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Household Finance Industrial Loan Co. v. Rasmus

Court of Appeal of Iowa

November 6, 2013


Appeal from the Iowa District Court for Linn County, Paul D. Miller, Judge.

The debtors appeal the summary judgment awarded to the creditor in this foreclosure action.

Dennis J. Naughton, Marion, for appellants.

Robert N. Siddens of Siddens Law Office, Des Moines, William J. Miller of Dorsey & Whitney, L.L.P., Des Moines, and Lucy R. Dollens and Michael A. Rogers of Frost, Brown Todd, L.L.C., Indianapolis, Indiana, for appellee Household Finance.

Heard by Vogel, P.J., and Danilson and Tabor, JJ.


Judy and Douglas Drees appeal from the entry of summary judgment in favor of Household Finance Industrial Loan Company of Iowa (Household) in this mortgage foreclosure proceeding. Because genuine issues of material fact exist as to the conduct of Household in charging the Drees for insurance on the property, the creditor failed to show it was entitled to judgment as a matter of law. We conclude the district court improperly granted summary judgment on the affirmative defenses of waiver, estoppel by acquiescence, and impossibility of performance. We reverse the district court decision on those grounds and remand for further proceedings consistent with this opinion.

I. Background Facts and Proceedings

In 1998 the Drees obtained a $74, 021.74 residential loan at 10.9% interest from the lender, Household. The loan was secured by a mortgage on the Drees' home, stating:

Hazard Insurance. Borrowers shall keep the improvements . . . on the Property insured against loss by fire, hazards included within the term "extended coverage, " and such other hazards as Lender may require.
Protection of Lender's Security. If Borrower fails to perform the covenants and agreements contained in this Mortgage . . . then Lender, at Lender's option, upon notice to Borrower, may . . . disperse such sums, including reasonable attorneys' fees, and take such action as is necessary to protect Lender's interest . . . .
Any amounts disbursed . . . shall become additional indebtedness of Borrower secured by this Mortgage. Unless Borrower and Lender agree to other terms of payment, such amounts shall be payable upon notice from Lender to Borrower requesting payment thereof.

(Emphasis added.)

In 2006 Household sued for foreclosure. The Drees resisted and filed counterclaims. According to the Drees, during this time and for approximately three years, Household refused to accept the Drees' loan payments.[1] In May 2009 the litigation was settled. The settlement agreement states the original note and mortgage shall be modified and amended, and concurrently the parties "shall execute a Modification of Note and Mortgage reflecting these amended terms."

The settlement agreement requires the parties to pay their own "costs and attorney fees." Household agreed to make a lump sum $5000 payment to the Drees, to "mark as paid any previous notes" that Household has "yet to mark as paid and which have been in fact paid in full, " to reduce the mortgage loan's principal balance to $60, 000, to report the mortgage loan "out of default, " to delete negative credit reporting, and to file a dismissal without prejudice.

The settlement agreement requires the Drees to release Household from liability, to pay Household under modified loan terms ($60, 000 at 0% interest in $1000 monthly installments for five years, "beginning with the first payment on May 5, 2009"), and to deliver a dismissal with prejudice to Household attorney B.J. Miller.

Both the settlement and the modification agreement state, in the event of a default, including Household not receiving the Drees' payment "within ten days of the [5th of the month] due date, 5% interest shall begin to accrue." But both agreements also provide Household will not assess "any late charges resulting from receipt of the first payment after May 15, 2009, " if the first payment is late "due to delay in completion and delivery" of the settlement documents and Household's $5000 payment.[2]

The loan modification agreement, "effective May 4, 2009, "[3] reiterates the payment terms for the $60, 000 "no interest" loan. According to Douglas Drees, several payments they made on the original loan were not recorded and credited in Household's records.[4] Therefore, on the modified loan the Drees used online banking wire transfers to make payments "because we wanted to make sure the payments arrived on time and there was a record of payment to protect us."[5] The modification agreement states:

5. Except as otherwise modified herein, the Borrower will comply with all [other requirements] including without limitation, the Borrower's . . . agreement to make all payments of taxes, insurance premiums . . . and all other payments that the Borrower is obligated to make under the Security Instrument.
6. Nothing in this Modification shall be understood or construed to be a satisfaction or release in whole or in part of the Note and Security Instrument. Except as otherwise specifically provided in this Modification, the Note and Security Instrument will remain unchanged and in full effect, and the Borrower and Lender will be bound by, and comply with, all of the terms and provisions thereof, as amended by this Modification.

On May 27, 2009, attorney Miller sent Household's settlement check to Drees attorney Naughton with instructions to hold the check in trust. Miller also advised the Drees' May 2009 payment should be made under the original account number (XX0105) and sent to Household's legal department. "Upon receipt that payment will be posted and any late interest waived." Finally, when Miller received Naughton's instruction to file the Drees' dismissal, Miller would tell Household "to undertake the agreed upon action with respect to [the Drees] credit record."

On June 1, 2009, the 2006 litigation was dismissed, and the Drees made their May 2009 payment, the first installment on the modified loan. Also in June, the Drees contacted American Family to obtain insurance.[6] On June 4, attorney Miller e-mailed attorney Naughton a new account number (XX6361) for the modified loan, and the address for subsequent payments. Household's June 5 letter mistakenly notifies the Drees they defaulted on the May 5 payment. Despite Household's error, on June 10 the Drees made their June 2009 payment. Household's June 26 letter advises it did "not have an up-to-date record of [the Drees] homeowners/hazard policy, " and instructs the Drees to send proof of insurance showing Household as mortgagee and coverage equal to the outstanding loan balance.

