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Hernandez v. Servis One, Inc.

United States District Court, E.D. Texas, Sherman Division

June 20, 2017


          Judge, Nowak



         Came on for consideration the reports of the United States Magistrate Judge in this action, this matter having been heretofore referred to the Magistrate Judge pursuant to 28 U.S.C. § 636. On February 2, 2017, the report of the Magistrate Judge (Dkt. #98) was entered containing proposed findings of fact and recommendations that Defendant Servis One, Inc.'s Motion for Summary Judgment (Dkt. #56) and Objections to Plaintiffs' Sur-Reply and Motion to Strike (Dkt. #79) each be granted in part and denied in part. Further, on February 6, 2017, the report of the Magistrate Judge (Dkt. #101) was entered containing proposed findings of fact and recommendations that Defendant Carrington Mortgage Services, LLC's Motion for Summary Judgment (Dkt. #55) and Objections to Plaintiffs' Summary Judgment Evidence and Reply to Plaintiffs' Response to Motion for Summary Judgment (Dkt. #78) each be granted in part and denied in part. Having received the reports and recommendations of the Magistrate Judge (Dkt. #98; Dkt. #101), having considered each of Defendants' timely filed objections (Dkt. #112; Dkt. #114), Plaintiffs' responses thereto (Dkt. #117; Dkt. #130), each of Plaintiffs' timely filed objections (Dkt. #113; Dkt. #115), and Defendants' responses thereto (Dkt. #116; Dkt. #118), and having conducted a de novo review, the Court is of the opinion that the Magistrate Judge's reports (Dkt. #98; Dkt. #101) should be adopted in part and rejected in part as set forth below.


         Plaintiffs Maria D. Hernandez and Fernando Salazar executed a Note and Deed of Trust (collectively the “Loan”) with EquiFirst Corporation on or about October 29, 2007, to purchase property located at 5904 Legend Lane, The Colony, Texas 75056 (“Property”) as a home. EquiFirst later transferred the Loan to Bank of New York Mellon Trust Company National Association, as Grantor Trustee of the Protium Grantor Trust (“BONY”). From approximately July 20, 2010, to October 2012, BONY owned the Loan and retained Servis One, Inc. (“BSI”) to service it. BSI's servicing rights transferred to Carrington Mortgage Services, LLC (“Carrington”) in October 2012, when BONY transferred the Loan to Stanwich Mortgage Loan Trust, Series 2012-10 c/o Christiana Trust, a Division of Wilmington Savings Fund Society, FSB as Trustee. Carrington serviced the Loan from approximately October 2012 to July 2014, when BSI again began servicing the Loan. The Loan's terms required that Plaintiffs make monthly payments of $1, 730.29 (Dkt. #59, Exhibit 1).

         Incident to the Loan, through the Deed of Trust, Plaintiffs agreed, inter alia, to maintain hazard insurance on the Property. Specifically, Plaintiffs agreed as follows in the Deed of Trust, Covenant Five:

Borrower shall keep the improvements now existing or hereafter erected on the Property insured against loss by fire, hazards included within the term “extended coverage, ” and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance. This insurance shall be maintained in the amounts (including deductible levels) and for the periods that Lender requires. What Lender requires pursuant to the preceding sentences can change during the term of the Loan. The insurance carrier providing the insurance shall be chosen by Borrower subject to Lender's right to disapprove Borrower's choice, which right shall not be exercised unreasonably. . . .
If Borrower fails to maintain any of the coverages described above, Lender may obtain insurance coverage, at Lender's option and Borrower's expense. . . . Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. . . .
All insurance policies required by Lender and renewals of such policies shall be subject to Lender's right to disapprove such policies, shall include a standard mortgage clause, and shall name Lender as mortgagee and/or as an additional loss payee. Lender shall have the right to hold the policies and renewal certificates. If Lender requires, Borrower shall promptly give to Lender all receipts of paid premiums and renewal notices. If Borrower obtains any form of insurance coverage, not otherwise required by Lender, for damage to, or destruction of, the Property, such policy shall include a standard mortgage clause and shall name Lender as mortgagee and/or as an additional loss payee.

(Dkt. #56, Exhibit B at 6) (emphasis added). Plaintiffs reaffirmed their agreement to such terms in the Lender Placed Homeowner's Insurance Letter, signed contemporaneously with the Loan, and which provides in whole as follows:

The undersigned Mortgagors of this loan, acknowledge that under the terms of the Deed to Secure Debt, Security Deed, Deed of Trust or Mortgage granted to the Mortgagee, its Successors and/or Assigns, that the Mortgagors are obligated to keep all improvements on the real property insured and to furnish a loss payable clause to the Mortgagee.
The undersigned acknowledges that failure to provide such insurance shall authorize the Mortgagee, its Successors and/or Assigns, to cause said property to be insured, pay the premium and to add said premium to the unpaid balance, as provided in the Deed to Secure Debt, Security Deed, Deed of Trust or Mortgage. Nothing herein shall amend or change in any way any terms or provisions of the security instrument.

(Dkt. #56, Exhibit C). The Parties do not dispute that, prior to October 15, 2010, Plaintiffs held compliant hazard insurance on the Property.

