MARK X. MULLIN, Bankruptcy Judge.
On August 3, 2017, the Court held a trial on Plaintiff's Original Complaint filed by John Harrison Scott ("
The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334, 151, and 157 and the standing order of reference in this district. This proceeding is core pursuant to 28 U.S.C. § 157(b)(2)(A), (b)(2)(O). Venue is proper in this district under 28 U.S.C. § 1409(a). The Court has statutory and Constitutional authority to enter a final judgment in this matter. This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law under Bankruptcy Rule 7052 and Federal Civil Rule 52.
In 1991, Plaintiff purchased his home in Dallas, Texas (the "
The Note required Borrowers to make monthly payments of $1,188.23 on the first day of each month beginning May 2005.
Any notices required to be given by Lender to Borrowers under the Note are required to be either delivered to Borrowers or mailed to Borrowers by first class mail at the Property address unless Borrowers give notice to Lender of a different address.
When Defendant began to act as servicer for Lender in December 2013, Borrowers were in default under the Loan Documents because of a prior late payment.
Section 3 of the Security Instrument requires Borrowers—unless the requirement is waived in writing by Lender—to pay additional sums to Lender (the "
The Security Instrument requires Borrowers to keep the Property insured against loss. If Borrowers fail to maintain the required insurance coverage on the Property, the Security Instrument permits Lender to establish an escrow account and to obtain force-placed insurance coverage for the Property, at Borrowers' expense (and such costs constitute additional debt under the Loan Documents).
As a result of the lapse of insurance coverage on the Property, Defendant mailed a letter on March 29, 2014 to Borrowers at the Property address, notifying Borrowers that (a) Defendant's records indicated Property insurance had expired; (b) Defendant planned to buy force-placed Property insurance at Borrowers' expense; (c) Borrowers were to immediately provide proof of insurance; and (d) if Borrowers did not provide proof of insurance, Defendant would establish an escrow account for the Note and obtain force-placed insurance coverage on the Property and charge the escrow account for the premiums paid by Defendant for such insurance. Finally, Borrowers' monthly payments due on the Note would increase to cover any such Escrow Items.
After Borrowers failed to respond to the March 29 letter, Defendant mailed to Borrowers, at the Property address, a second letter on April 28, 2014 with a final notice to Borrowers to obtain insurance or provide Defendant with proof of insurance, or else Defendant would purchase force-placed insurance on the Property at Borrowers' expense.
As a result of Borrowers' failure to respond to either the March 29 letter or the April 28 letter, Defendant obtained force-placed insurance for the Property
Plaintiff testified, however, that he did not see either the March 29 letter or the April 28 letter and that he first learned about the force-placed insurance coverage upon receiving the June 4 letter. According to Plaintiff, when he received the June 4 letter, he contacted his insurance broker to investigate the status of Borrowers' MetLife policy. According to Plaintiff, his insurance broker allegedly told him that the MetLife policy had not actually lapsed, but incredibly, his insurance broker allegedly told Plaintiff to take out a second insurance policy on the Property "to be safe."
Based on the alleged recommendation from the insurance broker to obtain a second property insurance policy on the Property, Borrowers obtained an insurance policy from Kemper Insurance Company.
Plaintiff's testimony about (a) Borrowers' alleged timely payments to MetLife (without providing any documentary evidence to corroborate Plaintiff's testimony); (b) Borrowers' alleged nonreceipt of Defendant's March 29 and April 28 letters;
After Borrowers provided Defendant with proof of the new Kemper policy, Defendant gave Borrowers a partial refund for the unused portion of the premium for the force-placed insurance in the amount of $1,954.50, leaving a negative escrow balance due from Borrowers of $2,651.00.
In May 2015, due to Borrowers' continuing defaulted status under the Loan Documents, and because Borrowers were at least four months past due on the Note, Defendant began the internal process of commencing foreclosure proceedings on the Property. As part of Defendant's internal foreclosure process, Defendant refunded to Borrowers the balance in their "suspense" account, which totaled $1,294.22 at that time.
On July 1, 2015, Defendant debited Borrowers' escrow account $1,609.00 to reflect the anticipated annual insurance premium that would be owing to Kemper.
