Clark v. Envoy Mortgage, LTD. et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
Carmen A. Clark,
Debtor. 	Case No. 13-12132-j13
Carmen A. Clark,
Plaintiff,
v. 	Adversary No. 13-1077 T
Envoy Mortgage, Ltd.
Defendant.
MEMORANDUM OPINION
Plaintiff sued Defendant Envoy Mortgage, Ltd, complaining that Defendant agreed to
make a reverse mortgage loan to Plaintiff that would have paid off a defaulted mortgage on her
house, but then never followed through and made the loan. Defendant responded that it worked
diligently to close the loan but was prevented from doing so by the actions of Plaintiff and third
parties. Defendant also argued, perhaps in the alternative, that is was only the mortgage broker,
not the lender. 	Defendant seeks summary judgment on all claims.1 For the reasons set forth
below, numerous fact issues prevent entry of summary judgment, so the Motion must be denied.
I. 	FACTS
The following facts are not in genuine dispute. 	These facts are taken from admissible
evidence presented in the Motion and the Response, as well as through the Court taking judicial
1 Defendant’s Motion for Summary Judgment, filed April 30, 2014, doc. 18 (the “Motion”).
Plaintiff responded June 16, 2014, doc. 23 (the “Response”), and Defendant filed a supporting
reply in July 21, 2014, doc. 28 (the “Reply”).
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 1 of 12

notice of the docket in this adversary proceeding, this bankruptcy case, and bankruptcy case no.
12-12872:2
On March 31, 2000, Plaintiff’s daughter borrowed money from Citimortgage. 	Plaintiff
granted Citicorp a mortgage on her house at 740 E. Lucero, Las Cruces, New Mexico (the
“House”) to secure repayment of the loan. Plaintiff’s daughter died on May 23, 2012. Plaintiff
had been named in a foreclosure action brought by Citicorp but had failed to respond, and a
default judgment had been entered against her on May 25, 2012.
A foreclosure sale for the House was scheduled for August 9, 2012. 	On July 31, 2012,
Plaintiff filed a Chapter 13 bankruptcy case, no. 12-12872 (the “Prior Bankruptcy Case”).
Between November 30 and December 11, 2012, Plaintiff, with the help of her daughter-
in-law Patricia Clark, submitted an application for a residential reverse mortgage loan3 (the
“Loan Application”) with Defendant. Kelly Krauth was the loan officer at Defendant assigned to
handle the Loan Application.
On December 13, 2012, Defendant ordered an appraisal of the House from Landmark
Network (the “Appraiser”). 	The Appraiser inspected the House on January 10, 2014. 	It is
unclear who caused the 28-day delay.
2 See St. Louis Baptist Temple, Inc. v. Fed. Deposit Ins. Corp., 605 F.2d 1169, 1172 (10th Cir.
1979) (holding that a court may, sua sponte, take judicial notice of its docket); In re Mailman
Steam Carpet Cleaning Corp., 196 F.3d 1, 8 (1st Cir.1999) (citing Fed.R.Evid. 201 and
concluding that “[t]he bankruptcy court appropriately took judicial notice of its own docket”); In
re Quade, 496 B.R. 520, 524 (Bankr. N.D. Ill. 2013) (a “bankruptcy court [is authorized] ... to
take judicial notice of its own docket”).
3 A reverse mortgage is a loan to borrowers 62 years or older that uses a portion of the
borrower’s homes equity as collateral. 	The loan generally does not have to be repaid until the
last surviving homeowner permanently moves out of the property or dies. At that time, the estate
has approximately 6 months to repay the balance of the reverse mortgage or sell the home to pay
off the balance. The lender may foreclose the mortgage if not paid within the six month period.
See http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten.
-2-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 2 of 12

