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Busch v. Wells Fargo Home Mortgage Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

January 9, 2017

KEVIN M. BUSCH and LESLIE J. BUSCH, Plaintiffs,
v.
WELLS FARGO HOME MORTGAGE INC. and WELLS FARGO BANK, N.A. Defendants.

          MEMORANDUM OPINION AND ORDER

          Joseph M. Hood Senior U.S. District Judge.

         I. INTRODUCTION

         This matter is before the Court upon the Motion to Dismiss [DE 9] filed by Defendants Wells Fargo Home Mortgage Inc. and Wells Fargo Bank, N.A (collectively, “Wells Fargo”). Plaintiffs Kevin M. Busch and Leslie J. Busch (collectively, “the Busches”) have filed a Response in Opposition [DE 11] to the Motion, as well as their own Motion for Partial Summary Judgment [DE 12] on the issues of liability and attorney's fees. Both Motions are now fully briefed [DE 14, 17, 18] and ripe for the Court's review. For the reasons stated herein, Wells Fargo's Motion to Dismiss will be GRANTED IN PART AND DENIED IN PART and the Busches' Motion for Partial Summary Judgment will be DENIED AS PREMATURE.

         II. FACTUAL AND PROCEDURAL BACKGROUND

         In March 2014, Wells Fargo Bank loaned the Busches $40, 000 to finance the purchase of an investment property, located at 3570 Niagara Drive in Lexington, Kentucky. [DE 9-3]. The Busches, in return, executed a Promissory Note, secured by a Mortgage on the property, in favor of Wells Fargo Bank. [DE 9-2, 9-3]. In the Note, the Busches promised to repay the loan at an interest rate of 4.75% over a thirty year period by making monthly payments of principal, interest, and miscellaneous “other charges.” [DE 9-3]. Wells Fargo Home Mortgage, Inc., a division of Wells Fargo Bank, serviced the loan. [DE 1-1, p. 3, ¶ 5].

         The Note stated that these monthly payments, totaling $339.30, would be due on the first day of each month.[1] [DE 1-1 at 10, 9-3 at 1]. Wells Fargo would apply each monthly payment “as of its scheduled date … to interest before Principal.”[2] If, at any time, Wells Fargo did not receive a full monthly payment within fifteen calendar days after the due date, it would assess a late charge against the Busches, amounting to 5% of the overdue payment of principal and interest. [Id. at 2]. Failure to pay the full amount of each monthly payment on the due date would result in default. [Id.].

         In the event of default, Wells Fargo had the right to notify the Busches that, if the overdue amount is not paid by a certain date, they may have to pay immediately the full amount of the principal that has not been paid and all interest owed on that amount. [Id.]. However, even if Wells Fargo decided not to take such steps upon default, it retained the right to do so if the Busches defaulted at a later time. [Id.].

         In addition to the payment procedures described above, the Busches enjoyed the right to make prepayments on the principal. Specifically, the Note provided as follows:

         4. Borrower's Right to Prepay

I have the right to make payments of Principal at any time before they are due. A payment of Principal only is known as a “Prepayment.” When I make a Prepayment, I will tell the Note Holder in writing that I am doing so. I may not designate a payment as a Prepayment if I have not made all the monthly payments due under the Note.
I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. However, the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying my Prepayment to reduce the Principal amount of the Note.
If I make a partial Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the Note Holder agrees in writing to those changes.

[Id.].

         In July 2015, the Busches mailed Wells Fargo separate checks to cover monthly payments on the Note through the end of 2016. [DE 1-1, p. 3, ¶ 6]. Wells Fargo misapplied those advance payments, and as a result, later returned them to Kevin Busch.[3][Id.]. In October 2015, Plaintiffs paid $605 for an appraisal of the investment property, hoping to refinance the Note. [DE 1-1, p. 4, ¶ 10]. The Busches “were unable to refinance the Note at that time due to the misapplied payments by Wells Fargo which harmed their credit scores.”[4] [Id.].

         That same month, Kevin Busch mailed Wells Fargo a single check in the amount of $4, 779.44. [DE 11-1]. At the bottom of this check, he wrote “14 payments per schedule 11/2015 through 12/2016.” [Id.]. Although Wells Fargo applied $678.60 total to the November and December 2015 payments, it applied the remaining $4, 100.84 to the principal only, rather than twelve monthly payments of principal, interest, and escrow. [DE 1-1, p. 3, ¶ 8].

