Opportunity Management Company Inc v. Frost, CLS Mortgage Inc, and American Financial Services of Washington, Inc, 95-2-02244-2

• Decision Date: 16 February 1999
• Docket Number: 95-2-02244-2
• Court: Court of Appeals of Washington
• Parties: <PartyHeader> OPPORTUNITY MANAGEMENT COMPANY INC., A WASHINGTON CORPORATION, APPELLANT, v. KATHY FROST, A SINGLE PERSON, RESPONDENT AND CROSS-APPELLANT, CLS MORTGAGE, INC., A CORPORATION; APPELLANT, AMERICAN FINANCIAL SERVICES OF WASHINGTON, INC., A WASHINGTON CORPORATION, THIRD PARTY DEFENDANT. </PartyHeader>

[1]
[2]	OPPORTUNITY MANAGEMENT COMPANY INC., A WASHINGTON CORPORATION, APPELLANT,; v.; KATHY FROST, A SINGLE PERSON, RESPONDENT AND CROSS-APPELLANT, CLS MORTGAGE, INC., A CORPORATION; APPELLANT, AMERICAN FINANCIAL SERVICES OF WASHINGTON, INC., A WASHINGTON CORPORATION, THIRD PARTY DEFENDANT.
[3]	No. 16693-7-III
[4]	Washington Court of Appeals
[5]	Source of Appeal: Appeal from Superior Court of Spokane County Docket No: 95-2-02244-2 Judgement or order under review Date filed: 06/06/1997 Judge signing: Hon. Salvatore F. Cozza
[6]	February 16, 1999
[7]	Counsel: Counsel for Appellant(s) Laurel H. Siddoway Randall & Danskin PS 1500 Seafirst Fin Ctr 601 W Riverside Ave Spokane, WA 99201 Douglas M. O'Coyne Sr. O'Coyne and Phillips Ste 612 9 S Washington Spokane, WA 99204 Counsel for Respondent(s) Thomas R. Chapman Paine Hamblen Coffin Brooke & Miller Ste 250 818 W Riverside Spokane, WA 99201 Richard W. Kuhling Pain Hamblen Coffin Brooke & Miller 717 W Sprague Ave #1200 Spokane, WA 99201-3505 Mary M. Palmer 717 W Sprague Ave Ste1200 Spokane, WA 99201-3505 Counsel for Other Parties Joanne Farrell (Appearing Pro Se) Official Court Reporter 1100 West Mallon Spokane, WA 99260 Becky Weeks (Appearing Pro Se) Official Court Reporter 1100 West Mallon Spokane, WA 99260
[8]	The opinion of the court was delivered by: Kato, J.
[9]	Judges: Authored by Kenneth H Kato Concurring: Frank L. Kurtz Stephen M. Brown
[10]	Panel Ten
[11]	[Editor's note: originally released as an unpublished opinion]
[12]	Opportunity Management Corporation (OMC) acquired a secured loan made to Kathy Frost by CLS Mortgage (CLS). Ms. Frost defaulted on the loan; OMC filed a collection and foreclosure action. Ms. Frost counterclaimed against OMC for breach of contract. She also brought third party claims against CLS and American Financial Services (AFS) for violations of the Consumer Protection Act (CPA) and Mortgage Brokers Practices Act (MBPA). The jury awarded Ms. Frost Judgement on her third party claims. In the collection and foreclosure action, it found in favor of OMC and awarded the amounts owed by Ms. Frost on the loan. But the court later refused to order foreclosure of her property.
[13]	Claiming the evidence was insufficient to support the jury's finding that it violated the MBPA and CPA, CLS appeals. It also appeals the award of attorney fees to Ms. Frost. Contending it was entitled to foreclosure and its attorney fees as well as the money Judgement, OMC also appeals. Ms. Frost cross-appeals the court's interpretation of the Judgement amount. We affirm in part and reverse in part.
[14]	In 1994, Kathy Frost was living in and making payments on a home on Sagewood Road in Nine Mile Falls, Washington. Purchased through a HUD program, she paid $238/month for the home. Her sole source of reliable income was Aid to Families with Dependent Children (AFDC). She occasionally earned money from buying, selling, and boarding horses on her property. By 1994, Ms. Frost had approximately $47,000 equity.
[15]	Ms. Frost sold the Sagewood home. With part of the proceeds, she purchased 22 acres of rural property in Elk. She signed an earnest money agreement requiring a $2,000 payment. But she did not have the money as the sale of the Sagewood home had not yet closed. To get funds, she obtained a bridge loan of $10,000 secured by the pending proceeds from the sale of her home. She received $8,500 after deduction of interest and fees.
[16]	Because of the $10,000 bridge loan, Ms. Frost only cleared $36,418.01 from the sale of the Sagewood property. She spent $23,866.59 to purchase the property in Elk. She incurred expenses of $20,296.38 in preparing the Elk site for a manufactured home. She paid what she could from the proceeds of the Sagewood home sale and incurred debt for the remaining expenses.
[17]	Ms. Frost went to AAA Manufactured Housing (AAA) to find a home to put on the property. Since she had spent all the money realized from the Sagewood sale, she needed to finance the entire amount of the manufactured home. AAA would not finance the purchase.
[18]	Ms. Frost was referred to Devin Hughes, a mortgage broker with AFS. He prepared a good faith estimate for a $50,000 loan at 10 percent interest.
[19]	Ms. Frost prepared a residential loan application with Mr. Hughes' help. The application showed her income as $440/month in AFDC, $200/month in child support, and $170/month in horse boarding income. The application indicated the boarding income would increase to $300/month in May 1994. She also listed $450/month in rental income. Her total income was $1,560/month. Ms. Frost also listed assets including $30,000 in personal property, a $1,500 1978 Chevrolet Truck, a $500 1981 Plymouth Omni, a $4,500 four-horse trailer, and a $1,000 two-horse trailer. According to the application, she had a net worth of $83,234.93. Ms. Frost acknowledged she was less than honest on her application as Mr. Hughes encouraged her to exaggerate her income. He denied this.