In January 2013, Ms. Krauth told Patricia Clark that Plaintiff needed to dismiss the Prior
Bankruptcy Case because the loan was certain to be approved. 	On January 10, 2013, an order
was entered dismissing the Prior Bankruptcy Case.
On January 29, 2013, Ms. Krauth e-mailed Patricia Clark and said that getting the death
certificate for Plaintiff’s daughter would wrap up the Loan Application and should allow closing
the following week. 	In the same e-mail Ms. Krauth stated: “Tell [Plaintiff] NOT to make her
February [mortgage] payment.” 	On February 5, 2013, Ms. Krauth told Patricia Clark that the
only thing holding up closing was providing the death certificate. 	Patricia Clark provided the
death certificate to Ms. Krauth on February 7, 2013.
On February 14, 2013, a document entitled “Approved Loan Notification” (the “Loan
Approval”) was issued by Urban Financial Group (“Urban”). 	There is no indication the Loan
Approval was sent to Plaintiff or Patricia Clark. Despite Ms. Krauth’s statements that the death
certificate was the only thing holding up closing the loan closing, the Appraiser had identified
problems with the House that needed to be fixed. 	The problems were listed in the Loan
Approval.
Plaintiff began working on the needed House repairs. 	Despite the fact that Defendant
ordered a final inspection report from the Appraiser to be delivered by March 21, 2013, there
were significant delays in getting the final report completed. It is unclear who caused the delay.
On April 19, 2013, Defendant received an updated final inspection report from the Appraiser. It
appears the report showed that all the necessary repairs were completed.
Beginning 	April 	23, 	2013, 	Defendant 	contacted 	CitiMortgage 	to 	obtain 	a 	payoff
statement. This process proved very difficult and, despite repeated inquiries, Defendant did not
receive a payoff until June 5, 2013. It is unclear who caused the delay.
-3-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 3 of 12

The Loan Approval specified that the title commitment expired May 15, 2013, and the
Appraisal expired May 17, 2013. 	Because the Citicorp payoff was not obtained until June 5,
2013, both the title commitment and Appraisal were “stale,” and Defendant would not close the
loan. 	Further, 	Defendant 	had 	left 	the 	Las 	Cruces 	market 	by 	then 	and 	no 	longer
brokered/originated mortgage loans to Las Cruces residents. The loan never closed, and on July
24, 2013, Plaintiff filed this Chapter 13 bankruptcy case.
II. 	DISCUSSION
A. 	Summary Judgment Standards.
Summary 	judgment 	is 	appropriate 	if 	the 	pleadings, 	depositions, 	answers 	to
interrogatories, and admissions on file, together with the affidavits, if any, show there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law. 	Fed.R.Civ.P. 56. 	Fed.R.Civ.P. 56 applies in adversary proceedings. 	See Bankruptcy
Rule 7056. 	“[A] party seeking summary judgment always bears the initial responsibility of
informing the district court of the basis for its motion, and … [must] demonstrate the absence of
a genuine issue of material fact.” 	Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). 	In
determining whether summary judgment should be granted, the Court will view the record in the
light most favorable to the party opposing summary judgment. 	Harris v. Beneficial Oklahoma,
Inc. (In re Harris), 209 B.R. 990, 995 (10th Cir. BAP 1997).
The party opposing a motion for summary judgment must “set forth specific facts
showing that there is a genuine issue for trial as to those dispositive matters for which it carries
the burden of proof.” 	Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238,
1241 (10th Cir.1990). 	See also Vitkus v. Beatrice Co., 11 F.3d 1535, 1539 (10th Cir. 1993)
(“[T]he nonmoving party may not rest on its pleadings but must set forth specific facts showing
-4-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 4 of 12

