Kroulik v. United States of America et al

Filing 19

ORDER denying 7 Plaintiff's Motion for Order Restraining Sale by Judge Franklin D. Burgess.(BWM, )

Kroulik v. United States of America et al

Doc. 19

Case 3:06-cv-05388-FDB

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 v. UNITED STATES OF AMERICA acting through the State Director, USDA Rural Development, Rural Housing Service for the State of Washington; and T.D. ESCROW SERVICES, INC., d.b.a. T.D. SERVICE COMPANY, a Washington corporation, Defendants. INTRODUCTION This cause of action arises out of Plaintiff Kroulik's obtaining in 2003 a loan of about $80,000 from the Single Family Housing Program of the U.S. Department of Agriculture's Rural Housing Service (RHS). Kroulik claims that she has overpaid on her loan and that RHS has failed to properly credit her payments. The United States contends that Kroulik is in arrears over $10,000. Kroulik moves for an order restraining the sale of certain property (described in her motion), commonly known as 127 First Street, Port Hadlock, Jefferson County, Washington. She originally filed her case in Jefferson County Superior Court, and the United States removed the matter to this ORDER - 1 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA DEANNE M. KROULIK, an unmarried person, Plaintiff, Case No. C06-5388FDB ORDER DENYING PLAINTIFF'S MOTION FOR ORDER RESTRAINING SALE

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Case 3:06-cv-05388-FDB

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court. In support of her motion, Kroulik submits her "Certified Statement." Plaintiff contends that her monthly payments were $453.41 and that it was to be subsidized for twenty-four months, thus, lowering her monthly payment to $301.24. For the eleven-month period of April 10, 2004 through February 10, 2005, Kroulik contends that Exhibit # 4 shows that she paid $7,566.93 during that eleven-month period, resulting in an overpayment of $4,253.29. Kroulik admits that she has been unable to make payments since February 17, 2005, but that applying the overpayment to that period, she is in arrearage only $566.55, which sum she states that she has deposited into the Court Registry in this cause number. Thus, she contends that the house should not be sold at the Trustee's Sale. The United States responds to Kroulik's motion contending that she is in arrears over $10,000, that she has made sporadic and often insufficient payments on her loan, that she has made no payments at all since April 2005, that she failed to file an adequate application for a payment moratorium from the Agency, despite multiple attempts of the RHS to help her to do so. Moreover, the United States argues that Kroulik has never properly served the USDA and/or RHS or the Department of Justice with notice of this action. Finally, the United States argues that there is no reasonable likelihood that Kroulik will prevail on the merits of this cause of action. The Court reviewed the briefs initially filed by the parties as well as the briefs subsequently filed pursuant to this Court's Order Requiring Additional Briefing. INJUNCTIVE RELIEF STANDARD To obtain a preliminary injunction, the moving party must show either (1) a combination of probable success on the merits and the possibility of irreparable injury or (2) that serious questions are raised and the balance of hardships tips in its favor. Benda v. Grand Lodge of the Int'l Ass'n of Machinists & Aerospace Workers, 584 F.2d 308, 314-15 (9th Cir. 1978), cert. dismissed, 441 U.S. 937, 99 S.Ct. 2065, 60 L.Ed.2d 667 (1979). These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases. Oakland Tribune, Inc. v. Chronicle Publishing Co., 762 F.2d 1374, 1376 (9th Cir. 1985). U.S. v. Odessa Union Warehouse Co-op, 833 F.2d 172, 174 (9th Cir. 1987). See also, Earth Island Inst. v. U.S. Forest Service, 351 F.3d 1291, 1297-98 (9th Cir. 2003). ORDER - 2

