Nelson v. Saxon Mortgage, Inc. et al
Filing
38
MEMORANDUM OPINION AND ORDER (1) Granting in part and denying in part defendants' 15 Motion for Summary Judgment. Motion is granted with respect to Plaintiff's claims for negl igent misrepresentation (Count II), negligence (Count III), equitable estoppel (Count V), and accounting (Count VII). Motion is denied with respect to Plaintiff's claim for violation of Minn. Stat. § 580. 30 (Count I), breach of contract (Count IV), and quiet title (Count VI). (2) Denying plaintiff's 20 Motion for Partial Summary Judgment. (Written Opinion). Signed by Judge John R. Tunheim on January 16, 2014. (DML)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
BRYAN NELSON,
Civil No. 12-1312 (JRT/JJG)
Plaintiff,
v.
SAXON MORTGAGE, INC. and
FEDERAL NATIONAL MORTGAGE
ASSOCIATION,
MEMORANDUM OPINION AND
ORDER ON CROSS MOTIONS FOR
SUMMARY JUDGMENT
Defendants.
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.
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.
BACKGROUND
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.
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of Michael J. Steinlage, Ex. B at 48-50, Mar. 21, 2013, Docket No. 18.)1 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, 2010.2 (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,
1
Unless otherwise noted references to page numbers in citations to the parties’ exhibits
refer to the CMECF pagination.
2
The parties dispute whether Nelson’s loan was already in default in March 2010 when
Saxon began servicing the loan. The parties also dispute whether Saxon sent and Nelson
received adequate information concerning the servicing transfer and acceptable methods for
submitting loan payments. Because Nelson’s claims do not arise out of Saxon’s conduct in
March 2010, this dispute is irrelevant for purposes of the present summary judgment motions.
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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.)
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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.)3 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.”) 47:1749:1).) 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.)
3
The Loan Modification provided for monthly payments of principal and interest in the
amount of $748.30 beginning on December 1, 2010. (First Steinlage Aff., Ex. F at 13.)
Although the Loan Modification did not expressly address the amount of Nelson’s monthly
escrow payments, the parties do not dispute, and the account activity on Nelson’s loans reflects,
that Nelson’s initial monthly escrow payment under the Loan Modification was $265.94,
resulting in an overall monthly payment of $1,014.24. (First Eaton Aff., Ex. G at 71; id., Ex. J.)
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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.
Booking is a process that adjusts Saxon’s accounting system to reflect the
¶ 10.)
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.4 (Anderson Aff. ¶ 12.) A
suspense account is an account in which Saxon holds funds in the event that a borrower
4
The record does not reflect which of Nelson’s previous payments were being held in the
suspense account on October 21, 2010. The record is similarly unclear with respect to the exact
amount of funds being held in the suspense account at the time the Loan Modification was
booked. For purposes of these motions, Nelson does not dispute that certain amounts were held
in a suspense account. Nor does Nelson argue that the funds in the suspense account were held
there improperly.
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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.5 With respect to the priority of payment application, the Mortgage
provided that:
5
At oral argument, counsel for Saxon at first indicated that it was not entirely clear that
the section of the Mortgage governing the priority of payments governed the application of
suspense account funds. Counsel later clarified that Saxon did believe the provision governing
the priority of payments in the Mortgage could properly be construed as governing the
application of suspense account funds, and that Saxon had attempted to follow that provision in
applying Nelson’s suspense account funds. Because the Mortgage priority provision governed
all payments accepted and applied by the Lender (First Steinlage Aff., Ex. B at 51 (emphasis
added)) the Court agrees that the priority set out in the Mortgage applies to suspense account
funds which are undisputedly borrower payments that are “accepted and applied” by the lender.
(See id.)
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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.6
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
6
The record reflects that $220 in miscellaneous fees may have been owing on
October 21, 2010, after the Loan Modification was booked. (See First Eaton Aff., Ex. G at 72.)
It appears from Nelson’s November 1, 2010 account statement that $221.26 from the suspense
account was used to pay these miscellaneous fees. (See First Eaton Aff., Ex. J.) The parties
have not discussed this use of Nelson’s suspense account funds in connection with the motions
for summary judgment, and this application of Nelson’s suspense account funds does not appear
to be the basis of any of Nelson’s claims.
-8-
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.)7 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
7
The record does not reflect why Nelson continued to make payments pursuant to the
Stipulation after the Loan Modification was in place. The parties do not dispute, however, that
Nelson made the $1,273 payment on November 1, 2010.
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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.)8
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.)
8
In their briefs the parties discuss at length the circumstances surrounding Nelson’s
failure to make the February 2011 payment. Nelson alleges generally that Saxon provided him
with inconsistent and confusing information regarding the due date and amount of his payment
under the Loan Modification. For example, Nelson testified that he contacted Saxon on
November 12, 2010, and spoke with two representatives about the November 2010 statement.
(Nelson Dep. 73:3-75:5; First Eaton Aff., Ex. D at 36-37.) When Nelson asked why his payment
was due on February 1, 2011, instead of December 1, 2010, as specified in the Loan
Modification, both representatives confirmed that Nelson’s next payment was due on February 1,
2011, and allegedly told him that the change was due to the Loan Modification. (Nelson Dep.
74:14-75:5, 79:7-18.) Nelson also testified that the representatives indicated that the $2,278
listed as “Other/Fees” on the November 2010 statement and included in his total payment was
actually a credit; the representatives allegedly told Nelson he should only pay $1,014.24 on
February 1, 2011. (Nelson Dep. 75:19-76:25.) Saxon disputes these allegations by pointing to
evidence of its phone logs. Saxon maintains a system that automatically records calls that it
receives on a loan. (Anderson Aff. ¶ 19.) The system electronically populates fields identifying
the date and telephone number, and creates a notation when a borrower calls through the
interactive voice response system for purposes of making a payment. (Id.) For example, Saxon
argues that its phone logs indicate that Nelson was informed by Saxon representatives that
suspense account funds were used to make his first two payments under the Loan Modification,
resulting in his next payment being due on February 1, 2011. (First Steinlage Aff., Ex. L at 40.)
The confusion surrounding the November 2010 statement does not appear to be the basis of any
of Nelson’s claims. Accordingly, the Court finds this dispute is largely irrelevant for purposes of
resolving the present motions.
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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.)9 Pursuant to these discussions, on May 2, 2011, Nelson and Saxon
9
Nelson also testified generally that throughout the spring of 2011 he attempted, but was
unable, to obtain an itemization of the current payoff amount for his loan. (First Eaton Aff.,
Ex. D at 35-36.) The call logs for his account indicate that in April and May 2011 Nelson
requested an itemization of amounts owed. (First Steinlage Aff. Ex. L at 37.)
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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
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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. 141:25142:23.)
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
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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 forbearance under the August Repayment Plan
was without prejudice to Saxon’s remedies under those original agreements. (Id., Ex. O
at 54.)
Nelson made no payments under the August Repayment Plan. (Nelson Dep.
91:10-13.) Saxon served Nelson with a renewed notice of foreclosure on August 28,
2011, setting the foreclosure sale for September 30, 2011. (First Steinlage Aff., Ex. P at
59, 62.)
The notice stated, “AS OF August 05, 2011, [Saxon] says that you owe
$6,197.70 to bring your mortgage up to date (or ‘reinstate’ your mortgage). You must
pay this amount, plus interest and other costs, to keep your house from going through a
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sheriff’s sale.” (Id., Ex. P at 62.) The notice advised Nelson to contact Saxon as soon as
possible “to talk about things you might be able to do to prevent foreclosure.” (Id.)
Under the original Mortgage, Nelson had a right to reinstate his loan after
acceleration. (First Steinlage Aff., Ex. B at 57.) Specifically, the Mortgage provided
that:
If Borrower meets certain conditions, Borrower shall have the right to have
enforcement of this Security Instrument discontinued at any time prior to
the earliest of: (a) five days before sale of the Property pursuant to any
power of sale contained in this Security Instrument; (b) such other period as
Applicable Law might specify for the termination of Borrower’s right to
reinstate; or (c) entry of a judgment enforcing this Security Instrument.
Those conditions are that Borrower: (a) pays Lender all sums which then
would be due under this Security Instrument and the Note as if no
acceleration had occurred; (b) cures any default of any other covenants or
agreements; (c) pays all expenses incurred in enforcing this Security
Instrument, including, but not limited to, reasonable attorneys’ fees,
property inspection and valuation fees, and other fees incurred for the
purpose of protecting Lender’s interest in the Property and rights under the
Security Instrument; and (d) takes such action as Lender may reasonably
require to assure that Lender’s interest in the Property and rights under this
Security Instrument, and Borrower’s obligation to pay the sums secured by
this Security Instrument, shall continue unchanged.
(Id.)
VII.
REINSTATEMENT AMOUNT
Nelson claims that he contacted and spoke with Saxon representatives on nearly a
daily basis during the month of September 2011 in an attempt to obtain the amount
required to reinstate the loan and avoid foreclosure.
(Nelson Dep. at 106:5-12.)
According to Saxon’s records, Saxon tried to contact Nelson by telephone repeatedly
during the month of September with no success, and Nelson did not contact Saxon until
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September 23, 2011. (First Steinlage Aff., Ex. L at 12-15; id., Ex. H at 38.) When asked
to identify on a calendar the dates on which he spoke with Saxon representatives, Nelson
marked September 1, 2, 21, 22, 23, 26, 27, 28, 29, and 30. (Nelson Dep. 122:25-123:25;
Third Aff. of Michael J. Steinlage, Ex. W, Apr. 25, 2013, Docket No. 31.)
The parties agree that Nelson spoke with Saxon representatives by telephone on
September 23, 2011, and informed Saxon that he wanted to reinstate the loan. (First
Steinlage Aff., Ex. H at 38.) Saxon advised Nelson that the amount necessary to reinstate
the loan was $9,165.28 plus yet to be determined attorney’s fees and costs, which Saxon
would request from foreclosure counsel and provide to Nelson. (Id.; First Eaton Aff.,
Ex. P at 52-53.)
The $9,165.28 reinstatement figure included $7,337.54 in missed
payments (from March 2011 through September 2011), $112.26 in late charges,
$2,201.24 in recoverable corporate advances, less a $485.76 credit held from Saxon’s
May 2, 2011 payment. (First Steinlage Aff., Ex. Q; id., Ex. H at 34-35.)
