Johnson v. Fed. Home Loan Mortg. Corp.

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Citation: 793 F.3d 1005
• Docket Number: No. 13–35596.,13–35596.
• Parties: Joel JOHNSON, a single person, Plaintiff–Appellant, v. FEDERAL HOME LOAN MORTGAGE CORPORATION, a foreign corporation, Defendant–Appellee.
• Decision Date: 14 July 2015

793 F.3d 1005

Joel JOHNSON, a single person, Plaintiff–Appellant
v.
FEDERAL HOME LOAN MORTGAGE CORPORATION, a foreign corporation, Defendant–Appellee.

No. 13–35596.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 8, 2015.
Filed July 14, 2015.

793 F.3d 1005

Joel B. Hanson (argued), Seattle, Washington, for Plaintiff–Appellant.

793 F.3d 1006

Steven K. Linkon (argued), Joshua S. Schaer, RCO LEGAL, P.S., Bellevue, Washington, for Defendant–Appellee.

Appeal from the United States District Court for the Western District of Washington, Thomas S. Zilly, Senior District Judge, Presiding. D.C. No. 2:12–cv–01712–TSZ.

Before: J. CLIFFORD WALLACE, ANDREW J. KLEINFELD, and RONALD M. GOULD, Circuit Judges.

OPINION

PER CURIAM.

Joel Johnson, a homeowner, appeals from a 12(b)(6) dismissal of his action against the Federal Home Loan Mortgage Corporation, doing business as Freddie Mac, for breach of contract and breach of fiduciary duty. Freddie Mac had purchased Johnson's mortgage from Taylor, Bean & Whitaker Mortgage Co. (“Taylor Bean”), the loan originator, on a secondary market. Taylor Bean, which had continued to service the loan after selling it to Freddie Mac, failed to pay the insurance premium from an escrow account and caused Johnson's insurance to be cancelled. The district court dismissed the complaint against Freddie Mac because it concluded that Freddie Mac did not assume any liability for Taylor Bean's conduct when it purchased the loan, and in the alternative, even if it did, the Merrill doctrine precludes liability. Because Johnson expressly agreed in the mortgage contract that a subsequent purchaser of the loan would not assume any servicing obligations, we affirm without addressing the applicability of the Merrill doctrine.

FACTS

In 2008, Johnson refinanced his home loan with Taylor Bean, secured by a Deed of Trust. His contract, the Deed of Trust, named Johnson as “Borrower” and Taylor Bean as “Lender.” The contract required Johnson to have a homeowner's insurance policy, which he purchased from Safeco Insurance Co. The contract required him to pay the insurance premium to an escrow account, from which Taylor Bean would make the payments when they became due.

Section 20 of the Deed of Trust, “Sale of Note; Change of Loan Servicer; Notice of Grievance,” provided that:

The Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to Borrower. A sale might result in a change in the entity (known as the “Loan Servicer”) that collects Periodic Payments due under the Note and this Security Instrument and performs other mortgage loan servicing obligations under the Note, this Security Instrument, and Applicable Law.... If the Note is sold and thereafter the Loan is serviced by a Loan Servicer other than the purchaser of the Note, the mortgage loan servicing obligations to Borrower will remain with the Loan Servicer or be transferred to a successor Loan Servicer and are not assumed by the Note purchaser unless otherwise provided by the Note purchaser. (Emphasis added.)

Shortly after originating the loan, Taylor Bean sold the note and the Deed of Trust to Freddie Mac. Freddie Mac contracted with Taylor Bean for Taylor Bean to continue to service the loan. In October 2008, a batch of checks from Taylor Bean to Safeco bounced, and Johnson's insurance premium was not paid on time. Safeco cancelled Johnson's insurance due to this nonpayment. Taylor Bean eventually filed for bankruptcy, and Freddie Mac hired Central Loan Administration & Reporting to replace Taylor Bean as loan servicer.

793 F.3d 1007

In January 2009, Johnson's home was destroyed by an accidental fire. Safeco denied Johnson's insurance claim because the policy had been cancelled before the fire. Taylor Bean's lender-placed insurance policy with Mount Vernon Fire Insurance Co. had become effective when the coverage by Safeco was cancelled. The premiums were higher than those of the cancelled Safeco policy. Safeco and Mount Vernon eventually contributed to pay Johnson the insurance proceeds of $186,000.

Meanwhile, Johnson's monthly mortgage payments increased from $1,500 to $2,300 to cover the higher premiums, and Johnson's living expenses increased because his home had been destroyed. Beginning March 2010, Johnson failed to make his monthly payments on his note. Because Johnson was not current on his loan, he...