Jerry W. Washington and Golda M. Washington, Plaintiff-Appellants,

v.

Countrywide Home Loans, Inc., Defendant-Appellee.

No. 10-1340.

United States Court of Appeals, Eighth Circuit.

Submitted: April 14, 2011.
Filed: July 28, 2011.

Before RILEY, Chief Judge, BENTON, and SHEPHERD, Circuit Judges.

BENTON, Circuit Judge.

Jerry W. and Golda M. Washington sued Countrywide Home Loans, Inc. under the Missouri Second Mortgage Loan Act (MSMLA), Mo. Rev. Stat. §§ 408.231-408.241. The Washingtons alleged, for a putative class, that Countrywide charged them unauthorized interest and fees in violation of section 408.233.1 of the MSMLA. The case was removed from state court on diversity grounds based on the Class Action Fairness Act, 28 U.S.C. § 1332(d). The district court granted summary judgment for Countrywide. Having jurisdiction under 28 U.S.C. § 1291, this court reverses and remands.

In April 2005, the Washingtons applied for a second mortgage loan from Countrywide. The principal amount of the loan was $23,000, payable over 15 years at 12 percent interest. Before closing, Countrywide sent the Washingtons a Settlement Statement on a form, U.S. Department of Housing and Urban Development Settlement Statement (HUD-1). The HUD-1 statement notified them of four additional charges in connection with the loan: (1) $690 loan discount, (2) $100 settlement/closing fee, (3) $60 document processing/delivery fee, and (4) $37.80 in prepaid interest. These fees were included in the $23,000 principal. The Washingtons signed the HUD-1.

Five days after the Washingtons signed the loan agreement, a Countrywide audit determined that the $690 loan discount and the $100 settlement/closing fee should not have been assessed. Countrywide wired Servicelink (the title company) $790, which was paid to the Washingtons as part of their disbursement. Servicelink revised the HUD-1 statement to reflect the payment, removing $790, the amount of the loan discount and the settlement/closing fee. The Washingtons were not told of the revised HUD-1 statement and never asked to sign it.

On appeal, the Washingtons allege that Countrywide violated the MSMLA by charging them all four amounts listed above.

This court first considers the $690 loan discount and $100 settlement/closing fee. The district court did not decide whether these two charges violated the MSMLA, holding that because these amounts were paid to the Washingtons in the first disbursement, they suffered no loss and thus lacked standing. This court reviews de novo the grant of summary judgment, viewing all evidence most favorably to, and making all reasonable inferences for, the non-moving party. Country Life Ins. Co. v. Marks, 592 F.3d 896, 898 (8th Cir. 2010).

To recover actual damages for a violation of the MSMLA, a person must suffer “any loss of money or property” as a result of a violation. See Mo. Rev. Stat. § 408.562. The facts in this case are undisputed. Countrywide charged the Washingtons $790 for the loan discount and settlement/closing fee, which was financed as part of the principal of the loan. Although the Washingtons received the $790 as part of the loan disbursement, Countrywide did not reduce the principal by $790. Countrywide argues, and the district court agreed, that because the $790 was returned to the Washingtons, they suffered no loss.

Countrywide’s disbursement of the $790, however, did not make the Washingtons whole. During the two days between April 26 (the date of the loan) and April 28 (the date the Washingtons received the first disbursement, including the $790), the Washingtons paid 12 percent interest but were not able to use the $790-which constitutes “any loss of money.”^[1] See Fielder v. Credit Acceptance Corp., 19 F.Supp.2d 966, 982 (W.D.Mo. 1998), vacated in part on other grounds, 188 F.3d 1031 (8th Cir. 1998) (applying § 408.562, the district court awarded actual damages to the class members who paid excess interest). The Washingtons have raised a material issue of fact as to whether they suffered “any” loss.

