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Northern Regal Homes, Inc. v. Roundpoint Mortgage Servicing Corp.

United States District Court, D. Utah

December 27, 2016




         Before the court are the parties' cross motions for summary judgment and motions to exclude expert testimony. [Dockets 51, 52, 57, 60]. The court heard oral argument on the motions on November 9, 2016 and took the motions under advisement. After considering the parties' memoranda and oral arguments, as well as relevant case law and the record before it, the court GRANTS IN PART and DENIES IN PART Plaintiffs' Motion for Summary Judgment, and GRANTS IN PART and DENIES IN PART Defendant's Motion for Summary Judgment. The court also DENIES both parties' motions to exclude expert Testimony.


         In November 2006, Plaintiffs Northern Regal Homes, Inc. and Rick Williams (collectively “Borrowers”) entered into a construction loan agreement with Barnes Banking Company (“Barnes”) for the purpose of constructing a single-family residence in Hooper, Utah (the “Property”). Borrowers executed a promissory note (the “Note”) for the principal amount of $295, 600.00 that had a maturity date of August 15, 2007. As security for the Note, Borrowers also executed and recorded with the Weber County Recorder's Office a construction deed of trust in favor of Barnes (the “Deed of Trust”), encumbering the Property.[1] In May 2007, Borrowers and Barnes entered into a Change in Terms Agreement. The Change in Terms Agreement converted the construction loan to a five year loan, extending the maturity date of the Loan to January 10, 2014.

         At the beginning of 2010, Barnes ceased its operations. The Federal Deposit Insurance Corporation, as receiver for Barnes, assigned the Loan and its related benefits and obligations to a third party entity known as 2010-3 SFR Venture, LLC (“SFR”). SFR transferred servicing of the Loan to Defendant Nationstar, Inc. (“Nationstar”) in June 2010, and then to Defendant RoundPoint Mortgage Servicing Corporation (“RoundPoint”) in February 2011. Through all of these changes, Borrowers made their required monthly payments to the appropriate entity, including to RoundPoint beginning in February 2011.

         When RoundPoint took over the servicing of the Loan in February 2011, the Loan file that Nationstar transferred to RoundPoint indicated a monthly “due for” date of June 2010, rather than the correct date of February 2011. Prior to transferring the Loan file to RoundPoint for servicing, Nationstar had recategorized a number of previous monthly payments made by Borrowers to the “suspense account” for the Loan. It is unknown why this recategorization took place. Thus, when it took over the servicing of the Loan, RoundPoint's records indicated that Borrowers were late on their payments. Despite these errors in its records, RoundPoint accepted Borrowers' payments and applied them to the Loan account from February 2011 to October 2011.

         Although all monthly payments had been timely paid by Borrowers and accepted by each of the various servicers to that point, RoundPoint sent a letter to Borrowers on October 13, 2011, informing them that the Loan was in default. The October 13 letter requested that Borrowers pay $9, 286.35 to cure the alleged default and asserted that “RoundPoint may take steps to terminate [Borrowers'] ownership in the property by a foreclosure proceeding or other action to seize the property.” Borrowers responded by letter dated October 25, 2011, explaining to RoundPoint that Borrowers had not missed any payments and disputing the alleged default. Borrowers proceeded to send their November payment by check to RoundPoint only to have the payment rejected and the check returned. Again in December 2011, Borrowers tendered payment to RoundPoint (enclosing check payment for both November and December), only to have their payment again rejected and the checks returned to them. Borrowers again sent payment to RoundPoint in January (enclosing check payment for November, December, and January) only to have RoundPoint reject the payments and return the checks to them once again. Borrowers continued this same practice of sending the current month's payment, as well as the previously rejected payments, over the subsequent few months. In total, RoundPoint received and then rejected and returned Borrowers' payments for six months from November 2011 to April 2012. After these six consecutive payments were rejected by RoundPoint, Borrowers ceased making payments. When asked about the October 13 letter declaring the Loan to be in default and the rejection of payments from November 2011 to April 2012, RoundPoint's representative testified that the declaration of default in October 2011 was erroneous and that RoundPoint should not have rejected Borrowers' payments during that six month period.

         Although no default had occurred and in spite of efforts by Borrowers to point out the errors in RoundPoint's Loan records, RoundPoint recorded a notice of default with Weber County on April 23, 2012. Because of the apparent dispute regarding default, RoundPoint cancelled its filing of the notice of default the following month. But in a letter dated June 14, 2012, RoundPoint re-affirmed its position that Borrowers were in default for failure to pay amounts due. The June 14 letter requested a payment of $30, 763.88 to cure the alleged default and stated that if the alleged default “is not cured by July 14, 2012, RoundPoint may take steps to terminate [Borrowers'] ownership in the [P]roperty by a foreclosure proceeding or other action to seize the [P]roperty.”

         Until April 2012, the Property had been rented to a tenant, Ben Rose, and his family. Mr. Rose and his family moved out of the Property on or about June 12, 2012. After Mr. Rose and his family moved out, he and Plaintiff Rick Williams returned to the Property together to conduct a post-lease walkthrough inspection on June 19, 2012. Two days later, while conducting an inspection of the Property for compliance with the terms of the Loan, RoundPoint's agents discovered that the Property was vacant. Three days after discovering the vacancy, RoundPoint's agents “secured the Property” by changing the locks on the doors of the Property and disabling the garage door opener. RoundPoint's agents also cut the grass, winterized the Property, and ensured it was in compliance with all local ordinances. RoundPoint posted a sign on the front window of the Property stating that the home was being managed by RoundPoint's agent. Borrowers discovered they were locked out of the Property on June 26, 2012.

