Johnson v. James B. Nutter & Co.

• Decision Date: 05 February 2020
• Docket Number: CIVIL ACTION NO. 3:19-0856
• Court: U.S. District Court — Southern District of West Virginia
• Parties: Tammy JOHNSON, Plaintiff, v. JAMES B. NUTTER & COMPANY and Reverse Mortgage Funding LLC and Terra Abstract Trustee West Virginia, Inc., Defendants.

438 F.Supp.3d 697

Tammy JOHNSON, Plaintiff,

v.JAMES B. NUTTER & COMPANY and Reverse Mortgage Funding LLC and Terra Abstract Trustee West Virginia, Inc., Defendants.

CIVIL ACTION NO. 3:19-0856

United States District Court, S.D. West Virginia, Huntington Division.

Signed February 5, 2020

Gary M. Smith, Mountain State Justice, Morgantown, WV, for Plaintiff.

James Michael Evans, Schnader Harrison Segal & Lewis, Pittsburgh, PA, Jason E. Manning, Troutman Sanders, Virginia Beach, VA, Marie Louise Dienhart Hervey, Troutman Sanders, Raleigh, NC, Andrew Faulkner Pahl, Stern & Eisenberg, Baltimore, MD, Ryan H. Keesee, Smoot, WV, for Defendants.

MEMORANDUM OPINION AND ORDER

ROBERT C. CHAMBERS, UNITED STATES DISTRICT JUDGE

Pending before the Court are three motions to dismiss. The first motion was originally filed by Defendant Terra Abstract Trustee West Virginia, Inc. ("Terra Abstract") in the Circuit Court of Wayne County, West Virginia on November 20, 2019, and was re-filed in this Court along with the Notice of Removal on December 4, 2019. Terra Abstract Mot. to Dismiss , ECF No. 3. The second motion was filed by Defendant James B. Nutter & Co. ("Nutter") on December 11, 2019, and only concerns Counts One, Four, and Five of the Complaint. Nutter Mot. to Dismiss , ECF No. 6. Finally, Defendant Reverse Mortgage Funding LLC ("Reverse Mortgage") filed its motion on December 23, 2019, arguing for dismissal of the same three counts. Reverse Mortgage Mot. to Dismiss , ECF No. 11. The relevant issues have since been fully briefed, and are ripe for the Court's review. For the reasons set forth below, the Court DENIES the motions.

I. BACKGROUND

Plaintiff Tammy Johnson ("Plaintiff") is the widowed spouse of Archie Johnson ("Mr. Johnson"), an older man with a "secretive and guarded personality" that is of particular importance to the instant dispute.¹ Compl. , ECF No. 1-2, at ¶¶ 1–3. In May 2007, Mr. Johnson and Plaintiff were married and purchased a double-wide manufactured home to situate on a parcel of land that Mr. Johnson had acquired from his daughter. Id. at ¶¶ 5–6. For the duration of their relationship, "Mr. Johnson kept the financial circumstances and details of the household, his income and expenditures, and his significant financial dealings secret from" his wife. Id. at ¶ 3. Consistent with this personality, Mr. Johnson obtained a home equity conversion mortgage—more commonly known as a "reverse mortgage"² —from Defendant James B. Nutter & Co. in 2008 without informing, consulting, or naming his wife. Id. at ¶ 11. The reverse mortgage is secured by a Deed of Trust³ "on the real estate upon which Plaintiff's manufactured home now sits." Compl. , at ¶¶ 11–12. In obtaining the loan, Mr. Johnson represented himself—fraudulently—as an unmarried man, and "did not disclose the personal property nature of the manufactured home or Plaintiff's undivided ownership interest in that home." Id. at ¶ 13. Plaintiff alleges that due diligence would have revealed her interest in the home, and that the agreement would therefore have been invalid without her consent and joinder.⁴ Id. at ¶ 15.

On March 13, 2014, Mr. Johnson died and left his wife as his sole heir. Id. at ¶ 4. Plaintiff continued living in the manufactured home after her husband's death, and it is unclear when or how she came to learn of the reverse mortgage her husband had obtained on the property. Id. at ¶ 27. Yet no matter when she learned of the reverse mortgage, she faced a problem common to spouses who are not signatories to a reverse mortgage loan or accompanying deeds of trust: namely, that the "death of a borrower generally allows a reverse mortgage lender to stop extending credit under the reverse mortgage loan and to call the loan immediately due." Id. at ¶ 19. Plaintiff was thus faced with the prospect of immediate foreclosure on the property.

The United States Department of Housing and Urban Development ("HUD") insures reverse mortgages, and has sought to address situations like Plaintiff's by establishing a "non-borrowing spouse" program in 2015. Resp. in Opp'n to Reverse Mortgage Mot. to Dismiss , ECF No. 14, at 2–3. A "non-borrowing spouse" is an individual who was married to a reverse mortgage borrower, but who was not a party to the loan or deed of trust securing it. Id. at 3. Under HUD's Mortgagee Optional Election ("MOE") program, "HUD will take assignment of any pre-2014 [reverse mortgage loan] at a stage before foreclosure if the loan involves a qualifying non-borrowing spouse who survived the borrower and continues to reside in the home." Id. at 3 (emphasis in original).

