Holm v. Wells Fargo Home Mortg. Inc.

• Decision Date: 19 April 2016
• Docket Number: WD78666
• Citation: Holm v. Wells Fargo Home Mortg. Inc., WD78666 (Mo. App. Apr 19, 2016)
• Parties: DAVID AND CRYSTAL HOLM, Respondents, v. WELLS FARGO HOME MORTGAGE INC. AND FEDERAL HOME LOAN MORTGAGE CORPORATION (FREDDIE MAC), Appellants.
• Court: Missouri Court of Appeals

DAVID AND CRYSTAL HOLM, Respondents, v. WELLS FARGO HOME MORTGAGE INC. AND FEDERAL HOMELOAN MORTGAGE CORPORATION (FREDDIE MAC), Appellants.

WD78666

Missouri Court of Appeals Western District

April 19, 2016

Appeal from the Circuit Court of Clinton County, Missouri

The Honorable Richard B. Elliott, Judge

Before Division One: Lisa White Hardwick, Presiding Judge, Cynthia L. Martin, Judge and Gary D. Witt, Judge

Wells Fargo Home Mortgage, Inc. ("Wells Fargo") and Federal Home Loan Mortgage Corporation ("Freddie Mac") appeal from a judgment entered in a court tried case in favor of Crystal G. Holm ("Crystal") and David Holm ("David")¹ (collectively the "Holms"). The judgment awarded compensatory and punitive damages in favor of theHolms and against Wells Fargo for wrongful foreclosure. The judgment also quieted title in the foreclosed real estate in favor of the Holms as against the interests of Freddie Mac.

We affirm in part and reverse in part.

Factual and Procedural Summary²

The Holms were the owners of real property at 3800 Timberlake Drive ("Property") in Clinton County, Missouri. They executed a deed of trust ("Deed of Trust") on the Property on July 30, 2001, to secure a promissory note ("Note"). The Note and Deed of Trust identified the lender/mortgagee as Commercial Federal Mortgage Corp.

At a point in time not clearly identified in the record, Freddie Mac acquired the Note, Wells Fargo began servicing the Note for Freddie Mac, and the Holms began making their mortgage payments to Wells Fargo. In early May 2008, the property suffered significant storm damage. An insurance check in the amount of $4,467.74 was issued to cover the damages, payable jointly to the Holms and to Wells Fargo. The Holms sent the check to Wells Fargo for its endorsement so that the proceeds could be returned to the Holms to be used to repair the Property. Wells Fargo refused to return the check.

By letter dated June 4, 2008, the law firm of Kozeny & McCubbin, L.C. ("Kozeny") notified the Holms that their Note had been accelerated and that the amount required to be paid to reinstate the Note was $6,608.93, of which $5,534.62 representedunpaid payments, and the balance represented various itemized charges or fees. The Holms sent a handwritten letter dated June 9, 2009, to Kozeny disputing the validity of the debt. They complained that a representative of Wells Fargo had falsely reported that the Holms were evacuating the Property, having witnessed the Holms cleaning out a storm damaged barn. Though, as the letter explained, another Wells Fargo representative had since verified that the Holms were not evacuating the Property, the Note had nonetheless been accelerated based on the false information, and the insurance proceeds check was thus being improperly held by Wells Fargo. The Holms explained in the letter to Kozeny that although they had been behind a few months on their Note payments, they had a payment plan in place with Wells Fargo before the storm damage occurred and that Wells Fargo had since agreed to apply the insurance proceeds check to the Note. As a result, according to the Holms, they were not in default, and the "fees" itemized in the June 8, 2008 letter were not owed.

Kozeny responded with a letter dated June 18, 2008 providing a payoff amount for the entire loan.

Frustrated, the Holms wrote a second letter to Kozeny dated June 24, 2008. They again disputed the debt and asked that the insurance proceeds check be returned to them so that it could be endorsed and sent back to Wells Fargo to be applied to the Note balance.

By letter dated June 26, 2008, Kozeny again wrote to the Holms "in response to your correspondence disputing the validity of the debt . . . ." The letter enclosed a copy of the Deed of Trust and a copy of the Note and stated that the enclosed "documentsverify the debt which is owed . . . ." The Note was not endorsed. As such, neither the letter, nor its enclosures, identified Wells Fargo or Freddie Mac, or explained how a debt was owed to either.

On July 17, 2008, Wells Fargo recorded an appointment naming Kozeny as the successor trustee of the Deed of Trust. The appointment referenced the Deed of Trust granted by the Holms to Commercial Federal Mortgage Corp. The appointment asserted that Wells Fargo was now the "owner and holder of the [N]ote described and secured by the Deed of Trust . . . ."

