Macholtz v. Carrington Mortg. Servs., LLC
| Decision Date | 04 November 2020 |
| Docket Number | CASE No. 1:19-CV-173 |
| Parties | Anthony A. MACHOLTZ, Plaintiff, v. CARRINGTON MORTGAGE SERVICES, LLC, et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
Theodore J. Westbrook, Westbrook Law PLLC, Grand Rapids, MI, for Plaintiff.
Deborah Sharon Lapin, Martin Scott Frenkel, Maddin Hauser Wartell Roth & Heller PC, Southfield, MI, for Defendants.
This is the latest chapter in a 15-year struggle between plaintiff and a series of lenders and servicers of a mortgage originated in 2005. The pivotal issue is whether the terms of a Loan Modification Agreement ("LMA") plaintiff negotiated to resolve a federal lawsuit in 2013 binds successor lenders and servicers, including the current defendants. In the Court's view, it does. The LMA ended the earlier federal lawsuit, set aside the original foreclosure, modified payment and other mortgage terms and resulted in stipulated orders approved by the District Judge based on the terms of the LMA. Documents detailing the deal were prepared in recordable form, recorded on the real estate records of the County and effectively became part of the mortgage terms.
That's the short version of this chapter of the saga. To understand the full basis for the Court's conclusion on this pivotal issue, as well as the particular impact of that conclusion on the pending motions and the seven causes of action at issue, it is unfortunately necessary to detail the full story. This requires a journey through a thick summary judgment record describing original mortgage loan documents; a payment default and the original foreclosure sale in 2011; an earlier federal lawsuit setting aside that foreclosure based on the LMA; a divorce decree and quit-claim deed between plaintiff and his then-wife and co-obligor on the mortgage; transfer of the modified mortgage to successor servicers and lenders; an unsuccessful Chapter 13 bankruptcy; the notice and servicing history culminating in a second foreclosure sale; and ultimately this lawsuit. Buckle up!
In 1998, Plaintiff obtained title to a residence and real property located in Berrien County, Michigan. (Compl. ¶ 13, ECF No. 1, PageID.4; Quitclaim Deed, Pl.’s Ex. 1, ECF No. 31-1, PageID.875). In 2005 Plaintiff and his then-wife Dena Macholtz1 executed a promissory note (the "Note") for a $142,000 loan. . The Note was secured by a mortgage on the property that Plaintiff and Dena granted to Mortgage Electronic Registration Systems, Inc., as the nominee for the lender, Homeloan USA Corp. (Mortgage, Pl.’s Ex. 2, ECF No, 31-2, PageID.877, Def.’s Ex. B, PageID.621). The mortgage was subsequently assigned to nonparty CitiMortgage, Inc. Plaintiff has lived in the home continuously for the last twenty-two years.
Plaintiff and Dena eventually defaulted on their obligations under the Note. CitiMortgage instituted foreclosure by advertisement proceedings. This led to a sheriff's sale. CitiMorgage submitted the winning bid and a sheriff's deed issued on May 12, 2011. (Sheriff's Deed on Mortgage Sale, Pl.’s Ex. 5, ECF No. 31-5, PageID.902).
Following the 2011 sheriff's sale, Plaintiff and Dena Macholtz sued CitiMortgage in State Court. They alleged a wrongful foreclosure and sought to quiet title because they claimed CitiMortgage had violated a State law requiring the lender to offer certain loss mitigation options before foreclosure. The case was removed to this Court. See generally Macholtz v. CitiMortgage, Inc. , 1:11-cv-1250 (W.D. Mich. filed Nov. 28, 2011) (Neff, J.).
The lawsuit eventually resulted in a settlement agreement that terminated the proceedings. While the settlement negotiations were proceeding, and while the lawsuit was still pending, Plaintiff and Dena Macholtz divorced. A Judgment of Divorce entered in Berrien County Family Court on March 21, 2013. (Pl.’s Ex. 9, ECF No. 31-9, PageID.928). Section 6.01 of the divorce judgment provided that Plaintiff "shall have and hold as his sole and separate estate" the residence and property underlying the instant dispute. (Id. at PageID.933). The same section provided that Plaintiff would pay all indebtedness owing on the real estate and would hold his ex-wife harmless for any debts. (Id. ). On April 8, 2013, consistent with the language of the divorce judgment, Dena executed a quit claim deed in Plaintiff's favor dissolving the tenancy by the entireties and quitclaiming her interest to Plaintiff. The quit claim deed was recorded in Berrien County on April 15, 2013. (Pl.’s Ex. 10, ECF No. 31-10, PageID.941).