Saxon alleges that it called Nelson on September 26, 2011. (First Steinlage Aff.,
Ex. L at 11-12.) During this phone call, Saxon informed Nelson that he owed attorney’s
fees of $700 and costs of $1,239 in addition to the $9,165.28 due under the loan. (Id.,
Ex. L at 12; id., Ex. H at 35.) Saxon therefore told Nelson that the total amount to
reinstate the loan was $11,104.28.10 (Id., Ex. H at 34-35.) Nelson testified that he never
10
Saxon’s brief indicates the payoff amount was $11,104.24. (Def.’s Mem. in Supp. of
Mot. for Summ. J. at 8, Mar. 21, 2013, Docket No. 17.) Adding the original reinstatement
amount to the fees and costs listed by Saxon, however, yields $11,104.28. This is the amount
stated in the record documents.
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received such a phone call and was not informed of the payoff amount on September 26,
2011. (Nelson Dep. 112:20-114:4.)
Instead, Nelson claims that he only received a final reinstatement amount on
September 29, 2011, when he called Saxon to ask for the amount necessary to reinstate
the loan. (First Steinlage Aff., Ex. L at 10-11.) In response, Saxon faxed a letter to
Nelson which identified the total reinstatement figure at $11,104.28. (First Steinlage
Aff., Ex. Q; Nelson Dep. 112:20-113:9.) The letter stated, “[t]hese are the reinstatement
figures for the referenced loan. Please be advised, we must receive this amount no later
than 09-30-11 to stop collection/foreclosure proceedings.” (First Steinlage Aff., Ex. Q.)
The letter provided instructions for acceptable payment options, including overnight
mailing and wiring funds. (Id.) Nelson claims that he had access to sufficient funds to
reinstate his loan on that day, but that he could not transfer the funds in time to guarantee
that the foreclosure sale would be stopped. (Nelson Dep. 116:16-117:3; First Steinlage
Aff., Ex. L at 9.) Nelson testified that had he known the appropriate reinstatement
amount earlier, he could easily have acquired the money necessary to avoid foreclosure.
(Nelson Dep. 38:11-41:24, 101:2-7, 130:25-132:9.)
VIII. SEPTEMBER 2011 REPAYMENT PLAN AND FORECLOSURE
Later on September 29, 2011, the parties entered into a final repayment plan
(“September Repayment Plan”).
(First Steinlage Aff., Ex. R.)
In the September
Repayment Plan, Nelson acknowledged “that the Note is in default” and that he was
“unable to pay the defaulted amount of $9,165.28 . . . plus outstanding legal fees,
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valuation fees, [and] inspection fees in the amount of $11[,]104.24 to bring the note
current.” (Id., Ex. R at 72.) The September Repayment Plan set forth a schedule of
payments and required an initial down payment of $5,500 “simultaneous with the
execution and delivery of this Agreement” to avoid foreclosure. (Id., Ex. R at 73.) In the
event of Nelson’s breach, the September Repayment Plan allowed Saxon “at its sole
option” to “continue with the foreclosure action currently in place.” (Id., Ex. R at 74.)
Immediately after signing the September Repayment Plan, Nelson sought a written
guarantee from Saxon that payment of the $5,500 under the September Repayment Plan
would stop the foreclosure sale. (Nelson Dep. 116:6-117:3.) When Saxon would not
provide such a guarantee, Nelson refused to make the payment. (Nelson Dep. 116:23117:3.)
The foreclosure sale went forward as scheduled on September 30, 2011, and
Saxon purchased the Property. (First Steinlage Aff., Ex. P at 66.) The Property has since
been transferred to Fannie Mae, and Nelson continues to reside at the Property pursuant
to a settlement agreement with Fannie Mae to stay an eviction action in Minnesota state
court. Nelson makes monthly deposits in the amount of $1,014.24 to the Dakota County
District Court in connection with the settlement stipulation. (See Nelson Dep. 9:18-24;
12:14-16.)
Nelson filed this action in state court in May 2012 and Saxon removed the case to
federal court. (Notice of Removal, May 31, 2012, Docket No. 1.) Nelson’s complaint is
essentially based upon two allegations. First, during the time leading up to foreclosure,
Nelson alleges that Saxon failed to provide timely and accurate information regarding the
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amount due and payable under the loan, in part because Saxon erroneously applied
suspense account funds to Nelson’s loan. Second, once Saxon had begun foreclosure
proceedings, Nelson alleges that Saxon failed to provide timely and accurate information
regarding the amount required to reinstate the loan. Based on this alleged conduct,
Nelson brings claims for violation of Minn. Stat. § 580.30, negligent misrepresentation,
negligence, breach of the duty of good faith and fair dealing, and equitable estoppel.
(Notice of Removal, Ex. 1 (“Compl.”) ¶¶ 26-64.) Nelson also seeks to quiet title to the
Property and demands an accounting. (Compl. ¶¶ 65-74.)
ANALYSIS
I.
STANDARD OF REVIEW
Summary judgment is appropriate where there are no genuine issues of material
fact and the moving party can demonstrate that it is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(a). A fact is material if it might affect the outcome of the suit,
and a dispute is genuine if the evidence is such that it could lead a reasonable jury to
return a verdict for either party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). A court considering a motion for summary judgment must view the facts in the
light most favorable to the non-moving party and give that party the benefit of all
reasonable inferences to be drawn from those facts. Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986).
Summary judgment is appropriate if the
nonmoving party “fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the burden of
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proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “To defeat a motion
for summary judgment, a party may not rest upon allegations, but must produce probative
evidence sufficient to demonstrate a genuine issue [of material fact] for trial.” Davenport
v. Univ. of Ark. Bd. of Trs., 553 F.3d 1110, 1113 (8th Cir. 2009) (citing Anderson, 477
U.S. at 247-49).
II.
VIOLATION OF MINN. STAT. § 580.30 (COUNT I)
Both Nelson and Saxon seek summary judgment on Nelson’s claim for violation
of Minn. Stat. § 580.30. Minnesota Statutes § 580.30 establishes a mortgagor’s right to
reinstate a defaulted loan at any time prior to a foreclosure sale by paying to the
mortgagee the defaulted amount due under the loan, in addition to fees and expenses
incurred by the mortgagee in relation to the foreclosure:
In any proceedings for the foreclosure of a real estate mortgage . . . if at any
time before the sale of the premises under such foreclosure the mortgagor
. . . shall pay or cause to be paid to the holder of the mortgage so being
foreclosed, or to the attorney foreclosing the same, or to the sheriff of the
county, the amount actually due thereon and constituting the default
actually existing in the conditions of the mortgage at the time of the
commencement of the foreclosure proceedings, including insurance,
delinquent taxes, if any, upon the premises, interest to date of payment, cost
of publication and services of process or notices, attorney’s fees not
exceeding $150 or one-half of the attorney’s fees authorized by section
582.01, whichever is greater, . . . together with other lawful disbursements
necessarily incurred in connection with the proceedings by the party
foreclosing, then, and in that event, the mortgage shall be fully reinstated
and further proceedings in such foreclosure shall be thereupon abandoned.
Minn. Stat. § 580.30, subd. 1. Nelson contends that Minn. Stat. § 580.30 creates a right
to reinstatement and thereby “also creates a requirement that a mortgagee provide a
mortgagor with sufficient, timely, information to reinstate his or her mortgage.” (Compl.
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¶¶ 28-29.) Nelson alleges that Saxon violated the statute’s requirement “[b]y failing to
provide Nelson with a reinstatement amount” in a timely manner and “[b]y demanding
amounts greater than those actually due . . . on the mortgage.” (Id. ¶¶ 30-34.)
“[T]o reinstate a mortgage under Minn. Stat. § 580.30, the mortgagor must pay all
amounts actually due upon the mortgage at the time of the tender, plus interest on the
delinquent payments from the due date to the date of tender and statutory costs.” First
Trust Co. v. Leibman, 445 N.W.2d 547, 552 (Minn. 1989); see also Davis v. Davis, 196
N.W.2d 473, 475 (Minn. 1972). The mortgagee cannot refuse to accept the mortgagor’s
tendered payment to reinstate a loan pursuant to Minn. Stat. § 580.30. See In re Petition
of Norwest Bank Metrowest Nat’l Ass’n, 396 N.W.2d 896, 899 (Minn. Ct. App. 1986).
The Court interprets Minnesota’s mortgage statutes according to ordinary
principles of statutory interpretation, construing words and phrases “according to their
plain and ordinary meaning, with the exception of technical words and phrases, which
[the Court] construe[s] according to their special meaning.”
Ruiz v. 1st Fid. Loan
Servicing, 829 N.W.2d 53, 57 (Minn. 2013). With respect to § 580.30 in particular the
Minnesota Supreme Court has held that because the provision “was adopted in 1923 in
response to hardships experienced by mortgagors resulting from the depressed economic
conditions of the times,” the statute should be “‘construed in the light of the legislative
purpose to afford the vendee an opportunity to save and reinstate his equitable rights by
removing the default.’” Davis, 196 N.W.2d at 475 (quoting Needles v. Keys, 184 N.W.
33, 34 (Minn. 1921) (discussing a similar statute related to contracts for deed)). In the
event of ambiguity, the Court interprets § 580.30 in a manner that does not increase the
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incentive for mortgagors to default, see Leibman, 445 N.W.2d at 551, and militates
against forfeiture, see Davis, 196 N.W.2d at 475.
Additionally, Minnesota courts apply a strict compliance standard to the statutes
governing foreclosures by advertisement.
See Ruiz, 829 N.W.2d at 56. Under this
standard, the foreclosing party is required to “‘show exact compliance’ with the terms of
the statutes.” Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487, 494
(Minn. 2009) (quoting Moore v. Carlson, 128 N.W. 578, 579 (Minn. 1910)). “If the
foreclosing party fails to strictly comply with the statutory requirements, the foreclosure
proceeding is void.” Id.; see also Radel v. Plath, No. C9-88-1441, 1989 WL 17598, at *2
(Minn. Ct. App. Mar. 7, 1989) (affirming the trial court’s decision to set aside a mortgage
foreclosure sale on the ground, among others, that the mortgagee demanded an excessive
amount for reinstatement under Minn. Stat. § 580.30).
