In re Thorian

• Decision Date: 21 March 2008
• Docket Number: Adversary No. 06-06019-TLM.,Bankruptcy No. 06-00081-TLM.
• Citation: 387 B.R. 50
• Court: U.S. Bankruptcy Court — District of Idaho
• Parties: In re Jan L. THORIAN & Mark E. Thorian, Debtors. Jan L. Thorian & Mark E. Thorian, Plaintiffs, v. Baro Enterprises, LLC; Washington Mutual Bank; First American Title Co.; U.S. Bank National Assoc. DBA U.S. Bank; Key Bank, Defendants.

387 B.R. 50

In re Jan L. THORIAN & Mark E. Thorian, Debtors Jan L. Thorian & Mark E. Thorian, Plaintiffs, v. Baro Enterprises, LLC; Washington Mutual Bank; First American Title Co.; U.S. Bank National Assoc. DBA U.S. Bank; Key Bank, Defendants.

Bankruptcy No. 06-00081-TLM.

Adversary No. 06-06019-TLM.

United States Bankruptcy Court, D. Idaho.

March 21, 2008.

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D. Blair Clark, Boise, Id, for Debtors. Holger Uhl, Richard W. Stover, Eberle Berlin Kading Turnbow McKlveen & Stanley J. Tharp, Derrick J. O'Neill, Charles W. Fawcett, Randall A Peterman, Moffatt Thomas Barrett Rock & Fields, Boise, ID, for Defendants.

MEMORANDUM OF DECISION

TERRY L. MYERS, Chief Judge.

INTRODUCTION

Jan and Mark Thorian ("Debtors") filed a chapter 11 bankruptcy petition on February 8, 2006.¹ Prior to filing their chapter 11 petition, Debtors defaulted on their home mortgage with the holder of a first priority deed of trust, Washington Mutual Bank ("WaMu"). WaMu proceeded to foreclose on its interest, and Debtors' residence (the "Property")² was sold to BARO Enterprises, LLC ("BARO"). Debtors filed this adversary proceeding alleging numerous causes of action based on WaMu's foreclosure and the subsequent sale of the Property to BARO.

Before the Court are: (1) Debtors' motion to file a second amended complaint, Doc. No. 103; (2) WaMu's Motion for Summary Judgment, Doc. No. 76 ("WaMu's Motion"); (3) Debtors' Cross-Motion for Summary Judgment, Doc. No. 89 ("Debtors' Motion"); and (4) BARO's Motion for Summary Judgment, Doc. No. 94 ("BARO's Motion").

FACTUAL AND PROCEDURAL BACKGROUND

In December 1998, Debtors executed a $172,270.00 note secured by a deed of trust on the Property. WaMu became the beneficiary under the deed of trust.

Debtors' August 2003 payment to WaMu was unsuccessful due to insufficient funds.³ The parties dispute Debtors' subsequent attempts to make payments and WaMu's ability to accept electronic payments. The parties do not dispute that on December 5, 2003, a Notice of Default was filed in Ada County for Debtors' failure to make the August 2003 through November 2003 payments. Doc. Nos. 78-86, 88 (hereinafter "Stover Aff.") at Doc. No. 82, part 3 at Ex. G.⁴

Beginning in April 2004, Debtors worked with Leslie Quarterman of WaMu's Loss Mitigation Department to establish a repayment plan. While the parties negotiated a possible loan modification or "workout," Ms. Quarterman postponed for one month the foreclosure sale scheduled in July 2004 and then cancelled the sale scheduled in August 2004. Doc. No. 77 (hereinafter "Bovee Aff.") at part 6, Ex. G.

In September 2004, WaMu and Debtors executed a twelve-month repayment agreement (the "First Forbearance Plan") which required an initial payment of $6,000.00 by September 14, 2004, followed by twelve monthly payments of $2,624.78 beginning on October 1, 2004. Bovee Aff. at part 8, Ex. I. Debtors did not timely make the initial $6,000.00 payment. However, on November 3, 2004, Debtors paid $8,624.78⁵ and the plan was activated. Bovee Aff. at part 6, Ex. G and part 8, Ex. L. Though Debtors' attempts and ability to make the December 2004 payment⁶ are disputed, it is clear that the First Forbearance Plan was terminated and foreclosure efforts were again initiated. Bovee Aff. at part 8, Ex. M.

On January 31, 2005, a Notice of Default was recorded in Ada County, stating that Debtors were delinquent on their payments from April through December 2004. Stover Aff. at Doc. No. 82, part 3 at Ex. G. The Notice of Default and the Notice of Trustee's Sale were served on Debtors by certified mail on February 9, 2005 and by personal service on February 13, 2005. The notices were posted at the Property, and the Notice of Trustee's Sale was published in the Idaho Statesman on February 14, 21, 28 and March 7, 2005. The sale was set and noticed for June 9, 2005.

Ms. Quarterman again attempted to help Debtors avoid foreclosure. On March 4, 2005, she sent them a letter requesting their two most recent paystubs. Bovee Aff., part 8 at Ex. N. Debtors did not respond to this request, and on May 20, 2005, Ms. Quarterman sent them a letter stating that loss mitigation efforts were denied due to Debtors' noncompliance, inability to be reached by phone, and failure to provide requested information. Bovee Aff., part 8 at Ex. O.