Foreclosure of the Property was scheduled at noon on August 15, 2008. David called Kozeny and Wells Fargo repeatedly to discuss options to resolve the dispute over the debt. On August 14, 2008, at approximately 7:00 p.m., David was finally able to speak with someone at Wells Fargo who had authority to reach an agreement. That person offered David a reinstatement amount of $10,306.94 and said that if he agreed to pay that amount, the foreclosure sale would be postponed. David agreed to the reinstatement terms. He was advised by Wells Fargo to contact Kozeny the next morning to confirm the reinstatement amount and to make arrangements to deliver payment. David was not told that payment had to be received before the foreclosure sale scheduled at noon the following day.

David called Kozeny at approximately 10:00 a.m. on August 15, 2008. Kozeny confirmed the $10,306.94 reinstatement amount and told David that someone would call him back later that afternoon with directions for delivery of a cashier's check. Kozeny told David that the foreclosure sale would be postponed.

Immediately after the 10:00 a.m. phone call, David went to his local physician for treatment of stress, anxiety attacks, and panic attacks. He was directed to go to the hospital where a heart monitor was attached to his chest. Between his medical visits that morning, David arranged with his mother to secure a cashier's check in the amount of $10,306.94. With a cashier's check in his possession, David awaited the telephone call from Kozeny.

Kozeny called David at around 1:00 or 2:00 p.m. and instructed him to overnight the cashier's check to its St. Louis, Missouri, office and to send a copy of the check by facsimile. David did as instructed, sending a copy of the cashier's check to Kozeny by facsimile at 4:31 p.m. on August 15, 2008, and arranging for overnight delivery of the actual check to Kozeny by Federal Express.

Unbeknownst to the Holms, the foreclosure sale of the Property had proceeded as scheduled. Freddie Mac was the purchaser at sale. Kozeny executed and recorded a successor trustee's deed dated August 19, 2008, naming Freddie Mac as the grantee of the Property.

On August 18, 2008, David contacted Wells Fargo to make arrangements for paying future Note payments. He was told that Wells Fargo did not yet have the information he needed. A few days later, the Holms received a letter from Kozeny returning the $10,306.94 cashier's check. The letter stated that the check was being returned because it had been received after the foreclosure sale. The Holms were surprised and frustrated. David had not been told that the cashier's check had to be received before noon on August 15, 2008, in order to postpone the foreclosure sale.

The Holms received another letter from Kozeny dated August 22, 2008. This letter stated that the $10,306.94 cashier's check had been returned because the funds were not "enough and/or not certified."

The Holms retained counsel and were offered another reinstatement amount of $8,162.24. Once again, David made arrangements with his mother to secure a cashier's check in the agreed amount. The check was sent to Wells Fargo. Wells Fargo did not cash the check or reinstate the loan and retained the check for approximately one year before it was returned.

On November 26, 2008, the Holms filed a lawsuit against Wells Fargo and Freddie Mac. Count I asserted a claim for wrongful foreclosure against Wells Fargo only and sought compensatory and punitive damages. Count I alleged that Wells Fargo was the "trustee and beneficiary/mortgagee under a deed of trust purchased by Commercial Federal Bank executed by" the Holms and that said "deed of trust [was] secured by a note payable by [the Holms] to . . . Wells Fargo." The petition also identified Freddie Mac as the entity whose pre-foreclosure regulations were required to be followed. Count 1 alleged that the Property was wrongfully foreclosed because the Note had been falsely accelerated based on a mistaken belief that the Holms were abandoning the Property; because on August 15, 2008, there was no breach of condition or failure to perform by the Holms which would authorize foreclosure; and because Wells Fargo "failed to accept reinstatement funds of $10,306.94 tendered by [the Holms] at [Wells Fargo's] request . . . ." The petition did not allege that the foreclosure was wrongful because the Note was not endorsed, preventing its enforcement by either Wells Fargo or Freddie Mac. Count Iof the petition alleged that as a result of the wrongful foreclosure, the Holms were deprived of the Property and of any equity and alleged that Wells Fargo acted maliciously and outrageously. Count I sought a judgment against Wells Fargo for compensatory damages in a "fair and reasonable [sum], together with punitive damages."

Counts II and III of the petition were asserted solely against Freddie Mac and respectively sought judgments quieting title and setting aside the successor trustee's deed. Both Counts incorporated all other allegations in the petition and alleged a right to the requested relief because the Property had been wrongfully foreclosed.

The parties had several discovery disputes. The details of those disputes will be addressed as necessary later in this Opinion. In a pretrial order entered on January 12, 2015, the trial court summarized the discovery issues it had encountered and concluded that Wells Fargo, Freddie Mac, and Kozeny (who was acting as counsel for both) "have demonstrated a pattern of contempt for the Missouri Supreme Court Rules, as well as this Court's rules and Orders."...