With these principles of
interpretation in mind, the Court turns to Nelson’s allegations.
A.
Timeliness
The Court must first determine whether Minn. Stat. § 580.30 imposes a duty upon
a mortgagee to timely provide a mortgagor with the amount required to reinstate a loan
prior to foreclosure. Nelson alleges that Saxon breached § 580.30 because it did not
provide Nelson with the complete reinstatement amount of $11,104.28 until
September 29, 2011 – the day before the foreclosure sale was scheduled to occur.
(Compl. ¶ 32.) Nelson claims that had he known the reinstatement amount earlier he
would have had time to gather sufficient funds to make the payment.
- 22 -
Whether § 580.30 imposes a duty upon a lender to provide a mortgagor with
information about the amount required to reinstate a loan within a particular timeframe
prior to foreclosure is a question of first impression in Minnesota. The Court’s role is to
predict how the Minnesota Supreme Court would resolve this unanswered question of
state law. See AMCO Ins. Co. v. Inspired Techs., Inc., 648 F.3d 875, 880 (8th Cir. 2011).
“If the Minnesota Supreme Court has not yet addressed the issue, [the federal court] may
consider ‘relevant state precedent, analogous decisions, considered dicta, . . . and any
other reliable data,’ including intermediate appellate court decisions if they are the ‘best
evidence’ of state law, to predict how the highest court of the state would resolve the
issue.” Gage v. HSM Elec. Prot. Servs., Inc., 655 F.3d 821, 825 (8th Cir. 2011) (quoting
Praetorian Ins. Co. v. Site Inspection, LLC, 604 F.3d 509, 516 n.13 (8th Cir. 2010)).
The plain language of § 580.30 does not impose a duty upon mortgagees to
provide a mortgagor with information about the amount necessary to reinstate a loan
within a specific timeframe. See Minn. Stat. § 580.30, subd. 1.11 Section 580.30 does,
however, provide a mortgagor with an absolute right to reinstatement upon payment of
11
Notably, subdivision 2 of § 580.30, governing a sheriff’s request for information about
the reinstatement amount, does provide a specific timeframe. The statute provides that “[u]pon
written request by the sheriff, the holder of the mortgage or the holder’s legal representative shall
provide to the sheriff within seven days of the date of the request by the sheriff to the foreclosing
attorney . . . the current payoff amount, showing outstanding principal, interest, and a daily
interest accrual amount, [and] an itemized schedule of the current amounts necessary to reinstate
the mortgage.” Minn. Stat. § 580.30, subd. 2. Although this provision could be read to suggest
that the Minnesota Legislature did not intend to impose a similarly specific timeline with respect
to reinstatement under subdivision 1, it is not dispositive on the question of what a mortgagee
must do in order to allow a mortgagor to vindicate his reinstatement right “at any time” before
the foreclosure sale under subdivision 1.
- 23 -
amounts actually in default at any time prior to the foreclosure sale. See Davis, 196
N.W.2d at 475. This statutory right would be meaningless if a lender could simply refuse
to provide the borrower with the amount required to reinstate the loan, or provide the
amount long after the borrower had requested a reinstatement amount, while additional
fees continue to accrue, and thereby frustrate a borrower’s right to reinstate “at any time.”
Therefore, to give full effect to the statute’s purpose of affording the mortgagor “an
opportunity to save and reinstate his equitable rights by removing the default,” id.
(internal quotation marks omitted), the Court concludes that a lender must have some
duty regarding the timeliness with which reinstatement information is communicated
such that the lack of timeliness does not prevent a borrower from exercising his statutory
right to reinstate the loan.
In defining the nature of this duty, the Court recognizes the need to strike an
appropriate balance between the interests that are in tension under the statutory scheme
created by § 580.30. On the one hand, the statute bestows on the borrower an absolute
right to reinstate at any time prior to foreclosure, which requires the borrower to be able
to obtain prompt and accurate information about the reinstatement amount. Furthermore,
under Section 580.30, the borrower is entitled to exercise this right to reinstate at any
time before foreclosure, indicating that the borrower must be able to obtain an accurate
reinstatement amount upon request at any point in time prior to foreclosure. On the other
hand, the obligations imposed upon the lender by the statute must take into account the
reality that during the period leading up to foreclosure the lender may be unable
immediately to provide a borrower with an absolutely certain reinstatement amount at
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any particular point in time due to the existence of fees assessed by third parties and the
continually accruing nature of certain loan charges. The appropriate balance between
these competing concerns and the concomitant duty upon a lender are best explained
within the context of the facts of this case.
It is undisputed that on September 23, 2011, Nelson contacted Saxon and indicated
that he wished to reinstate his loan. At that time, Saxon was unable to, and did not,
provide Nelson with the total amount required to reinstate his loan. Saxon did notify
Nelson that the amount required to reinstate the loan would be $9,165.28,12 but could not
give him a final amount for the foreclosure fees and costs that Saxon would request from
foreclosure counsel. This information was insufficient to allow Nelson to exercise his
statutory right to reinstate the loan.13
12
The Court will discuss the accuracy of this amount in the following section, but is
concerned here only with the timeliness with which Saxon provided the information.
13
This case does not require the Court to decide the slightly different statutory question
of whether, if Saxon had told Nelson that his reinstatement amount was $9,165.28 on
September 23, 2011, and he had paid that amount, it would have amounted to a violation of
§ 580.30 for Saxon to later demand additional amounts for foreclosure associated costs. In the
present case, the Court concludes that § 580.30 cannot be read to require a borrower to make
piece-meal reinstatement payments based on information learned from the lender in order to
bring a claim for violation of the statute. In other words, Nelson was not required to pay the
$9,165.28 (a figure that was timely provided under the statute) which Saxon informed him was
only a partial reinstatement figure, in order to preserve his right to bring a claim under § 580.30.
By providing the borrower with a right to reinstate, the statute also implicitly includes a
corresponding right of the borrower to choose whether to reinstate. In order to make an
informed choice a borrower must be aware of the full amount of reinstatement or be provided
with a reasonably accurate estimate of what the final amount will be. For example, if a borrower
has $8,000 at his disposal and is told by the lender that he owes at least $5,000 plus yet to be
determined fees and costs, the borrower has insufficient information to determine whether he
will be able to reinstate, i.e. whether the total amount of reinstatement will be $8,000 or less. If
the borrower is required first to pay the $5,000 in order to vindicate his statutory right to reinstate
(Footnote continued on next page.)
- 25 -
Saxon claims that it provided Nelson with the amount of the fees and costs, and
the total reinstatement amount, three days later, on September 26. The Court finds that
this three-day delay in providing Nelson with a reinstatement amount could have
prevented Nelson from exercising his statutory right to reinstate his loan “at any time”
prior to foreclosure, and therefore was untimely under the statute.14
Under the statute, a lender must be prepared to provide a borrower with an
accurate and complete reinstatement figure at any time prior to foreclosure. However, at
the moment of a borrower’s inquiry, certain fees and costs associated with foreclosure
may have been assessed by third parties and may be unknown to the bank or certain late
fee and interest charges may be too complicated to be calculated by a customer service
representative. A lender therefore cannot be obligated to provide a reinstatement figure
immediately. Instead, the Court concludes that, after notice of a foreclosure sale has been
served, the lender must provide a borrower with an accurate and complete reinstatement
figure within twenty-four hours of a borrower’s request in order to allow a borrower to
____________________________________
(Footnote continued.)
and fees and costs should later amount to more than $3,000 the borrower will have spent $5,000
for no purpose – his house will still be foreclosed upon. Therefore, the statutory duty imposed
on the lender to timely provide information must refer to the entire reinstatement amount for
which a borrower is responsible.
14
Nelson contends that he did not receive the final reinstatement amount until
September 29. Because the Court finds that receiving the reinstatement amount on September 26
was untimely under the statute, receipt of the information on September 29 would also have been
untimely.
- 26 -
vindicate his statutory right to reinstate his loan “at any time” prior to foreclosure.15 The
Court finds that a twenty-four hour period in which to gather the necessary information
strikes an appropriate balance between the buyer’s right to reinstate and the burden on the
lender to provide accurate reinstatement amounts.
Requiring a lender to provide a
borrower with information within twenty-four hours is consistent with the statutory
purpose of providing the mortgagor with an opportunity to reinstate his loan, see Davis,
196 N.W.2d at 475, and does not increase the incentive for mortgagors to default, see
Leibman, 445 N.W.2d at 547. Saxon’s view – that a lender has no obligation to provide a
borrower with timely information about a reinstatement amount – is an interpretation of
the statute that would increase the instances of forfeiture, rather than militating against
them. See Davis, 196 N.W.2d at 475. Furthermore, the Court notes that the burden
placed upon lenders to obtain information within twenty-four hours is relatively slight.
First, by requiring the borrower to make a reinstatement request, the lender is not
required to guess when, in the period of time between service of a notice of foreclosure
and an actual foreclosure sale, a borrower might wish to exercise his statutory right to
reinstatement and therefore require the reinstatement information. Second, all of the
information relevant to determining a reinstatement amount is within the lender’s control.
Account information kept by lenders should already include the principal, interest, and
15
Because Nelson essentially requested a reinstatement figure only once after being
served with notice of the foreclosure sale, the Court need not decide whether a lender’s
obligation to provide a reinstatement figure may terminate where a borrower repeatedly requests
and receives an accurate reinstatement figure and fails to reinstate the loan. A lender can also
decrease the necessity of repeated reinstatement requests by informing the borrower of the time
period for which a particular reinstatement amount is valid.
- 27 -
escrow balances as well as late fees. If lenders find that it is too difficult to obtain
information about fees and costs from foreclosure counsel, they can negotiate flat fees or
base their calculation of reinstatement amounts upon the statutory attorneys’ fees allowed
by § 580.30.16
Although the Court concludes that Saxon did not provide timely reinstatement
information to Nelson, that conclusion does not end the Court’s inquiry as to whether
Saxon violated § 580.30. Section 580.30 protects a borrower’s right to reinstate his loan
at any time prior to foreclosure, and any statutory duty imposed upon a lender must be in
furtherance of that right.