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 A. Service of Process

DISCUSSION

It does not appear that Kroulik has properly served the United States and the Agency pursuant to Fed. R. Civ. P. 4(i)(2)(A), which requires a summons and complaint against an agency of the United States to be sent via registered or certified mail to the agency, as well as to the United States Attorney and the Attorney General of the United States under Fed. R. Civ. P. 4(i)(1). It also appears, however, that there is still time to effect service. B. Temporary Restraining Order Defendants are seeking a non-judicial foreclosure of Kroulik's property under the Washington Deed of Trust Act, RCW 61.24. There is no dispute that the Defendants have the authority to proceed with foreclosure under this statute absent a court order. 1. Likelihood of success on merits The Defendants argue that Kroulik cannot show a likelihood of success on the merits or even that there are "serious questions going to the merits" because she cannot demonstrate that she is not in arrears. Rebecca Cronquist, Single-Family Housing Technician with the Rural Housing Service, United States Department of Agriculture submits her declaration, which sets forth the particulars regarding Kroulik's loan, including the amount of her monthly payment. Kroulik's payment history, and Kroulik's attempts to obtain a payment moratorium. Kroulik's payment under the note is $453.41 per month plus escrow for real property taxes and property insurance of approximately $152.17 per month, subject to a reduction under a payment assistance agreement of $152.17 per month, leaving her with a monthly payment of $453.41. (Cronquist Decl., ¶ 5.) Plaintiff Kroulik has a history of making payments by check with insufficient funds in her bank account. ( Id. ¶ 7.) Kroulik requested a payment moratorium pursuant to the appropriate regulations prior to October 19, 2004, she was mailed a moratorium application on November 3, 2004, RHS received an incomplete moratorium application from Borrower on December 2, 2004, between December 22, ORDER - 3

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2004 and February 2, 2005 RHS made numerous attempts to have Kroulik complete her moratorium application, which was finally rejected as incomplete on February 3, 2005. Meanwhile, during the application process, Kroulik's loan was placed on moratorium, in accordance with the applicable regulations. (Cronquist Decl. ¶¶10 ­ 17.) Gene Elkin, Legal Liaison and Compliance Specialist of the Centralized Servicing Center for Rural Housing Service (RHS) has control and access to all RHS records for borrowers in the State of Washington, including the records of Deanne M. Kroulik, identified by Loan No. 82079252. Mr. Elkin states in his Declaration that on July 18, 2006 he conducted a comprehensive review of the system notes, correspondence, documents, and payment records, which together comprise the history of the Kroulik loan on the USDA Rural Housing Service Loan Servicing and Accounting system. Mr. Elkin reviewed the document on which Kroulik relies and states that although it is titled "Payment History," it is more accurately a transaction activity report for the 12month history (Elkin Decl. ¶ 5.). It is inaccurate as a payment history because it contains credit transactions that were not payments, such as loan closing costs and refunds of excess loan funds that are credit transactions rather than payments, and it fails to account for payment transactions that were reversed because the payment instrument was returned for reason of insufficient funds. ( Id. ¶ 7.) Mr. Elkin then summarizes payments actually paid, a credit that Kroulik received, and $568.00 of undetermined origin that was posted as a payment. ( Id. ¶¶ 10 & 11.) Mr. Elkin attaches a copy of the payment history that he directed to be prepared, and this is attached as Attachment # 3 to his Declaration as a true and accurate statement of all payments credited to Kroulik's loan for the period April 1, 2004 through July 21, 2006 and identifies the amount of arrearage as $10,849.41. ( Id. ¶¶ 12 and 13.) To be entitled to injunctive relief, Kroulik must overcome this showing made by Defendants. Kroulik relies, among other things, on a document titled "Payment History" that she received from a teller working for the USDA Rural Housing Service Loan Servicing and Accounting System. ORDER - 4

