Image ©2015 by Dennis J. Wall. All rights reserved.
A lender force-placed insurance ("LFPI") case went to trial. And the evidence introduced at trial has just been reported, a lot of it. There have been many LFPI cases, but until recently most have ended in secret settlements and none has been found which ended in a trial.
Based on the evidence in this "wrongful foreclosure" action that did go to trial, a State Court Trial Judge entered judgment for the mortgagor's estate and assessed punitive damages. On appeal, the State Court of Appeals affirmed in part and reversed in part. When it affirmed, the appellate court affirmed multiple grounds for the trial court's holdings of liability and assessment of punitive damages. Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 2015-NMCA-096 (N.M. Ct. App. 2015).
Lender force-placed insurance practices are ordinarily challenged in Federal Court actions. Not one of those challenges has ended with a trial. The Dollens case may very well present a viable way not only to publicly air out practices which affect the public, but also to provide incentive for attorneys to litigate cases in which the prospect of success does not always mean settlement. Instead, the prospects of success in LFPI cases now can mean awards of general damages and assessments of punitive damages in favor of homeowners-mortgagors who have proven lender misconduct and resulting damages.
In Dollens, the parties stipulated that general damages amounted to $4,221.73. Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 535 n.2, 2015-NMCA-096 (N.M. Ct. App. 2015). This amount apparently reflects the amount due on the decedent's mortgage which the evidence shows was misapplied by the defendant mortgage servicer. In basic terms, the evidence also displayed that the actions of the mortgage servicer dealing with the money were the predicate cause of the decedent's mortgage loan going into default. Upon default, the mortgage servicer foreclosed on the decedent's property. Here is what the evidence shows according to the appellate court in Dollens.
The evidence shows that the mortgage servicer had two (2) opportunities to bring the mortgage due, and that it declined the opportunity on both occasions because it paid itself before it applied the payments according to the priorities set forth in the mortgage. The first occasion was when Minnesota Life Insurance Company paid the mortgage servicer the proceeds of a mortgage accidental death (or "MADD") insurance policy in the amount of $133,559.15. The mortgage servicer acted as the insurance company's "agent" to sell the MADD policy to the decedent. The servicer pocketed the "agent fees" paid by the insurance company. Parenthetically, in the parlance of LFPI cases, "fees" of this kind are alleged "kickbacks."
Further, in Dollens, instead of applying the insurance proceeds to reduce the principal balance as the mortgage required it to do, the mortgage servicer paid itself late fees, inspection charges, and bills for charges supposedly incurred for preservation of the property.
Parenthetically, the evidence clearly shows that before Minnesota Life paid the MADD proceeds to the mortgage servicer, Minnesota Life -- in a communication from the principal to its agent -- begged the mortgage servicer not to foreclose.
The evidence also clearly shows that the servicer filed for foreclosure six days after Minnesota Life asked it to hold off on filing foreclosure proceedings.
Inexplicably, in the eyes of the appellate court, the evidence does not reflect any other response by the agent to its principal, i.e., by the mortgage servicer to the insurance company.
The second time was just like the first, which came about when the decedent's estate brought the loan current four-and-one-half months later. Again, the mortgage servicer paid itself late fees and property inspection fees, and left more due on the loan than would have been the case if the payment had been applied following the priorities established in the mortgage for the mortgage servicer to follow, and which, the evidence showed, for a second time it did not follow. Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 535, 2015-NMCA-096 (N.M. Ct. App. 2015).
The appellate court affirmed the trial court's assessment of punitive damages on at least two grounds, in part here pertinent. The first ground related to the evidence admitted at trial concerning what the appellate court called "unreasonable property inspection and preservation fees":
The Estate presented evidence at trial that Wells Fargo made excessive “drive-by” visits to the property, charging the mortgage account for each visit, and also charging for dubious preservation work orders, including orders for “winterization” in July, and multiple orders for “grass cuts” where photographic evidence presented at trial demonstrated that there was no grass.
Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 543 ¶ 32, 2015-NMCA-096 (N.M. Ct. App. 2015). [Emphasis added.]
The appellate court also affirmed the trial court's assessment of punitive damages on account of what the appellate court termed, "misapplication of funds." Affirmance on this claim (or group of claims) was reached "[f]or several reasons," the appellate court's conclusion in part being that "there was substantial evidence that Wells Fargo misapplied the insurance proceeds in bad faith." Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 544 ¶ 37, 2015-NMCA-096 (N.M. Ct. App. 2015). [Emphasis added.]
There was more evidence to come, however:
Against this backdrop, the district court heard testimony from a Wells Fargo employee that the account was handled in a “customary” manner. Thus, it was reasonable to conclude that these were not isolated errors but that Wells Fargo consistently and systematically acted in order “to increase its profits without regard for ... Decedent or his family.”
Dollens v. Wells Fargo Bank, N.A., 356 P.3d 531, 545 ¶ 40, 2015-NMCA-096 (N.M. Ct. App. 2015).
There is more to the Dollens opinion on appeal, and readers will profit from reading it in its entirety. What has been shown here is enough to show the benefits of evidence and a record in lender force-placed insurance cases.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015). All rights reserved.
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