         The Busches, believing that Wells Fargo had applied the funds to cover twelve monthly payments, did not submit a periodic payment for January 2016.[5] [DE 1-1, p. 4, ¶ 9]. As a result, Wells Fargo deemed the Busches delinquent on their Note payments, a determination that adversely affected their credit scores. [Id. at p. 4, ¶ 10]. In February 2016, the Busches attempted to refinance their mortgage through People's Exchange Bank. [Id. at p. 4, ¶ 11]. On February 19, 2016, the Bank denied the Busches' application, citing their latest credit report, which reflected their delinquent status on the Wells Fargo account. [Id.; DE 1-1 at 11-14].

         The Busches promptly retained counsel to address this issue. [DEs 1-1 at 18-21; 11-4]. On February 24, 2016, counsel notified the three major credit reporting agencies (“CRAs”) that the Busches' credit information was incorrect. [DE 11-4]. She contacted Wells Fargo about the issue that same day. [DE 1-1 at 18-21]. On March 2, 2016, counsel received a letter from Wells Fargo, stating in pertinent part:

Thank you for contacting us. We're writing to let you know that we've received the inquiry you sent on behalf of Kevin M. Busch and Leslie J. Busch. We previously received a similar inquiry and it's currently being reviewed.
We expect to complete our research and provide you with the results on or before March 14, 2016. In the event additional time is needed we will contact you.

         [DE 11-5].

         On March 17, 2016, the Busches' attorney again contacted Wells Fargo about the issue, expressing the following concerns:

As you are aware, we had instituted an investigation with the three major credit bureaus as to Wells Fargo Bank's misapplication of funds to my clients' account. I received today dispute resolutions from Equifax indicating at page 10 of Kevin's credit report that Wells Fargo is still reporting a delinquency from January 2016. As we discussed on the phone, Wells Fargo is aware that this information is incorrect. Leslie's credit report contains like information. This is to request that Wells Fargo correct said information consistent with my previous conversations with you. You have indicated that Wells Fargo will correct all information by March 30, 2016.

         [DE 1-1 at 17]. Despite its assurances, Wells Fargo allegedly “failed to correct the misapplied payment and continued to make such inaccurate reports to the three major credit bureaus.” [DE 1-1, p. 4, ¶ 13-14].

         Finally, on May 3, 2016, Kati Negron, Executive Resolution Specialist with Wells Fargo's Customer Care and Recovery Group, sent counsel a letter, admitting that Wells Fargo had “inadvertently applied [the Busches' periodic payments] to principal and interest.” [DE 1-1 at 22]. Negron stated that Wells Fargo had “reapplied the funds to future payments with an effective date of February 18, 2016, ” meaning that a monthly payment would not be due until January 1, 2017.[6] [Id.]. She also indicated that Wells Fargo had notified the three major credit bureaus of the situation and asked them to adjust the Busches' credit scores accordingly. [Id.]. She cautioned the Busches that it could take the CRAs up to 90 days to adjust their reports. [Id.]. Negron then informed the Busches that Wells Fargo had declined their request for payment of $8, 905 to compensate them for the cost of the October 2015 appraisal, attorney's fees, lost wages, and emotional distress. [Id.].

         On May 27, 2016, the Busches filed suit against Wells Fargo in Fayette Circuit Court, asserting the following claims: (1) violations of the Fair Credit Reporting Act; (2) breach of contract; (3) unjust enrichment; (4) negligence; (5) violations of the Kentucky Consumer Protection Act; (6) intentional and negligent infliction of emotional distress; (7) tortious interference with a contract or prospective business relationship; (8) punitive damages; and (9) attorney's fees. [DE 1-1]. Wells Fargo promptly filed a Notice of Removal, observing that this Court had federal question jurisdiction over the claim for violations of the Fair Credit Reporting Act and supplemental jurisdiction over the state law claims. [DE 1]. The parties then filed the instant Motion to Dismiss and Motion for Partial Summary Judgment. [DE 9, 12].

         III. ANALYSIS

         A. ...


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