Larkin v. Bank of Am., N.A. (In re Larkin)

553 B.R. 428

In re: Mark Samuel Larkin and, Caroline Marie Larkin, Debtors.

Mark Samuel Larkin and, Caroline Marie Larkin Plaintiffs

v.Bank of America, N.A. Defendant.

Case No. 10–13339

Adv. No. 15–5119

United States Bankruptcy Court, D. Kansas.

Signed July 7, 2016

Eric W. Lomas, Christopher A. McElgunn, Todd E. Shadid, Klenda Austerman LLC, Michelle L. Brenwald, Christopher A. McElgunn, Wichita, KS, Joslyn M. Kusiak, Independence, KS, for Plaintiffs.

James D. Lawrence, Michelle M. Masoner, Bryan Cave, LLP, Kansas City, MO, for Defendant.

MEMORANDUM OPINION

Robert E. Nugent, United States Bankruptcy Judge

If ever a bank asked to be sued, this is it. Bank of America's (BOA's) conduct in “administering” the mortgage loan modifications sought and granted to the plaintiffs in this case reflects, at best, utter disarray in its home loan operations. It is the sort of non-responsive and high-handed conduct that led to the United States and about forty states obtaining a consent judgment against BOA that required it to drastically change its loan modification practices. After the consent judgment was entered in 2012, BOA granted the Larkins a final modification in 2015 that resolves some of the claims raised in their complaint. Because the 2015 agreement between BOA and the Larkins superseded their earlier efforts, the Larkins' breach of contract claims based on former modification agreements must be dismissed. Those of their claims for violations of the federal Fair Debt Collection Practices Act (FDCPA) and the Kansas Consumer Protection Act (KCPA) that are not time-barred, either cannot be maintained against BOA because it is neither an FDCPA “ debt collector” nor a KCPA “supplier” at state law, or are preempted by the Bankruptcy Code. As inept and infuriating as BOA's pattern of conduct was, the Larkins' complaint fails to state a claim and must therefore be dismissed under Fed. R. Civ.P. 12(b)(6).¹

I. Factual Allegations²

In 2007, BOA loaned the Larkins $267,635 on a 30–year note secured by a mortgage on their home in Wichita, Kansas. BAC Home Loans Servicing, L.P. serviced the loan. The promissory note was payable at a fixed interest rate of 6.125% in monthly principal and interest payments of $1,626.18. The servicer, “BAC Home Loans Servicing, L.P. fka Countrywide Home Loans Servicing, L.P. as servicer for Bank of America, National Association,” filed a proof of claim for this debt in the Larkins' eventual chapter 13 case here.³ The Larkins say that at some point, BOA merged with and succeeded BAC, making BOA liable for BAC's conduct.⁴ BAC serviced the loan until July 1, 2011, when BOA took over. The Larkins further allege that the loan was transferred to BOA effective March 2, 2010 pursuant to a BAC notice dated April 1, 2010. How BAC got the loan initially remains unknown (or at least unpled).⁵

Suffice it to say that, based on the Larkin's allegations, BOA has had some interest in the loan at nearly all relevant times.

The 2010 Loan Modification

Twice before their 2010 bankruptcy case, the Larkins sought HAMP (Home Affordable Modification Program) loan modifications. Neither of these was ever implemented. On December 30, 2009, BOA advised the Larkins they were “pre-approved” for assistance and offered yet another modification of the mortgage loan. The Larkins provided the eligibility information BOA requested. As directed, they signed and returned the documentation along with an immediate payment of $2,536 on January 12, 2010. They believed that they had entered into a loan modification with the following terms (“2010 Loan Modification”):

[Editor's Note: The preceding image contains the reference for footnote⁶ ].

Though the Larkins began paying the new monthly amount, BOA never applied the payments. Instead it continued to send mortgage statements to the Larkins that didn't reflect the terms of the 2010 Loan Modification. When the Larkins asked BOA about these statements and the status of the 2010 Loan Modification, they were told it was being processed. Then, in September of 2010, BOA told them their file had been reassigned to a new representative. During this period, BOA sent the Larkins four default notices warning of its intent to accelerate.

Larkins' Bankruptcy and Incorporation of 2010 Loan Modification in Confirmed Plan

On September 29, 2010 the Larkins filed a chapter 13 bankruptcy petition and proposed a plan. They scheduled BOA as their mortgage lender and, in their proposed plan, agreed to pay BOA under the 2010 Loan Modification by making monthly payments of $1,914 through the plan. The Larkins continued to make payments to the chapter 13 trustee that included the loan payment and the trustee disbursed $10,743 to BOA. BOA refused to apply the funds to the Larkins' mortgage loan. After their bankruptcy filing, BOA twice more considered the Larkins for a loan modification in 2010, and sent four monthly statements to the Larkins advising their monthly post-petition payments were $2,233. This suggests either a disconnect within BOA or that it did not believe that the 2010 Loan Modification was in effect.

