Luberda v. Regions Bank

Filing 30

MEMORANDUM For the reasons discussed above, that the motion of plaintiff George J. Luberda for summary judgment (Doc. 10) is denied, the motion of defendant Regions Bank for summary judgment (Doc. 22) is sustained as to Count II and denied as to Count I, and Count I of plaintiff's complaint is dismissed without prejudice. An appropriate Judgment Order is issued herewith. Signed by Magistrate Judge David D. Noce on 6/29/11. (KXS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
GEORGE J. LUBERDA,

)
)
)
)
)
)
)
)
)
)

Plaintiff,
v.
REGIONS BANK, d/b/a
REGIONS MORTGAGE,
Defendant.

No. 4:10 CV 1638 DDN

MEMORANDUM
This action is before the court on the motion of plaintiff George
J. Luberda for summary judgment (Doc. 10) and the motion of defendant
Regions Bank for summary judgment (Doc. 22).

The parties have consented

to the exercise of plenary authority by the undersigned United States
Magistrate Judge pursuant to 28 U.S.C. § 636(c).

(Doc. 5.)

Oral

arguments were heard on March 11, 2011.
I.

BACKGROUND

On September 2, 2010, plaintiff George J. Luberda, Esq., acting pro
se, commenced this action against defendant Regions Bank for damages
arising out of the use of plaintiff’s escrow funds.

(Doc. 1.)

Plaintiff alleges two claims in his complaint.

In Count I, he

alleges that defendant breached its fiduciary duty under Missouri state
law1 by not using funds from his escrow account to pay his 2009 real
estate taxes; by not revealing to him that it was instead going to use
his escrow funds to offset the balance of his first mortgage; and by
giving him mistaken and self-interested advice.

(Id. at 6-7.)

In Count

II, he alleges that defendant violated the Real Estate Settlement
Procedures Act (RESPA) by applying part of his escrow funds to his first
mortgage and by returning the rest of his escrow funds to him rather than

1

Plaintiff’s complaint specifically cites Pool v. Farm Bureau Town
& Country Ins. Co. of Mo., 311 S.W.3d 895 (Mo. Ct. App. S.D. 2010), as
authority for the claim asserted in Count I.

using his escrow funds to pay his 2009 real estate taxes.

(Id. at 7-8.)

Plaintiff alleges that as a result of defendant’s conduct, he has
suffered significant financial damages, including an increase in debt,
costs, and expenses, and other damages, including loss of time and
opportunity.

(Id. at 8-9.)

II. MOTIONS FOR SUMMARY JUDGMENT
Plaintiff moves for summary judgment as to Count II, and defendant
moves for summary judgment as to Counts I and II.

(Docs. 10, 22.)

Plaintiff argues that there is no dispute that defendant applied his
escrow funds against his first mortgage and returned the remaining escrow
funds to him rather than using his escrow funds to pay his 2009 real
estate taxes.

Plaintiff argues that defendant’s conduct violates the

RESPA because defendant was required to use his escrow funds to pay his
2009 real estate taxes.
Defendant argues that plaintiff agreed to the arrangement, and that
the application of plaintiff’s escrow funds was proper because his 2009
real estate taxes had not yet come due.

Defendant also argues that

plaintiff has not suffered actual damages because he retained the full
benefit of his escrow funds.

Defendant further argues that Missouri law

does not recognize a fiduciary relationship between the parties under
these circumstances.

III.

STATEMENT OF UNDISPUTED FACTS

In April 2002, plaintiff entered into a mortgage transaction with
defendant.

(Docs. 24-10, 24-11.)

The mortgage was for $106,000.00, and

the agreed upon interest rate was 7.0000 percent.

(Id.) The terms of the

agreement required plaintiff to make monthly payments of $705.22 to
defendant, to be applied against the principal and interest of his loan,
and monthly payments of money to be placed in escrow and applied to
plaintiff’s yearly real estate taxes.

(Id.)

In 2009, plaintiff applied to defendant to refinance this mortgage
at a lower interest rate.
accepted.

(Id. at ¶ 4.)

(Doc. 24, ¶ 3.)

Plaintiff’s application was

The refinancing loan closed on November 9,

2009, and was funded on November 16, 2009.
- 2 -

(Id.)

On November 16, 2009, the payoff balance on plaintiff’s first loan
was $95,753.90.

(Doc. 24-9.)

The balance of plaintiff’s escrow account

was $2,762.24 as of November 5, 2009.

(Id.)

As of November 16, 2009,

the amount of interest for the payoff amount was $275.46, in interest
fees on his first mortgage for the month of November, and a $27.00
recording fee.

