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Weber v. Seterus, Inc.

United States District Court, N.D. Illinois, Eastern Division

March 28, 2018

Jack L. Weber, III and Jacqueline L. Weber, Plaintiffs,
v.
Seterus, Inc., Defendant.

          MEMORANDUM OPINION & ORDER

          Hon. Thomas M. Durkin, United States District Judge

         Plaintiffs 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.

         Background

         A. The Webers' Mortgage

         In 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 states:

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 of Borrower.

Id. ¶ 11.

         B. Prior Litigation over Property Tax Payment Issues

         Beginning 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 ¶ 12.

         C. Further Property Tax Payment Issues

         Following 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 ¶¶ 14-15.

         The 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. ¶ 5.

         BANA 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 ¶ 8.

         In late 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.

         Both 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.

         In 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. ¶¶ 28, 29.

         D. Transfer of Servicing to Seterus

         On 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.

         When it 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.

         At the 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.

         Seterus 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.

         On 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.

         Fannie 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.

         Seterus 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.

         BANA 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 explained:

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.

         On 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.

         A 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.

         It is 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? ...

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