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Gray v. Seterus, Inc.

United States District Court, D. Oregon

February 8, 2017

NORMAN D. GRAY and LAWANA L. GRAY, Plaintiffs,
v.
SETERUS, INC., and THE FEDERAL MORTGAGE ASSOCIATION, Defendants.

          ORDER

          MICHAEL J. MCSHANE UNITED STATES DISTRICT JUDGE.

         For the reasons set forth below, Defendant Fannie Mae's Motion for Summary Judgment [#91] is GRANTED in part, Defendant Seterus' Motion for Summary Judgment [#95] is GRANTED in part, and Plaintiffs' Motion for Summary Judgment [#96] is DENIED. Defendant Fannie Mae is dismissed as a party to this lawsuit. A three day bench trial for the remaining claims against Defendant Seterus is set for June 12, 2017.

         BACKGROUND

         Plaintiffs Norman & Lawana Gray filed this action against defendants Seterus, Inc. and the Federal National Mortgage Association ("Fannie Mae"), seeking damages for alleged violations of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691, Title VII of the Civil Rights Act of 1968/Fair Housing Act (FHA), 42 U.S.C. §§ 3601-3631, and breach of contract (breach of the covenant of good faith & fair dealing and promissory estoppel). Defendant Fannie Mae's Motion for Summary Judgment [#91], has been joined and adopted in Defendant Seterus' own Motion for Summary Judgment [#95]. The Plaintiffs also filed a Motion for Summary Judgment [#96]. Oral arguments were heard on all three motions on 9/9/2016 [#122]. This court has jurisdiction under 28 U.S.C. § 1331 and 1367.

         There is little factual dispute in this case. In 2003 the Grays took a mortgage for their Lane County home from the lender "Green Point Mortgage, " who then sold the loan to Fannie Mae. Seterus is the loan Servicer for Fannie Mae. When the Grays originally secured this loan, they used Norman's brother (Howard Gray) as a cosigner in order to qualify. Howard filed for Chapter 7 bankruptcy in 2009 and Quit Claimed his interest in the property to the Plaintiffs on July 8, 2011. In Howard's bankruptcy proceedings, his obligation on the mortgage was discharged without reaffirming the debt. Howard does not live in Oregon, has never lived on the property, and has never contributed toward any mortgage payments. [Id].

         In September 2010, Lawana Gray applied for a loan modification and mortgage assistance from Seterus based solely on her and her husband's finances. The Grays were ultimately granted a trial payment plan (TPP) beginning October 1, 2010. In December 2010, Seterus offered the Grays a permanent modified plan under the Home Affordable Modification Program (HAMP), if they accepted it by January 31, 2011. The Grays believe they in fact accepted the offer on or about January 25, 2011, but interlineated the acceptance documents to remove Howard's name, replacing it with that of Lawana's because Howard was no longer involved (not to mention bankrupt) and their TPP had been accepted without him. The Grays made payments under the new plan through May of 2011. [Id].

         This mortgage was subject to "double-tracking, " wherein a borrower requests mortgage assistance and the servicer, while reviewing the request, continues to proceed with foreclosure. Seterus completed a non-judicial foreclosure sale on January 19, 2011, which was 16 days after accepting the Gray's January 2011 payment under the new permanent modification plan and 12 days before the Grays had been given to execute and return the documents. Seterus rescinded Plaintiffs' modification without notice and later verbally claimed that they did so because the acceptance documents had been improperly changed by removing Howard's name and replacing it with Lawana's. This appears to be a justification in hindsight, as the documents from the Gray's did not arrive at Seterus' office until 7 days after Seterus had made the sale. The Grays claim that Seterus rescinded the modification in retaliation for their raising concerns regarding the foreclosure sale after they made their January payment and before they were required to return the permanent modification acceptance forms.

         Seterus did not offer Plaintiffs any further loan modifications, even though the Grays allegedly qualified for a HAMP modification and mortgage assistance. The Grays received help from a HUD counselor and an attorney, but Seterus and Fannie Mae were allegedly reluctant to communicate with them or with the Grays themselves. The Grays filed this lawsuit in October of2013. [Id].

         STANDARD OF REVIEW

         The court must grant summary judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). An issue of fact is genuine "if the evidence is such that a reasonably jury could return a verdict for the nonmoving party." Villiarimo v. Aloha Island Air., Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). The court views the evidence in the light most favorable to the non-moving party. Allen v. City of Los Angeles, 66 F.3d 1052, 1056 (9th Cir. 1995) (citing Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994)). On a motion for summary judgment, "the moving party bears the initial burden to show the absence of a material and triable issue of fact; the burden then moves to the opposing party, who must present significant probative evidence tending to support its claim or defense." Richards v. Neilsen Freight Lines, 810 F.2d 898, 902 (9th Cir. 1987). If the moving party shows that there are no genuine issues of material fact, the nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); see Fed. R. Civ. P (56)(c). Where the non-moving party bears the burden of an issue at trial and the motion challenges that issue, the non-moving party must set forth specific facts showing that there is a genuine issue for trial. Fed.R.Civ.P. 56(e)(2); Crane v. Allen, No. 3:09-cv-1303-HZ, 2012 WL 602432, at *2 (D. Or. Feb. 22, 2012).

         Though all inferences should be drawn in favor of the non-moving party, the mere existence of some alleged factual dispute will not defeat an otherwise properly supported motion for summary judgment. Anderson, 477 U.S. at 247-48. Rather, the non-moving party must proffer evidence that could reasonably affect the outcome of the suit. Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006). The substantive law determines whether a disputed fact is material. Richards, 810 F.2d at 902.

         DISCUSSION

         Merrill Doctrine:

         Defendant Fannie Mae correctly claims in their Motion for Summary Judgment that they are immune from the plaintiffs' claims and should be dismissed as a defendant in this action under the Merrill Doctrine (see Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947). They claim that the Merrill Doctrine shields them from liability because they are a "federal instrumentality" in the context of this case. [#91 at pp.12-13].

         Although it is true that there is no case directly on point, the Ninth Circuit has ruled that an entity such as Fannie Mae may be a federal instrumentality in some circumstances and not in others. U.S. ex rel. Adams v. Aurora Loan Servs., Inc.,813 F.3d 1261 (9th Cir. 2016). Because of the lack of caselaw, this Court had to look outside the Circuit for guidance on this issue. In Hinton v. Fed. Nat'l Mortg. Ass 'n, the 5 Circuit court found that under the Merrill doctrine, Fannie Mae could not be held liable for the acts of servicers that it had not expressly authorized. Hinton v. Fed Nat'l Mortg. Ass'n,945 F.Supp. 1052, 1060 (S.D. Tex. 1996), affd,137 F.3d 1350 (5th Cir. 1998). This finding that Fannie Mae is a federal instrumentality for the purposes of the Merrill doctrine has been echoed in other cases, which have found that the Merrill doctrine ...


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