United States District Court, N.D. Illinois, Eastern Division
Jack L. Weber, III and Jacqueline L. Weber, Plaintiffs,
Seterus, Inc., Defendant.
MEMORANDUM OPINION & ORDER
Thomas M. Durkin, United States District Judge
Jack L. Weber, III and Jacqueline L. Weber (“the
Webers”) sued defendant Seterus, Inc.
(“Seterus”) for breach of contract and violations
of federal law in connection with Seterus's management of
their mortgage escrow account. Currently before the Court is
Seterus's motion for summary judgment (R. 94). For the
reasons that follow, the Court denies in part and grants in
part Seterus's motion.
The Webers' Mortgage
January 2004, the Webers took out a $250, 500 mortgage loan
with Bank of America, N.A. (“BANA”) for their
home in Algonquin, Illinois. R. 103 (Ps' Resp. D's
L.R. 56.1 Statement of Facts) ¶¶ 1, 2. Section 3 of
the mortgage states:
Borrower shall pay Lender the Funds for Escrow Items unless
Lender waives Borrower's obligation to pay the Funds for
any or all Escrow Items . . . . In the event of such waiver,
Borrower shall pay directly, when and where payable, the
amounts due for any Escrow Items . . . . Lender may revoke
the waiver as to any or all Escrow Items at any time by a
notice given in accordance with Section 15 and, upon such
revocation, Borrower shall pay to Lender all Funds, and in
such amounts, that are then required under this Section 3. If
. . . Borrower fails to pay the amount due for an Escrow
Item, Lender may exercise its rights under Section 9 and pay
such amount and Borrower shall then be obligated under
Section 9 to repay to Lender any such amount.
Id. ¶ 10. Section 9 of the mortgage in turn
If (a) Borrower fails to perform the covenants and agreements
contained in this Security Instrument . . . then Lender may
do and pay for whatever is reasonable or appropriate to
protect Lender's interest . . . . Any amounts disbursed
by Lender under this Section 9 shall become additional debt
Id. ¶ 11.
Prior Litigation over Property Tax Payment Issues
in 2011, the Webers litigated a dispute in Illinois state
court against BANA, which eventually settled. Id.
¶ 9. That litigation involved BANA's allegedly
improper payment of the Webers' property taxes.
Id. ¶ 12; R. 105 (D's Resp. Ps'
Statement of Additional Facts) ¶ 12. The July 2013
settlement agreement between BANA and the Webers states that
the Webers are “responsible for paying and maintaining
any and all real estate taxes . . . on the property pursuant
to the terms of the original note and mortgage.” R. 103
Further Property Tax Payment Issues
the Webers' settlement with BANA, the Webers paid their
own property taxes as the settlement agreement said they
would. R. 105 ¶ 8. But a few years later, a similar
issue arose. The Webers timely paid the first installment of
their property taxes for 2015 (totaling $4, 694.71) on June
4, 2015. Id. ¶¶ 2, 7. On June 8, 2015,
BANA separately paid the Webers' first installment
property taxes and established an escrow account. R. 103
circumstances surrounding BANA's duplicate payment and
establishment of an escrow account are disputed by the
parties. BANA represented in communications with the Webers
that it paid the taxes because it received notice from the
McHenry County Tax Assessor that the property taxes were
delinquent. Id. ¶ 43. But BANA's corporate
representative clarified in her testimony that no one from
McHenry County contacted BANA about the delinquency; instead,
an employee from BANA reviewed the McHenry County Treasurer
(“MHCT”) website as of June 8, 2015 and allegedly
saw a delinquency. R. 105 ¶ 3. The Webers dispute the
credibility of this testimony, noting that the MHCT website
does not list delinquent amounts under its payment section,
BANA did not take a screenshot of the website, and Jack
Weber's testimony and tax records reflect that the
Webers' payment was on time. Id. ¶¶ 1,
2, 4-7. It is undisputed that the Webers' tax statements
produced by MHCT do not indicate that the property tax
payment the Webers made on June 4 was delinquent.