Countrywide further objects that the Washingtons cannot establish causation that any loss was “as a result” of the alleged MSMLA violations. Countrywide asserts that the Washingtons would not have changed the terms or amount of the loan even if they had received notice of the $790, as they received $790 and voluntarily paid the loan. Countrywide’s voluntary-payment assertion is not available as a defense to a claim under the MSMLA. See Mitchell v. Residential Funding Corp., 334 S.W.3d 477, 499-500 (Mo. App. 2010) (transfer denied by Supreme Court on April 26, 2011) (rejecting defendants’ voluntary-payment defense, the court noted that “allowing Defendants to present a voluntary payment defense would negate the MSMLA’s provision for consumer protections”); cf. Carpenter v. Countrywide Home Loans, Inc., 250 S.W.3d 697, 703 (Mo. banc 2008) (rejecting “voluntary payment” defense to an unauthorized-practice-of-law violation, the court noted that “to hold the consumer, not the mortgage lender, responsible for recognizing the unauthorized practice of law and precluding recovery because of a voluntary payment would be `illogical and inequitable'”).

On appeal, the Washingtons request that summary judgment be entered for them on the $690 loan discount and the $100 settlement/closing fee. The district court entered summary judgment for Countrywide based on the Washingtons’ lack of statutory standing. Neither party moved for summary judgment on, and the district court did not consider, whether the loan discount and settlement/closing fees violated the MSMLA. This court cannot decide whether the $690 loan discount and the $100 settlement/closing fee violated the MSMLA. See Williams v. City of St. Louis, 783 F.2d 114, 116 (8th Cir. 1986) (this court remanded to the district court issues improperly decided on summary judgment because “a court may not pose the issue and then proceed to decide the same without a motion for summary judgment”); Global Petromarine v. G.T. Sales & Mfg., Inc., 577 F.3d 839, 844 (8th Cir. 2008) (“[A] determination of summary judge sua sponte in favor of the prevailing party is appropriate so long as the losing party has notice and an opportunity to respond.”); see also Hartford Fire Ins. Co. v. Clark, 562 F.3d 943, 947 (8th Cir. 2009)Missouri Coalition for Env’t Found. v. U.S. Army Corps of Eng’rs, 542 F.3d 1204, 1212-13 (8th Cir. 2008) (remanding FOIA segregability issue to the district court where the record was unclear whether the court had considered and rejected the issue, or did not consider it at all). (after reversing the district court’s dismissal of a claim as time-barred, this court remanded the remaining issues, which the district court had not considered);

As for the $60 document processing/delivery fee, the district court held that it was an authorized closing cost under § 408.33.1(3) of the MSMLA. Missouri regulates the fees lenders may charge in connection with a second mortgage loan. See Mo. Rev. Stat. § 408.233. In exchange for allowing lenders to offer interest rates that exceed the statutory usury rate, the MSMLA limits the closing costs and fees that lenders may charge. See Thomas v. U.S. Bank N.A. ND, 575 F.3d 794, 796 n.1 (8th cir. 2009) (“The limits on closing costs and fees provided for in the MSMLA act as a trade-off for allowing lenders to charge a higher interest rate on second mortgage loans.”); See also U.S. Life Title Ins. Co. v. Brents, 676 S.W.2d 839, 841 (Mo. App. 1984) (explaining the MSMLA as a “fairly comprehensive” consumer protection measure that regulates “the business of making high-interest second mortgage loans on residential real estate”). Specifically, § 408.233.1(3) authorizes “[b]ona fide closing costs paid to third parties which shall include . . . (b) Fees for preparation of a deed, settlement statement, or other documents.” (Emphasis added.)