         On October 15, 2010, however, Plaintiffs' coverage lapsed (Dkt. #56, Exhibit E). It is unclear whether Plaintiffs had any coverage at all between October 15, 2010, and November 30, 2010, but the record reflects Plaintiffs obtained coverage for the period of December 1, 2010, to December 1, 2011, on December 3, 2010 (Dkt. #59, Exhibit 43). Nearly a year after the lapse, on October 17, 2011, BSI sent Plaintiffs a letter indicating it “ha[d] not received [their] renewal insurance policy or [the] policy has cancelled as of . . . 10/15/2011” (Dkt. #56, Exhibit F). The letter also noted “Protium Grantor Trust c/o BSI should be listed as Mortgagee” on the policy and warned that BSI could force-place insurance and charge Plaintiffs for the premium pursuant to the Loan's terms (Dkt. #56, Exhibit F). BSI sent a follow-up letter reiterating these admonishments on November 14, 2011 (Dkt. #56, Exhibit G). Subsequently, on November 28, 2011, BSI force-placed insurance for the Property for the period of October 15, 2011, to October 15, 2012 (Dkt. #56, Exhibits H, I). BSI added the insurance premium amount to the Loan's principal as additional debt, resulting in an increase in Plaintiffs' monthly mortgage payment of $159.73, to a new monthly payment of $1, 890.02 (Dkt. #56, Exhibits R, J, K).[1]

         While Plaintiffs renewed coverage on December 1, 2011, the record currently before the Court does not reflect that Plaintiffs obtained a compliant loss payable clause (i.e., that they listed BSI as mortgagee) until July 30, 2012 (Dkt. #56, Exhibits M, N). BSI admits it received proof of the compliant insurance coverage in September 2012 (Dkt. #59, Exhibit 35), [2] but the record reflects that BSI continued to bill Plaintiffs for the force-placed insurance through at least the end of October 2012 (Dkt. #59, Exhibit 17). BSI later refunded Plaintiffs' account (at the time with Carrington) $833.94 on November 1, 2012; this amount reflects what BSI determined was the “unearned” portion of the additional debt corresponding to the period for which Plaintiffs had obtained compliant insurance overlapping with the force-placed insurance (Dkt. #56, Exhibit O; Dkt. #64, Exhibit 4). Throughout this time, Plaintiffs aver, they continued to pay the original monthly payment amount of $1, 730.29 (Dkt. #59, Exhibit 11). BSI assessed “late charges and other charges” as a result, and “plac[ed] the insufficient payments”-those payments of less than the $1, 890.02-“into suspense” (Dkt. #56 at 6). This caused Plaintiffs' Loan to fall “two months in arrears” by the time BSI transferred the loan to Carrington, according to BSI (Dkt. #56 at 6).

         As noted, Carrington began servicing the Loan in late October 2012 (see Dkt. #64, Exhibit 12).[3] For its part, Carrington issued a refund check to Plaintiffs totaling $749.88 on January 8, 2013, after having received the refund to Plaintiffs' account from BSI (Dkt. #55, Exhibit 9). Seemingly, Carrington issued this amount as a refund for the force-placed insurance charges BSI assessed against Plaintiffs' account (see Dkt. #55 at 9 (“Within a few months of when Carrington began servicing the [Loan], BSI sent Carrington money pertaining to the [Loan], and Carrington sent Plaintiffs a check [for] $749.88”). Nevertheless, Carrington continued to attempt to collect late charges BSI had assessed to Plaintiffs' account, having determined upon receipt of the Loan that the Loan was four months in arrears (Dkt. #64, Exhibit 21).[4] Carrington's representative Justin Covington testified that Carrington relied on BSI's representations regarding Plaintiffs' account given that Carrington was “at the mercy of the data, images, histories provided by the prior servicer” because “at th[e] time [Carrington] didn't have any BSI contacts” (Dkt. #64, Exhibit 13 at 107-08). In his own words, Carrington's representatives were “stuck with information that was provided to [Carrington by BSI] as well as any other information or proof that the borrower had submitted to [Carrington]” (Dkt. #64, Exhibit 13 at 108). Another of Carrington's representatives, Dora Hernandez, testified likewise that, at the time, when a borrower disputed information associated with an account Carrington had inherited from a previous servicer, it was “difficult” for Carrington representatives to ameliorate or address the error, as they “only ha[d] certain information . . . provided to [them] by the prior servicer” (Dkt. #64, Exhibit 15 at 17). According to Mark Madden (“Madden”), a Default Mediation Manager for Carrington, Carrington continued to attempt to collect the late fees assessed by BSI on the basis of records Carrington received from BSI (Dkt. #55, Exhibit 12). Moreover, Madden averred Plaintiffs “never paid the amount necessary to cure the past due arrearage that existed when Carrington began servicing the note” and, as a result, remained “a few months in arrears when Carrington stopped servicing the Note on June 30, 2014” (Dkt. #55, Exhibit 12 at 2).

         During the period Carrington serviced Plaintiffs' Loan, Carrington also erroneously determined (and reported) that Plaintiffs had filed for bankruptcy (Dkt. #55, Exhibit 12). Specifically, Carrington's records indicate that, in January 2013, Carrington believed Plaintiff Hernandez had filed for bankruptcy in California (Dkt. #64, Exhibit 14 at 5). Carrington did not realize its error (that Plaintiff Hernandez had not, in fact, filed for bankruptcy) until July 2013 (Dkt. #64, Exhibit 14 at 47). Carrington provides conflicting representations about whether it has ceased reporting that Plaintiffs are in active bankruptcy (compare Dkt. #55, Exhibit 12 at 2, with Dkt. #64, Exhibit 6 at 190-91). Further, Carrington represented in a letter to Plaintiffs dated June 21, 2013, that “[Carrington] has determined that the information reported to the credit bureaus by [Carrington] accurately reflects ...

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