The Wisconsin Court of Appeals has affirmed a trial court determination that a lender breached the terms of its note and mortgage as well as its covenant of good faith and fair dealing in its dealings with its borrower. Nationstar Mortgage LLC v. Stafsholt, 2015 AP 1586. The trial court found that “the entire dispute was caused by” the lender’s “poor record-keeping and business practices.” Based on this finding, the trial court resolved many factual disputes in favor of the borrower, resulting in the dismissal of the foreclosure action and reinstatement of the borrower’s loan.
The borrower had a history of failing to timely provide proof of insurance to the lender. In July 2010, the lender sent a letter to the borrower asking for proof of insurance and indicating that the lender would force-place insurance if proof was not timely provided. The letter also advised that the force-placed insurance would be cancelled at no charge to the borrower if proof of insurance was provided.
By September 2010, the borrower had a homeowner’s policy in place; however, the lender denied being provided proof of insurance. After receiving another letter from the lender advising that insurance had been force-placed on the property, Borrower called the lender and asked what would need to be done to remove the force-placed insurance charge. The borrower was advised that the charge could not be removed without discussions with the “next elevated level of customer service.” The borrower was further advised that “the only way the [he] could get to the next level of customer service would be if he skipped a mortgage payment and became delinquent on the mortgage.” Borrower skipped loan payments as instructed which resulted in a default. Borrower asked for an opportunity to meet with a lender representative in person to get to the next level of customer service but the lender evidently would not cooperate with the request. The lender cancelled the force-placed insurance in April 2011 when it received proof of insurance. However, the loan remained in payment default and the lender sued the borrower to foreclose.
The case went to trial. The trial court concluded that the charges for forced-placed insurance were improper because the lender had proof of insurance from the borrower in May or June of 2010. The trial court further concluded that the lender caused the borrower’s payment default and that the borrower justifiably relied on the lender’s advice given during the September 2010 telephone call to stop payments. The trial court determined that the lender’s foreclosure action, therefore, was improperly brought and that borrower was entitled to a judgment that the lender breached the note and loan and dismissal of the foreclosure action.
The Court of Appeals affirmed the trial court’s conclusions. The lender complained that the trial court did not make an express factual finding regarding when borrower supplied proof of coverage to lender and that the evidence at trial “irrefutably demonstrates” that the lender did not receive proof of insurance until April 2011, much later than claimed by borrower. The Court of Appeals explained that the trial court was justified in rejecting the lender’s evidence because the lender’s record-keeping practices were deemed unreliable. For instance, the fact that the lender had no record of receiving proof of insurance from the borrower prior to April 2011 was unpersuasive to the trial court. On the other hand, the trial court was able infer that proof was sent by the borrower’s insurance company despite the fact that neither the insurance agent’s internal logs nor her communications with borrower mentioned sending proof of insurance to the lender. The Court of Appeals explained that it was not willing to second-guess the trial court’s factual determination that the lender received proof of insurance. Likewise, the Court of Appeals would not disturb the trial court’s conclusions regarding the September 2010 telephone call between the borrower and the lender, despite the fact that the lender disputed the telephone call even took place and borrower’s testimony was that the call took place in August 2010.
In recent years, the Court of Appeals has shown a lack of patience for sloppy and indifferent lending practices and has pointedly reminded us on more than one occasion that lenders need to follow the same evidentiary rules as any other litigant. In this case, the trial court blamed the entire dispute on the lender’s bureaucracy which effectively steered the borrower into a default from which there was no escape. Once the trial court decided that lender’s poor record-keeping and lending practice made the lender’s evidence unreliable, the court was able to decide key factual disputes – when proof of insurance was provided to the lender and when, and even if, a conversation between lender and borrower took place – in favor of borrower. As a result, the trial court was able to conclude not just that the lender had breached its note and mortgage, but that the lender had acted in bad faith toward its borrower.
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