Reinke v. Northwest Trustee Servs. Inc. (In re Reinke)
| Decision Date | 26 October 2011 |
| Docket Number | Bankruptcy No. 09-19609,Adversary No. 09-01541 |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Western District of Washington |
| Parties | In re KARL JOHN REINKE, Debtor. KARL JOHN REINKE, Plaintiff. v. NORTHWEST TRUSTEE SERVICES, INC., a Washington Corp.; AURORA LOAN SERVICES LLC, a Delaware Corp.; BAC HOME LOANS SERVICING INC., fka COUNTRYWIDE HOME LOANS SERVICING LP, a Texas Corp.; HOME CAPITAL FUNDING, a California Corp.; FIRST AMERICAN TITLE INSURANCE CO., a Washington Corp.; LAWYERS TITLE INSURANCE CO., a Nebraska Corp.; WINSTAR MORTGAGE PARTNERS, INC., a Minnesota Corp.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., a Delaware Corp., Defendants. |
The trial of this matter commenced on May 19, 2011, and concluded on August 9, 2011. The Court has considered the parties' post trial submissions. This Memorandum Decision contains theCourt's findings of fact and conclusions of law for purposes of Bankruptcy Rule 7052.1
For the following reasons, the Court finds that defendants Aurora Loans Services LLC ("Aurora") and Northwest Trustee Services, Inc. ("NWTS") violated Washington's Deed of Trust Act, but that plaintiff, Karl Reinke ("Plaintiff"), failed to prove that he was injured by that violation.
In this action, Plaintiff asserts various state and federal causes of action against defendants related to the initiation and pursuit of foreclosure proceedings against two parcels of real property owned by him. Plaintiff filed a proceeding under chapter 11 of the Bankruptcy Code on September 17, 2009, and a resolution of these causes of action is critical to confirmation of a chapter 11 plan in that proceeding.
Plaintiff has been employed with various companies in the mortgage loan business for 16 years, including as an originator of mortgage loans and as a wholesale representative calling on mortgage brokers. In his bankruptcy petition, Plaintiff lists his occupation as a mortgage broker. Plaintiff's bankruptcy schedules list four pieces of real property, two of which are at issue here.
On April 11, 2007, Plaintiff executed a promissory note in favor of Winstar Mortgage Partners, Inc. ("Winstar") in the amount of $399,700 (the "Shoreline Note"), and a deed of trust (the "Shoreline Deed of Trust") to secure the note against Plaintiff's property commonly known as 16420 4th Avenue N.E., Shoreline, Washington (the "Shoreline Property"). Exs. P-2, P-1. The Shoreline Deed of Trust named First American Title Insurance Company ("First American") as trustee, Winstar as the lender, and Mortgage Electronic Registration Systems, Inc. ("MERS") as beneficiary "solely as nominee for Lender and Lender's successors and assigns." Ex. P-1. Section 20 of the deed of trust permits a sale of the Shoreline Note and Deed of Trust without prior notice to Plaintiff and permits a change in the loan servicer with notice to Plaintiff. The Shoreline Deed of Trust was recorded on April 17, 2007. On May 18, 2007, Plaintiff received a letter from Aurora informing him that the servicing of his loan, including the right to collect payments, was being transferred to Aurora. Ex. A-3. The letter instructed Plaintiff to begin making payment to Aurora on June 1, 2007. Plaintiff made the payments due under the Shoreline Note to Aurora until January of 2009. Plaintiff testified that he stopped making payments because his income was reduced and he needed money for living expenses.
Defendant NWTS is a company which conducts foreclosures for lenders in the State of Washington, including for defendant Aurora. NWTS received a referral from Aurora on April 22, 2009, to commence a foreclosure proceeding against the Shoreline Property. The referral was made through a website system called Lenstar Imaging,which NWTS employees accessed by using a private user name and password to pick up foreclosure referrals. Screen shots from this system showing the instructions for foreclosure of the Shoreline Property indicate that Aurora was the beneficiary under the deed of trust "at the time of foreclosure sale," that foreclosure was to be filed in the name of MERS, that the loan was a "Freddie Mac Loan," and that the amount of the loan default was $12,075.30. Exs. P-3, P-4. The screen shots instruct NWTS to remit any funds to Aurora. Ex. P-3. The screen shots also contain Plaintiff's name, Plaintiff's address, a description of the Shoreline Property, and specific information about the Shoreline Note, but there is no specific reference to the holder of the note. Ex. P-4. There were no other agreements between Aurora and NWTS.
