trustee Services, Inc., in its capacity as Substitute Trustee; and C.T. Salyer, in his capacity as Substitute Trustee, Defendants.

Bankruptcy No. 10–07415–8–JRL.

Adversary No. 11–00328–8–JRL.

United States Bankruptcy Court,

E.D. North Carolina,

Wilmington Division.

April 17, 2012.

Andrea B. Young, Wilmington, NC, for Plaintiffs.

Robert A. Cox, Jr., McGuire Woods, LLP, Charlotte, NC, for Defendants.

The Shoaf Law Firm, Raleigh, NC, pro se.

ORDER

J. RICH LEONARD, Bankruptcy Judge.

On September 13, 2010, David and Debra Hinson (“plaintiffs”) filed a chapter 13 petition. On September 30, 2010, the plaintiffs filed an adversary proceeding against Countrywide Home Loans, Inc. (“Countrywide”), Bank of America Corporation (“BAC”), BAC Home Loan Servicing, LP, The Shoaf Law Firm, P.A. (“The Shoaf Law Firm”), Federal National Mortgage Association (“Fannie Mae”), Substitute Trustee Services, Inc. (“Substitute Trustee”), and Christopher Salyer. This matter came before the court on defendants, Countrywide, BAC, Bank of America N.A. (“BANA”) ¹, and Fannie Mae's (collectively “bank defendants”) motion to dismiss the plaintiffs' complaint (“complaint”). A hearing was held on February 21, 2012 in Wilmington, North Carolina.

BACKGROUND

A. Facts

1. The Countrywide Loan

The complaint alleges that in 2001, the plaintiffs subdivided the 7.12–acre tract on which their home was situated into two separate tracts, consisting of a 2–acre tract on which their home remained, and a 5.12–acre tract. This subdivision was recorded in the Brunswick County Registry. The plaintiffs sought a loan from Countrywide, to be secured by the 2–acre tract. The plaintiffs assert that Countrywide and/or its representatives knew that the property at issue was the 2–acre tract.

On or about May 10, 2007, the plaintiffs entered a loan agreement with Countrywide. An attorney from The Shoaf Law Firm came to the plaintiffs' home to execute the loan documents. At that time, the plaintiffs state that they noticed that the legal description was missing from the deed of trust (“deed”). The attorney reportedly assured the plaintiffs that the description of the 2–acre property would be attached prior to recording the deed. The deed that was subsequently provided to the plaintiffs did not include a property description. The deed of trust that was recorded in the Brunswick County Registry does not describe the agreed upon 2–acre tract, but rather describes the original 7.12–acre tract.

2. The Attempted BAC Loan Modification

Plaintiffs assert that they began to fall behind on their mortgage payments to Countrywide and thus sought out a mortgage modification from BAC, through the Home Affordable Modification Program (“HAMP”). In order to receive a HAMP modification, the plaintiffs allege that they faxed to BAC several times, all the documents that BAC requested, but that on numerous occasions, BAC representatives nonetheless told the plaintiffs that some of the required documents were missing. Plaintiffs called BAC repeatedly to little or no avail, and received no written response on the status of their application. BAC representatives allegedly gave the plaintiffs conflicting information, at one point telling Mr. Hinson that he did not qualify for the modification because he “had his church clothes dry-cleaned,” and at another point telling the plaintiffs that their loan modification was subject to “investor approval,” and also that if they filed for bankruptcy, their “investor” would not approve. These are just a few of the incidents of deception, misconduct, and mishandling of their HAMP application alleged by the plaintiffs.

3. First Foreclosure Attempt

While the HAMP application was pending on March 30, 2010, the Substitute Trustee, initiated a foreclosure proceeding before the Clerk of Superior Court in Brunswick County (“Clerk”). In that proceeding, the Substitute Trustee presented evidence that BAC was the holder of the plaintiffs' loan. The plaintiffs attached to their complaint an affidavit that was included in the Substitute Trustee's evidence at that proceeding, which was purportedly executed by an officer of “a corporation,” swearing that “[c]ontact with the [plaintiffs], including written communications, has been made in a good faith effort to resolve the delinquency voluntarily. Forbearance, modification and other resolution plans have been considered. The delinquency has not been resolved.” After the plaintiffs advised the Clerk that they had not received confirmation of their HAMP application, the hearing was continued until July 29, 2010.

