Daniel M. Eaton, CHRISTENSEN LAW OFFICE PLLC, 800 Washington Avenue North, Suite 704, Minneapolis, MN 55401, for plaintiff.
Hilary J. Loynes and Michael J. Steinlage, LARSON KING, LLP, 30 East Seventh Street, Suite 2800, Saint Paul, MN 55101, for defendants.
MEMORANDUM OPINION AND ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
JOHN R. TUNHEM, District Judge.
Plaintiff Bryan Nelson brings this action against Defendants Saxon Mortgage, Inc. ("Saxon") and the Federal National Mortgage Association ("Fannie Mae") based on the foreclosure of Nelson's home by Saxon. Nelson's case rests upon the premise that the foreclosure of his home was invalid because Saxon failed to properly apply Nelson's payments to his loan and failed to timely and accurately inform him of the amount he was required to pay in order to reinstate his loan prior to the foreclosure sale. Nelson brings claims for violation of Minnesota's mortgage statutes, negligent misrepresentation, negligence, breach of the duty of good faith and fair dealing, and equitable estoppel 27&SW against Saxon and Fannie Mae (collectively, "Defendants" or "Saxon"). Additionally, Nelson seeks to quiet title to his home and demands an accounting.
Saxon brings a motion for summary judgment with respect to all of Nelson's claims. Nelson seeks partial summary judgment as to his statutory claim, breach of the duty of good faith and fair dealing, equitable estoppel, and quiet title claims. Because material issues of fact remain regarding whether Saxon's failure to provide timely reinstatement information caused Nelson to be unable to exercise his statutory and contractual right to reinstate, the Court will deny the motions for summary judgment with respect to the statutory, breach of the duty of good faith and fair dealing, and quiet title claims. The Court will grant Saxon's motion for summary judgment on the remainder of Nelson's claims because (1) Nelson has failed to present evidence creating a genuine issue of material fact with respect to reliance as required to maintain a claim for negligent misrepresentation and equitable estoppel, (2) Saxon did not owe Nelson a duty independent of the contract and therefore cannot be held liable for negligence; and (3) Nelson has not demonstrated that the information he seeks in his request for an accounting was unavailable to him through ordinary discovery procedures.
I. THE ORIGINAL MORTGAGE
On July 7, 2005, Nelson executed a note and mortgage (respectively, "the Note" and "the Mortgage") secured by property located at 4620 Blaine Avenue in Inver Grove Heights, Minnesota ("the Property") in the principal amount of $198, 900.00. (First Aff. of Michael J. Steinlage, Ex. B at 48-50, Mar. 21, 2013, Docket No. 18.) The terms of the Mortgage required Nelson to "pay when due the principal of, and interest on, the debt evidenced by the Note and any prepayment charges and late charges due under the Note." ( Id., Ex. B at 50.) Additionally the Mortgage allowed the lender to charge Nelson "fees for services performed in connection with Borrower's default... including, but not limited to attorneys' fees, property inspection and valuation fees." ( Id., Ex. B at 56.) In the event of Nelson's default on his obligations, the Mortgage permits the lender to accelerate the loan and foreclose on the Property. ( Id., Ex. B at 59.)
Saxon acquired servicing of the loan effective March 1, 2010. (Aff. of Annette Anderson ¶ 4, Apr. 24, 2013, Docket No. 28; First Steinlage Aff., Ex. C at 70; First Steinlage Aff., Ex. A (Dep. of Bryan Nelson ("Nelson Dep.") 24:17-22).) After Saxon began servicing the loan, Nelson failed to make payments for several months. Consequently, the loan went into default and was referred for foreclosure.
II. AUGUST 2010 STIPULATION AGREEMENT
On August 26, 2010, Nelson and Saxon entered into a stipulation agreement ("the Stipulation") to avoid foreclosure. (First Steinlage Aff., Ex. D.) In the Stipulation, Nelson acknowledged the loan was in default in the amount of $14, 384.78, including unpaid monthly installments, late penalties, and other charges, plus outstanding legal fees of $2, 600. ( Id., Ex. D at 3.) Nelson also acknowledged that he was unable to pay those amounts. ( Id. ) The Stipulation provided a payment schedule, listing the amounts of the five payments contemplated under the Stipulation and their due dates. ( Id., Ex. D at 4.) Pursuant to the Stipulation, Saxon was to forebear from exercising its remedies under the Note and Mortgage, including acceleration and foreclosure. ( Id. ) Upon the "timely receipt" of all scheduled payments, Nelson's "scheduled monthly payment [would] resume pursuant to Mortgagor's Note and Security Instrument." ( Id., Ex. D at 5.) While the Stipulation was in place the Note and Mortgage were "valid and enforceable" and their terms remained "in full force and effect." ( Id., Ex. D at 6.)