Therefore, where a lender’s failure to timely provide
reinstatement information did not prevent or substantially frustrate a borrower’s right to
reinstate, that conduct does not amount to a violation of the statute. In other words, in
order to have violated § 580.30 by prohibiting a borrower from exercising his statutory
right to reinstate, the lender’s failure to timely provide a reinstatement amount must have
been the cause of a borrower’s inability to reinstate his loan. A lender will not be liable,
for example, if the borrower could not have reinstated his loan in any case due to an
insufficiency of funds.
16
Notably, as explained more fully below, nothing in § 580.30 prevents a lender from
accepting less than the full reinstatement amount in order to reinstate a loan. Therefore, if a
lender is unwilling or unable to obtain an accurate reinstatement amount within twenty-four
hours, it can provide the borrower with a reinstatement amount that the lender will accept based
upon an estimate of the fees and costs that have been incurred that the lender knows will not
exceed the actual reinstatement amount.
- 28 -
Under these circumstances, the Court finds that a reasonable jury could conclude
that Saxon violated Minn. Stat. § 580.30 by failing to provide Nelson with the amount
required to reinstate his loan within a reasonable period of time. But a reasonable jury
could also find that Nelson could not have obtained the $11,104.28 necessary to reinstate
his loan even had he learned of the reinstatement amount on September 23, and therefore
conclude that Saxon’s failure to provide Nelson with timely reinstatement information
was not the cause of his inability to reinstatement. Because genuine issues of material
fact remain regarding whether Saxon’s failure to timely provide the reinstatement amount
was the cause of Nelson’s failure to reinstate, the Court will deny both motions for
summary judgment with respect to this aspect of Nelson’s § 580.30 claim.
B.
Demand for Excessive Amount
The Court must next determine whether Saxon violated Minn. Stat. § 580.30 by
demanding an amount in excess of the amount actually due under the terms of the loan.
Nelson alleges that Saxon incorrectly applied suspense account funds, and therefore
Saxon demanded an amount to reinstate the loan was greater than the amount that would
have been required to reinstate had Saxon correctly applied the suspense account funds.
To analyze Saxon’s claim the Court must determine whether Saxon misapplied Nelson’s
suspense account funds and whether that misapplication resulted in Saxon demanding an
amount in excess of what Nelson should have owed on the loan had the funds been
- 29 -
applied correctly.17 If Saxon did not misapply the funds, it could not have demanded an
amount that was in excess of what Nelson actually owed. And if it misapplied the funds,
but did so in a manner that did not result in Nelson owing more at the time of foreclosure
than he would have if the funds had been applied properly, that misapplication cannot
have hindered Nelson’s ability to exercise his right to reinstate under the statute, and
therefore cannot form the basis of a claim for violation of § 580.30.18
17
The Court notes that Saxon has never provided the Court with an accurate figure for
the amount of funds that were held in Nelson’s suspense account on October 21, 2010, when the
Loan Modification was booked. Nor has Saxon indicated from which of Nelson’s previous
payments those funds came. At oral argument, for example, counsel for Saxon represented that
the amount in the suspense account as of October 21, 2010 was probably $1,014.24 + $2,085.76
(the amount used to make Nelson’s December 2010 payment and then reduce his principal
balance), but then conceded that that could not be the correct amount, as that number failed to
account for the $221.26 payment out of the suspense account reflected on the November 1, 2010
bill. Additionally, there was some suggestion that the amounts held in Nelson’s suspense
account on October 21, 2010, were from the $2,600 and $1,273 payments made by Nelson in
September 2010. But according to Saxon’s records only $3,321.26 was taken from the suspense
account fund and applied to Nelson’s account on October 25, 2010. If both September payments
were held in the suspense account the total in the account should have been $3,873, leaving
$551.74 unaccounted for in Saxon’s calculation. Nelson does not, however, argue that the
amount of funds Saxon applied out of his suspense account fund was inaccurate. Instead, Nelson
argues only that the manner in which the funds were applied was inaccurate. Accordingly, the
Court will examine only the manner in which Saxon applied the funds, and assume, for purposes
of this motion that Saxon held the correct amount of funds in the suspense account.
18
Because the Court ultimately finds that Saxon did not demand a reinstatement amount
in excess of the amount actually due under the terms of the loan, it will assume, without
deciding, that an excess demand would constitute a violation of § 580.30, even though that
question is not settled under Minnesota law. Nelson cites Radel v. Plath, No. C9-88-1441, 1989
WL 17598 (Minn. Ct. App. Mar. 7, 1989), as authority for the proposition that it is always
violation of Section 580.30 for a lender to demand an amount in excess of what is actually owed
on a loan, and requires that the foreclosure be set aside. In Radel, the court did set aside a
foreclosure sale, at least in part, on the grounds that the lender demanded an excessive amount
for reinstatement including certain penalties for late payments. Id. at *2. But in Radel, the court
first found that the mortgage at issue was not in default at all. Id. The court concluded that the
foreclosure sale was void because no default had occurred, and the penalties assessed for late
payments as part of the reinstatement figure were inappropriate under the loan – and therefore
(Footnote continued on next page.)
- 30 -
1.
Timing of Suspense Account Fund Application
As an initial matter, the Court must determine whether Saxon applied Nelson’s
suspense account funds at an appropriate time when it applied them to Nelson’s loan
several days before the Loan Modification became effective. Nelson argues that Saxon
was required to wait until November 1 when the Loan Modification became effective –
the date by which Nelson’s account should have reflected that no amount was owing on
his loan – to apply the funds from his suspense account. (Pl.’s Reply at 7, Apr. 25, 2013,
Docket No. 32.) By applying the suspense account funds on October 25 to reduce his
principal balance to $210,418.27, Nelson contends that Saxon breached the Loan
Modification, which provided that Nelson’s principal balance would be $212,897.50 on
November 1. The timing of the application is relevant to Nelson’s claims because on
November 1 the $2,278 in fees incurred by Saxon had been charged to Nelson’s account.
Thus, had Saxon waited to apply the suspense account funds it would have applied them
first to those fees, pursuant to the priority dictated in the Mortgage, rather than to reduce
Nelson’s principal balance.
Although the Court is sensitive to Nelson’s confusion about the status of his loan
due to Saxon’s perplexing practice of implementing modifications to a loan prior to the
____________________________________
(Footnote continued.)
had never been due at all – because the borrowers had timely made their payments. Id. Radel
dealt with a different question than the one presented here – whether, when a borrower is
undisputedly in default on his loan a miscalculation in the reinstatement amount by the lender
can be the basis for a violation of Section 580.30. As explained above, the Court need not
resolve this question based on the facts presented.
- 31 -
effective date of the modification agreement, the Court finds that Saxon was not required
to wait until November 1 before applying Nelson’s suspense account funds. Saxon’s
conduct as evidenced by the record in this case could certainly suggest that Saxon
provided less than satisfactory loan servicing. However, the question before the Court is
a narrow one – whether Saxon misapplied Nelson’s suspense account funds and did so in
a manner that resulted in a request for an excessive reinstatement amount at the time of
foreclosure.
Under the terms of the original Mortgage, Saxon retained discretion to apply
suspense account funds whenever it chose, and was not required to wait until the loan
was current before applying such funds. Specifically, the Mortgage provided that
Lender may accept any payment or partial payment or partial payment
insufficient to bring the Loan current . . . 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 either apply such funds or return them to Borrower.
(First Steinlage Aff., Ex. B at 51 (emphasis added).) This provision grants Saxon almost
complete discretion with regard to when it applies suspense account funds. Specifically,
the provision allows Saxon to apply funds immediately if it chooses, hold funds until the
loan becomes current if it chooses, and apply funds, even if the borrower has failed to
bring the loan current. Because the Mortgage does not make the application of suspense
account funds appropriate only in the event that the loan is brought current, Saxon did not
apply the funds at an inappropriate time when it applied them several days before the
Loan Modification was to become effective.
- 32 -
Nelson’s argument conflates the terms of the Loan Modification with the terms of
the original Mortgage. Only the latter govern Saxon’s application of suspense account
funds. As explained above, the Mortgage controlled application of suspense account
funds and Saxon did not breach the Mortgage when it applied the funds on October 25. It
is true that by applying the funds on October 25 Saxon likely breached the terms of the
Loan Modification by adjusting the principal balance of Nelson’s loan to reflect an
amount other than the agreed upon value as of November 1. But that breach of the Loan
Modification, in and of itself, did not cause any of the alleged damage under § 580.30 of
which Nelson complains. In other words, the breach that Nelson has identified (the fact
that Nelson’s principal balance was lower than anticipated as of November 1) did not
increase the amount that was required to reinstate his loan immediately prior to
foreclosure. The action that affected the amount required to reinstate Nelson’s loan was
the application of suspense account funds on October 25, and that action was taken in
accordance with the terms of the Mortgage, and thus accurately reflects “the default
actually existing in the conditions of the mortgage” at the time of the foreclosure. See
Minn. Stat. § 580.30, subd. 1.
2.
Manner of Suspense Account Fund Application
Having determined that Saxon applied the suspense account funds at an
appropriate time under the Mortgage, the Court must go on to consider whether Saxon
applied those funds in an appropriate manner. Saxon concedes that it was required to
apply the funds pursuant to the payment priority provided for under the original Note and
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Mortgage. Under this priority, payments were to be applied to interest due, principal due,
and then escrow amounts. (First Steinlage Aff., Ex. B at 51.) Any remaining amounts
were to be applied first to late charges, second to any other amounts due, “and then to
reduce the principal balance of the Note.” (Id.) But Saxon did not apply the suspense
account funds in this manner.
Saxon applied Nelson’s suspense account funds on
October 25, 2010, when no amounts were due on Nelson’s loan. Saxon first applied
$1,014.24 in funds to satisfy Nelson’s December 2010 payment under the Loan
Modification, and then applied $2,085.76 to reduce the principal balance on Nelson’s
loan. The interest, principal, and escrow amounts in the $1,014.24 payment were not,
however, due under the loan on October 25, 2010.19
Therefore, under the priority
scheme, the funds should not have been applied to them. Because no amounts were
owing on Nelson’s loan Saxon should have applied $3,100 – the entire balance of
Saxon’s suspense account funds applied on October 25 – to reduce his loan’s principal.
