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

United States District Court, D. Utah

January 29, 2018

NORTHERN REGAL HOMES, INC., and RICK WILLIAMS, Plaintiffs,
v.
ROUNDPOINT MORTGAGE SERVICING CORP., and NATIONSTAR, INC., Defendants.

          MEMORANDUM DECISION AND ORDER ADOPTING REPORT AND RECOMMENDATION

          Jill N. Parrish United States District Court Judge.

         Before the court is Magistrate Judge Wells' Report and Recommendation Granting Plaintiffs' Motion for an Award of Attorney's Fees and Finding Defendant's Motion for Issuance of Deed and to Allow Deposit of Judgment Funds Moot (ECF No. 128). For the reasons set forth below, the court ADOPTS the report and recommendation as it relates to the issue of attorneys' fees. The forthcoming judgment will address the issues raised in in RoundPoint's Motion for Issuance of Deed and to Allow Deposit of Judgment Funds into Court Registry (ECF No. 125).

         I. BACKGROUND

         In November 2006, Plaintiffs Northern Regal Homes and Rick Williams (collectively, “Plaintiffs”) entered into a construction loan agreement (the “Loan Agreement”) with Barnes Banking Company to construct a single-family home in Hooper, Utah. Plaintiffs intended to use the home as a rental investment. In connection with the Loan Agreement, Plaintiffs executed a promissory note (the “Note”) and a construction deed of trust (the “DOT”). In May 2007, Plaintiffs and Barnes entered into a change in terms agreement (the “CIT Agreement”) that converted the construction loan into a five-year mortgage. After construction was complete, Plaintiffs rented the home to a tenant and his family.

         Sometime in early 2011, servicing of the mortgage was transferred to Defendant RoundPoint Mortgage Servicing Corporation. RoundPoint's records incorrectly indicated that Plaintiffs were late on payments. In October 2011, RoundPoint sent a letter to Plaintiffs, notifying them that they were in default. Plaintiffs disputed the alleged default and explained that they were up to date on all payments. Plaintiffs sent their November 2011 payment by check. RoundPoint rejected it and returned the check. Plaintiffs sent payments for another six months. But RoundPoint rejected and sent back each payment.

         Although no default had occurred, and despite Plaintiffs continued efforts to inform RoundPoint of its error, RoundPoint recorded a notice of default with Weber County. In June 2012, RoundPoint sent a letter to Plaintiff. In the letter, RoundPoint reaffirmed its position that the mortgage was in default and stated that it would foreclose if Plaintiffs did not cure the “default.” A few days later, Plaintiffs' tenant moved out and RoundPoint's agent changed the locks for the home and disabled the garage door opener. RoundPoint also cut the grass, winterized the property, and posted a sign in the front window stating that RoundPoint's agent managed the home. Plaintiffs, in a letter, informed RoundPoint that they continued to dispute the alleged default and that they had been locked out of the property.

         Between August 2012 and January 2014, there were a number of communications between the parties. At one point, RoundPoint moved forward with foreclosure proceedings, but it did not go forward with the trustee's sale due to the dispute. Ultimately, in September 2013, RoundPoint acknowledged that there were errors in its files. While RoundPoint offered to reconcile the errors and work with Plaintiffs to reinstate the mortgage, its offer was contingent on Plaintiffs paying $50, 000 in fees and expenses that RoundPoint incurred in pursuing the nonexistent default. Plaintiffs understandably rejected the offer.

         On or about September 25, 2014, Plaintiffs filed their original complaint in the Second Judicial District, Weber County, Ogden Department, Utah. On or about January 22, 2015, Plaintiffs filed an amended complaint. On February 20, 2015, RoundPoint removed the case to this court.

         Plaintiffs' amended complaint alleged three causes of action against RoundPoint: (1) breach of contract; (2) unjust enrichment, and (3) lender liability. The court dismissed Plaintiffs' claims for unjust enrichment and lender liability. The court dismissed the unjust-enrichment claim because Plaintiffs conceded that an express contract governed the parties' relationship and that the unjust-enrichment claim arose from the same set of facts as the breach-of-contract claim. The court dismissed the lender-liability claim because under Utah law such a claim was available only to third parties, not borrowers.

         With respect to the breach-of-contract claim, Plaintiffs alleged that “RoundPoint breached the parties' agreement when it failed to accept loan payments and returned them to [Plaintiffs], erroneously declared a default and wrongfully pursued the non-existent default, and twice initiated foreclosure proceedings when there was no delinquency or default.” The court agreed and found that RoundPoint breached the express terms of the Note by refusing to accept Plaintiffs' payments, instead of applying the payments to the mortgage as directed by the terms of the Note. The court also found that RoundPoint breached the terms of the Note, DOT, and Loan Agreement “by exercising rights related to an event of default when no such event had taken place.”

         Plaintiffs, also in connection with the breach-of-contract claim, alleged that “RoundPoint breached the Loan Agreement when it took control, use, possession, and management of the Property without a right to do so by changing the locks and disabling the garage door openers, thereby depriving [Plaintiffs] of any access to the Property.” The court concluded that “RoundPoint did take possession and control of the Property and did so without a contractual right.” Consequently, “RoundPoint breached its obligations under the Loan as a matter of law when it changed the locks and disabled the garage door openers, thereby depriving [Plaintiffs] of their right to the Property.”

         In April 2017, the court held a two-day bench trial to determine the amount of damages associated with the breach-of-contract claim. In June, after the trial, the court ordered: (1) that Plaintiffs transfer title to the property to RoundPoint in satisfaction of the Note; (2) that judgment be entered against RoundPoint in the amount of $138, 668.00, plus post-judgment interest; and (3) that Plaintiffs file any motion for attorneys' fees within ten days of the court's order.

         On June 19, 2017, Plaintiffs moved for an award of attorneys' fees. Plaintiffs initially sought $134, 791.00 in attorneys' fees. RoundPoint opposed Plaintiffs' request on a variety of grounds. RoundPoint argued, among other things, that Plaintiffs failed to apportion their attorneys' fees between compensable and non-compensable claims. Plaintiffs, in reply to RoundPoint's arguments, reduced their fee request to $111, 308.40. This matter was referred to Magistrate Judge Wells pursuant to 28 U.S.C. § 636(b)(1)(B).

         On December 11, 2017, Judge Wells issued a report and recommendation. She recommended that this court award Plaintiffs $111, 308.40 in attorneys' fees, the amount Plaintiffs requested in their reply brief. RoundPoint has objected to the report and recommendation. It argues, among other things, that the court should exercise its discretion ...


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