that there is a genuine issue for trial as to those dispositive matters for which it carries the burden
of proof.”); Otteson v. United States, 622 F.2d 516, 519 (10th Cir. 1980) (once a properly
supported summary judgment motion is made, the opposing party must respond with specific
facts showing the existence of a genuine factual issue to be tried); Lazaron v. Lucas (In re
Lucas), 386 B.R. 332, 335 (Bankr. D.N.M. 2008) (same).
To deny a motion for summary judgment, genuine factual issues must exist that “can be
resolved only by a finder of fact because they may reasonably be resolved in favor of either
party.” 	Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). 	A mere “scintilla” of
evidence will not avoid summary judgment. 	Vitkus, 11 F.3d at 1539. 	Rather, there must be
sufficient evidence on which the fact finder could reasonably find for the nonmoving party. See
Anderson, 477 U.S. at 251; Vitkus, 11 F.3d at 1539. “[T]here is no evidence for trial unless there
is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If
the evidence is merely colorable . . . or is not significantly probative . . . summary judgment may
be granted.” Anderson, 477 U.S. at 249. Where a rational trier of fact, considering the record as
a whole, could not find for the non-moving party, there is no genuine issue for trial. 	See
Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
B. 	Breach of Contract Claim.
Plaintiff claims Defendant made a legally binding loan commitment and then breached
the commitment, causing substantial damage. Defendant argues that no such contract existed or,
in the alternative, that the evidence is undisputed that Defendant did not breach the contract.
Defendant also asserted that it only acted as a loan broker, not a lender. Reply, p. 5.
1. 	Loan Commitment. 	A loan commitment can be a binding, enforceable
contract. 	See, e.g., 11 U.S.C. § 365(c) (contracts to make loans are not assignable); § 365(e)
-5-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 5 of 12

(contracts to make loans are carved out of 	the general rule making ipso facto clauses
unenforceable). 	See also In re TS Industries, Inc., 117 B.R. 682, 686 (Bankr. D. Utah 1990)
(stating that contracts such as loan commitments and letters of credit are nonassignable); In re
Werth, 37 B.R. 979, 989 (Bankr. D. Colo. 1984) (bank liable for damages caused by breach of its
oral loan commitment to debtor); National Farmer’s Org., Inc. v. The Kinsley Bank, 731 F.2d
1464 (10th Cir. 1984) (affirming lower court judgment against bank for damages caused by
breach of loan commitment). 	See generally Lujan v. Pendaries Properties, Inc., 96 N.M. 771,
774 (1981) (court upheld award of damages, finding that a loan commitment issued by a savings
and loan association was binding and could be enforced by the borrower); First Nat. Bank in
Clayton v. Wood, 93 N.M. 467 (Ct. App. 1979) (holding that bank was bound by the terms of its
loan commitment).
Defendant argues that all Plaintiff did was submit the Loan Application, which “did not
create any obligation on the part of Defendant or [Plaintiff].” Motion, p. 5. 	This argument
ignores several important facts, including the Loan Approval issued by Urban on February 14,
2013. 	The Loan Approval creates fact issues about whether a binding loan commitment was
made, and if so by whom and to whom. Further, if a loan commitment was made, there are fact
issues about whether it was breached by Defendant. 	Summary judgment on this claim is not
appropriate.
2. 	Lender or Loan Broker? 	There are also fact issues about whether
Defendant was a loan broker, a lender, or both. 	Defendant’s duties to Plaintiff may differ
depending on whether it was a lender or loan broker. If Defendant was a lender, its duties would
primarily be contractual (assuming there was a contract), but also governed by the various
statutes and regulations concerning lenders. 	See, e.g., §58-21A-4 N.M.S.A. 1978 (prohibiting
-6-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 6 of 12

certain actions by creditors); Shea v. H.S. Pickrell Co., Inc., 748 P.2d 980, 984 (N.M. Ct. App.
1987) (holding that lender has no duty to disclose financial condition of other customers);
Harrison v. Wahatoyas, LLC, 253 F.3d 552 (10 th Cit. 2001) (holding that under Colorado law
there is no per se fiduciary duty between a borrower and a lender). Cf. R.A. Peck, Inc. v. Liberty
Fed. Sav. Bank, 766 P.2d 928, 936 (N.M. Ct. App. 1988) (a lender had a duty to borrower where
lender thrust itself into the transaction and made assurances regarding availability of future
funding, despite fact that it had obligation to make any statement at all on the subject).
If Defendant were a mortgage loan broker, on the other hand, it might have been
Plaintiff’s agent, with attendant duties. 	See New Mexico Mortgage Loan Companies and Loan
Brokers Act §58-21-1 et seq. (a mortgage loan broker has disclosure duties to its customers). See
also Rauscher Pierce Refsnes, Inc. v. Great Southwest Savings, F.A. 923 S.W.2d 112 (Tex. App
1996) (relationship between broker and its customer is one of principal and agent, and broker
may become liable to his principal for any negligent or other wrongful action done by him that
causes damage to the principal).
There is some evidence in the record of such a principal/agent relationship between
Plaintiff and Defendant. Defendant’s representative averred in her affidavit that Defendant was
“brokering reverse mortgages” in New Mexico. 	In addition, the Loan Approval was issued by
Urban, not Defendant.4
4 It is not clear that the Loan Approval was given to Plaintiff or Patricia Clark. 	If neither one
was aware of the Loan Approval, it could be that Defendant was acting as agent for an
undisclosed principal (Urban), and therefore could be liable under a breach of contract theory. In
some circumstances, an agent can be liable under a contract is signs with an undisclosed
principal. See, e.g., Morris Oil Co., Inc. v. Rainbow Oilfield Trucking, Inc., 106 N.M. 237, 240
(Ct. App. 1987) (where a third party enters into a contract with an agent for an undisclosed
principal, the third party, upon discovery of the agency, may bring action against both principal
and agent).
-7-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 7 of 12

