Two Recent Missouri State Court Decisions Rule for Borrowers in Wrongful Foreclosure Actions- Impos
In Holm v. Wells Fargo and Freddie Mac, Missouri Court of Appeals, Western District No. 78666, the Missouri Court of Appeals addressed a wrongful residential foreclosure lawsuit. The Court of Appeals affirmed the judgment against Wells Fargo (servicer) which included $2,959,123 in punitive damages and $200,000 in emotional stress damages. The appellate court reversed the judgment regarding $89,762.30 awarded to the borrower concerning a claim for a post-foreclosure loss in value to the residence; $6,150 awarded to borrower for post-foreclosure repairs made by the borrower; and the award which had quieted title to the residence to the borrower (this aspect of the Court of Appeals’ decision revived Freddie Mac’s deed of trust).
The Holm decision is 53 pages long and complex. In short, by 2008 the borrower had fallen behind on making mortgage payments and had entered into a payment plan with the servicer. Soon after that, confusion arose over existence of the payment plan; if the borrower had abandoned the residence; and how proceeds from an insurance claim were to be applied by the servicer. The servicer asserted that borrower was in default under the Note and the borrower disputed this. In August 2008 the servicer moved to foreclose. On the eve of the foreclosure the borrower obtained a $10,306.94 reinstatement figure from the servicer and the borrower was notified by the borrower’s law firm that the foreclosure sale would be postponed to enable that payment to be made. However, the foreclosure sale proceeded and Freddie Mac purchased the residence at the sale. The servicer subsequently returned the $10,306.94 that the borrower had sent to postpone the sale. This litigation followed. (The borrower was never required to surrender possession of the residence throughout the lengthy litigation.)
During pre-trial proceedings, the trial court expressed concern over the manner in which the servicer and lender were responding to the borrower’s discovery requests. To assist, the trial court appointed a retired Missouri trial judge to serve as a special discovery master. The discovery issues continued. Ultimately the trial court sanctioned the servicer and lender by striking their defenses which prevented them from cross-examining witnesses, objecting to the admission of evidence, and from offering their own witnesses and evidence at trial.
It was against this backdrop that the borrower was able to obtain a judgment for punitive damages of nearly $3 million which was just under 15 times the amount of the borrower’s emotional distress damages of $200,000. The Court of Appeals’ affirmation of the entire punitive damages award is surprising because the borrower suffered no economic damages, the evidence supporting the emotional distress damages claim was slim, and a punitive damages claim is normally limited to a single digit multiple of the actual damages suffered.
Another wrongful foreclosure case was recently tried in the Kansas City area and styled as Grisham v. Mission Bank, Circuit Court of Platte County, Missouri, Case No. 13AE-CV02207. In that wrongful commercial foreclosure case, the trial court awarded the borrower $725,000.00 in economic damages; $25,000 in emotional distress damages; and $100,000 in punitive damages against the lender.
The borrower in Grisham defaulted on a $3.0 commercial debt. The loan was secured by, among other things, a deed of trust on real property valued between $1.35 - $2.4 million. However, the deed of trust contained language limiting the amount secured to just $500,000, plus interest. Borrower marketed the property for sale but was unable to complete a sale asserting that lender’s failure to provide an updated pay-off letter prevented that. Lender’s relationship with the borrower was strained because it had spent time attempting to work out the default with the borrower, the borrower was alleged to have been hiding earth moving equipment and vehicles which were collateral for the debt, and the borrower would not identify the prospective property buyer to the lender. Lender subsequently foreclosed on the property, making a credit bid of $673.155.28, and took possession of the property.
The trial court concluded that lender had a duty to provide borrower with a pay-off figure; the failure to do that constituted a breach of the lender’s duty; and that borrower would have been able to sell the property for $1.7 million. According, the trial court calculated economic damages of $750,000 (i.e. $1.7 million (market value of property) less $975,000 (the $500,000 and interest secured by the deed of trust)). The trial court concluded that lender had knowledge that its deed of trust was limited to securing only $500,000 plus interest and it was wrongful for the lender not to provide pay-off information which would have allowed borrower to sell the property. Accordingly, the trial court awarded borrower $100,000 in punitive damages and an additional $25,000 in emotional damages.
The trial court’s judgment is subject to appeal. A question not answered by the judgment is did the lender make a counterclaim (or claim a right to set-off) regarding the unsecured debt owed by the borrower to the lender.