Vanessa Courtney v. Key Bank

Case Type:
Case Status:
20-6016 (8th Circuit, Jan 14,2021) Published
The U.S. Bankruptcy Appellate Panel for the Eighth Circuit (BAP) affirmed the order, of the U.S. Bankruptcy Court for the Eastern District of Missouri (BC), denying relief requested by the debtor, Vanessa Courtney (DR), for wrongful foreclosure in equity. As the BC had explained, the DR could not have been lulled by the KeyBank National Association (Bank), the originator and holder of her second mortgage, into a false sense of security as to foreclosure by the reinstatement amount in her first default letter due to her later receipt of a missive with another sum and the Bank's oral warnings.
Procedural context:
Soon after reopening a Chapter 7 case that had begun after the Bank’s foreclosure on the parcel of real property located in St. Louis, Missouri, that the DR jointly owned (Property), the DR filed a complaint against the Bank. This pleading originally enumerated four counts: (1) wrongful foreclosure in equity, (2) breach of good faith and fair dealing, (3) violation of the Missouri Merchandising Practices Act (MMPA), and (4) unjust enrichment. The first three named the Bank, which had originated a second mortgage secured by the Property in the principal amount of $21,871.50 (Second Mortgage), as the defendant. The fourth count was pled against the entity holding the DR’s first mortgage, Ditech Financial LLC, f/k/a Green Tree Servicing LLC (Ditech). After trial, the BC denied the DR’s first three requests for relief. First, it rejected her count for wrongful foreclosure in equity because it found that neither the evidence nor the law supported the idea that the Bank had lulled the DR into believing that if she paid the amount indicated on one statement, dated July 3, 2017, that preceded a proposed letter of reinstatement, itself dated July 11, 2017, that the foreclosure sale would be abandoned. That the Bank never acted inconsistently with its right to timely payments, and that the DR’s own attempts to verify the reinstatement amount after July 3, 2017, further supported its decision. Second, the BC discerned no violation of the duty of good faith and fair dealing. After all, the Bank had the right to accelerate the Second Mortgage and foreclose because the DR was delinquent in her payments. Third, the BC deemed the DR to have failed to prove causation, as required by the MMPA. Finally, it deemed her claims under the Truth in Lending Act (TILA) or the Real Estate Settlement Procedures Act (RESPA) to be time-barred, the relevant statutes of limitations having already expired. By then, the DR’s fourth original claim had fallen by the wayside, the BC having previously denied that request in light of the concession, by both the DR and the Bank, that dismissal of Ditech as a party was appropriate in light of its post-petition bankruptcy. Because the DR failed to address the claims related to the MMPA and the Bank’s breach of its duty of good faith in her appellate briefing, the BAP did not directly address either.
The DR and the Bank stipulated to the following facts. Pre-petition, the DR had jointly owned a parcel of real property located in St. Louis, Missouri (Property). Dated March 31, 2006, the first note and deed of trust was held by ABN Amro Mortgage Group, Ditech’s predecessor; the principal amount of this first mortgage (First Mortgage) was $68,750. The Bank originated the Second Mortgage on September 20, 2007. With delinquency came the usual flurry of letters, calls, and discussions. The DR first became delinquent on the Second Mortgage in October 2016. In the usual and customary monthly statement that the Bank mailed on July 3, 2017, it informed the DR that the amount necessary to cure the default was $2,145.28, due by July 26, 2017. On July 7, 2017, the DR called the Bank to discuss reinstating her loan. At that time, the Bank advised her to contact its foreclosure counsel so as to obtain a complete and correct written payoff statement, one that included legal fees and costs. On July 11, 2017, after DR’s telephone request, this counsel mailed her a letter proposing a reinstatement amount of $6,179.86, broken down into payments, late charges and foreclosure fees. Two days later, the DR tendered the amount of $2,145.28, the reinstatement amount set forth in the July 3 letter, to the Bank via USPS Priority Mail. Upon receipt, the Bank rejected this fraction as insufficient to reinstate the Second Mortgage, pointing out to its latest communique as to that matter, and thus returned it to the DR. Neither then, nor at any point thereafter, did the DR ever try or actually pay off the reinstatement amount she had been explicitly given on July 11, 2017, at her request and at the Bank’s direction. On July 18, 2017, the Bank finally foreclosed on the Property. Months later, on September 25, 2017, the DR filed a petition for relief under Chapter 7 of the Bankruptcy Code. The Bank subsequently paid off the First Mortgage, and Ditech released its lien. Meanwhile, the DR received a discharge in January 2018, and her case soon closed. The adversary proceeding whose final order formed the cynosure of the appeal came about approximately two months later when the DR filed a motion to impose the automatic stay to stop the Bank from instituting eviction proceedings. As is usual, her main bankruptcy case was reopened, and the BC ordered the Bank to abstain from the DR’s expulsion until the matter was resolved by declaratory judgment. The DR proceeded to file her four-count complaint. Through that entire proceeding—indeed, through the date of this BAP decision—the DR stayed upon the Property without paying a single penny to the Bank.
Anita L. Shodeen; Kathleen H. Sandberg; and Dennis R. Dow

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