The Missouri Court of Appeals, in Mitchell v. Residential Funding Corp., addressed, and rejected Countrywide’s arguments here. 334 S.W.3d at 499 (transfer denied by Supreme Court on April 26, 2011). In a diversity case, the law declared by the state’s highest court is binding. See Erie v. Tompkins, 304 U.S. 64, 78 (1938) (“Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state . . . . whether the law of the state shall be declared by its Legislature in a statute or by its highest court in a decision. . . .”). The Missouri Supreme Court allowed the Mitchell opinion to stand as authority, by denying transfer of the case from the court of appeals. The Mitchell case is, thus, the best evidence of Missouri law. “Decisions from Missouri’s intermediate appellate court (the Missouri Court of Appeals) . . . . must be followed when they are the best evidence of Missouri law.” Bockelman v. MCI Worldcom, Inc., 403 F.3d 528, 531 (8th Cir. 2005). See also Eubank v. Kansas City Power & Light Co., 626 F.3d 424, 427 (8th Cir. 2010) (“When determining the scope of Missouri law, we are bound by the decisions of the Supreme Court of Missouri. If the Supreme Court of Missouri has not addressed an issue, we must predict how the court would rule, and we follow decisions from the intermediate state courts when they are the best evidence of Missouri law.”); Travelers Prop. Cas. Ins. Co. of Am. v. National Union Ins. Co. of Pittsburgh, 621 F.3d 697, 707 (8th Cir. 2010) (same); United Fire & Cas. Ins. Co. v. Garvey, 328 F.3d 411, 413 (8th Cir. 2003) (same). Seegenerally Salve Regina College v. Russell, 499 U.S. 225, 230, 238 (1991) (holding that “[w]hen de novo review is compelled, no form of appellate deference [to the District Court’s determination of state law] is acceptable”).

This court follows the Mitchell decision to resolve whether the $60 document processing/delivery fee was an authorized charge. In Mitchell, the court of appeals affirmed the directed verdict that specific fees charged by lenders, including a “loan discount,” a “processing fee” and a “federal express” fee, violated the MSMLA. 334 S.W.3d at 495-99. The defendants there argued that they should have been given an opportunity to present evidence that a charge identified on the HUD-1A form^[2] as a “loan discount” was really an “origination fee,” which is a permissible charge under the statute. See Mitchell, 334 S.W.3d at 499; § 408.233.1(5). The court of appeals rejected this argument, explaining that an origination fee should have been included in the HUD-1A’s line entitled “origination fee,” not in the line entitled “loan discount.” See Mitchell, 334 S.W.3d at 499. The court of appeals denied defendants the opportunity to re-characterize the charged fees. Instead, the HUD-1A’s identification of the fees determined whether they were permissible. See id. (“[T]he HUD-1A’s were documents evidenced as a matter of law and showed as a matter of law that [certain disputed fees] were not third party charges.”) (emphasis in original).

Like the defendants in Mitchell, Countrywide attempts to re-characterize the document processing/delivery fee as document preparation, which is an authorized charge under § 408.233.1(3)(b). See § 408.233.1(3)(b) (authorizing “[b]ona fide closing costs paid to third parties which shall include . . . (b) Fees for preparation of a deed, settlement statement, or other documents”). The Washingtons’ HUD-1 form has a line for “Document Preparation” and a separate line for “Document Processing/Delivery.” On the Washingtons’ HUD-1 form, Servicelink was paid $60 for a “Document Processing/Delivery” fee. The “Document Preparation” line was left blank. Nevertheless, Countrywide, relying on dictionary definitions of “preparation,” asks this court to determine that the services performed by Servicelink were “preparation” of documents, and thus authorized by § 408.233.1(3)(b). This is precisely what the Mitchell court rejected. As in Mitchell, this court holds Countrywide to its own HUD-1 characterization; the charged services were for “document processing/delivery.”

Countrywide further argues that even if the document processing/delivery fee was not explicitly authorized, section 408.233’s list is not exclusive and permits additional “bona fide closing costs paid to third parties.” Unfortunately, a conflict exists between the Missouri Court of Appeals, and another district court as to whether section 408.233.1(3)’s enumerated list of authorized fees is exclusive. Compare Mitchell, 334 S.W.3d at 498 (holding that section 408.233’s list of permissible closing costs is exclusive), with Mayo v. GMAC Mortg., LLC, 763 F.Supp.2d 1091, 1104 (W.D.Mo.2011) (holding that section 408.233’s “enumerated fees are simply examples, not an exclusive list”). Again, this court follows the Mitchell court in determining that section 408.233’s list is exclusive. See Erie, 304 U.S. at 78. Because the document processing/delivery fee is not included in section 408.233’s exclusive list of authorized charges, it violated the MSMLA. See also Mitchell, 334 S.W.3d at 495-99 (affirming the circuit court’s directed verdict that a “Processing Fee” and a “Federal Express Fee” were not authorized and thus violated the MSMLA).