19
The Court notes that determining whether the suspense account funds were misapplied
requires an understanding of when a particular interest, principal, or escrow payment is “due” for
purposes of the priority system under the original Mortgage. The parties have not indicated
when a payment becomes “due” for purposes of Nelson’s loan. Based upon the billing
documents produced in this case, it appears that a payment can properly be characterized as
“due” once the borrower has been billed for the payment. In other words, the December 1, 2010
payment did not become due until November 1, 2010, when a statement would have been sent to
Nelson reflecting that a payment was due. Presumably if a borrower submitted a payment on
November 20 in response to a statement reflecting that a certain amount was “due” on
December 1, Saxon would be in compliance with the terms of the Mortgage if it applied such a
payment to the principal, interest, and escrow amounts reflected in the statement. Because the
Court concludes that any misapplication of suspense account funds is irrelevant for purposes of
Nelson’s § 580.30 claim, the Court’s understanding of when a payment becomes due is not
critical to the disposition of these motions.
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On November 1, 2010, Saxon again applied funds from Nelson’s suspense
account, and again did so contrary to the requirements of the Mortgage’s priority system.
On November 1, Nelson owed $2,278 in foreclosure fees 20 that had been charged to his
account on October 27 and 28. Also on November 1, Nelson made a payment of $1,273.
Rather than applying that payment to the outstanding fees, as dictated by the priority
system, Saxon applied $1,014.24 of this amount to Nelson’s January 2011 payment under
the Loan Modification. Saxon later applied the remaining $258.76 to the outstanding
fees. Because Saxon did not follow the priority system required by the Mortgage, it
erroneously applied Nelson’s suspense account funds.
20
Nelson argues that the Loan Modification required Saxon to capitalize these fees into
the principal balance of his loan. As support for the proposition that the Loan Modification
required Saxon to capitalize all fees incurred prior to November 1, 2010, into the principal
amount of the loan, Nelson cites a paragraph from the Loan Modification which provides that
“[a]ll costs and expenses incurred by Lender in connection with this Agreement, including
recording fees, title examination, and attorney’s fees, shall be paid by the Borrower and shall be
secured by the Security Instrument, unless stipulated otherwise by Lender. (First Steinlage Aff.,
Ex. F at 14 (cited by Pl.’s Mem. in Opp. to Mot. for Summ. J. at 6, Apr. 11, 2013, Docket
No. 24).) This provision refers only to fees that are incurred in connection with the Loan
Modification, and therefore does not apply to the foreclosure fees incurred by Nelson prior to the
Loan Modification. Additionally, the provision cited by Nelson merely allows Saxon to recover
any fees incurred in connection with the Loan Modification by foreclosing on the mortgage; it
does not require that those fees be capitalized into the principal balance. Instead, the terms of the
Loan Modification indicated that the parties had agreed to a new principal balance of
$212,897.50 which included “the unpaid amount(s) loaned to Borrower by Lender plus any
interest and other amounts capitalized.” (First Steinlage Aff., Ex. F at 13.) Although the Loan
Modification indicates that some amounts had been capitalized, this language does not indicate
that Saxon was required to capitalize any other fees that would be charged to Nelson’s account
between the date the parties signed the Loan Modification and its effective date. Accordingly,
the Court finds nothing improper in Saxon’s failure to capitalize the $2,278 in foreclosure fees
into Nelson’s principal balance.
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3. Effect of Misapplied Funds on Reinstatement Amount
Even if Saxon applied the funds in a manner contrary to the terms of the Mortgage
or Loan Modification, Nelson must still show that the application of the funds materially
affected his right to reinstatement under the statute. In other words, if a lender requests
an amount to reinstate the loan that is in excess of the amount actually owed it could
prevent a borrower from exercising his right to reinstate and thus constitute a violation of
the statute. See Minn. Stat. § 580.30, subd. 1 (conditioning a borrower’s reinstatement of
a loan on paying “the amount actually due” on the loan “constituting the default actually
existing in the conditions of the mortgage at the time of the commencement of the
foreclosing proceedings”); cf. Radel v. Plath, No. C9-88-1441, 1989 WL 17598, at *2
(Minn. Ct. App. Mar. 7, 1989) (affirming the trial court’s determination that a foreclosure
should be set aside because the borrower “demanded an excessive amount for
reinstatement” by demanding penalties and attorney fees that were not properly assessed
under the terms of the mortgage). However, the Court finds that if a lender makes an
error in calculating a reinstatement amount and thereby requests an amount that is less
than the amount actually due and owing under the loan, that error has not negatively
impacted the borrower’s statutory right to reinstatement and therefore cannot form the
basis for a lender’s liability under § 580.30. In other words, if Saxon’s error did not
result in a request for reinstatement that was in excess of what Nelson actually would
have owed, the error in application was essentially harmless, and Nelson cannot prevail
on his claim that Saxon prevented him from exercising his statutory right to reinstate by
demanding an excessive amount to reinstate his loan. Because the Court concludes that
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misapplication of the suspense account funds did not result in Nelson owing a greater
amount at the time of foreclosure, Saxon cannot be liable for violation of § 580.30.
No later than September 29, 2010, Saxon provided the following calculation for
Nelson’s reinstatement figure:
Payments due:
$7,337.54
Late Charges:
$112.25
Legal fees:
$1,939.00
Recoverable Corporate Advances:
$2,201.24
Total Suspense (Credit):
($458.76)
TOTAL AMOUNT DUE:
$11,104.28
The “payments due” consisted of payments due for the months of March 2011
($1,014.24), April 2011 ($1,014.24), May 2011 ($1,014.24), June 2011 ($1,014.24), July
2011 ($1,014.24), August 2011 ($1,133.17),21 and September 2011 ($1,133.17).22
If Saxon had correctly applied Nelson’s suspense account funds on October 25,
2010 Saxon should have applied the entire $3,100 to reduce Nelson’s principal balance,
instead of first applying $1,014.24 to satisfy Nelson’s December 2010 payment.
Additionally, Saxon should have applied Nelson’s November 1, 2010 payment of $1,273
21
It is unclear from the terms of the Loan Modification why Nelson’s monthly payment
amount changed in August 2011. Nelson has not disputed this aspect of the reinstatement
amount.
22
Saxon appears to have applied Nelson’s May 2, 2011 payment of $1,500 to satisfy his
February 2011 payment of $1,014.24. The remainder of the May 2, 2011 payment is reflected as
the $458.76 total suspense credit in the reinstatement figure. Nelson does not appear to dispute
this application of suspense account funds. At the time that Saxon applied the $1,500, the
February 2011 principal, interest, and escrow payment was due and owing, making it first in
priority under the Mortgage.
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to reduce the $2,278 in foreclosure fees that had been charged to Nelson’s account on
October 27 and 28, instead of applying the funds to satisfy Nelson’s January 2011
payment. Had Saxon applied the funds in this manner, the “Recoverable Corporate
Advances” component23 of his reinstatement figure would have been $928.24 ($2,201.24
minus $1,273). However, had Saxon applied the funds in this manner, at the time of
foreclosure Nelson would have additionally owed his December 2010 and January 2011
payment under the Loan Modification (which the suspense account funds were wrongly
applied to). This would add $2,028.48 to the “Payments due” portion of Nelson’s
reinstatement figure for a total of $9,366.02 ($2,028.48 plus $7,337.54). Therefore, if
Saxon had applied Nelson’s suspense account funds in the proper order of priority, the
reinstatement figure would have been:
Payments due:
$9,366.0224
Late Charges:
$112.25
Legal fees:
$1,939.00
Recoverable Corporate Advances:
Total Suspense (Credit):
$928.24
($458.76)
TOTAL AMOUNT DUE:
$11,886.75
23
The parties do not appear to dispute that the $2,278 in foreclosure fees charged to
Nelson’s account on October 27 and 28 appear as some of the Recoverable Corporate Advances
in the reinstatement figure.
24
This calculation of payments includes monthly payments for December 2010, January
2011, March 2011, April 2011, May 2011, June 2011, July 2011, August 2011, and September
2011. In actuality, if Saxon had applied suspense account funds accurately, it would have
applied Nelson’s May 2, 2011 payment to satisfy the December 2010 payment rather than the
February 2011 payment, but the amount required for reinstatement would remain the same.
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According to this calculation, had Saxon applied the suspense account funds according to
the Mortgage’s priority, Nelson’s true reinstatement figure would have been $782.47
greater than the amount Saxon in fact demanded for reinstatement ($11,886.75 minus
$11,104.28). Therefore, although Saxon misapplied Nelson’s suspense account funds,
Saxon did not demand a reinstatement amount in excess of what Nelson actually owed
under the loan and therefore did not hinder Nelson’s ability to exercise his statutory right
to reinstate. Accordingly, the Court concludes that Saxon could not have violated Minn.
Stat. § 580.30, and will grant summary judgment in Saxon’s favor on this claim.
III.
BREACH OF GOOD FAITH AND FAIR DEALING (COUNT IV)
Nelson alleges that Saxon breached the covenant of good faith and fair dealing
under the Loan Modification generally by interfering with Nelson’s performance and
preventing him from tendering the payment necessary to reinstate his mortgage. (Compl.
¶¶ 54-55.)25 Both Saxon and Nelson move for summary judgment on this claim.
“Under Minnesota law, every contract includes an implied covenant of good faith
and fair dealing requiring that one party not ‘unjustifiably hinder’ the other party’s
performance of the contract.” In re Hennepin Cnty. 1986 Recycling Bond Litig., 540
N.W.2d 494, 502 (Minn. 1995) (quoting Zobel & Dahl Constr. v. Crotty, 356 N.W.2d 42,
25
It is unclear why Nelson chose not to pursue an express breach of contract theory based
upon, for example, Saxon’s failure to comply with the terms of the Loan Modification by
“booking” Nelson’s loan prior to the effective date of the agreement or Saxon’s failure to
appropriately apply suspense account funds. Nelson’s counsel repeatedly confirmed at oral
argument that the breach of contract claim asserted was solely for breach of the implied covenant
of good faith and fair dealing.
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45 (Minn. 1984)). “[T]he implied covenant of good faith and fair dealing governs the
parties’ performance and prohibits a party from failing to perform for the purpose of
thwarting the other party’s rights under the contract.” Team Nursing Servs., Inc. v.
Evangelical Lutheran Good Samaritan Soc’y, 433 F.3d 637, 641-42 (8th Cir. 2006).
When one party breaches the duty of good faith and fair dealing and unjustifiably hinders
the other party’s performance, the other party’s performance under the contract is
excused. Zobel, 356 N.W.2d at 45. The implied duty of good faith and fair dealing
extends only “to actions within the scope of the underlying enforceable contract.” Cox v.
