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Bybee v. Bank of America N.A.

United States District Court, D. Montana, Helena Division

September 28, 2017


          OPINION & ORDER


         Before the Court are Defendants' Motions for Summary Judgment. The motions came on for hearing on June 23, 2017. Plaintiff Lawrence Bybee (“Bybee”) was represented by Brian Miller. Defendant Bank of America, N.A. (“BANA”) was represented by Mark D. Etchart. Defendants Rushmore Loan Management Services, LLC (“Rushmore”) and Statebridge Company, LLC (“Statebridge”) were represented by Erika R. Peterman. Having received the parties' arguments and evidence and having reviewed the briefs and all the record, the Court is prepared to decide the motions.

         Bybee's Fourth Amended Complaint (ECF No. 57 “FAC”) in this case alleges that BANA was negligent in its processing of his loan modification and short sale applications and that BANA violated the Montana Consumer Protection Act (“MCPA”) by its allegedly unfair or deceptive conduct in handling his short sale applications and foreclosure activities. Bybee alleges that Rushmore violated the MCPA by denying his loan modification application, attempting to foreclose on his home, and sending its agents to trespass upon his property. Bybee alleges that Statebridge violated the Fair Debt Collection Practices Act, 15 U.S.C. 1692, sending him a letter when he was represented by counsel and by sending him a loan statement in October 2015 showing a balance due. Bybee alleges that Statebridge's agents entered his property to inspect it without his consent, thereby trespassing.


         In March 2007, Plaintiff Lawrence Bybee obtained a $157, 528.00 loan from Taylor, Bean, and Whitaker Mortgage Corp. (“TBW”) in connection with his purchase of a residence in Shepherd, Montana. Bybee signed a promissory note, which provided a fixed interest rate of 6.375%, a thirty year term, and monthly principal and interest payment of $982.77. Bybee also executed a deed of trust as security for the note. The loan was insured by the Federal Housing Administration (“FHA”) and was therefore subject to the guidelines in Mortgage Letters issued by the Department of Housing and Urban Development (“HUD”). Bybee made payments on the loan for approximately 18 months, until October 2008. Bybee tried to get a loan modification from TBW, and in fact thought at one point that he had a loan modification worked out, but it was never finalized. Bybee's wife testified that when she sent TBW three monthly payments in three checks (for March, April, and May of 2009), as she had been instructed to do per the work out, TBW returned the checks with a letter stating that the loan modification had failed for their failure to pay a $100.00 fee, and the loan was now in foreclosure. (ECF No. 117-4, Dep. T. Bybee, 64:1-65:5.) On June 12, 2009, TBW recorded notice of foreclosure sale, stating that Bybee was delinquent on payments beginning October 1, 2008, in the amount of $11, 381.67. (ECF No. 108-5.) The sale date listed on the notice of trustee's sale was October 20, 2009.

         However, in August of 2009, TBW was shut down by the federal government and prohibited from servicing mortgages. Ultimately, TBW declared bankruptcy and ceased doing business. The Government National Mortgage Association (“GNMA”) purchased the loan. (ECF No. 9-2, ¶ 13.)

         In September, 2009, Bank of America, N.A. (“BANA”) became the new servicer of Bybee's loan. On the day that BANA received the Bybee loan, it was 11 months delinquent and already in default. (ECF No. 120-6, Dep. J. Chatman, 102:23-25.). Bybee attempted to make only one monthly payment to BANA. A September 2009 payment in the amount of $1, 275.00 was rejected by BANA because the payment was insufficient to correct the default. (ECF No. 120-6, Dep. J. Chatman, 109:14-110:8.)

         BANA sent letters to borrowers letting them know what documents to send for loan modification or loss mitigation options. (ECF No. 120-6, Dep. J. Chatman, 103:1-11.) In October 2009, Bybee then told BANA that he wanted a loan modification; he claimed that he already was supposed to have a loan modification with TBW, but he did not send BANA any copies of TBW modification documents (ECF No. 120-2, Dep. L.Bybee, 2-9.) At that point, his loan was twelve months delinquent. In December, 2009, Bank of America informed Bybee that it would not attempt to undo any mistake made by TBW, but that it would consider him for a loan modification. (ECF No. 9-2, ¶ 15.) Bybee began the process of submitting documents to BANA in support of a loan modification application, but by February 2010, Bybee still had not submitted all the necessary documentation, such as his pay stub, bank statements, utility bill, and income tax return or W-2. (ECF No. 120-6, Dep. Chatman, 47:1-10.) As late as May and June 2010, Bybee was still submitting financial documents to BANA to support the loan modification application. (ECF No. 109-15, Dep. T.Bybee, 73:24-74:3.) Bybee turned over all communications with BANA to his wife, Theresa Bybee, on May 25, 2010, when he faxed BANA a document granting his wife his power of attorney. (ECF No. 120-2, Dep. L.Bybee, 12:10; ECF No. 109-15, Dep. T.Bybee, 74:18-76:10.)