Finally, the Washingtons contend that the $37.80 in prepaid interest Countrywide charged violates the MSMLA. “Section 408.236 provides that by violating the MSMLA’s fee limitations, Defendants were barred `from recovery of any interest on the contract.'” Mitchell, 334 S.W.3d at 506. Because the document processing/delivery fee violated the MSMLA, the prepaid interest Countrywide collected on the Washingtons’ loan was an additional violation of the statute. See id. at 502-03 (affirming jury instruction “to find liability if it believed Defendants `directly or indirectly charged, contracted for, or received interest in connection with’ the [second mortgage] loans”).

This court reverses and remands to the district court for proceedings consistent with this opinion.

[1] Purely for purposes of standing as to “any loss of money,” the Washingtons may have such a loss during the life of the loan, depending on whether the interest rate on the $790 exceeds what they made on the $790.

[2] The HUD-1A, a Settlement Statement for “Transactions without Sellers,” is identical to the HUD-1 Settlement Statement here for all relevant provisions.

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., “MERS” as Nominee for AMERICA’S WHOLESALE LENDER, its Successors and Assigns, Plaintiff,

v.

CAROLE FOLKES, NEW YORK CITY ENVIRONMENTAL CONTROL BOARD, NEW YORK CITY TRANSIT ADJUDICATION BUREAU, BARON ASSOCIATES, LLC, and JOHN DOE (said name being fictitious, it being the intention of plaintiff to designate any and all Occupants of premises being foreclosed herein and any parties, corporations or entities, if any, having or claiming an interest or lien upon the mortgaged premises), Defendants.

No. 109824/05, Motion Seq. No. 005.

Supreme Court, New York County.

July 29, 2010.
July 21, 2010.

ALICE SCHLESINGER, Judge.

This action commenced in 2005 sounds in foreclosure. Thus, it should be a relatively straightforward matter. However, It Is anything but that. By the time it reached this Court, the action had acquired an intervenor, Baron Associates, LLC (“Baron”), who filed cross-claims against a defendant, Carole Folkes and a counterclaim against the plaintiff, Mortgage Electronic Registration Systems, Inc. as Nominee for America’s Wholesale Lender, its Successors and Assignors (“MERS”).

Although the index number is 2005, a note of issue was not filed until December 2009. Before the Court now is a motion by defendant Folkes for summary judgment dismissing the cross-claims of defendant Baron and for an order recognizing that Folkes has superior title to the premises located at 468 West 146th Street in New York.

This motion is followed by a cross-motion by plaintiff MERS for summary judgment on its foreclosure claims regarding the subject property. Plaintiff previously requested and was denied this relief in a decision dated February 5, 2000 by Judge Kibble Payne. Plaintiff is asking for amounts due on their mortgage and note, as well as a declaration that no defendant has any lien, equitable or otherwise, on the property. Plaintiff MERS is also moving, pursuant to CPLR §3212 for summary judgment dismissing defendant Baron’s counterclaim, and pursuant to CPLR §603 severing Baron’s cross-claims against Folkes. Finally, pursuant to CPLR §3025, MERS seeks to amend its pleadings to substitute Zhou Ye, Lillian Herring and Marvin Herring in place of “John Doe”.

Baron opposes virtually all of this relief, although it does not speak to the amendment. Folkes the defendant here, does not oppose plaintiffs cross-motion.

The saga of the sale of this property, to the extent relevant to these motions, began on August 19, 2004 when this property, a three family dwelling in Harlem, was sold by Its owner Shelby Sullivan to 468 West 146th Street Corporation, whose principal was Paul Jaikaran. The purchaser took out a mortgage on the premises for $550,000 from intervenor Baron. Also at the closing, Baron paid off an existing mortgage lien of $46,369.74 to Champion Mortgage Co.