On the other hand, many emails from Kelly Krauth, Defendant’s employee, say that
Defendant is “New Mexico’s Favorite Lender” and that Ms. Krauth “look[s] forward to being
YOUR favorite lender too!” Given this lack of clarity about Defendant’s status as a loan broker,
agent for Urban, and/or potential lender, summary judgment is not appropriate.
C. 	Claim for Breach of Covenant of Good Faith and Fair Dealing.
Defendant asserts that, under the facts of this case, Plaintiff’s claim for breach of the
covenant of good faith and fair dealing fails. 	Specifically, Defendant argues that it “acted
diligently to close the loan” and factors outside of its control prevented closing prior to the
appraisal becoming stale. 	Motion, p. 7. 	Plaintiff disagreed and provided contrary evidence.
Although Defendant may prove that it was not responsible for any of the delays, the issues must
be tried.
Additionally, Defendant argues that “a claim for breach of the covenant of good faith and
fair dealing cannot survive absent a valid breach of contract claim.” 	Motion, p. 6. 	This
argument lacks merit. Defendant is right that the claim for breach of the covenant of good faith
and fair dealing sounds in contract. See Bourgeous v Horizon Healthcare Corp., 872 P.2d 852,
857 (N.M. 1994); Anderson Living Trust v. ConocoPhillips Co., LLC, 952 F.Supp.2d 979, 1032
(D.N.M. 2013); Azar v. Prudential Ins. Co. of Am., 68 P.3d 909, 925 (N.M. Ct. App. 2003)
(stating that implied covenant of good faith and fair dealing depends upon the existence of an
underlying contractual relationship). The primary purpose of the implied covenant of good faith
and fair dealing is to ensure that “neither party do anything which will deprive the other of the
benefits of the agreement.” Watson Truck & Supply Co., Inc. v. Males, 801 P.2d 639, 642 (N.M.
1990) (citation omitted). Ultimately, the covenant of good faith and fair dealing “allows courts
to award damages for breach of contract when on party prevents another from getting the
-8-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 8 of 12

benefits of a contractual arrangement.” Heimann v. Kinder-Morgan CO2 Co., LP, 144 P.3d 111,
117 (N.M. Ct. App. 2006) (citation omitted). Thus, although an underlying contract is required,
the breach of the implied covenant of good faith and fair dealing constitutes a breach of contract,
and no other breach need be proven.
There are questions whether the Loan Approval was an enforceable contract and, if so,
who the contracting parties were. If such a contract existed, then there are also fact issues about
whether the delays in closing the loan were attributable to Defendant or someone else, and if
such delays constituted a breach of the implied covenant of good faith and fair dealing. The fact
issues prevent entry of summary judgment.
D. 	Negligence Claim.
Plaintiff pleads a cause of action for negligence in its Complaint. Claims based on breach
of loan commitments sound in contract, rather than tort. 	See e.g., Kelly v. Gaines, 181 S.W.3d
394, 408 (Tex. App. 2005), reversed on other grounds, 235 S.W.3d 179 (Tex. 2007) (“If the
defendant’s conduct . . . 	would give rise to liability only because it breaches the parties’
agreement, the plaintiff’s claim ordinarily sounds only in contract”). 	Thus, if Defendant’s
relationship with Borrower was one of lender and borrower, Defendant’s duties would be
contractual in nature, and a claim for negligence likely would not arise. 	On the other hand, if
Defendant was Plaintiff’s agent, then Plaintiff could have tort claims against Defendant,
including a claim for negligence.
In its Motion, Defendant alleges that under the facts of this case “[n]one of the delays in
the loan process were caused by Defendant.” 	Motion at 8. 	This allegation is hotly disputed in
the Response. 	It may be that Defendant acted diligently and satisfied any obligation it had, as
Plaintiff’s agent, to close the loan. 	It could also be, however, that Defendant was negligent in
-9-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 9 of 12