On June 3, 2005, Mr. Thorian called Ms. Quarterman regarding the denial letter. Bovee Aff., part 6 at Ex. G. In that conversation, the foreclosure sale scheduled for June 9, 2005 was discussed. However, after Ms. Quarterman and Mr. Thorian agreed to a ninety-day special forbearance plan (the "SFP"), Ms. Quarterman postponed the June 9, 2005 foreclosure sale.⁷ Id. In that ninety days, WaMu would determine if Debtors qualified for a loan modification or workout.

The SFP required payments of: (1) $2,000.00 by June 6, 2005; (2) $1,500.00 by July 6, 2005; and (3) $1,500.00 by August 6, 2005. Id., part 8 at Ex. P. Debtors allege that when discussing the SFP, Ms. Quarterman stated the scheduled June 9 foreclosure sale would be "stopped." See Mark Thorian Dec. 19, 2006 Depo., Doc. No. 90, part 15 at pages 146-369 (hereinafter "Thorian Depo.") at 261. Ms. Quarterman, however, believes she said the sale would be "postponed." Leslie Quarterman July 16, 2007 Depo., Doc. No. 90, part 3 at pages 1-86 (hereinafter "Quarterman Depo.") at 22.

Ms. Quarterman faxed the SFP to Debtors on June 3, 2005. Bovee Aff., part 8 at Ex. Q. Attached was a financial statement Debtors were asked to complete and return so Ms. Quarterman could determine whether they qualified for a permanent workout plan. The fax cover sheet asked Mr. Thorian to "include a brief letter explaining the reason for this default." Id.

Mr. Thorian responded on June 7, 2005, faxing Ms. Quarterman a June 6 letter, a completed financial statement, and Mrs. Thorian's paystub for the period ending December 31, 2004. Bovee Aff., part 8 at Ex. R. The fax cover sheet explains that Debtors had only "a yearly summary on the income. The pay is automatically put into our account without any paperwork, but nothing has changed for this year." Id.

In August 2005, Ms. Quarterman requested Debtors complete another financial statement; provide their most recent paystubs for both Debtors; and include a letter explaining the reason for their delinquency. Bovee Aff., part 8 at Exs. S, T.⁸ Debtors did not respond to her requests because, in their view, Ms. Quarterman already had that information. However, they did not communicate that position to Ms. Quarterman at the time. WaMu therefore elected to proceed with foreclosure.

On September 29, 2005, a deed of trust foreclosure and trustee's sale was conducted by First American Title Company ("FATCO"). BARO was the successful bidder and received the Property for $185,000.00. FATCO granted BARO a trustee's deed that was recorded that day.

In October, Debtors commenced a state court action against BARO, WaMu and FATCO. See Case No. 06-00081-TLM, Doc. No. 8 at attach. Debtors' February 8, 2006 bankruptcy petition was filed on the eve of BARO's summary judgment hearing before the state court. Debtors claimed ownership of the Property in their schedules and alleged a fair market value of $650,000.00 with $313,517.72 of secured debt⁹ against it. Debtors also claimed as assets on schedule B potential recoveries from the suit against BARO, WaMu, FATCO,¹⁰ U.S. Bank and Key Bank.

The day after Debtors filed their chapter 11 bankruptcy petition, BARO filed a motion for relief from the automatic stay to allow the state court litigation to proceed. Id. Debtors then commenced this adversary proceeding on February 22, 2006. BARO responded by filing a motion to dismiss the adversary.

On April 10, 2006, the Court held a joint hearing on the § 362 motion and the motion to dismiss the adversary proceeding. By an April 24, 2006 Memorandum of Decision and Order, the Court denied § 362 relief and denied the motion to dismiss. See Doc. Nos. 26, 27; see also Case No. 06-00081-TLM, Doc. Nos. 42, 43. The Court's conditional denial of BARO's motion for relief from the automatic stay incorporated terms of a January state court order requiring Debtors to pay, on behalf of BARO, $1,500.00 per month. At BARO's request, the Decision and Order were modified to require payments into the Court's register. See Case No. 06-00081-TLM, Doc. Nos. 44, 47.

Answers were filed in the adversary proceeding soon after the Court's April ruling on the motion to dismiss. A status conference was held on August 31, 2006. The Court lifted any limitations on the commencement of discovery and allowed 90 days, at the parties' request, for the matter to develop. Debtors were ordered to file any amended complaint within 30 days.

An amended complaint, Doc. No. 38 (the "Amended Complaint"), was filed on October 2, 2006, alleging nine counts: (1) fraudulent transfer under 11 U.S.C. § 548; (2) a claim against junior secured creditors; (3) lien reinstatement; (4) default cure; (5) breach of contract; (6) breach of the covenant of good faith and fair dealing; (7) fraud; (8) violations of the Real Estate Settlement Procedures Act, 12 U.S.C. §§ 2601-2617 ("RESPA"); and (9) violations of the Idaho Consumer Protection Act, Idaho Code §§ 48-601 to — 619 ("ICPA").

The Amended Complaint was answered,¹¹ and WaMu filed a motion to dismiss counts eight (RESPA) and nine (ICPA) under Fed. R. Bankr.P. 7012 and Fed.R.Civ.P. 12(b)(6). Debtors opposed the motion to dismiss but no hearing was ever set by either party.

Discovery, and discovery disputes, ensued. The Court ordered another status conference. At the April 30, 2007 conference, the Court ordered non-expert discovery to be completed by July 16, 2007; expert witness disclosure by July 31, 2007; expert discovery concluded by September 28, 2007; and all pretrial motions filed by October 19, 2007. The Court indicated a trial...