[20]	Ms. Frost agreed to a $50,000 loan at 10 percent interest. She paid AFS $600 for an appraisal of the property.
[21]	On May 11, 1994, AAA requested and received from AFS written assurance that Ms. Frost had been approved for a loan to purchase the manufactured home. Although no loan had yet been approved, Mr. Hughes provided the written assurance to AAA. Ms. Frost then paid AAA a $5,000 nonrefundable deposit.
[22]	In preparing the property for the manufactured home, Ms. Frost incurred more expenses that she could not pay. She thus needed a loan in excess of the $50,000 originally agreed upon. Mr. Hughes was unable to secure a larger loan at the agreed interest rate.
[23]	Mr. Hughes then contacted CLS in hopes of obtaining a loan for Ms. Frost. CLS offered her a $63,000 loan at 16 percent interest amortized over 30 years with a balloon payment due after 60 months. The loan to value ratio was 62 percent. Her monthly payments were $854.70/month. CLS would receive a $6,300 loan origination fee. Ms. Frost's property with a manufactured home was appraised at $87,500. With a pole barn constructed on the property, the appraised value was $105,000. The property would be security for the loan.
[24]	In making the offer, CLS relied upon the loan application Ms. Frost prepared with Mr. Hughes. Executive Reporting Services also prepared a credit report which included an interview with her. The credit report was consistent with the application as to Ms. Frost's income, assets, and debts.
[25]	CLS sent Ms. Frost a package including a good faith estimate of settlement costs associated with the loan, along with other Truth-in-Lending documents. The documents disclosed the 16 percent interest rate with a 10 percent loan origination fee. When she received the documents from CLS, Ms. Frost became upset upon seeing the interest rate and monthly payments. She went to Mr. Hughes at AFS to complain. Mr. Hughes said he told Ms. Frost this was a different loan than he originally proposed and advised her to talk to CLS. Ms. Frost claimed Mr. Hughes told her the papers were not final and he would straighten everything out. She believed Mr. Hughes would fix the interest rate.
[26]	Ms. Frost went to CLS and spoke with James Campasino. She signed the papers in the packet because Mr. Hughes told her to do so. She did indicate her displeasure with the interest rate to Mr. Campasino, who did not indicate the interest rate was in error. Ms. Frost's concerns were allayed because Mr. Campasino told her he would be talking to Mr. Hughes, whom she assumed would straighten everything out.
[27]	A week later, Ms. Frost went back to CLS to sign the loan documents, which indicated the loan interest rate was 16 percent and the loan origination fee was 10 percent. She did not question the interest rate or payment terms set forth in the documents. CLS offered the loan subject to a development agreement and a construction holdback for material with which Ms. Frost was to build a pole barn on the property. Ms. Frost signed a promissory note, deed of trust, and security agreement in connection with the loan.
[28]	CLS typically affords clients a three-day cooling off period during which time a client can opt out of the loan. Ms. Frost wanted to waive the period because she was anxious to get her manufactured home. She had been living in a tent on the Elk property. CLS agreed to waive the three-day period because Ms. Frost told them she had surgery scheduled and her doctor would not perform the surgery unless she was in her manufactured home rather than a tent.
[29]	CLS disbursed the loan funds. CLS retained its $6,300 origination fee and gave $945 of it to Mr. Hughes for the legwork he did on the loan. CLS did not disclose to Ms. Frost the Hughes payment.
[30]	CLS then sold Ms. Frost's loan to OMC.*fn1 She made her first and only payment to OMC in August 1994.
[31]	In April 1995, OMC started a collection and foreclosure action. Ms. Frost counterclaimed for breach of contract, offsets, and a recoupment. She also asserted third party claims against CLS, Mr. Hughes, and AFS.
[32]	The jury found CLS and AFS committed three separate violations of the MBPA and the CPA. It determined Ms. Frost did not commit fraud. It further found OMC was not a holder in due course. The jury determined Ms. Frost owed OMC $98,682.65 for defaulting on the loan. A Judgement was entered for that amount against her in favor of OMC.
[33]	The trial court refused to award OMC attorney fees associated with its successful collection action. The court also denied OMC's request to foreclose the deed of trust on the property.
[34]	On Ms. Frost's CPA claims, the jury awarded her $14,404 against CLS on each of three separate violations and $711 against AFS. The court determined the jury intended to award Ms. Frost a total of only $14,404 on her CPA claims. The court trebled her damages against AFS and entered Judgement against it for $2,133. Due to the $10,000 statutory cap on treble damages under the CPA, the court entered Judgement

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