House v. U.S. Bank Nat'l Ass'n

• Decision Date: 23 February 2021
• Docket Number: DA 19-0621
• Citation: 2021 MT 45,403 Mont. 287,481 P.3d 820
• Parties: Slade S. HOUSE, Plaintiff and Appellant, v. U.S. BANK NATIONAL ASSOCIATION, as Trustee for the Holders of the Master Adjustable Rate Mortgages Trust 2007-2; Bank of America, N.A., Successor by Merger to BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P.; ReconTrust Company, N.A. ; Mortgage Electronic Registration Systems, Inc.; et al., Defendants and Appellees.
• Court: Montana Supreme Court

403 Mont. 287

481 P.3d 820

2021 MT 45

Slade S. HOUSE, Plaintiff and Appellant,

v.U.S. BANK NATIONAL ASSOCIATION, as Trustee for the Holders of the Master Adjustable Rate Mortgages Trust 2007-2; Bank of America, N.A., Successor by Merger to BAC Home Loans Servicing, L.P. f/k/a Countrywide Home Loans Servicing, L.P.; ReconTrust Company, N.A. ; Mortgage Electronic Registration Systems, Inc.; et al., Defendants and Appellees.

DA 19-0621

Supreme Court of Montana.

Submitted on Briefs: June 24, 2020

Decided: February 23, 2021

For Appellant: Darrell S. Worm, Ogle, Worm & Travis, PLLP, Kalispell, Montana

For Appellees: Mark D. Etchart, Browning, Kaleczyc, Berry & Hoven, P.C., Helena, Montana

Justice Dirk Sandefur delivered the Opinion of the Court.

¶1 Slade S. House appeals the September 2019 judgment of the Montana Eleventh Judicial District Court, Flathead County, granting various mortgage lenders and trustees summary judgment on his asserted negligence claim and claim for breach of the implied covenant of good faith and fair dealing. We address the following restated issues:

1. Whether genuine issues of material fact precluded summary judgment on House's negligent loan servicing/administration claim?

2. Whether genuine issues of material fact precluded summary judgment on House's bad faith claim?

We affirm.

PROCEDURAL AND FACTUAL BACKGROUND

¶2 In 2006, House applied for a refinancing loan from Countrywide Home Loans, Inc. (Countrywide) regarding his residential property near Bigfork, Montana. In November 2006, House and Countrywide closed on various loan documents (including a promissory note and Montana Small Tract Financing Act trust indenture,¹ inter alia ) granting him a $440,000 adjustable rate interest-only loan, secured by the subject property. The trust indenture named Mortgage Electronic Registration Systems, Inc. (MERS) as nominee of Countrywide. In the midst of the subprime mortgage crisis in 2007-08, Bank of America, N.A. (BOA) acquired Countrywide in 2008 by purchase and merger with Countrywide's corporate parent. In May 2011, BOA formally acquired the House mortgage debt through a subsidiary on assignment from Countrywide/MERS and subsequently named ReconTrust Company, N.A. (ReconTrust) as the successor trustee under the trust indenture.²

¶3 The loan terms required scheduled interest-only payments, due on the first of each month, at an initial fixed rate through November 2009. Beginning on December 1, 2009, and on each December 1st thereafter, the terms provided for annual lender adjustment of the interest rate in accordance with a specified formula applied to the then-prevailing market rate. The loan documents expressly provided, inter alia , that any failure to timely pay "the full amount" of a scheduled monthly payment would, unless timely cured, constitute a default subjecting the borrower to acceleration of the loan and non-judicial foreclosure by trustee's sale. The loan documents further granted the lender discretion on a default to reject and return any payment insufficient to bring the loan current.

¶4 The trust indenture included, inter alia , a default escrow provision providing for a lender-administered escrow account, funded by an escrow add-in to the borrower's scheduled monthly payments under the promissory note, to serve as the fund from which the lender would pay required homeowners insurance premiums and assessed property taxes, inter alia . The terms of the indenture authorized the lender to calculate and assess, as part of the scheduled monthly loan payment due from the borrower, the monthly sums necessary to have sufficient advance funds in the escrow account for lender payment of escrow item costs when due. Under the terms of the note and default escrow provisions, the borrower's scheduled monthly loan payments thus included two components—the monthly interest due under the adjustable rate note and the monthly escrow add-in calculated and assessed by the lender. However, the loan documents also included an escrow waiver agreement (EWA) under which the lender waived enforcement of the default escrow provisions, conditioned on the borrower's timely direct payment of all escrow item costs when and where due. The EWA further conditioned the escrow waiver on the borrower, on the lender's request, timely providing "receipts evidencing" satisfaction of all escrow item obligations. When in effect, the escrow waiver effectively reduced the amount of the borrower's monthly loan payments by eliminating the escrow add-in component. In the event of an escrow item delinquency or lapse by the borrower under the waiver, the lender had the option under the EWA of revoking the waiver (i.e. , activating or re-activating the default escrow provisions), curing the delinquency or lapse, and then recouping that amount by charging it to the borrower's escrow account as "additional debt" due under the loan documents. The net effect of the adjustable rate note and trust indenture escrow provisions was that the total amount of House's scheduled monthly payment obligation was subject to frequent lender adjustment—annually under the adjustable rate note and, when in effect, periodically as necessary under the default escrow requirements.