Household's July 10, 2009 letter to the Drees states:

This is our second notice to you. As of today, we have not yet received verification that you have maintained continued insurance coverage on your property. The terms of your loan agreement require appropriate insurance coverage to be in force for your mortgaged property at all times. We must receive proof of homeowner's/hazard insurance coverage or we may elect to purchase insurance coverage to protect our interest in the property."

In that letter, Household estimates $576 as the annual cost to the Drees and states the Drees would be required to pay the annual cost "in 12 monthly installments" ($48/month). Also,

This coverage is not intended to replace homeowner's insurance. The [Household] insurance does not provide coverage for contents of the property or provide liability coverage . . . . Also, the amount and terms of this coverage may be different, less comprehensive, and more expensive than an insurance policy you can purchase on your own. We, or an affiliate company, might receive some benefit from the placement of this coverage.

Household's July 14, 2009 letter acknowledges the June 5 default letter was mailed "in error, " reminds the Drees "your July 5 payment is currently due, " and explains:

[The June 5] letter was generated because your new loan was boarded on June 4, 2009; with a fund dated of April 5, 2009, with the first payment showing due as of May 5, 2009. Because we had yet to post your first payment which was received on June 4, 2009, the account appeared as a first payment default.

The Drees point out although "no agreement was signed until May 2009, Household stated the loan occurred April 5, 2009." We note this is the first post-settlement document referencing April 5, 2009. The Drees timely submitted their $1000 July payment.

The Drees procured $125, 000 of insurance on their "dwelling, "[7] effective August 10, 2009 to August 10, 2010, for $1275 from American Family Insurance. On the policy Household is listed as mortgagee and the insurance coverage clearly exceeds the mortgage's outstanding balance. American Family's agent, Jacob Roetman, states the office policy is to send Household, as mortgagee, the insurance declaration page.[8]

Douglas Drees explains the reason for the June to August 2009 insurance delay. "[Unbenownst to the Drees, ] American Family did a credit check and found the foreclosure still on our record." Because "our house was still shown to be in foreclosure, " we "had to wait for [American Family] to send someone out to inspect the house before they would issue insurance." Due to "the failure of [Household] to remove the bad credit reports within a reasonable time, " American Family also "required us to pay cash up front before binding coverage. So [American Family] executed the automatic withdrawal from our account on August 1, 2009, and then implemented coverage."[9]

Household accepted the Drees' $1000 monthly payment for August 2009 and six additional $1000 monthly payments thereafter. It is undisputed Household accepted ten monthly payments of $1000 from the Drees for a $10, 000 reduction in principal on their 0% interest loan. It is also undisputed that at some point in early 2010, Household rejected the Drees' $1000 monthly payment.[10]

On March 9, 2010, eight months after Household's July 2009 "second notice" encouraging the Drees to purchase their own insurance, Household advises the Drees the monthly payment on loan XX6361 will increase with your payment "due on 04/05/2010." "This increase is a result of hazard insurance that [Household] acquired and paid on your behalf." Further, the annual premium of $248 "will be spread over 12 months and collected with each monthly mortgage payment, " for a "New Monthly Payment" of $1020.67. Household did not provide the period covered by this insurance, a policy, or a policy declaration page, but did state the Drees may be eligible for a refund "once you provide us with proof of hazard insurance coverage." When Douglas Drees called the customer service number provided and told the Household representative the Drees had already purchased insurance, Household "denied that I had insurance and insisted I had to pay for theirs."

On March 21, 2010, Household sent two inconsistent letters to the Drees regarding insurance. One letter encloses the insurance policy and states the Drees did not provide "acceptable evidence of homeowners/hazard insurance coverage" on loan XX6361, and as a result Household purchased insurance with an effective date of April 5, 2009, expiration date April 5, 2010. This letter is the first time Household tells the Drees (1) the coverage dates, and (2) the new monthly charge is for retroactive insurance expiring on the date of the Drees' first payment for the insurance. Household also states it will collect $48 in "each monthly mortgage payment" for twelve months. This computes to $576 annually, double the $248 annual charge Household quoted twelve days earlier on March 9, but matching its estimate one year earlier in July 2009. Finally:

The coverage provides structural coverage only. The insurance does not provide coverage for contents of the property or provide liability coverage . . . . The amount of this insurance may not be sufficient to completely restore the property in the event of loss. Supplemental coverages for earthquake, flood, or injury to persons or property for which you may be liable are not provided. We, or an affiliate company, might receive some benefit from the placement of this coverage.

The enclosed "$60, 000 policy lists the named insured as Household, the additional insured as the Drees, and states: "Countersignature Date 03/21/2010." The Drees point out the "Authorized Representative" line is not signed and that Household's March 21 purchase is inconsistent with its March 9 letter stating Household "acquired and paid" for insurance.

The second Household March 21 communication, "CANCELLATION NOTICE, " states the new coverage period is April 5 to September 9, 2009, "CHARGE: $248." Also: "The proof of replacement coverage provided did not have an effective date that was on or before the effective date of the insurance coverage we purchased on your behalf. Therefore, there will be a charge for the period for which the property was covered under the [Household] policy." (Emphasis added.)

Household does not explain what document it is relying upon as "proof of replacement coverage, " nor does it explain how this unknown "proof" requires Household to cancel the coverage on September 9, 2009. We note $248 for five months of insurance is again inconsistent with Household's March 9 letter stating Household will bill $248 for annual coverage.

Viewing the facts in the light most favorable to the Drees, on April 15, 2010, the Drees sent Household a $1000 monthly payment and Household rejected the payment. Also on April 15, Household issued an "ACCOUNT UPDATE" stating the current amount the Drees owe is $2020.67.[11] In April Douglas Drees again called Household, stating: We "purchased insurance and would not pay for theirs." Household replied the Drees "didn't have coverage back in April of 2009." Douglas replied the Drees did not have any agreement with Household then. "In April of 2009 [Household] had not ...

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