Id. ¶¶ 1-2. It is also undisputed that
BANA did not reach out directly to the Webers to determine
whether they paid the taxes, or perform an investigation
beyond allegedly looking at the MHCT website. Id.
notified the Webers about the escrow account on June 19,
2015, stating, “New monthly escrow payment - $1, 610.60
. . . New monthly home loan payment effective 8/2015 - $3,
052.62, ” but also stating “the escrow portion of
your monthly loan payment may be changing effective
08/01/2015, ” and “[t]here's nothing you need
to do.” R. 103 ¶ 18; R. 105 ¶ 9. Following
BANA's notice, the Webers continued to send their regular
monthly payments of $1, 442.02 for principal and interest
only. R. 103 ¶ 19. Jack Weber saw this as a repeat of
the issue the Webers had settled with BANA in the prior
lawsuit, testifying that “since the end of that
[lawsuit], we've paid [property taxes] on our own,
” and then “here it is again that we've
received another one of these notices.” R. 105 ¶
June 2015, MHCT issued a $4, 692.71 refund to BANA for the
property tax payment, which BANA credited to the escrow
account. R. 103 ¶ 20. But BANA did not close the
account. R. 105 ¶ 32.
BANA and the Webers paid the second property tax installment
(totaling $4, 623.36) in August 2015. R. 103 ¶ 21; R.
105 ¶ 7. This time, MHCT issued the $4, 623.36 refund
for the double payment to the Webers. R. 103 ¶ 22. BANA
increased the Webers' mortgage payments due starting
September 1, 2015 to $2, 591.55 based on the tax payment, and
the Webers continued to pay the principal and interest only
of $1, 442.02. Id. ¶¶ 23-24. Instead of
remitting the refund they received from MHCT to BANA or
letting BANA know they received it, the Webers put it in a
segregated account and retained counsel. Id.
¶¶ 26-27; R. 105 ¶ 13.
September and October of 2015, BANA sent letters notifying
the Webers that their payments were insufficient. R. 103
¶ 25. In November 2015, BANA sent the Webers a notice of
its intent to accelerate the loan. Id. ¶¶
Transfer of Servicing to Seterus
December 1, 2015, Seterus took over for BANA as loan servicer
for the Webers' mortgage. Id. ¶¶ 3, 4.
BANA assigned the Webers' mortgage to the Federal
National Mortgage Association (“Fannie Mae”)
later that month. Id. ¶ 5. Taking over as
servicer did not make Seterus mortgagee or the owner of the
loan. Id. ¶ 7. Seterus never signed the note,
the mortgage, or the settlement agreement the Webers entered
into with BANA. Id. ¶¶ 8-9.
took over as servicer, Seterus received all of BANA's
records related to the loan, including the Webers'
settlement agreement with BANA and a document indicating that
BANA received a property tax refund in June 2015. R. 105
¶¶ 15, 16. Seterus's policies and procedures
require it to undertake data integrity checks for new
accounts, and to work with prior servicers to resolve issues.
R. 103 ¶¶ 36-38. Seterus's corporate
representative testified that “[r]eading the escrow
payment and refund in conjunction” with the settlement
agreement “could potentially raise a red flag, ”
and “[t]his is supposed to be reviewed during the
boarding process and caught there, ” but “[i]t
was not” caught by Seterus's data integrity check.
R. 105 ¶¶ 17, 29; R. 95-5 at 44-45.
time of the servicing transfer to Seterus, the Webers'
loan had a stated escrow deficiency of $2, 324.30. R. 103
¶ 31. BANA's corporate representative testified that
BANA informed Seterus at the time of the service transfer
that: (1) the taxes were delinquent on June 8, 2015; and (2)
it was BANA's understanding that the escrow account was
proper because BANA had not been reimbursed the funds sent to
the Webers. Id. ¶ 40. Seterus relied on
information provided by BANA to determine that the escrow
account was properly opened. Id. ¶ 41.
sent the Webers a letter following the servicing transfer
informing them that their total payment amount for December
1, 2015 through February 1, 2016 was $2, 591.55. Id.
