Lacy-McKinney v. Taylor Bean & Whitaker Mortg. Corp.

• Decision Date: 19 November 2010
• Docket Number: No. 71A03-0912-CV-587.,71A03-0912-CV-587.
• Parties: Florence R. LACY-McKINNEY, Appellant-Defendant, v. TAYLOR, BEAN & WHITAKER MORTGAGE CORP., Appellee-Plaintiff.
• Court: Indiana Appellate Court

937 N.E.2d 853

Florence R. LACY-McKINNEY, Appellant-Defendant,

v.TAYLOR, BEAN & WHITAKER MORTGAGE CORP., Appellee-Plaintiff.

No. 71A03-0912-CV-587.

Court of Appeals of Indiana.

Nov. 19, 2010.

Joseph F. Zielinski, Indiana Legal Services, Inc., South Bend, IN, Attorney for Appellant.

Craig D. Doyle, Mark R. Galliher, Amanda J. Maxwell, Doyle Legal Corporation, P.C., Indianapolis, IN, Attorneys for Appellee.

OPINION

KIRSCH, Judge.

Florence R. Lacy-McKinney ("Lacy-McKinney") appeals the trial court's entry of summary judgment in favor of Taylor, Bean & Whitaker Mortgage Corp. ("Taylor-Bean") on Taylor-Bean's action to foreclose on Lacy-McKinney's mortgage that was insured by the Federal Housing Administration ("FHA"). ¹ On appeal, Lacy-McKinney raises two issues that we restate as:

I. Whether a mortgagee's compliance with federal mortgage servicing responsibilities is a condition precedent that may be raised as an affirmative defense to the foreclosure of an FHA-insured mortgage; and

II. Whether the trial court erred when it entered summary judgment in favor of Taylor-Bean on its mortgage foreclosure action against Lacy-McKinney.

We reverse and remand.

FACTS AND PROCEDURAL HISTORY

The facts most favorable to Lacy-McKinney, the non-moving party, reveal that she purchased a home on Manchester Drive in South Bend, Indiana (the "Property") in January 2007. Lacy-McKinney financed the Property via an FHA-insured mortgage with Liberty Mortgage Inc. Lacy-McKinney's loan was subsequently transferred to GMAC Mortgage. Newport Shores Mortgage, Inc. solicited Lacy-McKinney to refinance her loan. This solicitation by Newport Shores, acting as a loan broker, led to Lacy-McKinney's loanwith Taylor-Bean that is the subject of these foreclosure proceedings.

On September 19, 2007, Lacy-McKinney entered into a note ("Note") with Taylor-Bean, which was secured by the mortgage that is the subject of this foreclosure action ("Mortgage"). The loan with Taylor-Bean was an FHA-insured loan subject to federal statutes and the regulations of the United States Department of Housing and Urban Development ("HUD").²

The Note and Mortgage each placed certain limitations on Taylor-Bean's ability to require Lacy-McKinney to immediately pay the Note in full in the event of Lacy-McKinney's default. Section 6(B) of the Note, in pertinent part, provided:

If Borrower defaults by failing to pay in full any monthly payment, then Lender may, except as limited by regulations of the Secretary in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest.... In many circumstances regulations issued by the Secretary will limit Lender's rights to require immediate payment in full in the case of payment defaults. This Note does not authorize acceleration when not permitted by HUD regulations. As used in this Note, "Secretary" means the Secretary of Housing and Urban Development or his or her designee.

Appellant's App. at 23 (emphasis added). Section 9 of the Mortgage addressed grounds for acceleration of the debt and, in pertinent part, provided:

(a) Default. Lender may, except as limited by regulations issued by the Secretary in the case of payment defaults require immediate payment in full of all sums secured by this Security Instrument if [borrower defaults]....

...

(d) Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender's rights, in the case of payment defaults, to require immediate payment in full and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary.

Id. at 28 (emphasis added).

Taylor-Bean received Lacy-McKinney's first loan payment on November 15, 2007. Appellee's App. at 55. Her 2008 payments were received by Taylor-Bean on January 31, February 15, March 17, April 17, May 21, and June 27. Id. at 55-56. Each payment, however, was credited to the prior month because Taylor-Bean had no record of having received Lacy-McKinney's December 2007 payment.

Taylor-Bean maintained a record called the Mortgage Servicer System Memo Report ("System Report"), in which it recorded all communications and other actions taken in connection with Lacy-McKinney's Mortgage. Appellant's App. at 211-21. The System Report revealed that Taylor-Bean sent Lacy-McKinney a telephonic "automated dialer reminder" each month that her payment was late. Id. Additionally, starting on January 14, 2008, Taylor-Bean sent numerous form letters. Id. Some of these letters informed Lacy-McKinney as to the amount she owed for overdue mortgage payments plus late charges and included a HUD pamphlet entitled, "How to Avoid Foreclosure," while others reminded Lacy-McKinney of the overdue payments and urged her tocall the Taylor-Bean office in order to "discuss this matter at length." Appellee's App. at 33-41. On March 12, 2008, Lacy-McKinney called Taylor-Bean to inform the company that she had mailed her March payment in the amount of $780.00, and she was told that the payment would be applied to February because Taylor-Bean had not received the December 2007 payment. Appellant's App. at 213.