Mortg. Elec. Registration Sys., Inc., 685 F.3d 663, 670 (8th Cir. 2012). But a plaintiff
“need not first establish an express breach of contract claim” in order to establish breach
of the implied duty, as “a claim for breach of an implied covenant of good faith and fair
dealing implicitly assumes that the parties did not expressly articulate the covenant
allegedly breached.” In re Hennepin Cnty., 540 N.W.2d at 503.
A.
Demand for Excessive Payments
Nelson argues that Saxon hindered his ability to make payments under the terms
of the Loan Modification by demanding monthly payments in excess of what was
actually due. Specifically, Nelson argues that because Saxon incorrectly applied the
suspense account funds, the amount owing each month was greater than the amount that
would have been owing had Saxon correctly applied the suspense account funds.
As explained above, supra Section II.B.2, the undisputed facts demonstrate that
Saxon did misapply the Nelson’s suspense account funds according to the priority
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provision in the original Mortgage. The misapplication of funds did not change the
ultimate amount for which Nelson was responsible, but rather shifted the type of
payments for which he was responsible. In other words, if Saxon had not used his
suspense account funds to satisfy Nelson’s December and January payments he would
have owed those amounts instead of the attorney’s fees and costs that were assessed to
his account in October. Because Saxon’s misapplication of the suspense account funds
did not result in Nelson owing monthly payments in excess of what he would have owed
had the funds been applied properly, Nelson has presented no evidence that the
misapplication unjustifiably hindered his ability to perform his obligations under the
Loan Modification and the original Mortgage.
Additionally, Nelson must establish “a causal link between the alleged breach and
[his] claimed damages” in order to maintain a claim for breach of the duty of good faith
and fair dealing. See Cox, 685 F.3d at 671 (internal quotation marks omitted). Here,
Nelson does not allege that Saxon’s actions prevented him from performing his
responsibilities under the Loan Modification. Instead, Nelson’s position throughout the
course of this litigation has been that he, at all times, had the ability to pay the amounts
requested of him by Saxon, but that Saxon prevented him from paying by failing to
communicate amounts due. Furthermore, Nelson has presented no evidence that the
attorneys’ fees assessed to his account (which he argues should have been reduced using
suspense account funds) prevented him from performing his contractual obligations by
making the monthly principal, interest, and escrow payments that were due under the
Loan Modification.
See id. at 672 (“Because the homeowners pled no connection
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between the lender’s failure to respond to their status requests or refusal to release the
loan file and the homeowners’ failure to perform under the mortgage agreement, thereby
causing their damages, they did not adequately plead a cause of action for breach of the
duty of good faith and fair dealing based on these actions.”). Therefore, the Court will
grant Saxon’s motion for summary judgment with respect to this aspect of Nelson’s claim
for breach of the duty of good faith and fair dealing.26
B.
Failure to Provide Timely Information About Reinstatement
Nelson next argues that Saxon breached the implied duty of good faith and fair
dealing by failing to timely provide him with information about the amount required to
reinstate his loan. By failing to timely provide the information, Nelson argues that Saxon
26
Nelson does not allege – in either his complaint or memoranda in connection with the
instant motions – that the other alleged conduct of Saxon, such as failing to accept payments by
phone or providing him with confusing information about his loan due date constituted a breach
of the duty of good faith and fair dealing. Because any such claims were not pled in the
complaint, even if Nelson had raised them in his briefing, the Court would not consider them at
this stage. See N. States Power Co. v. Fed. Transit Admin., 358 F.3d 1050, 1057 (8th Cir. 2004)
(explaining that parties may not “manufacture claims, which were not pled, late into the litigation
for the purpose of avoiding summary judgment”). Even if these claims had been pled the Court
would similarly find that Nelson has presented no evidence of a causal connection between these
actions and his failure to perform his contractual obligations. For example, Nelson alleges that
he breached the May Repayment Plan because Saxon refused to accept a payment by phone.
Nelson has presented no evidence, however, that he attempted to make the payment by any of the
acceptable methods listed in the May Repayment Plan – cashier’s check or bank wire. Although,
viewing the evidence in the light most favorable to Nelson, some of Saxon’s actions may have
inconvenienced Nelson, Nelson has presented no evidence that the actions caused him to be
unable to perform his contractual obligation – which was to make payments pursuant to the May
Repayment Plan by cashier’s check or bank wire. See Wells Fargo Bank, N.A. v. Boedigheimer,
No. A13-0626, 2013 WL 6569956, at *5 (Minn. Ct. App. Dec. 16, 2013) (affirming the district
court’s grant of summary judgment dismissing a counterclaim for breach of the implied covenant
of good faith and fair dealing where “[a]ppellants claim that they requested records in 2010, but
they offer nothing in support of the argument that respondent’s failure to respond to that request
hindered payment on the account or was somehow a condition precedent to payment”).
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unjustifiably hindered him from exercising his right to reinstate under the Mortgage.
Under the Mortgage, Nelson had
the right to have enforcement of this Security Instrument discontinued at
any time prior to the earliest of: (a) five days before sale of the Property
pursuant to any power of sale contained in this Security Instrument;
(b) such other period as Applicable Law might specify for the termination
of Borrower’s right to reinstate; or (c) entry of judgment enforcing this
Security Instrument.
(First Steinlage Aff., Ex. B at 57.) To exercise this right, Nelson was required to, among
other obligations, pay Saxon “all sums which then would be due under this Security
Instrument and the Note as if no acceleration had occurred” and “pay[] all expenses
incurred in enforcing this Security Instrument, including, but not limited to, reasonable
attorneys’ fees . . . incurred for the purpose of protecting Lender’s interest in the Property
and rights under this Security Instrument.” (Id.)
Saxon argues that the failure to timely provide Nelson with reinstatement
information cannot form the basis of a claim for breach of the duty of good faith and fair
dealing because none of the contracts between Saxon and Nelson contained any explicit
provision requiring Saxon to provide information or to provide it within a particular
period of time. (See Defs.’ Mem. in Supp. of Mot. for Summ. J. at 25, Mar. 21, 2013,
Docket No. 17 (“Saxon did not refuse to perform its contractual duties.
The
reinstatement clause gave Plaintiff the right to stop the foreclosure sale by paying the
reinstatement amount within the time frame provided. It is undisputed that he failed to do
so.”).)
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Some courts in this district have adopted the narrow view of breach of the implied
duty of good faith and fair dealing advocated by Saxon, in which the duty can only be
enforced based upon an express obligation that exists in the parties’ contract. See Klosek
v. Am. Express Co., Civ. No. 08-426, 2008 WL 4057534, at *15-*16 (D. Minn. Aug. 26,
2008) (“The controlling rule here is that the implied covenant does not impose any
independent duties on the parties to a contract. The implied covenant, instead, is an
implicit agreement to act in good faith when performing the contract. . . . If a contract
does not impose a certain obligation on a party, therefore, that party’s failure to perform
that obligation cannot be the basis for a violation of the implied covenant.”); see also
Teng Moua v. Jani-King of Minn., Inc., 810 F. Supp. 2d 882, 893 (D. Minn. Aug. 30,
2011) (“The implied covenant of good faith and fair dealing serves only to enforce
existing contractual duties, and not to create new ones.” (internal quotation marks
omitted)).
The Court finds, however, that the Minnesota Supreme Court’s interpretation of
the implied covenant of good faith and fair dealing indicates that breach of an express
covenant is not required in order for a party to show that his performance has been
unjustifiably hindered by the actions of the other party to the contract. In Zobel, the
Minnesota Supreme Court affirmed a jury’s finding that defendant had breached the duty
of good faith and fair dealing where the plaintiff contractor claimed that the defendant
had unjustifiably hindered its ability to complete construction of a home, and thereby
perform under the contract, by denying plaintiff access to the property unless plaintiff
agreed to waive its lien rights. 356 N.W.2d at 45-46. Although the contract did not
- 44 -
contain an express term that the defendant could not prevent plaintiff from accessing the
property or condition access to property upon a waiver of lien rights, the court found that
those terms were implied in the contract. Id. Similarly, in In re Hennepin County the
court held that plaintiffs had stated a claim for breach of the implied covenant of good
faith and fair dealing even if they were unable to establish an express breach of contract
claim. 540 N.W.2d at 503. The Hennepin County court cited with approval the opinion
in Metropolitan Life Ins. Co. v. RJR Nabisco, Inc., 716 F. Supp. 1504 (S.D.N.Y. 1989),
which provided a logical and complete explanation of the nature of an “unjustifiably
hindered” breach of the duty of good faith and fair dealing claims that is useful to
understanding Nelson’s claims here:
A plaintiff always can allege a violation of an express covenant. If there
has been such a violation, of course, the court need not reach the question
of whether or not an implied covenant has been violated. That inquiry
surfaces where, while the express terms may not have been technically
breached, one party has nonetheless effectively deprived the other of those
express, explicitly bargained-for benefits. In such a case, a court will read
an implied covenant of good faith and fair dealing into a contract to ensure
that neither party deprives the other of the fruits of the agreement. Such a
covenant is implied only where the implied term is consistent with other
mutually agreed upon terms in the contract. In other words, the implied
covenant will only aid and further the explicit terms of the agreement and
will never impose an obligation which would be inconsistent with other
terms of the contractual relationship. Viewed another way, the implied
covenant of good faith is breached only when one party seeks to prevent the
contract’s performance or withhold its benefits. As a result, it thus ensures
that parties to a contract perform the substantive bargained-for terms of
their agreement.
Id. at 1516-17 (internal citations and quotation marks omitted).
Based on this understanding of Nelson’s claim for breach of the implied covenant
of good faith and fair dealing the Court finds that, as with the right to reinstatement
- 45 -
granted by Minn. Stat. § 580.30, Saxon had an obligation under the Mortgage to provide
Nelson with the information necessary to exercise his contractual right to reinstate. In
order to reinstate the mortgage, Nelson was required to pay certain amounts that were
within Saxon’s knowledge. Therefore, Saxon cannot be allowed to frustrate Nelson’s
ability to take advantage of the benefit of reinstatement by withholding the amounts from
him.