Two notices regarding the Shoreline Note and Property were sent to Plaintiff on April 22, 2009: a letter from Routh Crabtree Olsen, P.S. ("Routh Crabtree"), a law firm affiliated with NWTS, and a Notice of Default signed by "Aurora Loan Services LLC By Northwest Trustee Services, Inc., its duly authorized agent." Ex. P-7. The letter from Routh Crabtree advised Plaintiff that the firm was working with Aurora to help Plaintiff keep his home and further advised Plaintiff to contact the firm about alternatives such as loan forbearance, reinstatement, and modification. Ex. P-6. The notice of default advised Plaintiff that in order to reinstate the Shoreline Note he would be required to pay $16,356.26. Ex. P-7. Plaintiff does not dispute that he timely received the letter from Routh Crabtree and the notice of default.
On April 30, 2009, a representative of Aurora executed an Appointment of Successor Trustee, pursuant to which Auroraappointed NWTS as the successor trustee under the Shoreline Deed of Trust. In the Appointment of Successor Trustee Aurora warranted that it was the current beneficiary under the Shoreline Deed of Trust and the holder of the obligation secured by that deed of trust. Ex. P-8. A month later, on May 26, 2009, a representative of MERS executed a Corporate Assignment of Deed of Trust, assigning the interest of MERS under the Shoreline Deed of Trust "together with the Note or other evidence of indebtedness" to Aurora.3 The corporate assignment and the appointment of successor trustee were both recorded in the King County, Washington real property records on June 3, 2009. Ex. P-8, P-9.
NWTS issued a Notice of Trustee's Sale as to the Shoreline Property on June 13, 2009, which was recorded on June 18, 2009. Ex. P-10. The notice advised Plaintiff that pursuant to the Washington Deed of Trust Act ("WADOTA"), RCW 61.24, et seq., his property would be subject to public auction on September 18, 2009. The notice stated that the amount Plaintiff was required to pay to reinstate the Shoreline Deed of Trust was $19,997.47. Id. Plaintiff does not dispute that he timely received the Notice of Trustee's Sale. Plaintiff does not dispute that he defaulted under the terms of the Shoreline Note nor does he contest the amount claimed to be due under the note.
Shirley Flaig, a representative of Aurora, testified that Aurora was the subservicer of the Shoreline Note for the Federal Home Loan Mortgage Corporation ("Freddie Mac") pursuant to a FlowServicing Agreement dated August 31, 1999, between Lehman Brothers Bank, FSB and Aurora (Ex. A-4) and a Custodial Agreement: Single Family Mortgages dated as of May 1, 2008, among Freddie Mac, LaSalle Bank NA as custodian and Lehman Brothers Holdings, Inc., as seller/servicer (Ex. A-6). She further testified that Aurora is a subsidiary of Aurora Bank, which is wholly owned by Lehman Brothers, and that Aurora took actual or constructive possession of the Shoreline Note in 2007 as the subservicer of the loan for Freddie Mac.
David Wilson, a representative of Freddie Mac, testified that Freddie Mac purchased the Shoreline Note from Lehman Brothers Holding, Inc. on June 28, 2007, and that Freddie Mac has been the owner of the note since that time. He also testified that based upon his review of Freddie Mac's files, the Shoreline Note was in the possession of LaSalle acting as custodian for Lehman in April of 2009.
On July 1, 2005, Plaintiff executed a note in the principal amount of $200,000, in favor of Home Capital Funding as lender (the "Seattle Note"). Ex. P-13. On the same day, he also executed a deed of trust to secure his obligations under the Seattle Note (the "Seattle Deed of Trust") against his property located at 2736 N.E. 115th St., Seattle, Washington (the "Seattle Property"). The Seattle Deed of Trust named Home Capital Funding as the lender, Lawyer's Title of Washington ("Lawyer's Title") as the trustee, and MERS as the beneficiary "solely as the nominee for Lender and Lender's successors and assigns." Ex. P-12. Other than thedifferent parties and property, the form of the Seattle Deed of Trust is identical to the Shoreline Deed of Trust.
NWTS received a referral for foreclosure of the Seattle Property in a manner similar to the referral of the Shoreline Property, except that there were no specific foreclosure instructions contained in the electronic referral from the proprietary website maintained by Bank of America. The one-page screen shot introduced into evidence contains three columns of information about the Seattle Note and Property, references the investor name "FHLMC ACR FIX", foreclosure in the name of "BAC Home Loans Servicing, LP fka Countrywide Home Loans Servicing LP" ("BAC"), and a monetary default in the amount of $8,162.53. Ex. P-14. The screen shot does not include any instructions for remitting payments and it does not reference a holder of the note. There was no evidence of any other agreement between NWTS and BAC or Bank of America. Employees of NWTS testified that the Bank of America website, to which they have been given specific access privileges, provides the only mechanism for foreclosure referrals from Bank of America or BAC to NWTS.
On May 1, 2009, Routh Crabtree sent a letter to Plaintiff in a form identical to the letter referencing the Shoreline Property but referencing collection under...
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