¶5 In 2009, with the EWA escrow waiver in effect, House failed to pay the assessed second-half 2008 property taxes ($1,136.73) due on the mortgaged property on May 31, 2009. BOA accordingly notified him in writing in August 2009 of its intent to cure the property tax delinquency and revoke the escrow waiver unless he timely provided proof of immediate payment of the delinquent property taxes. The notice further warned that activation of the default escrow requirements would "significantly increase" his monthly loan payments in order to reimburse BOA for payments made to cure the property tax delinquency and "to collect for upcoming tax bills." After House failed to act, BOA notified him in writing on October 28, 2009, that it had advanced funds to cure the property tax delinquency³ and would thereafter enforce the default escrow requirements by:

establish[ing] an escrow account for your loan to ensure the timely payment of future taxes. [Lender] will increase your monthly mortgage payment to fund the escrow account at a level sufficient to pay your property taxes on the next tax due date ... [with the resulting new monthly payment amount to be reflected in] [y]our next monthly statement.

From that point forward, it is difficult to discern on the limited M. R. Civ. P. 56 record the actual amount of each of House's monthly payment obligations under the fluctuating annual interest rate and evolving escrow costs calculations made and assessed by BOA, particularly as applied as to the erratic and inconsistent payments made by House, the unexplained manner in which BOA accounted for them, and the resulting extent to which House was or was not in default at any given time.

¶6 It is undisputed, however, that House made no loan payment in December 2009.⁴ It is further undisputed that BOA annually adjusted the interest component of his monthly payment obligation three times in the period at issue—from $1,970.83 to $1,283.33 for 2010, from $1,283.33 to $1,100 for 2011, and from $1,100 to $1,145.83 for 2012.⁵ In accordance with its October 28, 2009 written notice, BOA paid House's delinquent property taxes in November 2009 and activated the default escrow requirements to recoup the 2009 tax payment and collect for future property tax costs in advance. Regardless of any confusion as to the fluctuating amounts of the monthly add-in, House was thus aware, no later than the monthly payment due January 1, 2010, that his total monthly payment obligation included two components—a base interest-only component calculated by BOA under the terms of the adjustable rate note and a property tax escrow add-in calculated and assessed by BOA under the default escrow provisions of the trust indenture.⁶

¶7 Apart from his apparent belated December 2009 payment in January 2010, House's loan statement indicates that he made a separate $1,300 payment on his January 2010 payment obligation.⁷ He subsequently admitted, however, that the $1,300 payment did not account for the additional property tax escrow add-in due under his January 2010 payment obligation. House's loan statement indicates that he again made no payment in February 2010, but made a $2,600-plus payment in March 2010. By subsequent affidavit, he characterized the extraordinary payment as including a $1,300 interest-only installment for March and a $1,207.10 reimbursement for the property tax payment made by BOA in 2009. He asserts without support that BOA thereafter verbally agreed to reinstate the EWA property tax escrow waiver, thereby eliminating any property tax escrow add-in to his monthly payment obligation.

¶8 House's loan statement next indicates a $2,090.50 payment in April 2010, with $1,283.33 credited by BOA to his monthly interest-only obligation. The statement does not clearly indicate where BOA credited the balance of that payment. Further clouding matters, House asserts that a BOA representative called, apparently in April 2010,⁸ and advised him to apply to BOA for a distressed loan modification under the federal Home Affordable Modification Program (HAMP).⁹

He asserts that he subsequently applied for the loan modification, but "did not qualify because [he was] self-employed." He further asserts that, based on his failure to qualify for the loan modification, BOA advised him that "it had no choice but to reinstate [his property tax] escrow" requirement. With an insufficient balance indicated on his escrow account, BOA accordingly paid the property tax bill due on May 31, 2010, thus resulting in a negative escrow balance as indicated on House's loan statement. The statement further indicates, however, that BOA subsequently credited his escrow account for the May 31, 2010 tax payment on June 14, 2010.¹⁰

¶9 House's loan statement shows that he...