Carson v. Estate of Golz

          RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE

          MICHAEL E. HEGARTY, UNITED STATES MAGISTRATE JUDGE.

         Verna Mae Golz took out a reverse mortgage that was secured by her property in Nederland, Colorado. Ms. Golz's loan became due and payable upon her death, but it was not paid off by her estate, family members, or other heirs. Accordingly, the sole lienholder, Plaintiff Benjamin S. Carson, Secretary of Housing and Urban Development (“HUD”), initiated this foreclosure action, alleging an unpaid loan balance of $288, 260.83. Although Plaintiff sued a number of Defendants, only two remain after entry of default judgments: (1) Ms. Golz's son, Dr. William J. Golz, who represents that he is the personal representative of the Estate and Ms. Golz's sole heir; and (2) the Estate (collectively, “Defendants”).

         In their Amended Answer, Defendants allege that the failure to pay off the loan stemmed from HUD's own failure to schedule a timely appraisal, which was necessary because the appraisal performed at the time of the loan's origination did not account for material construction defects that were obscured by snow; had that appraisal been performed as required, Defendants would have satisfied the debt by paying an appropriate percentage of the revised valuation. Defendants also assert the following affirmative defenses: (1) the foreclosure is avoidable and contrary to Regulations of the National Housing Act (“NHA”) and the Federal Housing Administration (“FHA”); (2) Plaintiff fails to state a claim; (3) estoppel; (4) laches; (5) waiver; (6) Plaintiff's final agency action is arbitrary, capricious, and contrary to law; and (7) unclean hands. Am. Answer ¶¶ 132-41, ECF No. 64. The stated goal of these affirmative defenses is to preclude HUD from capitalizing on its own neglect and misdeeds through a grant of foreclosure.

         Plaintiff has filed a Motion to Strike Defendants' Affirmative Defenses to Plaintiff's Foreclosure Claim, which contends that none of these affirmative defenses are “legally valid.” Mot. to Strike at 3, ECF No. 71. Plaintiff argues that some of the affirmative defenses are no more than boilerplate recitals that do not provide adequate notice as to their grounds, whereas others cannot succeed because they are legally insufficient. Id. at 3. For the reasons that follow, I respectfully recommend that the motion be granted in its entirety.

         BACKGROUND

         I. Facts

         When Verna Mae Golz was seventy-five years old, mounting expenses led her to seek a reverse mortgage. Am. Answer ¶ 73. On January 18, 2002, she entered into a federally insured Home Equity Conversion Mortgage (“HECM”) loan with a private lender named Financial Freedom Senior Funding Corp. (“Financial Freedom”). Am. Compl. ¶¶ 2, 29, ECF No. 31; see also ECF No. 31-1 (loan agreement); ECF No. 31-2 (promissory note with Financial Freedom); ECF No. 31-4 (deed of trust listing Financial Freedom as beneficiary). After issuing the loan, Financial Freedom assigned its deed of trust to Mortgage Electronic Registration Systems, Inc. (“MERS”). Am. Compl. ¶ 37; see also ECF No. 31-6 (assignment to MERS). The assignment was duly recorded with the Boulder County Clerk. Am. Compl. ¶ 37.

         The loan, which is commonly referred to as a “reverse mortgage, ” allowed Ms. Golz to convert the equity in her home into cash by providing her with periodic advance payments. Id. ¶¶ 19-20. The mortgage holder's only recourse for this type of loan is to foreclose on the property, as opposed to the borrower's other assets. Id. ¶¶ 21-22. Here, the loan was secured by real property in Nederland, Colorado. Id. ¶ 1. The home on that property was constructed back in 1963. Am. Answer ¶ 72. To alleviate the risk of nonpayment, Financial Freedom obtained mortgage insurance from HUD. Am. Compl. ¶¶ 27, 36. Pursuant to that transaction, Ms. Golz executed a second promissory note with HUD and provided HUD with its own deed of trust. Id. ¶¶ 30-32; see also ECF No. 31-3 (promissory note with HUD); ECF No. 31-5 (deed of trust listing HUD as beneficiary). There was some initial confusion because the lender mistakenly encumbered a different lot known as “Lot 2"; that error was not corrected in full until 2011. Am. Answer ¶¶ 76-79.

         After executing the loan, Ms. Golz received loan advances for years. Am. Compl. ¶¶ 38-40. By the end of 2011, she had accrued a loan balance of over $241, 080. Id. ¶ 40. At that time, Financial Freedom submitted an insurance claim based on the size of the loan balance and assigned its rights and interests under the mortgage to HUD in exchange for payment of $242, 013.06 on the claim in December 2011. Id. ¶¶ 42-43. Likewise, MERS assigned its deed of trust to HUD. Id. ¶ 43; see also ECF No. 31-7 (assignment to HUD). Here, too, the assignment was duly recorded with the Boulder County Clerk. Am. Compl. ¶ 43. HUD currently holds both promissory notes and deeds of trust. Id. ¶ 44.

         Ms. Golz did not repay any of the loan balance after the assignment; meanwhile, interest and fees continued to accrue. Id. ¶ 45. The notes and deeds specify that the loan balance is in default, and thus becomes immediately due and payable, upon Ms. Golz's death. Id. ¶ 47 (listing specific provisions). She passed away on May 16, 2014. Id. ¶ 48. The notes and deeds also state that the loan is in default, and immediately due and payable, if Ms. Golz ceases to principally reside on the property. Id. ¶ 49 (listing specific provisions). Plaintiff alleges the latter event occurred when Ms. Golz became a domiciliary of Maricopa County, Arizona-the county where Dr. Golz later filed a probate action on September 11, 2014. Id. ¶ 50; see also ECF No. 31-8 (application for probate).