processing the Loan Application. 	There are genuine issues of material fact regarding this
question.
E. 	Unfair Trade Practices Claim.
Plaintiff asserts that Defendant made certain false representations to Plaintiff about
obtaining reverse mortgage loans, and that the misrepresentations constituted unfair trade
practices under New Mexico’s Unfair Trade Practices Act, N.M.S.A. 57-12-1 et seq. (“UPA”).
“The three essential elements of a UPA claim are: (1) the defendant made an oral or written
statement, a visual description or a representation of any kind that was either false or misleading;
(2) the false or misleading representation was knowingly made in connection with the sale, lease,
rental, or loan of goods or services in the regular course of the defendant's business; and (3) the
representation was of the type that may, tends to, or does deceive or mislead any person.” Maese
v. Garrett, 2014 WL 1600894 (N.M. App. 2014).
In its Motion, the Defendant argues that the Complaint fails to identify any “factual
averments that can be linked to any purported false or deceptive statements.” Motion, p. 9.
Defendant argues further that it did not misrepresent anything, and instead attempted to close the
loan as soon as practicable, staying in close contact with Plaintiff in the meantime. In response
to Defendant’s position, Plaintiff alleged that Defendant made a number of misrepresentations.
Response, pp. 3-9, 13. The Court finds that there are disputed fact issues about what statements,
if any, Defendant made to Plaintiff that might come within the UPA, including what Defendant
told Plaintiff about the speed and certainty of the loan approval process, whether Defendant was
a lender or a loan broker, whether Defendant might leave the state of New Mexico and abandon
the loan, and similar issues. 	Because of these and other fact issues, the Motion must be denied
with respect to the UPA claim.
-10-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 10 of 12

F. 	Amended Complaint.
The Motion, Response, and Reply show that the current pleadings are not sufficient. Had
the Motion been a Rule 12(b)(6) motion, the Court likely would have denied the motion on the
condition that Plaintiff file an amended complaint addressing the deficiencies. 	To achieve a
similar result, for the benefit of the parties and the Court, the Court will require Plaintiff to file
an amended complaint within two weeks from entry of this Memorandum Opinion. 	The
amended 	complaint 	should 	state 	each 	cause 	of 	action 	separately, 	should 	make 	specific
allegations about whether Defendant was a lender, lender’s agent, or Plaintiff’s principal, should
state all fraud allegations with particularity, and should otherwise conform to the general rule of
well-pleaded complaints.
V. 	CONCLUSION
The Court needs to hear the testimony of witnesses and find out why, and who is to
blame for, a simple residential mortgage loan application taking more than six months to process
and then abandon. 	It may well be that the delays were not attributable to the Defendant, but
there are genuine issues of material fact on this issue. 	The Court also needs evidence on the
nature of the relationship between Defendant and Plaintiff. 	Finally, Plaintiff should file an
amended complaint to address current deficiencies in the pleadings.
A separate order will be entered.
______________________________
Hon. David T. Thuma
United States Bankruptcy Judge
Entered: August 6, 2014.
-11-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 11 of 12

Copies to:
Trey Arvizu
P.O. Box 1479
Las Cruces, NM 88004
Stephanie Schaeffer
500 Marquette Ave., NW, #650
Albuquerque, NM 87103
-12-
Case 13-01077-t Doc 30 Filed 08/06/14 Entered 08/06/14 15:05:01 Page 12 of 12