Shortly thereafter, Defendant made a mistake with the escrow account regarding insurance coverage on the Property. On August 18, 2015, Defendant mistakenly refunded $1,119.37 to Plaintiff
Again, in anticipation of the Property foreclosure sale scheduled for September 1, 2015, on August 26, 2015, Defendant refunded the balance of the Escrow Funds in the amount of $632.85 to Borrowers. Plaintiff testified that he did not realize the escrow account was being closed until he received the $632.85 check from Defendant. On cross-examination, however, Plaintiff admitted that he received a notification from Defendant on August 21, 2015 that Defendant was removing the escrow collection from Borrowers' monthly payment obligation.
From the time the escrow account was established in June 2014 until the bankruptcy filing (and even since then), Plaintiff testified that he repeatedly called and sent emails and web based communications to Defendant to inquire why the escrow was established. According to Plaintiff, Defendant either did not respond to such requests or responded only by saying it was investigating the matter. Plaintiff's testimony on this point was not persuasive. Plaintiff produced no written records of his alleged web based or email communications with Defendant, except one email dated July 29, 2015. Contrary to Plaintiff's assertion, Defendant clearly responded to Plaintiff's July 29, 2015 email on August 21, 2015.
Plaintiff also testified that he was confused by communications he had received from Defendant. For example, because the "Payment due" amounts in letters sent by Defendant to Borrowers did not match the "Regular Monthly Payment" amounts contained in Defendant's regular monthly mortgage statements, Plaintiff testified that he did not know what amounts Borrowers should pay on the Note each month.
In response to Plaintiff's testimony, Edward Hyne, a litigation resolution analysis for Defendant, testified without contradiction that the letters Defendant sent to Borrowers were required by the Consumer Financial Protection Bureau ("
At trial Plaintiff also questioned (a) Defendant's entitlement to not apply funds as and when received to the current monthly payment; (b) Defendant's requiring the Escrow Items even after Defendant refunded (mistakenly) the earned premium for force-placed insurance; (c) the sufficiency of Defendant's notifications that it was revoking waivers of the Escrow Items; and (d) the calculations in Defendant's proof of claim (discussed below).
The Court finds and concludes that (a) Defendant was entitled under the Loan Documents to hold and "suspend" payments received from Borrowers until Defendant received sufficient funds to apply to a full monthly payment due under the Note, with such funds being applied to the oldest delinquent payment; (b) Defendant was entitled to require Borrowers to pay the Escrow Items under the Loan Documents; (c) Defendant gave proper written notice that it would require Borrowers to pay the Escrow Items;
Defendant paid and charged Borrowers for Property taxes assessed, but not owed, in 2014 and 2015. Plaintiff complained at trial about Defendant's escrow for real property taxes because Borrowers had obtained a deferral for the payment of such property taxes from the Dallas Central Appraisal District.
Plaintiff filed his Chapter 13 petition with this Court on September 1, 2015,
On July 20, 2016, Plaintiff filed his Plaintiff's Original Complaint,
Only two witnesses testified at trial. Edward Hyne, a litigation resolution analysis for Defendant, testified about Borrowers' loan history with Defendant and Defendant's actions in servicing Borrowers' loan. Mr. Hyne was a credible and persuasive witness who was very knowledgeable about Borrowers' loan documents, payment history, and the transactions in dispute. Mr. Hyne's testimony was corroborated by the documentary evidence.
Plaintiff testified on his own behalf. Plaintiff initially came across as very credible, but as he testified, his testimony contradicted the documentary evidence on several key issues and ultimately was not credible or persuasive.
The witnesses' respective credibility was critical to the Court in rendering its alternative ruling on the merits.
Defendant did not raise the defense of res judicata even though the TRCC Order allowed Defendant's claim without objection or counterclaim by Plaintiff. There are two limited circumstances in which this Court may raise the res judicata defense sua sponte. First, res judicata may be raised sua sponte where both actions were brought in courts of the same district. Second, res judicata may be applied sua sponte when all relevant data and legal records are before the court and the demands of comity, continuity in the law, and essential justice mandate judicial invocation of res judicata.
Both circumstances are present here. First, Plaintiff's Chapter 13 bankruptcy and this adversary proceeding were filed in this Court. Second, this Court has before it—either through admitted exhibits or judicial notice—all of the relevant information, and the demands of comity, continuity in the law, and essential justice mandate this Court's invocation of res judicata.