         Borrowers sent RoundPoint a letter dated August 20, 2012, informing RoundPoint that Borrowers continued to dispute the existence of a default and that they had been locked out of the Property and were unable to access the property or rent or otherwise make use of the Property as a result. RoundPoint responded with a letter dated September 24, 2012, in which it acknowledged the errors present when the Loan file was transferred to RoundPoint in February 2011, but made the erroneous declaration that the Loan had matured on August 15, 2007, despite the fact that the maturity date had been extended to January 10, 2014 by the Change in Terms Agreement. RoundPoint recorded a second Notice of Default and Election to Sell with the Weber County Recorder on April 18, 2013 and notified Borrowers of that recording about a week later.[2]In response to yet another letter from Borrowers disputing the validity of the alleged default and stating the Property was being wrongfully taken from them, RoundPoint asserted that it believed any problems had already been resolved, again alleged that the loan had matured on August 15, 2007, and informed Borrowers that “collection efforts will continue because the debt is verified as valid.”

         RoundPoint moved forward with foreclosure proceedings, causing a Notice of Trustee's Sale to be issued on July 30, 2013 and posting that Notice on the front door of the Property the next day. RoundPoint also published a Notice of Trustee's Sale in the local newspaper one day per week for three consecutive weeks and on the internet. But RoundPoint did not ever go through with the Trustee's sale because it “became apparent that the status of the payments on the Property was still in dispute.” RoundPoint filed a cancellation of its second Notice of Default with the Weber County Recorder on January 29, 2014.

         Ultimately, on September 26, 2013, RoundPoint sent Borrowers a letter acknowledging errors in the Loan file with regard to the payments, the maturity date, and the payment due date when the Loan was transferred to it in February 2011. The September 26 letter also offered to reconcile the account and work with Borrowers to reinstate the loan. But the reinstatement quote included with the letter stated that the Borrowers owed RoundPoint $52, 098.12, including fees and other expenses incurred by RoundPoint up to that point in pursuing the alleged default and erroneous foreclosure. Borrowers did not respond to this offer of reinstatement and the Loan matured on January 10, 2014. Borrowers initiated this lawsuit in September 2014, bringing claims against RoundPoint for unjust enrichment, lender liability, and breach of contract.


         I. Summary Judgment Standard

         Under Federal Rule of Civil Procedure 56(a), “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” A dispute is genuine only if “a reasonable jury could find in favor of the nonmoving party on the issue.” Macon v. United Parcel Serv., Inc., 743 F.3d 708, 712 (10th Cir. 2014). “In making this determination, ‘we view the evidence and draw reasonable inferences therefrom in the light most favorable to the nonmoving party.'” Id. at 712- 13 (quoting Kendrick v. Penske Transp. Servs., Inc., 220 F.3d 1220, 1225 (10th Cir. 2000)).

         The parties are cross-moving for summary judgment on Borrowers' fourth cause of action for breach of contract. RoundPoint also moves for summary judgment on Borrowers' first and third causes of action for unjust enrichment and lender liability, respectively. The court will first address the cross motions on the breach of contract claim. The court will then consider RoundPoint's motion on the remaining two claims.[3]

         II. Cross Motions for Summary Judgment on Borrowers' Fourth Cause of Action for Breach of Contract

         To establish liability for a breach of contract under Utah law, a plaintiff must prove the following elements: (1) a contract, (2) performance by the party seeking recovery, and (3) breach of the contract by the other party. Bair v. Axiom Design, L.L.C., 20 P.3d 388, 392 (Utah 2001). In order to recover on a breach of contract claim, the plaintiff must also prove damages as a result of the breach of the contract. Id.

         The parties agree that a contract existed between them-the Note, the construction loan agreement, and the Deed of Trust (collectively the “Loan”). The remaining elements of the Borrowers' performance under the Loan, RoundPoint's performance and alleged breach of the Loan, and damages will be analyzed in turn below. The court finds that there is no dispute as to any material fact relating to each party's performance under the Loan and that RoundPoint is liable as a matter of law for breach of contract. However, the court finds that there are material factual disputes relating to the question of damages.

         A. Borrowers' Performance

         The parties do not dispute the facts regarding the Borrowers' performance under the Loan. RoundPoint argues that Borrowers failed to perform as a matter of law in two respects: (1) Borrowers stopped making their required payments, and (2) Borrowers either abandoned or left the Property unattended in violation of the Deed of Trust. Borrowers argue that they performed under the Loan as a matter of law by making all loan payments to RoundPoint and its predecessors up until RoundPoint rejected six consecutive monthly payments, and that they never abandoned or left the Property unattended in violation of the Deed of Trust.

         1)Borrowers' Payment Obligation

         RoundPoint does not dispute that Borrowers performed their payment obligations under the Loan up until they ceased making payments in April 2012. RoundPoint argues that even after it reconciled the payment issues with Borrowers' Loan account, Borrowers failed to make any additional payments due and have also failed to pay the amount due upon the maturity of the Loan in January 2014. Borrowers assert their full performance of their payment obligation under the Loan through April of 2012 and contend that they were excused from performance after that date. Specifically, Borrowers contend that after RoundPoint had rejected six consecutive payments, it was futile for them to continue making payments. Borrowers rely on a series of cases from the Utah Court of Appeals to support their position that they were excused from making further payments because “it is axiomatic that the law does not require a useless and futile act.” State ex rel. A.C., 97 P.3d 706, 714 ...

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