As part of its May 14, 2008 System Report entry, Taylor-Bean made the following notation: "Loss Mitigation Referral sent to imaging." Id. at 215. Loss mitigation is a servicing responsibility that requires HUD lenders, like Taylor-Bean, to take actions "which can reasonably be expected to generate the smallest financial loss to HUD." 24 C.F.R. § 203.501. On May 21, 2008, Lacy-McKinney made a mortgage payment; following this payment, Lacy-McKinney was one month behind on her Mortgage. Appellee's App. at 56.

During a May 28, 2008 telephone call, Lacy-McKinney inquired as to the status of her loss mitigation package. Appellant's App. at 215. The System Report noted that her call was transferred to Loren Cline ("Cline"), but there was no notation of Cline's response. Id. Again, on June 18, 2008, Lacy-McKinney called Taylor-Bean to report that she was employed as a school bus driver, did not get paid in June or July, and would need some assistance with her loan. Id. at 216. Lacy-McKinney's job as a bus driver was the same one she had held when Taylor-Bean refinanced her loan on September 19, 2007. The call was again transferred to Cline, and again, the System Report contained no notation of Cline's response. Id.

Almost three weeks later, on July 7, 2008, Cline returned Lacy-McKinney's call. Id. At this point in time, Lacy-McKinney was two months behind on her Mortgage. Cline informed Lacy-McKinney that her file still had not been reviewed. Id. Lacy-McKinney informed Cline that a new school year would start in August and that she did not think she would have the funds to make a payment in July. Id. Cline advised Lacy-McKinney that her file would be reviewed and that, if Lacy-McKinney had not heard from her in two weeks (around July 21, 2008), Lacy-McKinney should call Cline. Id. Although Lacy-McKinney made her June 2008 payment, which was applied to May, she was unable to make a mortgage payment for July 2008. Appellee's App. at 56. By affidavit, Lacy-McKinney testified that she "attempted to make partial payments, which were refused." Appellant's App. at 66.

As of August 1, 2008, Lacy-McKinney was three months behind in her Mortgage. On August 6, 2008, more than two months after Lacy-McKinney had inquired as to the status of her loss mitigation package, Cline made the following notes in the System Report:

RFD ³: temp loss of daughter's SS income due to her being sent to girl's school, SSI suspended until she returns home, hardship ltr does not state when she will retn, income ver in file is not consistent so need to rvw w borr, also need to go over some expenses, using higher net pay & expenses as listed borr has $528 deficit, loan currently due for 3 pmts.

Appellant's App. at 217 (abbreviations in original). That same day, Cline also made a notation "left message w daughter(?)."

Id. One week later, on August 13, 2008, Cline made the following notation in the System Report:

tt [talked to] Mrs, went over fin info, her car is currently broke[sic] down, gets ride from friend & helps pay for gas, just started back to work yesterday (school bus driver), & won't get 1st pyck until 8/22, won't be able to make full pmt this mo, says normal net pay is higher amt as shown on pystb, prev had other garnishment, daughter has been away at the school for 2 yrs, is due back in court next mo & she expects daughter to be returned home within couple mos so would then have addtl SS income of approx $600 mo, based on current fin info borrow has $528 deficit, due for 3 pmts, I adv does not qual for retention option due to deficit, adv if she can get letter from atty to ver status of daughter & send ver of SS amt that I will see if can do anything, adv to fax info by Fri & I will call her back, otherwise file will be closed & if situation changes she can submit updated info at later time.

Id. (abbreviations in original).

On August 15, 2008, a System Report entry noted, "Borrower called wanted Cline fax number gave it to her." Id. Cline's September 4, 2008 entry noted:

rcvd fax-called borr

rcvd ltr from borr arty stating that they are trying to get daughter retd home, also rcvd '06 ver of SS amt, even with the SS (if daughter comes home) the borr still would have small deficit without the SS she has $536.91 deficit, which also only includes minimal fuel expense since car is currently not working / called Ms, adv does not qual for retention option at this time due to deficit, she does not want to sell prop, I adv need addtl income in household, adv can resubmit if situation changes, she did not understand why doesn't qual, said she has same income as when she got mtg loan.

Id. (abbreviations in original). Finally, on September 25, 2008, a Taylor-Bean employee, Jeanna Holt, made the following entry into the System Report:

Called Hp# [home phone

...