Furthermore, it is consistent with the other terms of the parties’ contractual
relationships for Saxon to bear the obligation of providing Nelson with the information
necessary for him to take advantage of the benefits of the contract, and thus does not run
afoul of any of the express terms agreed to by the parties.
Although the undisputed evidence shows that Saxon failed to timely provide
Nelson with the information necessary to exercise his contractual right to reinstate his
loan at any time prior to foreclosure, as with the statutory claim, Nelson also must prove
“a causal link between the alleged breach and [his] claimed damages” in order to prevail
on his claim for breach of the duty of good faith and fair dealing. See Cox, 685 F.3d at
671 (internal quotation marks omitted). Therefore, Nelson ultimately must prove that
Saxon’s failure to timely provide him with a reinstatement amount was the cause of
Nelson’s inability to reinstate his loan. Nelson has presented evidence that, had he
known of the reinstatement amount on September 23 when he requested it, he would
have had time to acquire funds from a business partner to pay off the loan. But the record
also contains evidence that Nelson consistently failed to make payments to Saxon even
when the amounts due under the loan had been provided to him, suggesting that a jury
could find his claims about his ability to access more funds not credible. In light of this
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evidence, the Court concludes that a material issue of fact remains regarding whether
Saxon’s breach of its obligation to provide Nelson with timely reinstatement information
caused Nelson’s damages – his inability to reinstate his loan. Accordingly, the Court will
deny both motions for summary judgment on Nelson’s breach of the duty of good faith
and fair dealing claim.
IV.
NEGLIGENT MISREPRESENTATION (COUNT II)
Saxon seeks summary judgment on Nelson’s negligent misrepresentation claim.
Nelson claims that Saxon negligently “impliedly or expressly represented that it would
provide to Nelson a timely, accurate reinstatement figure for the Mortgage Loan”
(Compl. ¶ 37) and generally supplied false information to Nelson regarding amounts due
and owing under the loan.27
To prevail on a claim for negligent misrepresentation under Minnesota law,
Nelson must prove that (1) Saxon owed Nelson a duty of care; (2) Saxon, by its failure to
use reasonable care, made a false representation or failed to discover or communicate
certain information that an ordinary person in its position would have discovered or
communicated; (3) the misrepresentation occurred in the course of Saxon’s business or in
a transaction in which it had a pecuniary interest; (4) Nelson relied on the information;
(5) Nelson was justified in relying on the information; and (6) Nelson was financially
harmed by his reliance. Noble Sys. Corp. v. Alorica Cent., LLC, 543 F.3d 978, 985
27
Nelson has withdrawn his allegation that Saxon engaged in negligent misrepresentation
in its Help for Homeowners in Foreclosure notice. (Pl.’s Mem. in Opp. to Def.’s Mot. for
Summ. J. at 25 n.7, Apr. 11, 2013, Docket No. 24; see also Compl. ¶ 37b.)
- 47 -
(8th Cir. 2008); Hardin Cnty. Sav. Bank v. Hous. & Redevelopment Auth. of City of
Brainerd, 821 N.W.2d 184, 192 (Minn. 2012); Williams v. Smith, 820 N.W.2d 807, 815
(Minn. 2012); Florenzano v. Olson, 387 N.W.2d 168, 174 (Minn. 1986).
To establish reliance, a plaintiff must show that he believed the alleged
misrepresentation to be true. The listener “may rely on the representation so long as it is
not known by the listener to be false and is not obviously false.” Hoyt Props., Inc. v.
Prod. Res. Grp., L.L.C., 736 N.W.2d 313, 321 (Minn. 2007). “In defending a motion for
summary judgment, the nonmoving party must come forward with some evidence
demonstrating a genuine issue as to the actual reliance and the reasonableness of the
reliance.” Id. Actual reliance “means that the plaintiff took action, resulting in some
detriment, that he would not have taken” if the defendant had not made a
misrepresentation, or that the plaintiff “failed, to his detriment, to take action that he
would have taken” had the defendant been truthful. Greely v. Fairview Health Servs.,
479 F.3d 612, 614 (8th Cir. 2007).
Even assuming that Nelson has satisfied his burden of identifying a material issue
of fact with respect to the other elements of negligent misrepresentation, the Court finds
that Nelson has failed to put forward evidence creating a genuine issue of fact with
respect to his reliance. First, with regard to the alleged misrepresentation that Saxon
would provide Nelson with timely and accurate loan information, Nelson has identified
no actions he took or would have declined to take, had he known the truth – that Saxon
would fail to provide him with timely and accurate loan information. See Bonhiver v.
Graff, 248 N.W.2d 291, 299 (Minn. 1976) (finding the defendants could be liable for
- 48 -
negligent misrepresentation where plaintiffs relied on the misrepresentations, explaining
“it is clear that defendants, in the course of their business, supplied false [accounting]
information to American Allied and the commissioner of insurance . . . [and that] these
parties relied upon it in determining whether the operation of American Allied could
continue”). For example, Nelson does not contend that he would have attempted to
switch loan servicers or would have made a more concerted effort to keep track of the
payments he made and owed on his loan had he known the truth. Nor does Nelson
contend that had he known Saxon would not provide him with timely and accurate
information he would have made his funds more readily accessible, to make payments on
a last-minute basis feasible. In other words, whether or not Saxon had alerted Nelson at
the beginning of the loan servicing relationship that it would fail to provide him with
timely and accurate information about his loan, Nelson does not contend that the factual
circumstances of this case would have been any different. See Greeley, 479 F.3d at 615
(finding that the plaintiff “failed to make a showing of detrimental reliance” because the
plaintiff “offered no evidence that he changed his course of action or otherwise relied on
the” misrepresentations (internal quotation marks omitted)); see also In re Digi Int’l, Inc.
Sec. Litig., 6 F. Supp. 2d 1089, 1103 (D. Minn. 1998) (finding insufficient evidence of
actual reliance where the plaintiff “allege[d] generally that it directly or constructively
relied,” upon the misrepresentations (internal quotation marks omitted)).
That Nelson’s allegations do not state a negligent misrepresentation claim is
highlighted by the absurdity of the representation his allegations suggest Saxon should
have made. The problem with Saxon’s conduct that Nelson has identified is not that
- 49 -
Saxon falsely told Nelson it would provide certain information and then failed to provide
that information, but rather that it failed to provide the information. In other words,
Nelson does not seriously claim that he would have been better off had Saxon told him at
the beginning of the loan servicing relationship that it would consistently provide him
with inaccurate information and would fail to timely inform him of amounts due on his
loan. Instead, Nelson has alleged throughout this litigation that Saxon should have
provided him with accurate and timely information, not that Saxon should have told him
that it would fail to do so.
Accordingly, Nelson cannot demonstrate the required
elements of a negligent misrepresentation claim.
Summary judgment in Saxon’s favor with respect to Nelson’s second negligent
misrepresentation claim is appropriate for similar reasons. Nelson claims that the figures
Saxon provided him regarding the amount due under the loan were incorrect and
constituted false representations. Nelson cannot establish reasonable reliance, however,
because he claims to have known that Saxon’s representations about the amount due
under the loan were false at the time they were made. For example, when he received the
November 2010 statement, Nelson “knew that there was a problem with these dates and
fees.” (Pl.’s Mem. in Opp. to Mot. for Summ. J. at 6, Apr. 11, 2013, Docket No. 24.)
Additionally, in May 2011 Nelson claims that he intended to bring his loan current, but
could not receive “an accurate number” from Saxon regarding the amount required to
reinstatement his loan, and therefore declined to make any payment. (Nelson Dep. 98:2223.) Nelson also testified generally that on numerous occasions when he contacted Saxon
he received conflicting information about when his payments were due and the amount of
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those payments. In essence, the premise of Nelson’s entire argument is that he could not
and did not rely on the information provided to him by Saxon. In other words, Nelson
claims that he repeatedly failed to make payments on his loan because he did not believe
the payoff amounts that Saxon provided to him were correct or accurate. Therefore,
Nelson could not have justifiably relied upon these numbers. See Hoyt Props., Inc., 736
N.W.2d at 321. The listener “may rely on the representation so long as it is not known by
the listener to be false and is not obviously false.” Id. The Court therefore concludes that
Nelson has failed to put forward evidence creating a genuine issue of material fact with
respect to a necessary element of his negligent misrepresentation claim and will grant
Saxon’s motion for summary judgment.
V.
NEGLIGENCE (COUNT III)
To succeed on a negligence claim under Minnesota law, Nelson must prove
(1) that Saxon had a legal duty of care; (2) that Saxon breached that duty; (3) that the
breach of that duty was the proximate cause of Nelson’s harm; and (4) damage.
Brunsting v. Lutsen Mountains Corp., 601 F.3d 813, 820-21 (8th Cir. 2010); Domagala v.
Rolland, 805 N.W.2d 14, 22 (Minn. 2011). Nelson alleges that Saxon owed “a duty to
clearly and competently communicate information related to Nelson’s Mortgage Loan in
a timely fashion” and breached that duty by failing “to timely provide Nelson with
accurate information related to his loan despite the fact that this information should be
readily available to Saxon.” (Compl. ¶¶ 45-46.) Nelson also contends that his negligence
claim is based upon “Saxon’s continued demand for amounts not owed” and “Saxon
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impeding Nelson’s ability to perform under the agreement.” (Pl.’s Mem. in Opp. to Mot.
for Summ. J. at 22.) Saxon argues that Nelson’s negligence claim is barred by the
independent duty rule.
The independent duty rule provides limitations on when a party may assert tort
claims against another with whom the party has a contractual relationship. See Hanks v.
Hubbard Broad., Inc., 493 N.W.2d 302, 308 (Minn. Ct. App. 1992). Minnesota does not
recognize a cause of action for negligent breach of a contractual duty. See Lesmeister v.
Dilly, 330 N.W.2d 95, 102 (Minn. 1983). Therefore, if a party’s negligence claim is
based on a breach of duty that “is indistinguishable from the breach of contract,” the
claim will fail, but if “a relationship would exist which would give rise to the legal duty
without enforcement of the contract promise itself,” the negligence claim may be viable.
Hanks, 493 N.W.2d at 308 (internal quotation marks omitted); see also Russo v. NCS
Pearson, Inc., 462 F. Supp. 2d 981, 994 (D. Minn. 2006).