         In its review of Bybee's file, BANA first considered the Bybee loan for the Making Home Affordable Program, but it did not qualify because it was an FHA-insured loan. In January 2010, BANA reviewed the Bybee loan for a brand new program, the Home Affordable Mortgage Program (“HAMP”) loan modification, but found that Bybee's loan was disqualified because, first, it was more than 12 months delinquent, and, second, because the loan did qualify for the standard FHA non-HAMP loan modification. (Bybee's loan was not co-insured, which would have disqualified his loan for a non-HAMP modification. (ECF No. 127-9, ML 19944-42.))

         On July 15, 2010, BANA offered Bybee an FHA non-HAMP loan modification. By this time, Bybee was earning $49, 000 per year, which was approximately $10, 000 more than he had earned when he first obtained his loan from TBW in 2007. The terms of the FHA non-HAMP loan modification were to raise his payment by $14.00 per month, reduce the interest rate from 6.375% to 5.0%, lengthen the loan term by three years, and capitalize $26, 694.32 arrearages (all of the unpaid interest, taxes, insurance). Bybee rejected this offer because he did not want to capitalize $17, 885.77 in interest, believing that particular item was not his “fault.” (However, HUD Mortgagee Letter 2000-05 provides that a principal, interest, or taxes/insurance arrearages may be capitalized to the mortgage balance for purposes of the loan modification. (ECF No. 108-10.)) Bybee having rejected BANA's proposed loan modification, on August 3, 2010, BANA rejected Bybee's loan modification application for Bybee's failure to sign and return the loan modification agreement. (ECF No. 108-17.)

         Before rejecting the loan modification offered by BANA in July 2010, however, Bybee had already moved his family out of the home in June 2010 and even removed the kitchen appliances to their new rental house. (ECF No. 120-3, Dep. T.Bybee, 103:6-8.) In packing up to move, Bybee's wife threw away all of their correspondence to and from TBW (ECF No. 120-3, Dep. T.Bybee, 60:1-6), meaning that the evidence Bybees could give regarding TBW's communications with them would be inadmissible hearsay. In August, 2010, Bybee listed the property for sale for $189, 900.00, but at the same time Bybee's wife began exploring the possibility of a short sale, by which BANA could accept a third-party's offer to purchase the home for a sum less than the balance due (and then be reimbursed for the difference between the sale price and the loan from the government).

         On September 27, 2010, BANA recorded a notice of trustee's sale, its first such notice, that had been signed on September 22, 2010, with a sale date of February 7, 2011. (ECF No. 108-18.) The sale was canceled on February 2, 2011, by recorded notice. (ECF No. 108-19.)

         On September 23, 2010, Homestead Properties, Inc. (“Homestead”), entered into an agreement with Bybee to purchase the home for $138, 018.00. Homestead was experienced in purchasing properties through short sales, and the owner of Homestead, Linda Schicktanz, advised Bybee on how to obtain BANA's approval for a short sale. (ECF No. 109-14, Dep. L. Bybee, 188:22-25.) Schicktanz submitted her offer to BANA on September 23, 2010. (ECF No. 120-3, Dep. T.Bybee, 150:9-14.) In fact, the Bybees gave Schicktanz a power of attorney so she could communicate directly with BANA regarding a short sale and so that neither Mr. nor Mrs. Bybee would have to talk to BANA about the proposed short sale. (ECF No. 109-15, Dep. T.Bybee, 138:20-140:19.)

         BANA was willing to consider a short sale. Pursuant to HUD requirements, BANA ordered an appraisal of the property, and the November 1, 2010, appraisal concluded that the fair market value of the home in “as is” condition was $162, 000.00. (ECF No. 108-22 at 4.) The appraisal noted certain deficiencies on the property, such as a water cistern needing replacement, minor repairs needed in the bathroom and kitchen, and a foundation wall requiring inspection due to bowing and cracks (with “costs to cure less than $5, 500"). (ECF No. 108-22 at 5.) (However, the water cistern problem turned out merely to be a broken pump that was replaced subsequently by Bybee for less than $2, 500. (ECF No. 127-6, Dep. T.Bybee, 136:23-137:13.))

         Following HUD short-sale regulations, BANA issued an Approval to Participate (“ATP”) letter on November 15, 2010 (ECF No. 23), which meant that Bybee had four months from that date to submit a qualifying short-sale offer that met HUD guidelines. At least initially, the short sale offer had to be at least 88% of fair market value; Homestead's offer of $138, 118.00 did not meet that basic requirement. HUD guidelines provide that during the four-month short-sale time period, an acceptable offer had to be 88% of FMV ($142, 560.00) during the first month, 86% of FMV during the second month ($139, 320), and 84% of FMV during the third and fourth months ($136, 080). (Mortgage Letter 2008-43, ECF No. 108-20.) However, at Bybee and Homestead's request, a second appraisal was substituted for the first appraisal, so during the third and fourth months, the acceptable offer had to be 84% of $172, 000.00, or $149, 520.00. Instead, Homestead's second bid was for $114, 200, on January 23, 2011.