         The parties present differing accounts as to what happened regarding the debt after Ms. Golz's death. Plaintiff alleges it advised the Estate that the loan was fully due and payable and tried to recover the balance owed without proceeding to foreclosure. Am. Compl. ¶¶ 53-54. According to Plaintiff, the loan servicer notified the Estate that HUD might consider accepting a deed in lieu of foreclosure or a short sale for ninety-five percent of the appraised value of the property under certain conditions, which were never satisfied. Id. ¶ 56. Plaintiff also alleges that Dr. Golz requested an appraisal on behalf of the Estate but did not cooperate in getting it scheduled, such that HUD was unable to procure an appraisal despite numerous attempts. Id. ¶¶ 58-62. Plaintiff further alleges that it sent notice to Dr. Golz on May 18, 2015, informing him that HUD was referring the loan for foreclosure. Id. ¶ 63. Plaintiff states that the amount owing, due, and payable under the note was $288, 260.83 as of August 18, 2017, with interest and fees continuing to accrue until entry of judgment. Id. ¶ 65.

         By contrast, Defendants allege that Dr. Golz was the one pushing for a prompt appraisal. They were eager for an appraisal because the one performed on November 30, 2001 (shortly before the loan's origination) is inaccurate because it does not account for two material construction defects that were obscured by snow at the time of inspection. Am. Answer ¶¶ 72-73, 77, 79. Those defects are (1) a hand-dug well, which ran dry after a historic drought in 2004, leaving the site with no potable water; and (2) a lodgepole foundation for the entryway that rests on the ground. Id. Had the appraiser noticed the defects, Defendants contend, the appraisal would have been “as repaired” or the loan would have been conditioned on repairing these defects (i.e., digging a deep well and rebuilding the lodgepole foundation) per a HUD handbook. Id. ¶¶ 74-75.

         Defendants further allege that the loan servicer (Deval, Inc.) and HUD failed to respond to Dr. Golz's repeated inquiries about the loan balance and his ongoing requests for an appraisal, thereby frustrating Defendants' efforts to pay off the loan. Id. ¶¶ 80-121. They state that Dr. Golz promptly notified Deval of his mother's death and asked for the payoff balance for the loan, but Deval did not respond to his repeated inquiries. Id. ¶¶ 80-84. Therefore, Dr. Golz next contacted HUD at its Denver Home Ownership Center. Id. ¶ 84. Again receiving no response, he contacted HUD at its National Servicing Center, precipitating a series of communications that were plagued with administrative errors such as missing enclosures in mailings. Id. ¶¶ 86-87. Dr. Golz unilaterally provided several deadlines for an appraisal, none of which were met. Id. ¶¶ 88-92. HUD ultimately contacted Dr. Golz about an appraisal, but Dr. Golz resisted the dates proffered and asked to defer the foreclosure, citing his desire to first obtain an engineering inspection and his concerns about the weather and the accumulating snow. Id. ¶¶ 94-103.

         Ultimately, Defendants hired an appraiser on their own to inspect the property on May 6, 2015. Id. ¶ 104. Then, on June 3, 2015, they sought to exercise their “right” to purchase the property by paying ninety-five percent of the most recent appraisal value. Id. ¶ 109. The total amount tendered was $118, 750. See ECF No. 71-6 at 4. HUD rejected their attempt to purchase the property on the ground that it only accepts appraisals that are ordered by and delivered directly to HUD or its loan servicer. Am. Answer ¶ 112. Defendants unsuccessfully disputed HUD's position through counsel. See Id. ¶¶ 120-21.

         On three occasions in May and June 2015, HUD's new servicer, Novad Management Consulting LLC, entered the property and placed unspecified documents on the door of the home. Id. ¶ 122. Dr. Golz accused Novad and HUD of criminal trespass and demanded that their agents not come on the property again. Id. ¶¶ 122-26. But a federal contractor forcibly entered the home on December 2, 2016, and installed a “HUD lock” to exclude Defendants. Id. ¶¶ 128-29. BLM Companies LLC acquired the property from HUD during this timeframe. See Id. ¶¶ 129-30. Defendants allege that BLM staff and HUD administrators committed a number of crimes by forcibly entering the home and taking possession of the property. Id. ¶ 131.

         II. Procedural History

         Plaintiff initiated this foreclosure action against Defendants on May 9, 2017, see ECF No. 1, and then filed the operative Amended Complaint on August 18, 2017, see ECF No. 31. Two Defendants-Estate of Verna Mae Golz and William Golz-filed an Answer and Counterclaims to the Amended Complaint on September 25, 2017, see ECF No. 46, and later filed the operative Amended Answer on November 29, 2017, see ECF No. 64-dropping the counterclaims and raising seven affirmative defenses. Default has been entered against the remaining Defendants: Marcus J. Golz, Matthew J. Golz, and the Unknown Heirs and Claimants of the Estate. See ECF Nos. 30, 33. Despite the entry of default, these Defendants were listed in the caption of the Amended Complaint; however, they did not file an Answer, nor have they filed (or joined in) any briefs in this case.

         On December 13, 2017, Plaintiff filed this Motion to Strike Defendants' Affirmative Defenses. ECF No. 71. Defendants filed their Response on February 2, 2018. ECF No. 81. Plaintiff then filed a Reply on February 16, 2018. ECF No. 84.

         LEGAL ...