In order to overcome
application of the independent duty rule, Nelson must demonstrate that Saxon had a duty
to provide him with information about his loan separate from any duties found in the
Note, Mortgage, and/or Loan Modification. See Jones v. W. Union Fin. Servs., Inc., 513
F. Supp. 2d 1098, 1100-01 (D. Minn. 2007); see also Walker v. Bank of Am., N.A., Civ.
No. 11-783, 2013 WL 5771154, at *7 (D. Minn. Oct. 24, 2013) (explaining that the
independent duty rule can be overcome by showing a fiduciary or other independent
duty).
Whether a legal duty exists is generally “an issue for the court to determine as a
matter of law.” Louis v. Louis, 636 N.W.2d 314, 318 (Minn. 2001); see also Williams,
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820 N.W.2d at 815. “The general rule in Minnesota is that lenders bear no fiduciary duty
to borrowers.” Roers v. Countrywide Home Loans, Inc., 728 F.3d 832, 838 (8th Cir.
2013) (internal quotation marks omitted) (affirming the district court’s grant of summary
judgment on plaintiffs’ negligent misrepresentation and breach of fiduciary duty claims
because the plaintiffs could not show that the lender owed a duty of care); see also
Walker, 2013 WL 5771154 at *7-*8. Other jurisdictions have extended this general rule
to loan servicers. See Salehi v. Wells Fargo Bank, N.A., Civ. No. 11-1323, 2012 WL
2119333, at *5 (E.D. Va. June 11, 2012) (finding under Virginia law that there was no
legally cognizable duty that a loan servicer owed to a borrower to “provide an accurate
statement of the amount due under the note”); Warden v. PHH Mortg. Corp., Civ.
No. 10-75, 2010 WL 3720128, at *8-*9 (N.D. W. Va. Sept. 16, 2010) (finding that
plaintiff could not maintain an action for negligence based upon the loan servicers
alleged failure “to provide accurate information about the status of their loan account and
to provide accurate notice of their payment due” because no special relationship creating
the duties alleged to have been breached existed between the parties); Marks v. Ocwen
Loan Serv., Civ. No. 07-2133, 2009 WL 975792, at *7 (N.D. Cal. Apr. 10, 2009) (“[A]
loan servicer does not owe a fiduciary duty to a borrower beyond the duties set forth in
the loan contract.”). Nelson has not identified any facts that take his relationship with
Saxon outside the realm of a standard loan servicer-borrower relationship. See Kichler v.
Wells Fargo Bank, N.A., Civ. No. 12-1206, 2013 WL 4050204, at *4 (D. Minn. Aug. 9,
2013) (granting summary judgment on a negligent misrepresentation claim because
plaintiffs failed to “allege any special relationship” with the lender and therefore failed to
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establish the existence of a common law tort duty). Consequently, the Court finds that
Nelson has failed to demonstrate the existence of a duty that Saxon owed him
independent of the contracts between the parties.
Additionally, the Court notes that Nelson’s allegations in support of his negligence
claim confirm that the breaches he complains of are based upon contractual obligations.
Specifically, Nelson contends that it was negligent for Saxon to demand amounts not
owed. This allegation is based upon Nelson’s argument that Saxon misapplied suspense
account funds according to the priority system established in the Mortgage. Nelson also
contends in his negligence claim that Saxon impeded Nelson’s ability to perform under
loan documents by failing to provide him with accurate loan information.
These
allegations go to Saxon’s implied duty of good faith and fair dealing under the contract,
and are insufficient to establish an independent tort duty. See Constr. Sys., Inc. v.
General Cas. Co. of Wis., Civ. No. 09-3697, 2011 WL 3625066, at *10 (D. Minn.
Aug. 17, 2011) (finding that breach of the covenant of good faith and fair dealing did not
constitute an independent duty for purposes of bringing a tort claim separate from a
breach of contract). Because Saxon did not owe Nelson an independent duty separate
from its contractual duties, the Court will grant Saxon’s motion for summary judgment as
to Nelson’s negligence claim.
VI.
EQUITABLE ESTOPPEL (COUNT V)
Minnesota courts recognize a doctrine of equitable estoppel that “is intended to
prevent a party from taking unconscionable advantage of his own wrong by asserting his
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strict legal rights.” N. Petrochemical Co. v. U.S. Fire Ins. Co., 277 N.W.2d 408, 410
(Minn. 1979). To establish a claim for equitable estoppel a plaintiff must show that the
defendant “made representations or inducements, upon which plaintiff reasonably relied,
and that plaintiff will be harmed if the claim of estoppel is not allowed.” Id.; see also
Prod. Credit Assoc. of E. Cent. Wis. v. Farm Credit Bank, 781 F. Supp. 595, 607
(D. Minn. 1991).
Nelson’s claim for equitable estoppel is based on the same allegations that
comprise his negligent misrepresentation claim. Specifically, Nelson alleges that Saxon
failed to provide him with a reinstatement figure and he “relied to his detriment on Saxon
failing to provide an accurate, timely, reinstatement figure.” (Compl. ¶¶ 58, 62.) This
allegation, like Nelson’s claim for negligent misrepresentation, fails because, even if
Saxon’s “failure” to provide Nelson with information could somehow be construed as a
representation, Nelson has not demonstrated that he actually relied on Saxon’s failure to
timely provide him with a reinstatement amount or on the reinstatement amount provided
to him. Because the Court has already concluded that Nelson has failed to present any
evidence of actual reliance upon any representations made by Saxon, the Court will also
grant Saxon’s motion for summary judgment with respect to the equitable estoppel claim.
VII.
QUIET TITLE (COUNT VI)
Minnesota law permits persons in possession of real property to “bring an action
against another who claims an estate or interest therein, or a lien thereon, adverse to the
person bringing the action, for the purpose of determining such adverse claim and the
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rights of the parties, respectively.” Minn. Stat. § 559.01. Where a plaintiff prevails on
claims that render a foreclosure void or invalid – such as a lender’s failure to comply with
the terms of Minnesota’s foreclosure by advertisement statutes, he will also prevail on a
quiet-title claim. See Ruiz v. 1st Fidelity Loan Servicing, LLC, No. A11-1081, 2012 WL
762313, at *5 (Minn. Ct. App. Mar. 12, 2012); see also Gharwal v. Fed. Nat’l Mortg.
Ass’n, Civ. No. 13-0685, 2013 WL 4838904, at *3 (D. Minn. Sept. 11, 2013) (explaining
that at the pleading stages “a quiet-title claim must be supported by an objectively
reasonable basis for believing that the defendant’s asserted interest in the property is
invalid” (internal quotation marks omitted)).
Here, Nelson’s potential success on his quiet-title claim hinges upon the success of
his other claims, which the Court has determined must be submitted to a jury. Therefore,
the Court will deny the motions for summary judgment with respect to this claim.28
28
By denying summary judgment on this claim, the Court is merely ruling on the
arguments in favor of summary judgment made by the parties. Saxon’s motion for summary
judgment relies solely upon its argument that summary judgment on Nelson’s quiet-title claim is
appropriate because all of his other claims fail as a matter of law. Saxon did not address
whether, if Nelson ultimately succeeded on any of his other claims, the quiet-title claim would
still fail. The Court therefore takes no position at this time as to whether success on either the
claim for violation of Minn. Stat. § 580.30 or breach of the duty of good faith and fair dealing
would necessarily alone be sufficient to show that the foreclosure was invalid and therefore
support success on the quiet title claim. Nor does the Court take any position, in the absence of
arguments from the parties, on whether, even in the event of success on Nelson’s statutory or
breach of contract claim, the quiet title claim would be barred for some other reason. See e.g.,
Novak v. JP Morgan Chase Bank, N.A., Civ. No. 12-589, 2012 WL 3638513, at *4 (D. Minn.
Aug. 23, 2012) (finding that plaintiffs had unclean hands because they were in default on their
mortgage and, therefore, could not state a quiet-title claim).
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VIII. ACCOUNTING (COUNT VII)
Nelson seeks an “accurate or complete accounting of money claimed to be owed
to Saxon under the Mortgage Loan.” (Compl. ¶ 72.) “[T]he right to an accounting is the
right to have the defendant account for funds or other property.” Welk v. GMAC Mortg.,
LLC, 850 F. Supp. 2d 976, 994 (D. Minn. 2012). “An accounting is an extraordinary
remedy usually available only when legal remedies are inadequate.” Border State Bank,
N.A. v. AgCountry Farm Credit Servs., 535 F.3d 779, 784 (8th Cir. 2008). The Eighth
Circuit has consistently held that an accounting is inappropriate when normal discovery
procedures are sufficient to obtain the necessary information. See id. at 785; Lefkowitz v.
Citi-Equity Grp., Inc., 146 F.3d 609, 611 (8th Cir. 1998) (affirming the denial of an
account because plaintiff “had alternative discovery avenues available to procure the
information he needed”).
Here Nelson has not demonstrated that he was unable to obtain adequate
information about his account and the amounts owed on his loan during the course of
normal discovery procedures. Although Nelson now highlights what he believes to be
inconsistencies in the amounts recited in the various repayment plans and questions the
manner in which suspense account funds were applied, he has not presented any evidence
that he was unable to ask Saxon’s representatives about these amounts in their
depositions or submit document requests regarding the calculation of these amounts. See
Border State Bank, N.A., 535 F.3d at 785 (“Although the Bank now highlights
discrepancies in the information produced by [defendants] and argues that the
information produced is not sufficiently detailed, it does not explain why these
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deficiencies could not have been adequately addressed through discovery.”).
Accordingly, the Court will grant Saxon’s motion for summary judgment with respect to
Nelson’s claim for an accounting.
ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1.
Defendants’ Motion for Summary Judgment [Docket No. 15] is
GRANTED in part and DENIED in part as follows:
a.
Defendants’ Motion is GRANTED with respect to Plaintiff’s claims
for negligent misrepresentation (Count II), negligence (Count III), equitable
estoppel (Count V), and accounting (Count VII). These claims are DISMISSED
with prejudice.
b.
Defendants’ Motion is DENIED with respect to Plaintiff’s claim for
violation of Minn. Stat. § 580.30 (Count I), breach of contract (Count IV), and
quiet title (Count VI).
2.
Nelson’s Motion for Partial Summary Judgment [Docket No. 20] is
DENIED.
DATED: January 16, 2014
at Minneapolis, Minnesota.
____s/
____
JOHN R. TUNHEIM
United States District Judge
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