¶ 32. On January 18, 2016, Seterus sent the Webers a
notice advising them that their new monthly payment amount
was $2, 261.52 effective March 1, 2016, and advising them of
an escrow “shortage and/or deficiency” of $2,
349.54. Id. ¶ 39; R. 105 ¶ 19.
February 18, 2016, BANA emailed Fannie Mae to see if Seterus
had permission to work with BANA on the following complaint
received by BANA (presumably from the Webers):
We paid out property taxes however we were sent a refund due
to duplicate payment. The refund was sent back to us on
9/4/2015 however we did not apply it to the loan. Since then
an escrow account was added to the loan and the customer
continued with their regular non-escrowed monthly payment.
This caused the account to fall into a delinquent status.
However Tax is currently locating the funds and will be
transferring to the new servicer. My concern is how we
rectify the customer's account by applying their monthly
payments with no escrow as it should have been and bring
their account to current as it should be.
R. 105 ¶ 20; R. 95-12 at 4.
Mae in turn requested that Seterus work with BANA on this
issue. R. 103 ¶ 46; R. 95-12 at 4. Following a review of
information provided by BANA, Seterus advised Fannie Mae in
an email on February 25, 2016: “We need some kind of
documentation to waive the current escrow payment, ”
and “we are unable to close the escrow account in full
until we get the refund posted to this loan so we also . . .
need BA[NA] to remit funds.” R. 103 ¶ 46; R. 95-12
at 3. Fannie Mae responded: “Is it a normal process to
reach out to the prior servicer for the doc to waive the
current escrow payment or do you reach out to the borrower?
To me, since it is BA[NA] that caused the error, I would
think it would be BA[NA] that we should reach out to.”
R. 105 ¶ 20; R. 95-12 at 3. Fannie Mae further
instructed Seterus: “you should reach out to BA[NA] and
ask that they remit funds ASAP.” Id.
requested additional information from BANA on February 29,
2016 and again on March 23, 2016. R. 103 ¶ 49; R. 105
¶ 24. Seterus did not receive a response from BANA until
a number of months later, after the Webers had already filed
this lawsuit. R. 103 ¶ 50.
sent the Webers a letter on February 29, 2016 stating that
“Bank of America received notification from the McHenry
County Tax Assessor that your property taxes were
delinquent.” Id. ¶ 43. BANA further
A tax payment was paid on August 17, 2015 to your Tax
Authority McHenry County for the August tax installment in
the amount of $4, 623.36. As of January 23, 2016 a refund has
been requested for the payment of $4, 623.36. Please allow
6-8 weeks for the refund to be received and then forwarded to
your new servicer. We have advised your new servicer Seterus,
Inc. of this information and they have advised they will be
reaching out to you to address your concerns.
Id. ¶ 44. After receiving this letter, the
Webers did not advise BANA or Seterus that they received the
August 2015 refund. Id. ¶ 45.
April 25, 2016, the Webers, through their counsel, sent a
notice of error to Seterus alleging that Seterus committed
numerous servicing errors. Id. ¶ 51. That
notice focuses on the establishment of an escrow account, and
does not state that the Webers received the refund and put it
in a segregated account. R. 103 ¶ 51; R. 105 ¶ 21;
R. 1 Ex. 16.
correspondence specialist for Seterus looked into the issues
raised by the Webers in their notice of error. R. 103
¶¶ 52, 56. The extent of Seterus's
investigation is the subject of disagreement among the
parties. See R. 105 ¶¶ 23, 29, 30.
Seterus's servicing notes for May 2016 contain only one
note concerning the Webers' April 2016 notice of error,
which fails to indicate that Seterus reviewed anything more
than the letter sent by BANA to the Webers. Id.
¶ 22, 30. But Seterus employees testified that servicing
notes do not reflect all steps taken in researching responses
to notices of error, and also testified to review of the BANA
payment history and the settlement agreement. Id.
disputed whether Seterus implemented its internal
“control point” regulation process to address the
notice of error. Id. ¶ 30. But it is undisputed
that when asked how Seterus's “policies and
procedures” are “set up, ” Seterus's
corporate representative admitted: “What should have
happened is, I mean, we should have reached out to Bank of
America to get that refund.” Id. ¶¶
25, 30; R. 95-5 at 94. He further testified:
Q: How do you reconcile the fact that Seterus just stopped
its direction from Fannie Mae to sort out the escrow issue
with Bank of America? ...