Mitchell v. Rushmore Loan Mgmt. Servs.

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CLARENCE MITCHELL, ET AL. v. RUSHMORE LOAN MANAGEMENT SERVICES, LLC, ET AL.

No. W2022-00621-COA-R3-CV

Court of Appeals of Tennessee, Jackson

August 28, 2023

Session Date: June 20, 2023

Appeal from the Chancery Court for Shelby County No. CH-17-1758-1 Gadson W. Perry, Chancellor

Plaintiffs brought suit alleging breach of contract and the covenant of good faith and fair dealing against the mortgage servicer of their loan. The mortgage servicer sought summary judgment on two grounds: (1) an absence of privity and (2) its actions did not violate any provision of the contract. The Plaintiffs conceded that the mortgage servicer's actions did not violate any specific term of the contract and indicated their suit exclusively relied on a claim predicated upon breach of the covenant of good faith and fair dealing. The trial court granted summary judgment in favor of the mortgage servicer. The trial court acknowledged but declined to rule upon the mortgage servicer's privity argument and instead granted summary judgment based on its conclusion that a breach of the covenant of good faith and fair dealing cannot occur in the absence of a breach of a specific term of the contract. The Plaintiffs appealed. We affirm the trial court's grant of summary judgment on the ground that there is no privity of contract between the Plaintiffs and the mortgage servicer.

Tenn R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

Webb A. Brewer, Memphis, Tennessee, for the appellants, Clarence Mitchell and Leslie Mitchell.

Bret J. Chaness and Patricia Whitehead, Peachtree Corners Georgia, for the appellee, Select Portfolio Services, Inc.

JEFFREY USMAN, J., delivered the opinion of the court, in which ARNOLD B. GOLDIN and KENNY W. ARMSTRONG, JJ., joined.

OPINION

JEFFREY USMAN, JUDGE

In June 2005, Clarence and Leslie Mitchell (the Mitchells) borrowed money to purchase a $639,000 home in Collierville, Tennessee; they stopped making payments thereupon in 2014. The loans had been made by Union Planters Bank N.A. d/b/a Regions Mortgage (Regions Mortgage) with one loan for $500,000 and the other for $75,100. The home had two Deeds of Trust.

In 2011, the Mitchells executed a Loan Modification Agreement with Regions Mortgage to lower their interest rate and monthly payments, and the Mitchells executed a new Deed of Trust in conjunction with the mortgage. In 2014, Regions Mortgage assigned the Deed of Trust to the mortgage to TOWD Point Master Funding Trust 2014 with U.S. Bank Trust National Association TR 2014 (U.S. Bank) assigned as trustee. When it became trustee, U.S. Bank selected Select Portfolio Services, Inc. (SPS) as the servicer of the mortgage.

SPS acted as mortgage servicer on the Mitchells' mortgage from May 2014 until October 1, 2017. In this role, SPS was charged with collecting, applying, and accounting payments, as well as communicating with the Mitchells regarding all aspects of the mortgage. SPS was never named as trustee for the Deed of Trust. SPS solely acted as the servicer.

The Mitchells fell behind on their mortgage payments beginning in the summer of 2014. The Mitchells' last payment was on October 17, 2014, which brought the mortgage current through August 2014. There were no payments made on the mortgage after October 2014.

In October 2014, SPS sent the Mitchells a "Notice of Default - Right to Cure." The Mitchells contacted SPS to discuss a loan modification in February 2015. During this call, an SPS representative told the Mitchells that, as of February 2015, the Mitchells owed $17,025.82, the reinstatement amount, to bring the mortgage current. SPS informed the Mitchells that it could not accept a payment unless the payment was for the full reinstatement amount or the Mitchells were approved for a loss mitigation plan and the payment was made pursuant to the approved plan. SPS also instructed the Mitchells on how to apply for a loss mitigation plan.

The Mitchells submitted their first loss mitigation application in October 2015, more than a year after their last payment. SPS reviewed the application and denied the Mitchells for all modifications by letter in November 2015. The denial letter stated, in part, "[a]fter a careful review of your assistance review application, we find that there are no loss mitigation options for which you are approved." The letter also informed the Mitchells that they could appeal the decision if they wanted.

