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Armas v. Fifth Third Bancorp

United States District Court, D. Minnesota

May 30, 2018

William Armas and Nancy Armas, Plaintiff,
Fifth Third Bancorp and Freddie Mac, Defendants.

          Daniel M Eaton, Esq. and Christensen Law Office PLLC, counsel for plaintiffs.

          Jesse E Sater, Esq., Charles J. Schoenwetter, Esq. and Bowman & Brooke LLP, counsel for defendants.


          David S. Doty, United States District Court.

         This matter is before the court upon the motion to dismiss the amended complaint by defendants Fifth Third Bancorp and Freddie Mac. Based on a review of the file, record, and proceedings herein, and for the following reasons, the court grants the motion.


         This mortgage dispute arises out of the foreclosure sale of the home owned by plaintiffs William and Nancy Armas.[1] Armas purchased the subject property, located at 6773 East Shadow Lake Drive, Lino Lakes, Minnesota, in January 2006. Am. Compl. ¶¶ 4, 13. In 2011, Armas refinanced the original mortgage through a mortgage loan with defendant Fifth Third Bancorp. Id. ¶ 14. In 2013, Armas moved to California, but kept the Minnesota home as a rental property. Id. ¶¶ 15-16. In July 2015, Fifth Third contacted Armas and notified him that the payment for that month was overdue and that the monthly payment had increased due to a change in his escrow payment amount. Id. ¶ 18. On July 30, Armas made a $2, 500 payment on the loan, which included the monthly mortgage payment plus a late fee ($2, 315.68) and an additional $184.32. Id. ¶ 23. Thereafter, Armas made monthly payments of at least $2, 250, which he believed covered his monthly payment plus an additional amount to be applied toward the principal.[2] Id. ¶ 24.

         On January 15, 2016, one day before the payment was due, Armas contacted Fifth Third to see how much he owed that month. Id. ¶ 25. Fifth Third told him that he owed $2, 433.24, but did not inform him that his account was in arrears. Id. Armas made the January payment in full and thereafter made monthly payments in the amount of $2, 250 through October 2016. Id. ¶¶ 26-27.

         In November 2016, Armas contacted Fifth Third to obtain a tax statement for his 2015 taxes. Id. ¶ 28. Fifth Third told him that his account was in arrears and that the house had been sold to defendant Freddie Mac in a foreclosure sale on May 27, 2016. Id. ¶¶ 29-30, 47. Fifth Third fully refunded Armas's post-foreclosure mortgage payments in December 2016 in the amount of $27, 066.76. Id. ¶¶ 31, 50.

         Because Armas had not provided his forwarding address to Fifth Third, the bank sent the foreclosure notice and related documents to the Lino Lakes address. Id. ¶¶ 32-33. The renters apparently did not forward those documents to Armas. The bank also provided notice of the foreclosure by advertisement under Minn. Stat. § 508.02. Id. ¶ 47. The notice stated that Armas was $15, 313.44 in arrears. Id. ¶ 34. The amount was so large despite Armas's monthly payments because Fifth Third applied the payments made from September 2015 forward to an “unapplied funds” or “suspense” account. Id. ¶ 35. Fifth Third did so because those payments were less than the full monthly amount due. Id. ¶ 36. Specifically, in August 2015, the payments increased from $2, 236.27 to $2, 433.24 per month, but Armas continued to pay $2, 250 per month. Id. ¶¶ 27, 36-38. Under the terms of the mortgage, Fifth Third holds insufficient payments in a suspense account without applying them to the mortgage loan until the bank receives funds that equal a full mortgage payment. Id. ¶ 36; Sater Aff. Ex. A § 1. When the bank receives sufficient funds, the amount due is withdrawn from the suspense account and applied to the loan. Am. Compl. ¶ 36; Sater Aff. Ex. A § 1.

         According to Armas, Fifth Third should have withdrawn funds from the suspense account as soon as there was a sufficient amount to cover the previous month's mortgage payment, which would have resulted in a deficit of less than $200 each month rather than allowing the suspense account to accumulate each month. Am. Compl. ¶ 40. Armas does not deny, however, that his account was perpetually in arrears beginning in September 2015 and was never made current. Id. ¶¶ 42-44.

         On July 19, 2017, Armas filed suit against defendants in Anoka County, and defendants timely removed. On February 28, 2018, Armas filed an amended complaint, alleging (1) wrongful foreclosure; (2) violation of Minnesota's foreclosure by advertisement statute, Minn. Stat. § 580.02; (3) breach of the implied covenant of good faith and fair dealing; and (4) quiet title, Minn. Stat. § 559.01.[3]Defendants now move to dismiss the amended complaint.


         I. Standard of Review

         To survive a motion to dismiss for failure to state a claim, “‘a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.'” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A claim has facial plausibility when the plaintiff [has pleaded] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)). Although a complaint need not contain detailed factual allegations, it must raise a right to relief above the speculative level. Twombly, 550 U.S. at 555. ...

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