4. Continued HAMP Negotiations With BAC

The plaintiffs maintain that they continued to try and discern from BAC the status of their HAMP application to no avail. In July of 2010, the plaintiffs assert that they were told for the first time that they were required to update their employment and wage information every 90 days. However, printed material accompanying their HAMP application advised that they should notify their servicer only if there were material changes in their wage or employment status. As a result of this new information, the plaintiffs again submitted a completed HAMP package. BAC again told the plaintiffs that their package was incomplete. The plaintiffs assert that the alleged missing information had in fact been included in their package.

On August 18, 2010, the plaintiffs received a proposed loan modification agreement from BAC. The plaintiffs alleged that the modification was “less than helpful,” because although it reduced the interest rate to two per cent, the rate increased over years five to eight. As a result of the accrued interest and other costs associated with the foreclosure, the payment amount in eight years would be the same as or greater than their current payment. Furthermore, the modification would add $40,930.88 to the balance of the loan, and would extend the loan term to forty years. On March 21, 2011, after their property had already been sold at foreclosure, the plaintiffs were notified in writing that their HAMP modification was denied.

5. BAC's Second Foreclosure Attempt

On July 29, 2010, the plaintiffs and the Substitute Trustee appeared again before the Clerk. The Substitute Trustee provided evidence of the assignment of the note and deed on the 7.12–acre property from Countrywide Home Loans, Inc. to Countrywide Home Loans Servicing, LP on April 26, 2010, and also showed that Countrywide Home Loans Servicing, LP's name was changed to BAC Home Loans Servicing, LP on April 21, 2010. The Substitute Trustee also provided an affidavit from an officer, Mary Kist, of an unnamed corporation, which was executed on March 26, 2010, one month before the assignment, swearing that BAC was the holder of the note and indebtedness. Plaintiffs assert that they attended the foreclosure hearing, and that the Clerk entered an order of sale. The Clerk's order included findings of fact, stating that BAC Home Loans Servicing, LP was the holder of the note, that the note evidenced a valid debt owed by plaintiff, David L. Hinson, and that the plaintiffs defaulted under the terms of the note. The plaintiffs were entitled to, but did not appeal the order to the North Carolina Superior Court. Despite repeated requests that a sale of their property be postponed, the Substitute Trustee sold the plaintiff's property on September 2, 2010.

The property description in the notice of sale for the foreclosure included the entire 7.12–acre tract. According to a report of sale filed with the Clerk, the property was sold for $399,054.94 and was purchased by BAC. On September 8, 2010, the plaintiffs received notice that their property was now owned by Fannie Mae.

The plaintiffs filed their chapter 13 petition on September 13, 2010, within the time period in which debtors can exercise their equity of redemption under North Carolina law, in order to stay the completion of a foreclosure. During preparation for the 341 meeting of creditors, Mr. Hinson re-read the notice of foreclosure hearing, and discovered for the first time that the property description included the entire 7.12–acre tract and not the 2–acre tract.

B. Plaintiffs' Complaint1. Count I

In their complaint, the plaintiffs alleged six claims for relief. Count I is an objection to BAC's proof of claim in the plaintiff's bankruptcy proceeding. To support this objection, the plaintiffs asserted that BAC did not file the necessary documentation to demonstrate that it is the holder of the loan under 11 U.S.C. § 501 and FRBP 3001(c) and (e)(1). Furthermore, they alleged that the filed evidence was defective because the legal description of the property was not attached to the deed at the time that the plaintiffs signed the deed, and additionally that the parties did not intend for the entire 7.12–acre tract to be encumbered.

2. Count II

In Count II, the plaintiffs requested that the court order that the deed be stricken and cancelled from the public record as void ab initio for violation of the statute of frauds, mistake, and based on the facts set out in the complaint. Alternatively, the plaintiffs requested that the court reform the terms of the deed to reflect the agreed upon 2–acre property that was intended by the parties to secure the loan.

3. Count III

Count III alleges that defendants BOA and BAC have engaged in unfair and/or deceptive acts and practices under N.C. Gen.Stat. § 75–1.1, entitling plaintiffs to three times their actual damages plus reasonable attorney's fees pursuant to N.C. Gen.Stat. §§ 75–16 and 75–16.1. Their stated grounds for relief are the misrepresentation of the identity of the note holder, failing to prove an element required for a power of sale...