Plaintiff attempted to take advantage of this policy at some point after its promulgation, though the Complaint is silent as to when. Compl. , at ¶ 23. In any event, she claims that "Nutter wrongly failed to determine and provide notice in writing that [she] was a non-borrowing spouse entitled to remain in the home until her death or abandonment of it." Id. at ¶ 26. She argues they reached this determination despite treating her as a non-borrowing spouse after a storm damaged her home's roof and electrical equipment in July 2018. Id. at ¶¶ 29, 34. When she requested payment from State Farm—her insurer—"Nutter demanded [it] issue the insurance proceeds check for the repairs to Plaintiff's manufactured home jointly in its name." Id. at ¶ 32. Thereafter, Nutter refused to release the check to Plaintiff for her use in repairing the home's roof.⁵ Id. at ¶ 43.

While the exact chronology of events is once again ambiguous, Nutter eventually told Plaintiff "that it was no longer going to deal with her about its wrongful conversion and retention of the proceeds of her hazard insurance policy" and "verbally told [her] that it had transferred her insurance proceeds and control over them to" Defendant Reverse Mortgage without her prior knowledge or permission. Id. at 51–52. As no notice of the transfer was ever provided to her, Plaintiff "does not know if [Reverse Mortgage] is now the holder of the reverse mortgage or its servicer." Id. at ¶ 55.

One other aspect of the background of this case is worth mentioning. While never referenced in the Complaint itself, the Circuit Court of Wayne County granted a default judgment to Nutter in a suit against Plaintiff on March 20, 2017 after noticing a scrivener's error in the Deeds of Trust—the loan and the reverse mortgage—at issue here. See Ex. D , ECF No. 3-4, at 2. Specifically, Nutter alleged that "legal descriptions on both of the Deeds of Trust mistakenly failed to include the ‘Excepting and Reserving’ section." Id. Plaintiff was served with process on November 30, 2016, but never filed an answer or otherwise appeared to defend herself against Nutter's suit. Id. at 3. The court granted default judgment in Nutter's favor and held that the Deeds of Trust securing the property "both properly encumber the entire property and are valid and enforceable first priority liens against Archie Johnson's interest in the property." Id. at 3–4. The court further "barr[ed] forever the Respondents from asserting any right, lien, title or interest" in the property. Id. at 4.

At some point after default judgment was issued and before the initiation of this suit, Defendant Terra Abstract "sent notice addressed to the estate of Archie Johnson that it intend[ed] to implement non-judicial foreclosure under the reverse mortgage Deed of Trust by trustee sale scheduled for October 29, 2019." Id. at ¶ 64. Terra Abstract apparently intended to include the sale of Plaintiff's manufactured home as part of the sale, which she claims is personal property rather than a fixture. See id. at ¶ 68. In an effort to stop the sale and vindicate her right to remain in the home until her death, Plaintiff initiated the instant action in the Circuit Court of Wayne County on October 21, 2019. Id. at 1. Invoking this Court's federal question jurisdiction, Defendants timely filed a Notice of Removal on December 4, 2019. Notice of Removal , ECF No. 1, at 1.

The Complaint is split into five counts. Count One is a claim for equitable relief, and seeks a declaratory judgment that all three defendants are estopped from foreclosing on Plaintiff's home until her death. Compl. , ¶¶ 70–74. Count Two is a claim for damages raised against Reverse Mortgage and Nutter, and is predicated upon their alleged failure to permit Plaintiff from using her insurance proceeds to repair her home. Id. at ¶¶ 75–76. Count Three is another damages claim, and is again raised against Reverse Mortgage and Nutter. Id. at ¶¶ 77–80. Plaintiff argues that both defendants created a constructive trust for her protection, thereby creating a special relationship and a duty of care that the defendants later breached. Id. Count Four—the final damages claim—is raised solely against Nutter, and alleges that the company violated the Equal Credit Opportunity Act ("ECOA") and its implementing regulations when it did not respond to her request for an extension of credit. Id. at ¶¶ 81–85. Finally, Count Five is an equitable claim raised against all defendants that seeks to "quiet [P]laintiff's title against any claim of right to foreclose on [her] home under a fraudulently-obtained, and/or negligently-closed reverse mortgage to which [she] was not a party." Resp. in Opp'n to Nutter Mot. to Dismiss , ECF No. 16, at 9. Each defendant quickly followed with its own motion to dismiss; Plaintiff filed Responses in Opposition to each motion,⁶ and Nutter and Reverse Mortgage filed Reply memoranda addressing the issues she raised. It is with this procedural and factual background in mind that the Court turns to the legal standards governing this case.

II. STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 8(a), "[a] pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." A complaint need not contain detailed factual allegations, but it must include "enough facts...