(Id.)

On November 16, 2009, defendant applied $1,859.30

of plaintiff’s escrow funds against the interest fee, recording fee, and
first loan balance, thus making the principal balance of plaintiff’s
first mortgage $94,197.06, and the balance of plaintiff’s escrow account
$902.94.

(Id.)

Pursuant to the parties’ settlement statement (HUD-1 Settlement
Statement),

plaintiff’s

$99,100.00.

refinancing

(Doc. 24-1.)

loan

began

with

a

balance

of

This accounted for a payoff of $94,197.06

balance of plaintiff’s first mortgage, as well as $4,902.94 in settlement
charges. (Id.) Included within the settlement charges was $2,167.20 for
plaintiff’s 2009 real estate taxes.

(Id.)

On December 1, 2009, defendant disbursed the remaining $902.94 from
plaintiff’s escrow account to plaintiff via check.

(Doc. 24-2 at 6.)

The accounting as of November 16 and December 1, 2009, is represented as
follows:
November 16, 2009
ESCROW BALANCE:

$2,762.24

ESCROW WITHDRAW:

$1,850.30

NOVEMBER INTEREST:

$275.46

RECORDING FEE:

$27.00

PRINCIPAL:

$1,556.84

REMAINING ESCROW:

$902.94

PRINCIPAL BALANCE:

$95,753.90

ESCROW FUNDS:

$1,556.84

REMAINING BALANCE:

$94,197.06

REMAINING BALANCE:

$94,197.06

SETTLEMENT COSTS:

$4,902.94

REFINANCING LOAN:

$99,100.00
- 3 -

DECEMBER 1, 2009
REMAINING ESCROW:

$902.94

DISBURSEMENT:

$902.94

FIRST ESCROW ACCOUNT:

$0.00

IV.
A.

DISCUSSION

Count II: RESPA
The Real Estate Settlement Procedures Act of 1974 states:

(g) Administration of escrow accounts
If the terms of any federally related mortgage loan require
the borrower to make payments to the servicer of the loan for
deposit into an escrow account for the purpose of assuring
payment of taxes, insurance premiums, and other charges with
respect to the property, the servicer shall make payments from
the escrow account for such taxes, insurance premiums, and
other charges in a timely manner as such payments become due.
12 U.S.C. § 2605(g).

To prevail on a claim of a § 2605(g) violation, the

plaintiff-borrower must prove: (1) he had a federally related mortgage
loan; (2) the terms of the loan agreement require him to make payments
to an escrow account; (3) he owed taxes or premiums that were to be paid
out of the escrow account; (4) the defendant-servicer failed to make such
payments in a timely manner; and (5) at the time the tax or premium was
due, he was not more than 30 days delinquent in making mortgage payments.
Hyderi v. Washington Mut. Bank, FA, 235 F.R.D. 390, 399 (N.D. Ill. 2006).
1.

Timely Payments

Although the statute does not define a “timely manner,” courts have
explained that “[t]he ‘timely payments’ requirement . . . requires that
servicers who collect funds from borrowers in order to pay taxes,
insurance premiums, and other charges make those payments in a timely
manner so as to avoid penalties thereon.”

Kevelighan v. Trott & Trott,

P.C., No. 09-12543, 2010 WL 2697120, at *4 (E.D. Mich. July 7, 2010); see
also Marks v. Quicken Loans, Inc., 561 F. Supp. 2d 1259, 1264 (S.D. Ala.
2008); Hyderi, 235 F.R.D. at 400. This is consistent with the Department
of Housing and Urban Development’s interpretation of § 2605(g):

- 4 -

If the terms of any federally related mortgage loan require
the borrower to make payments to an escrow account, the
servicer must pay the disbursements in a timely manner, that
is, on or before the deadline to avoid a penalty, as long as
the borrower’s payment is not more than 30 days overdue.
24 C.F.R. § 3500.17(k)(1) (emphasis added).
Regarding plaintiff’s 2009 real estate taxes, Mo. Rev.

Stat.

§ 443.453 states:
Financial institutions, as defined in [Mo. Rev. Stat.
§ 381.410], which are mortgage servicers, shall pay property
tax obligations which they service from escrow accounts, as
defined in Title 24, Part 3500, Section 17, Code of Federal
Regulations, in one annual payment before the first day of
January of the year following the year for which the tax is
levied.
Mo. Rev. Stat. § 443.453. Thus, the deadline for paying plaintiff’s 2009
real estate taxes was December 31, 2009.
Therefore,

defendant

was

not

obligated

by

§

2605(g)

to

use

plaintiff’s escrow funds to pay plaintiff’s 2009 real estate taxes in
November 2009.