Nelson timely made the first two payments under the Stipulation via Western Union money transfer, paying $2, 600 on September 1, 2010, and $1, 273 on September 30, 2010. (First Steinlage Aff., Ex. D at 4; id., Ex. E at 8-10; First Aff. of Daniel M. Eaton, Ex. G at 71, 73, Apr. 16, 2013, Docket No. 26.)
III. LOAN MODIFICATION AGREEMENT
While the Stipulation was in effect, Saxon reviewed Nelson's account for a loan modification. (Anderson Aff. ¶ 7.) Saxon approved Nelson for a loan modification on October 11, 2010, and Nelson signed the agreement (the "Loan Modification") on October 18, 2010, and returned it to Saxon. ( Id. ¶ 9; First Steinlage Aff., Ex. F.)
A. Terms of the Loan Modification
By its terms, the Loan Modification became effective November 1, 2010. (First Steinlage Aff., Ex. F at 12.) Nelson's initial monthly payments under the Loan Modification were set at $1, 014.24, beginning on December 1, 2010, which included principal, interest, and escrow amounts. (First Steinlage Aff., Ex. F at 13; Anderson Aff. ¶ 10.) The Loan Modification capitalized past due amounts on Nelson's loan resulting in a new principal balance of $212, 897.50. (First Steinlage Aff., Ex. F at 13; Anderson Aff. ¶ 10; First Eaton Aff., Ex. I (Dep. of Annette Anderson ("Anderson Dep.") 47:17-49:1).) No provision of the Loan Modification required Saxon to capitalize other fees, should they accrue, into the principal balance. (First Steinlage Aff., Ex. F.) Except as otherwise expressly provided, the Loan Modification retained the covenants, agreements, stipulations, and conditions of the original Mortgage. ( Id., Ex. F at 14.) Specifically, by signing the Loan Modification, Nelson agreed that "[a]ll the rights and remedies, stipulations, and conditions contained in the Security Instrument relating to default in the making of payments under the Security Instrument shall also apply to default in the making of the modified payments hereunder." ( Id. )
B. Application of Suspense Account Funds
The majority of Nelson's claims stem from his allegations that Saxon inappropriately implemented the changes dictated by the Loan Modification to his loan prior to the effective date of November 1. Nelson claims that this premature application of the changes caused Saxon to misapply certain funds to his account that ultimately resulted in Nelson owing more on his loan than he would have had the funds been applied properly.
Although the Loan Modification expressly stated that it was effective November 1, 2010, Saxon "booked" the Loan Modification on October 21, 2010. (Anderson Aff. ¶ 10.) Booking is a process that adjusts Saxon's accounting system to reflect the modified terms of a loan. ( Id. ) To book Nelson's loan, Saxon adjusted Nelson's account to show his loan as current (rather than past due), and changed the principal balance to reflect the new balance agreed to in the Loan Modification encompassing capitalized amounts that had previously been owing under the loan. ( Id. ¶¶ 10-11; First Eaton Aff., Ex. G at 72-73.)
On October 21, 2010, when Saxon booked the Loan Modification, Nelson's account had certain "unapplied" or suspense account funds. (Anderson Aff. ¶ 12.) A suspense account is an account in which Saxon holds funds in the event that a borrower makes a payment to Saxon, but Saxon has a reason not to apply the payment to the loan at the time of payment. For example, if a borrower makes a partial payment, Saxon will hold that money in a suspense account until there are sufficient funds in the account to make a full payment on the loan. (Anderson Dep. 50:15-51:15.) Use of a suspense account is authorized by the terms of Nelson's original Mortgage, which provided:
Lender may accept any payment or partial payment insufficient to bring the Loan current, without waiver of any rights hereunder or prejudice to its rights to refuse such payment or partial payments in the future, but Lender is not obligated to apply such payments at the time such payments are accepted.... Lender may hold such unapplied funds until Borrower makes payment to bring the Loan current. If Borrower does not do so within a reasonable period of time, Lender shall apply such funds or return them to Borrower.
(First Steinlage Aff., Ex. B at 51.)
The parties do not dispute that Saxon's application of suspense account funds to Nelson's loan was governed by the priority system in the original Note and Mortgage for payments generally. With respect to the priority of payment application, the Mortgage provided that:
all payments accepted and applied by Lender shall be applied in the following order of priority: (a) interest due under the Note; (b) principal due under the Note; (c) [escrow amounts]. Such payments shall be applied to each Periodic Payment in the order in which it became due. Any remaining amounts shall be applied first to late charges, second to any other amounts due under this Security Instrument, and then to reduce the principal balance of the Note.