Just before the quit claim deed was executed, the attorneys for both sides of the federal lawsuit notified the presiding judicial officer during a status conference that the lawsuit had been "substantially resolved" and that "a full resolution" of the matter was imminent. Macholtz v. CitiMortage , No. 1:11-cv-1250 (W.D. Mich. Apr. 3, 2013) (ECF No. 42). As apparent from the subsequent proceedings, the deal contemplated the execution of a Loan Modification Agreement between Plaintiff and CitiMortgage. An Order following the status conference, for example, required Plaintiff to sign a loan modification agreement and make a payment in the sum of $5,242.77 "as necessary for execution of the loan agreement." Id.
On April 10, 2013, the parties reported that Plaintiff had executed the loan agreement and mailed a payment of $5,242.77 to CitiMortgage's counsel. Id. at ECF No. 43. The parties requested more time before dismissing the case, however, for "the recording of the Quit Claim deed from Dena Macholtz to Anthony Macholtz ... which is necessary for [CitiMortgage] to book the loan modification." Id. If the payment was received and if the quit claim deed was recorded, the parties stipulated to filing of dismissal papers. Id. Judge Neff granted the request for more time. Id. at ECF No. 44.
On April 24, 2013, the parties reported to Judge Neff that Plaintiff's payment had been received by CitiMortgage. They also reported that the quit claim deed had been recorded and received by CitiMortgage on April 23, 2013. Id. at ECF No. 45, PageID.229. Though the two specified conditions had been met, the parties requested more time to execute a settlement agreement before filing dismissal papers. Judge Neff again granted the request.
Thereafter the parties filed a "stipulated order in recordable form" that set aside the foreclosure sale and rescinded the sheriff's deed. Id. at ECF No. 47. Among other things, the stipulation recited that Plaintiff "reaffirms and restates the terms and conditions of the original Note and Mortgage ... except as modified pursuant to the Parties’ Loan Modification Agreement entered as of December 26, 2012 and effective as of January 1, 2013, which is current and remains in effect. " Id. (emphasis added).
Up until this point, no mention on the available docket was made of Dena Macholtz, even though she had signed the 2005 Note along with Plaintiff. Plaintiff, for example, was the only one mentioned in the parties’ stipulation as having reaffirmed the mortgage and the conditions of the original note as modified under the Loan Modification Agreement. And a copy of the Loan Modification Agreement with dates mirroring those described by Judge Neff contained no signature line for Dena Macholtz. (Pl.’s Ex. 8, ECF No. 31-8, PageID.925).2 The first publicly available mention of Dena Macholtz in connection with the resolution of the case was made in a stipulation dated May 1, 2013. There the parties stipulated that Dena Macholtz was divorced from Plaintiff and had conveyed her interest in the subject property to Plaintiff. Accordingly, the parties agreed to dismiss Dena from the case and, following an order granting their earlier stipulation, would agree to dismiss with prejudice the remainder of the case. Id. at ECF No. 48.
The following day, May 2, 2013, Judge Neff granted both stipulations, including the stipulation reciting that the Loan Modification Agreement was current and in full effect. Id. at 49. The case was then closed. A copy of Judge Neff's Order setting aside the sheriff's sale and rescinding the sheriff's deed was also recorded. (Pl.’s Ex. 7, ECF No. 31-7).
After Plaintiff made the $5,242.77 payment to close the settlement agreement, Plaintiff appears to have made few, if any payments, on the outstanding loan.3 On October 31, 2013, Plaintiff filed a Chapter 13 Bankruptcy Petition in the Western District of Michigan Bankruptcy Court. In Re Macholtz , No. 13-08467 (Bankr. W.D. Mich. filed Oct. 31, 2013). During those proceedings, CitiMortgage filed a proof of claim stating, in part, it was owed $75,853.53 in arrears. Plaintiff objected to CitiMortgage's claim, alleging that the claim did not account for the Loan Modification Agreement that had taken effect earlier that year. (Bankr. Case Dkt. # 19). When the bankruptcy judge scheduled a hearing on the matter, CitiMortgage did not appear or otherwise defend against the objection and the judge went on to sustain Plaintiff's objection based on the Loan Modification Agreement. (Bankr. Case Dkt. #27).
Ultimately, the bankruptcy case was dismissed on the trustee's motion on May 28, 2014. The Chapter 13 bankruptcy plan had required Plaintiff to make semi-monthly payments of $1,1000. The last payment of $2,200 was received on January 8, 2014, and Plaintiff was $8,800 in arrears when the trustee made the motion. Based on the lack of payments, the trustee sought dismissal. (ECF No. 29-9, PageID.692). The bankruptcy court dismissed the case in an order dated July 9, 2014. (Id. at PageID.693).
Following the bankruptcy proceedings, Plaintiff contends he was...
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