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(Exhibit 4 to "Certified Statement of Deanne M. Kroulik.") Kroulik also draws the Court's attention to exhibits attached to the Cronquist Declaration in support of the Defendants' Opposition. Therein, at Paragraph 5, there is a statement that "Subject to the provisions of this agreement, the borrower will pay 301.24 dollars per month for 24 months beginning 04/10/04." Earlier in the document (Cronquist Decl. Exhibit C, p. 2.) setting forth the monthly payment plan, there is an indication that the monthly installment at note rate is $453.41, the monthly payment is $301.24, and monthly payment assistance is $152.17. Additional briefing has been filed by the parties, and the Court has reviewed these briefs and accompanying documents. The Second Declaration of Gene Elkin, submitted with the Defendants' Additional Briefing Regarding Plaintiff's Payments clarifies how the monthly payment is calculated and how the amounts to be paid each year for taxes and insurance are subject to change (Elkin Second Decl. ¶ 10) and how a change in the payment assistance may also affect the monthly payment. ( Id. ¶ 25) Paragraphs 18 and 19 are of particular note, following the explanation of the

determination of the Equivalent Interest Rate (EIR) that is used to determine the payment amount of a borrower (such as Plaintiff Kroulik) eligible for subsidy or payment assistance. Thus, the difference between the monthly payment of $453.41 under the full note rate of 6% and the monthly payment of $301.24 at the EIR of 3% is $152..17, and this amount is the payment assistance Kroulik was entitled to receive when the loan was originated. Kroulik's monthly payment obligation was $301.24 principal and interest at the subsidy adjusted Equivalent Interest Rate of 3% plus the amount required to be escrowed for taxes and insurance in the amount of $153.50 for a total monthly payment of $454.74. A borrower's payment amount may change from time to time owing to a change in the escrow payment for taxes and insurance. Monthly billing statements informing the borrower of the amount due as well as any delinquent payment amounts that have been billed are sent to the borrower fifteen days before their payment is due. ( Id. ¶ 26)

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In a letter dated October 20, 2004, in response to an inquiry made by Kroulik (Elkin Second Decl., Ex. A.), she was informed of the Principal and Interest payment amount of $453.41 less the subsidy payment of $152.17, leaving $301.24. Kroulik was further informed that her account was set up on escrow to pay her Real Estate Taxes and Homeowner Insurance Premium and that the amount of her April 10, 2004 escrow payment was $153.50 making her payment amount due $454.74 (301.24 + $153.50 = $454.74). Kroulik was also informed that beginning with May the 10, 2004 payment, the monthly payment was $451.68 (301.24 + 150.44 = $451.68.) Kroulik was also informed in this October 20, 2004 letter of her payment history, including the amount received in payments on the account, that certain checks received were reversed for non-sufficient funds and an NSF fees were applied to the account. ( Id. ) The letter also explained the late charges imposed. (Id. ) It therefore appears that the Defendants' arguments are well taken and that Plaintiff cannot demonstrate a likelihood of success on the merits of this cause of action. Consequently, Plaintiff is not entitled to injunctive relief. 2. Irreparable Harm There is no showing that the foreclosure will cause irreparable harm; there is only a statement of this conclusion in Plaintiff's proposed order. Plaintiff Kroulik devotes her argument to the alleged miscalculation of her monthly payment. Because Plaintiff has failed to make a substantial showing on the merits of her claim, she is obligated to make a stronger showing of irreparable harm in order to be granted injunctive relief. Plaintiff has failed to make any showing of irreparable harm. There is no reason to grant the extraordinary relief of an injunction against the foreclosure on the showing made by Kroulik.

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CONCLUSION Given that there is no dispute that Defendants have the authority to proceed with foreclosure pursuant to the Washington Deed of Trust Act, RCW 61.24; that Kroulik's payment history on her Loan No. 82079252 in the amount of $80,827.16, reflects that for the period of April 1, 2004 through July 21, 2006 the total amount of arrearage is $10,849.41; that Plaintiff Kroulik has made no showing of irreparable harm and that she has not demonstrated a likelihood of success on the merits, Plaintiff Kroulik is not entitled to injunctive relief preventing the Trustee's sale of the property in dispute. NOW, THEREFORE, IT IS ORDERED: Plaintiff's Motion for An Order Restraining Trustee's Sale [Dkt. # 7] is DENIED.

DATED this 1st day of August, 2006.

A

FRANKLIN D. BURGESS UNITED STATES DISTRICT JUDGE