See Marks, 561 F. Supp. 2d at 1265 (finding plaintiff’s

claim under § 2605(g) failed because “nothing in § 2605(g) obliged [the]
defendant to pay the . . . insurance bill (which was not due until March
31, 2007) prior to transferring loan service responsibilities . . . on
February 8, 2007").
Further, plaintiff does not allege that defendant failed to “make
payments from [his] escrow account . . . in a timely manner,” as is
required by § 2605(g).

Plaintiff does not allege that defendant failed

to pay his 2009 real estate taxes, or that defendant was late in paying
his 2009 real estate taxes.

As a result, plaintiff has not alleged a

cognizable claim based on a violation of § 2605(g).

Cf. Girgis v.

Countrywide Home Loans, Inc., No. 1:10-CV-00590, 2010 WL 4365884, at *4
(N.D. Ohio Oct. 28, 2010)(that the defendants improperly charged the
plaintiffs’ escrow account for insurance was not a violation of § 2605(g)
because § 2605(g) “creates a cause of action where servicers do not
timely make insurance or tax payments out of escrow accounts, resulting
in penalties to the borrowers”).

- 5 -

Therefore, plaintiff’s claim that defendant wrongfully failed to use
his escrow funds to pay his 2009 real estate taxes does not fall within
the compass of § 2605(g).

2.

Waiver

Before the refinancing loan agreement was executed, the parties
signed a Settlement Statement (HUD-1 Settlement Statement).

The terms

of the agreement state that a portion of the refinancing loan would be
used to pay $4,902.94 in settlement charges, and that those charges
included $2,167.20 for plaintiff’s 2009 real estate taxes.

(Docs. 18-1,

24-1.)
Plaintiff argues that he could not, under the law, waive the
provisions of § 2605(g).

Case law indicates, however, that the parties

are permitted to agree upon terms, including a waiver, concerning
collection and administration of escrow funds.

See In re Thrash, 433

B.R. 585, 595 (N.D. Tex. Bank. July 28, 2010) (noting that the parties
“agreed there would be no procedure in place for an escrow of taxes in
connection

with

the

loan”);

Kevelighan,

2010

WL

2697120,

at

*4

(Ҥ 2605(g) governs when a servicer is required to pay taxes and
insurance premiums on a mortgaged property where there has been no escrow
waiver”) (emphasis added).
Moreover, courts have emphasized the need to evaluate § 2605(g)
claims under a reasonableness standard.

Webb v. Chase Manhattan Mortg.

Corp., No. 2:05-cv-0548, 2008 WL 2230696, at *16 (S.D. Ohio May 28,
2008); Hyderi, 235 F.R.D. at 401.

The parties’ written agreement stated

that defendant was to pay plaintiff’s 2009 real estate taxes with
proceeds from plaintiff’s refinancing loan.

Plaintiff cannot now seek

to impose liability on defendant for actions to which plaintiff agreed.
Therefore, plaintiff has not alleged a cognizable claim based on a
violation of § 2605(g).

As a result, summary judgment is issued for

defendant as to Count II.
B.

Count I: Fiduciary Duty
In Count I plaintiff alleges that defendant breached its fiduciary

duty by forcing him to borrow additional funds, for which he must pay
- 6 -

interest, in order to pay his 2009 real estate taxes, rather than using
funds from his escrow account, citing Bakewell v. Heritage Nat. Bank, 890
S.W.2d 653, 659 (Mo. Ct. App. E.D. 1994). Defendant argues that its only
obligations to plaintiff are contract-based, because a lender does not
owe a fiduciary duty to its borrower.
Whether Missouri law recognizes a fiduciary relationship in this
context is not clear and is more appropriately presented to the Missouri
courts.

Because

summary

judgment

is

issued

herewith

in

favor

of

defendant on plaintiff’s sole federal law claim, the court declines to
exercise supplemental jurisdiction over Count I, and instead leaves it
for resolution by the courts of Missouri.

V.

28 U.S.C. § 1367(c)(1), (3).

CONCLUSION

For the reasons discussed above, that the motion of plaintiff George
J. Luberda for summary judgment (Doc. 10) is denied, the motion of
defendant Regions Bank for summary judgment (Doc. 22) is sustained as to
Count II and denied as to Count I, and Count I of plaintiff’s complaint
is dismissed without prejudice.
An appropriate Judgment Order is issued herewith.

/S/
David D. Noce
UNITED STATES MAGISTRATE JUDGE

Signed on June 29, 2011.

- 7 -