When BOA filed its proof of claim in December of 2010, the Larkins objected, asserting that their home loan had been modified by the 2010 Loan Modification Agreement.⁷ In response to the Larkins' objection, BOA acknowledged the 2010 Loan Modification but alleged that the Larkins had defaulted, causing the loan to revert to its original terms.⁸ The proof of claim did not match the terms of the 2010 Loan Modification. Instead, it asserted an arrearage of $19,937 and a monthly payment of $2,137. Then, late in April of 2011, BOA sent a letter offering the Larkins another modification. That led the parties to reach an agreement resolving the Larkins' objection to BOA's claim and the Larkins withdrew their objection.⁹ On September 18, 2011, the Larkins amended their plan, incorporating the 2010 Loan Modification terms and proposing to make direct payments of $1,914.26 to BOA, outside the plan. Under their proposal, they would be deemed current with no prepetition arrearage.¹⁰ The amended plan stated:

NON–STANDARD PROVISIONS FOR ¶ 9(b):

The $1914.26 to be paid outside the plan is per a loan modification approved by both parties and includes escrow for insurance and taxes. The loan modification entered into by the parties provides for principal and interest of $1402.70. There is no arrearage, and debtors are deemed current, and Bank of America shall report to credit agencies that debtors' loan is not in default. Any informational statements sent to the debtors should reflect the correct balance of the loan and correct payment amount under the modified terms.¹¹

BOA did not object to confirmation and the plan was confirmed on January 25, 2012.¹² Larkins' bankruptcy counsel sent notice of the confirmed plan to BOA's counsel. Counsel's subsequent requests for BOA to account for payments on the modified loan were ignored.

BOA continued to send monthly statements “for informational purposes” containing a summary of Larkin's loan terms. Still the terms remained inconsistent with the terms of the confirmed plan and the 2010 Loan Modification. BOA continued to reject the Larkin's monthly mortgage payments and representatives refused to discuss the loan with them, insisting that they were barred from doing so by the bankruptcy stay.¹³

The 2015 Loan Modification

In April of 2012, the United States and many of the states sued BOA for its pattern of conduct in administering HAMP modifications. BOA entered into a consent judgment that required it to offer homeowners permanent modifications.¹⁴ In November of 2014, BOA offered the Larkins a permanent modification of their mortgage loan forgiving $185,504.35 of principal and reamortizing the remaining principal balance of $161,000.01 at a significantly reduced rate of interest. The Larkins were approved for a 3–month trial period plan.¹⁵ After the Larkins made the trial period payments, BOA confirmed the completion of the trial period in a letter dated February 7, 2015 and advised the loan would be permanently modified if BOA received an executed copy of the Modification Agreement by March 24, 2015. The Larkins duly signed and timely returned the Modification Agreement and, on March 16, 2015, filed a motion for approval of the Mortgage Modification Agreement (“2015 Loan Modification”) in their bankruptcy case, attaching a copy of the Agreement to their motion. The Court approved the 2015 Loan Modification on April 23, 2015, permanently modifying the BOA mortgage loan as of March 1, 2015.¹⁶ The 2015 Loan Modification is between “Bank of America, N.A. the servicer and/or lender for your loan (“Lender”)” and the Larkins, as borrowers, and includes the following terms:

[Editor's Note: The preceding image contains the reference for footnote¹⁷ ].

The Larkins continued to make direct monthly mortgage payments in this amount “outside the plan.”¹⁸

BOA periodically filed Notices of Mortgage Payment Change in the Larkins' bankruptcy case.¹⁹ All but one of the payment changes reflected an escrow change or adjustment to the monthly payment. The June 23, 2015 notice of payment change reflects the change in total monthly payment due to the 2015 Loan Modification (reduced principal and interest) and attaches an executed copy of the 2015 Loan Modification. On August 10, 2015, the chapter 13 trustee filed a notice stating that the Larkins had completed payments on their chapter 13 plan.

This Action against BOA

On May 14, 2015, shortly after the 2015 Loan Modification was approved, the Larkins filed this civil action, suing BOA in the United States District Court for this District, seeking damages in excess of $75,000, civil penalties, attorney's fees, interest and costs.²⁰ They claim that BOA breached the 2010 Loan Modification, violated the Fair Debt Collection Practices Act (FDCPA, 15 U.S.C. § 1692 et seq. ), and violated the Kansas Consumer Protection Act (KCPA, KAN. STAT. ANN. § 50–623 et seq. ). The ...