However, three months later, on November 23, 2004, presumably this same Shelby Sullivan sold the same premises to Carole Folkes for something in the neighborhood of $700,000, with a mortgage of $650,250.00.

Ms. Folkes who has disclaimed any knowledge of the prior sale, stated she purchased the property as a favor for her sister Cheron Ramphal and Ramphal’s boyfriend, the same Paul Jaikaran who is principal of 468 West 146th Street Corp. Folkes explains that she did this because her credit was better than Ramphal’s and Jaikaran’s, and because her sister was being nice to her, she agreed to do her this favor. Her understanding of the transaction, as testified to at a deposition, was that she would take title to the property, but otherwise would have nothing to do with it. (Although she testified she was a home owner herself and knew how mortgages work.) In other words, Ramphal and Jaikaran would actually pay the note. She believed their plan was to renovate the property and quickly resell it.

What is important here Is that these closing papers were filed on May 27, 2005. But the earlier transaction was not filed until August 31, 2005, or three months later and over a year after the earlier closing.

Both mortgages have been defaulted upon. The action here, as previously mentioned, was commenced five years ago. The mortgagee for the MERS transaction, or at least the entity noted on the recorded deed, is Country-Wide Home Loans, Inc., although elsewhere in these papers “America’s Wholesale Lender” is named as the “Mortgagee/Lender”. The mortgage document itself also states that MERS “is a separate corporation acting solely as a nominee for lender” and its successors. The lender again named as “America’s Wholesale Lender.” The nominee MERS Is given the right, among others, to foreclose on the mortgage. However, it should be noted that all the demands for payment included in the cross-motion are from Countrywide to Folkes.

Other items of interest regarding the MERS transaction include the following: the settlement statement identifying Carol Folkes as the borrower gave her address as 142 116th Road in South Ozone Park, New York, an address never referred to elsewhere and never explained. At her deposition, Ms. Folkes stated that she has lived at 2000 Serpentine Terrace in Silver Springs, MD for 10½ years. Yet on the mortgage itself, her address is listed as the property being sold, 468 West 146th Street, New York. (She is also identified as an unmarried woman, though again at her deposition, she stated she had been married for 12½ years to the same man).

After a default in payments, as mentioned above, demand letters were sent by Countrywide to Ms. Folkes at the subject premises 468 West 146th Street, a place she said she had never even seen, much less lived in. She states, not surprisingly, that she never received these notices.

The settlement agent on all of the MERS documents was listed as Peter Port, Esq., undeniably plaintiffs agent. According to an affidavit, with documents attached from Ms. Nichole M. Orr, identified as an Assistant Vice President and Senior Operational Risk Specialist for Bank of America Home Loans, the successor-in-interest to plaintiff America’s Wholesale Lender (April 1, 2010)^[1] certain wire transfers were made on November 23, 2004 to Mr. Port. The money appears to have come from an account with JP Morgan, but one of the documents also shows, inexplicably, that Mr. Port then sent $435,067.73 of this money to Cheron A. Ramphal at 14917 Motley Road, Silver Springs, MD. It should also be noted, as it was in the decision of February 5, 2008 by Judge Payne, that Mr. Port pled guilty in March 2006 in Federal District Court in New Jersey to providing false documents in a scheme to commit mortgage fraud.

I am not prepared to grant plaintiffs cross-motion for summary judgment. Beyond that and despite the fact, as counsel points out, that Folkes does not oppose their motion, I am dismissing the action. I am doing this for essentially three reasons. Some of which has to do with deficiencies in documentation.

Even without opposition, a plaintiff in a foreclosure action must satisfy a court that it has proper standing or title to bring the action, that the mortgage and note was actually funded by the plaintiff, and that the transaction itself, the one sued upon, has the indicia of reliability and is free of fraud. Kluge v Fugazy, 145 AD2d 537 (2nd Dep’t 1988); Katz v East-Ville Realty Co, 249 AD2d 243 (1st Dep’t 1998).