The Mitchells submitted additional loss mitigation applications in January 2016 (the second application), August 2016 (the third application), February 2017 (the fourth application), and August 2017 (the fifth application). In response to the second and third applications, SPS sent denial letters stating, in part, "[a]fter a careful review of your assistance review application, we find that there are no loss mitigation options for which you are approved." In response to the fourth loss mitigation application, the letter offered a repayment plan stating, "[t]he approved option must be accepted by April 2, 2017, or we will consider the offer rejected." The Mitchells did not accept the repayment plan by April 2, 2017. On April 5, counsel for the Mitchells contacted SPS stating that the repayment plan was not meaningful because it required the full arrearage to be paid over the course of a year. SPS sent a second repayment offer with the same terms stating, "[t]he approved option must be accepted by June 5, 2017, or we will consider the offer rejected." The Mitchells did not accept the terms of either repayment plan.

After the Mitchells rejected the repayment plans offered after the fourth application, SPS began foreclosure proceedings. A foreclosure sale was set for mid-August 2017. The foreclosure sale was postponed when the Mitchells informed SPS they would be submitting a fifth loss mitigation application. The Mitchells submitted their fifth application on August 24, 2017. SPS reviewed the application and denied the Mitchells for all modifications by letter dated September 1, 2017.^[1] As with the other letters, the denial letter for the fifth application also stated, in part, "[a]fter a careful review of your assistance review application, we find that there are no loss mitigation options for which you are approved."

On September 17, 2017, SPS sent the Mitchells notice that Rushmore Loan Servicing (Rushmore) would be taking over the servicing of their mortgage. Rushmore began servicing the Mitchells' mortgage on October 1, 2017. After Rushmore took over servicing, it restarted foreclosure proceedings.

The Mitchells filed suit in December 2017, seeking to enjoin the foreclosure sale. Their complaint states causes of action for breach of contract and breach of the implied duty of good faith and fair dealing against Rushmore and SPS. The Mitchells also named U.S. Bank and Rubin Lublin, PLLC, in their complaint. The complaint noted that SPS is a loan servicer and that U.S. Bank is the trustee for TOWD Point Master Funding Trust 2014, recognizing a transfer of their loan had occurred from Union Planters Bank N.A. d/b/a Regions Mortgage. Though listed as defendants in the complaint, the Mitchells did not actually state any causes of action against U.S. Bank or Rubin Lublin, PLLC.

In response to a motion to dismiss, the trial court dismissed Rubin Lublin, PLLC based upon the fact that there were no allegations made in the complaint against it. Following U.S. Bank's motion to dismiss, the trial court gave the Mitchells an opportunity to amend their complaint to include allegations against U.S. Bank, but the Mitchells never filed an amended complaint to include claims against U.S. Bank. Rushmore, SPS, and U.S. Bank, subsequently, filed motions for summary judgment. The trial court granted summary judgment to U.S. Bank but initially denied summary judgment for Rushmore and SPS.

After unsuccessfully seeking an interlocutory appeal, Rushmore and SPS filed renewed motions for summary judgment. The Mitchells did not contest Rushmore's motion for summary judgment, which the trial court granted. In seeking summary judgment, SPS argued that it should be granted for two reasons. One, SPS argued it was not in privity with the Mitchells; accordingly, the Mitchells could not maintain claims against SPS for breach of contract. Two, SPS asserted that it had not violated any terms of the contract.

The trial court granted SPS summary judgment. In its order, the trial court stated the following:

In the Motion, SPS argued that it cannot be liable for breach of contract because it has never been in privity with the Plaintiffs. "Privity of Contract is an essential element to an action founded on the breach of contract." O'Connel v. Seterus, Inc, No 13-cv-2916-dkv 2015 WL 11117943, at *1 (W.D. Tenn. March 27, 2015) (quoting Tipton v. Sparta Water Co., 57 S W.2d 793, 795 (Tenn. 1933)). SPS relied upon O'Connel for the proposition that a loan servicer, "having never been a party nor signatory to the Deed of Trust, was never in privity of Contract." Id. The Court acknowledges this argument but declines to grant the Motion on this basis.

However, this was not SPS's only argument in the Motion, and SPS further argued that even i[f] there was privity, the Plaintiffs have failed to present any evidence showing a breach of any term of a contract[.] The Court finds this argument to be persuasive. Plaintiffs claim SPS breached the contract by refusing to accept payments from the Plaintiffs while a loan modification review was pending. See Compl., ¶ 53, 55-56. However, SPS provided evidence showing that after default of the Loan in October 2014, SPS informed Plaintiffs that they would only accept a payment if it was the full reinstatement amount, as allowed by Section 1 of the Deed

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