A bankruptcy judgment bars a subsequent suit when (a) both cases involve the same parties; (b) the prior judgment was rendered by a court of competent jurisdiction; (c) the prior decision was a final judgment on the merits; and (d) the same cause of action is at issue in both cases.
All four res judicata elements are satisfied here. First, Plaintiff and Defendant are both parties-in-interest in Plaintiff's bankruptcy case, and both parties were given notice of the TRCC. Plaintiff and Defendant likewise are parties in this Adversary Proceeding.
Second, this Court had core jurisdiction to enter the TRCC Order, and both parties agree that the Court has core jurisdiction over Plaintiff's claims against Defendant. This Court is a court of competent jurisdiction as to both matters.
Third, the TRCC Order allowing Defendant's claim is a final judgment for res judicata purposes.
Fourth, the same cause of action is involved in both the TRCC and this Adversary Proceeding. The Court employs the "transactional test" for deciding whether two cases involve the same cause of action for res judicata purposes.
Because this Court raises res judicata sua sponte, and because all of the elements of res judicata are present, Plaintiff's claims against Defendant are barred.
Even if res judicata somehow does not bar Plaintiff's claims, they fail on the merits.
Plaintiff asserts that he is entitled to statutory damages under the Real Estate Settlement Procedures Act in the amount of $2,000 per violation, for each notice of error sent to Defendant regarding proof of insurance that was not researched and corrected. The Court finds no credible evidence of any notice of error regarding proof of insurance that was not researched and corrected timely by Defendant. Instead, the Court finds and concludes that Defendant's actions with respect to the force-placed insurance and communications with Plaintiff were fully justified and appropriate.
Plaintiff asserts that Defendant violated the Truth in Lending Act by failing to respond timely and adequately to Plaintiff's notice of errors regarding Defendant's accounting and collection practices with respect to amounts Defendant was assessing and seeking to collect from Plaintiff both before and after the bankruptcy filing. The Court finds no credible evidence regarding any notice of error regarding accounting and collection practices that was not researched and corrected timely by Defendant. Instead, the Court finds and concludes that Defendant's actions before and after the bankruptcy filing were fully justified and appropriate.
Plaintiff asserts that he is entitled to statutory damages under the Fair Debt Collection Practices Act, in the amount of $1,000.00 per violation, for each monthly mortgage statement that was misleading or misrepresented the true amount owed. The Court finds no credible evidence of any mortgage statement that was misleading or that misrepresented the true amount owed. The Court finds and concludes instead that each monthly mortgage statement properly reflected the payment due date, the total amount due (including principal, interest, the Escrow Items, and fees and charges), and the amount due for the oldest delinquent payment, as permitted by the Loan Documents.
Plaintiff asserts that Defendant breached the Loan Documents by Defendant's misapplication of funds and failure to correct its misapplication, causing the Property to be placed in foreclosure proceedings improperly and destroying Plaintiff's retirement plan to receive a cash payout from a reverse mortgage. The Court finds no credible evidence that Defendant misapplied funds or failed to correct any misapplication. The Court finds instead that Plaintiff breached the Loan Documents by (a) permitting insurance coverage on the Property to lapse for nonpayment; and (b) failing to timely pay the required amounts due under the Loan Documents.
Plaintiff asserts that Defendant violated the Texas Debt Collection Act by misrepresenting the character and amount of the mortgage arrears. The Court finds no credible evidence that Defendant misrepresented the character and amount of mortgage arrears.
Plaintiff asserts that Defendant abused the bankruptcy process by seeking to receive funds through Plaintiff's confirmed Chapter 13 plan in an amount that Defendant is not entitled to receive because its proof of claim is misleading and contains false information. The Court finds no credible evidence that Defendant abused the bankruptcy process or that Defendant's proof of claim is misleading or contains false information.
For all of the reasons outlined above, Plaintiff is not entitled to declaratory relief, injunctive relief, attorney's fees, or any other damages. To the extent the Court has not already addressed any of Plaintiff's claims for relief, such claims for relief are denied because there is no credible evidence of Plaintiff's entitlement to such relief.
Plaintiff's claims are barred by res judicata because such claims should have been, but were not, raised in connection with the TRCC Order that allowed Defendant's claim. Even if the Court were to reach the merits of Plaintiff's claims, they fail for the reasons set forth above. The Court will enter a separate judgment for Defendant.