         After the appraisal came in low at $162, 000 and Homestead's offer was clearly inadequate, Schicktanz requested over the phone that a second appraisal be obtained because the property required numerous repairs which she and the Bybees thought were unaccounted for in the appraisal. (ECF No. 109-13, Dep. Schicktanz, 197:7-14.) Homestead's position was that the $162, 000 appraisal value too high. (ECF No. 109-13, Dep. Schicktanz, 188:6-19; ECF No. 109-15, Dep. T. Bybee, 174:25-175:2; ECF No. 109-4, Expert Report Steve Zech, ¶ 20.) Therefore, at Homestead and Bybee's request, BANA ordered that a second appraisal be conducted. In addition, Homestead dropped its offer to purchase the property to $114, 200.00. (ECF No. 127-4, Dep. Schicktanz, 185:5-13.) On January 23, 2011, Schicktanz signed the “Real Estate Purchase and Sale Agreement” that listed the total purchase price as $114, 200.00, and Bybee signed the same agreement on January 24, 2011. In this Purchase and Sale agreement, Schicktanz agreed to accept the property in “as is/where is” condition, and the sale was made “contingent upon the seller obtaining prior written approval of Bank of America.” (ECF No. 108-25 at 2.)

         On February 11, 2011, the second appraisal was published, and it concluded that the “as is” fair market value of the property was now higher, at $178, 000.00. By this point in time, the offer had to be 84% of fair market value, and Homestead Inc.'s $114, 200 offer was well below that threshold and therefore unacceptable under HUD guidelines. Schicktanz acknowledges that she never submitted an offer that met HUD's minimum net proceeds requirement. (ECF No. 109-13, Dep. Schicktanz, 256:2-8.) Finally, on May 21, 2011, BANA terminated the ATP and informed Bybee that a foreclosure sale would be scheduled. (ECF No. 108-26.)

         In August of 2011, Schicktanz began to inquire with BANA about making a second application for a short sale. (ECF No. 108-27.) Schicktanz resubmitted to BANA Homestead's $114, 200 offer to purchase the property. (ECF No. 127-4, Dep. Schicktanz, 209:2-10.) BANA never issued a new Approval to Participate (ATP) necessary for a short sale. Schicktanz wanted BANA to obtain a variance from HUD to the net sale proceeds requirement based on what they considered to be significant repairs needed to make the property habitable. Fred Benton, a BANA loss mitigator, told them that they had to document the repairs needed. (ECF No. 108-27.)

         However, this second attempt to begin the short sale process was denied by BANA on September 20, 2011, for the reason that the first six-month ATP had expired. (ECF No. 108-28.) In other words, under HUD regulations, BANA was not obligated to give Bybee repeated opportunities (lasting 120 days each) to attempt to obtain an adequate short sale offer. Mortgagee Letter 2000-05 states that the lender should consider all loss mitigation options, but it does not state that all options must be considered as many times as requested or otherwise repetitiously. (ECF No. 108-10.) In addition, Mortgagee Letter 200-05(J) states that any abandonment of the property permits a lender to immediately proceed to foreclosure, and the Bybees were not residing on the property in 2011. (ECF No. 108-10.)

         On December 3, 2011, BANA noted that the second request short sale application was declined and that a deed-in-lieu of foreclosure would be attempted. (ECF No. 108-31.) On December 12, 2011, BANA sent Bybee a letter offering a deed-in-lieu of foreclosure and itemizing the documents that Bybee should submit in order to take advantage of this loss mitigation effort. (ECF No. 108-32.) Basically, the deed-in-lieu of foreclosure option permits the borrower to convey the property to the FHA and to be relieved of the borrower's mortgage obligation. Eight days later, on December 20, 2011, BANA notes that it is

“Canceling File - No Water in the home cistern broke-many other major issues with home per h/o [home owner] and attny [attorney]. The homeowners will not return the DIL [deed-in-lieu] docs because they want to go back to SS [short sale]. Have explained several times the process. Canceling file due to no docs returned.”

(ECF No. 108-33.) Bybee was not interested in a deed-in-lieu of foreclosure because he believed that it would be more damaging to his credit than a short sale. (ECF No. 120-2, Dep. L. Bybee, 171:14-172:2.) Bybee rejected BANA's offer of a deed-in-lieu of foreclosure.

         As a consequence of having worked through all the loss mitigation options without success, beginning in early 2012, BANA began issuing Notices of Trustee's Sales. On January 13, 2012, BANA recorded a Notice of Trustee's Sale to be held on May 29, 2012. (ECF No. 108-35 at 1.) On April 4, 2012, BANA recorded a cancellation of that trustee's sale. (ECF No. 108-36.) Another Notice of Trustee's Sale to be held on August 15, 2012, was recorded on April 10, 2012. (ECF No. 108-35 at 4.) That sale was canceled on August 7, 2012. (ECF No. 108-36 at 2.)

         On August 6, 2012, BANA notes that “Borrower not eligible for retention because. . . Property is non-owner occupied ...

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