(First Steinlage Aff., Ex. B at 51.)
On October 25, 2010, Saxon applied the funds from Nelson's suspense account to his loan. (Anderson Aff. ¶¶ 12-13.) Because the Loan Modification had already been booked, as of October 25, 2010, the parties contend that there were no fees or other amounts owing Nelson's loan on that day. On October 25, 2010, Saxon applied $1, 014.24 of the suspense account funds to Nelson's first monthly payment due December 1, 2010, under the Loan Modification. (Anderson Aff. ¶¶ 12-13; First Eaton Aff., Ex. G at 72.) Saxon then applied the remaining $2, 085.76 from the suspense account to reduce the principal balance on Nelson's loan. (Anderson Aff. ¶ 13; First Eaton Aff., Ex. G at 72; id., Ex. J.)
On October 27, 2010, and October 28, 2010, Saxon received and paid invoices from a third party for $2, 278 in fees and costs related to Nelson's previous default and referral to foreclosure. (Anderson Aff. ¶ 14; First Steinlage Aff., Ex. H at 44; First Eaton Aff., Ex. G at 71-72.) The fees and costs were then charged to Nelson's account, and were due and owing as of November 1, 2010. (First Eaton Aff., Ex. G at 71-72; id., Ex. J; First Steinlage Aff., Ex. H at 44.)
On November 1, 2010, Nelson made a payment to Saxon of $1, 273 pursuant to the Stipulation. (First Steinlage Aff., Ex. E at 10.) Saxon applied $1, 014.24 of this payment to Nelson's January 2011 payment under the Loan Modification, leaving a credit of $258.76 in the suspense account. (First Eaton Aff., Ex. G at 71; id., Ex. J.) Because Saxon applied the suspense funds to satisfy Nelson's December 2010 and January 2011 payments, the first monthly payment of $1, 014.24 under the Loan Modification that Nelson would be required to pay to Saxon was not due until February 1, 2011. (First Eaton Aff., Ex. J.) Saxon added this amount to the $2, 278 in foreclosure fees incurred in late October, and subtracted the remaining suspense account funds of $258.76, resulting in a $3, 033.48 payment due February 1, 2011. ( Id. )
C. Default Under the Loan Modification
Saxon sent Nelson an account statement reflecting the status of his loan as of November 1, 2010 (the "November 2010 statement"). (First Eaton Aff., Ex. J.) The November 2010 statement indicated that Nelson's next payment of $3, 033.48 was due on or before February 1, 2011. ( Id. ) As noted above, the amount due included Nelson's regular monthly payment of $1, 014.24 as well as fees and costs of $2, 278 that Saxon had incurred related to his prior default less $258.76 in remaining unapplied suspense account funds. ( Id. ) The November 2010 statement included a section describing the activity on Nelson's account which reflected the application of the suspense account funds detailed above. ( Id. ) Nelson did not make any payment on his loan in February 2011. (First Steinlage Aff., Ex. I at 49.)
Saxon sent Nelson a letter dated February 18, 2011, advising him that he had missed the February 1, 2011 payment. (First Steinlage Aff., Ex. J.) The letter noted that a late charge of $37.42 had been assessed to Nelson's account, bringing his total amount due to $3, 060.40. ( Id. ) The letter indicated that Nelson could make a payment over the phone, through Saxon's website, or by Western Union money transfer. ( Id. )
Nelson claims that he attempted to make a payment by phone on or about March 1, 2011. (First Eaton Aff., Ex. D at 37.) He claims that the representative he spoke with told him that Saxon would not accept a payment of $1, 014.24 because it was not the full amount due under the loan, which was $3, 033.48. ( Id. ) Saxon cites to its phone records to support its contention that the March 1 phone call did not occur. ( See First Steinlage Aff., Ex. L at 40.) Nelson ultimately failed to make the March 2011 payment.