None of those criteria have been satisfied here. Countrywide was the mortgagee and upon default made demands to Ms. Folkes, which it appears never reached her. Nowhere in the papers is there a satisfactory showing that the transfer of ownership or title was ever made to MERS. Ms. Orr never mentions any connection to Countrywide. But even if she were to submit still another affidavit, she certainly has no personal knowledge of the transfer of ownership, and no documents have been submitted. I do not find the language or the closing documents, identifying MERS as nominee for America’s Wholesale Lender, to sufficiently tie in the real party in Interest.

As to the second point, which was one basis for Judge Payne’s denial of summary judgment in February 2008, that there was “a complete failure to prove funding of the mortgage,” there continues to be such a failure in the motion before this Court today. The uncertified documents^[2] do anything but convince. For example, there is no explanation given as to why one of the wire transactions shows that Mr. Port sent $435,067.23 to Cheron A. Ramphal. There is also nothing to show that Ms. Folkes received anything at all, although some check in the amount of $125,000 is made out to Shelby, the Seller. Therefore, I simply cannot rely on these uncertified documents created five years ago, that contain more questions than answers.

Which brings me to my last point. I am unable to say with any confidence that this was an honest transaction. Ms. Folkes’ credibility certainly is questionable. Therefore, the fact that she fails to oppose the motion Is meaningless. We also know that people close to her were involved in an earlier transaction with the same alleged seller, suggesting some kind of fraud. Also, Port, the agent acting on behalf of the plaintiff was later convicted of fraud involving similar transactions. Further, as mentioned above, the papers surrounding the transaction are filled with errors. Therefore, at the least, they were drawn up by Port and others without care or worse. Therefore, the action is dismissed without prejudice for plaintiff to bring again, if they can, with proper support and reliability. The counterclaim is also dismissed without prejudice.

With regard to the four cross-claims brought by Baron against Folkes, the subject of the first motion, I am in fact granting them, but only to the extent of dismissing with prejudice the second cross-claim, at paragraph 12, which speaks of unjust enrichment and the fourth cross-claim, at paragraph 32 which speaks of fraud. With regard to paragraphs, there Is simply no showing by Baron that Folkes herself was enriched, unjustly or not, in the amount of $46,369.74, the payment Baron made to Champion Mortgage. Regarding the allegation of friaud, there is nothing to show that Baron, by giving the earlier mortgage to 468 West 146th Street Corp., in any way relied upon the representations and actions of Folkes in purchasing the property months after the August 19, 2004 sale.

Accordingly, it is hereby

ORDERED, that the motion for summary judgment by defendant Baron Associates, LLC is granted to the extent of dismissing with prejudice the second cross-claim sounding in unjust enrichment and the fourth cross-claim sounding In fraud; and it is further

ORDERED that plaintiffs cross motion for summary judgment is denied; and it is further

ORDERED that this foreclosure action and the counterclaim by defendant Carol Folkes are dismissed without prejudice and without costs or disbursements to any party.

This constitutes the decision and order of this Court. The Clerk is directed to enter judgment accordingly.

[1] We also learn in papers dated April 28, 2010, that Ms. Orr is also an officer of plaintiff MERS.

[2] I am referring to these documents as “uncertified” because that is what they are. As part of plaintiffs cross motion, Ms. Nicole Orr presented an April 1, 2010 affidavit with certain exhibits which she described as copies of wire transfer, settlement agent’s receipt of wire transfers, checks and additional wire transfers paid. There was no certification as to their origin or authenticity. When this was challenged by counsel for Baron, Ms. Orr submitted a later affidavit of April 28, 2010 with another exhibit, an affidavit from Linda S. Lewis who states she is a Vice President of JP Morgan Chase Bank who was served with a subpoena for certain documents. She then says that to the best of her knowledge, those “records or copies thereof produced were accurate versions of the documents described.” All of this is not sufficient to serve as certified business records.

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