By letter dated March 18, 2011, Saxon sent Nelson a notice of intent to accelerate his loan, because Nelson had "breached the covenant(s) contained in the Note and Security Instrument by failing to pay all sums due under the Note and Security Instrument." (First Steinlage Aff., Ex. K.) The notice indicated that this breach could be cured "by close of business on April 20, 2011 by sending a payment made payable to Saxon Mortgage Services, Inc. in the sum of $4, 122.56 ("Delinquent Payment Amount")." ( Id. )
IV. MAY 2011 REPAYMENT PLAN
On April 20, 2011 - the deadline for cure of Nelson's breach pursuant to the notice of acceleration - Nelson contacted Saxon to discuss his account. (First Steinlage Aff., Ex. L at 38-39.) Pursuant to these discussions, on May 2, 2011, Nelson and Saxon entered into a formal repayment plan ("May Repayment Plan"). (First Steinlage Aff., Ex. M.) In the May Repayment Plan, Nelson acknowledged "that the Note is in default as of this date and Mortgagor is unable to pay the defaulted amount of $5, 186.22" to bring the loan current. ( Id., Ex. M at 43.) The May Repayment Plan set forth a schedule of payments and provided that "[a]ll payments described hereunder shall be made by cashier's check and/or bank wire." ( Id., Ex. M at 44.) The terms and conditions of the original Note and Mortgage remained in effect under the May Repayment Plan and Nelson acknowledged "that the forbearance provided herein shall be without prejudice to the Noteholder's right to exercise its power of sale or exercise any other rights and remedies under the Note and Security Instrument." ( Id., Ex. M at 45.)
On May 2, 2011, Nelson made the $1, 500 payment required by the May Repayment Plan using Western Union money transfer. (Nelson Dep. 88:9-15; see First Steinlage Aff., Ex. M at 44.) Nelson did not, however, make the $1, 788.90 payment due on May 27, 2011. (First Eaton Aff., Ex. D at 38; First Steinlage Aff. Ex. M at 44.) Nelson claims that when he called Saxon to make the May 27 payment over the phone, a representative told him that he was not allowed to make two payments on his loan in the same month. (Nelson Dep. 89:2-90:24.) Saxon contends that it has no policy or system limitation that prevents a borrower from making more than one payment in a month. (Anderson Aff. ¶ 20.) Nelson did not attempt to make the May 27 payment through other means. (Nelson Dep. 90:25-91:9.)
On May 31, 2011, Nelson withdrew $5, 000 from a retirement account. (Nelson Dep. 98:10-99:6.) Nelson testified that if he had received "an accurate number" from Saxon he would have applied these funds to his loan. ( Id. 98:22-23.) Nelson testified that when he called Saxon around this time to inquire about the amount required to reinstate his loan, Saxon would provide him with an amount due but that the figure was different than the amount due under the May Repayment Plan. (Nelson Dep. 141:25-142:23.) Saxon's phone records reflect a call in early June in which a Saxon representative provided Nelson with a reinstatement figure and indicated that it was higher than the figure stated in the May Repayment Plan because the amount now included more missed payments. (First Steinlage Aff., Ex. L at 30.) Ultimately, Nelson never used the $5, 000 withdrawal in connection with his loan. (Nelson Dep. 91:10-13.)
V. JUNE 2011 REPAYMENT PLAN
On June 8, 2011, the parties entered into another repayment plan ("June Repayment Plan"). (First Steinlage Aff., Ex. N.) In the June Repayment Plan, Nelson again acknowledged "that the Note is in default" and he was "unable to pay the defaulted amount of $5, 836.70" plus "outstanding legal fees, valuation fees, [and] inspection fees in the amount of $1722.00" necessary to bring the loan current. ( Id., Ex. N at 48.) The terms of the original Note and Mortgage remained valid and enforceable, and Saxon retained its right to exercise its remedies under those agreements. ( Id., Ex. N at 50.)
Nelson did not make the $1, 987.02 payment on June 27, 2011, required by the June Repayment Plan. (First Eaton Aff., Ex. D at 38-39; Nelson Dep. 91:10-13.) Nelson testified that on June 27, 2011, he went to Western Union to make his payment but refused to make the payment when a teller informed him that Western Union would charge a $288 fee. (Nelson Dep. 61:21-62:5; First Eaton Aff., Ex. D at 38-39.) Nelson contacted Saxon and a representative informed Nelson he could make the payment by certified check. (Nelson Dep. 62:19-63:4.) Nelson testified that he did not mail a certified check because such a payment would not arrive in time to satisfy his June 27, 2011 payment obligation. (Nelson Dep. 63:3-17.)
VI. AUGUST 2011 REPAYMENT PLAN
On August 18, 2011, the parties entered into another repayment plan ("August Repayment Plan"). (First Steinlage Aff., Ex. O.) In the August Repayment Plan, Nelson once again acknowledged "that the Note is in default" and that he was "unable to pay the defaulted amount of $8, 020.11" plus "outstanding legal fees, valuation fees, [and] inspection fees in the amount of $1600" in order to bring the loan current. ( Id., Ex. O at 52.) As with the other repayment plans, the terms of the original Note and Mortgage remained valid and enforceable and the ...