Preview:

FOR PUBLICATION

ATTORNEY FOR APPELLANT: JOSEPH F. ZIELINSKI Indiana Legal Services, Inc. South Bend, Indiana

ATTORNEYS FOR APPELLEE: CRAIG D. DOYLE MARK R. GALLIHER AMANDA J. MAXWELL Doyle Legal Corporation, P.C. Indianapolis, Indiana

FILED
IN THE COURT OF APPEALS OF INDIANA
FLORENCE R. LACY-MCKINNEY, Appellant-Defendant, vs. TAYLOR, BEAN & WHITAKER MORTGAGE CORP., Appellee-Plaintiff. ) ) ) ) ) ) ) ) ) )
Nov 19 2010, 9:24 am
of the supreme court, court of appeals and tax court

CLERK

No. 71A03-0912-CV-587

APPEAL FROM THE ST. JOSEPH CIRCUIT COURT The Honorable Michael G. Gotsch, Judge The Honorable David T. Ready, Magistrate Cause No. 71C01-0810-MF-694

November 19, 2010

OPINION - FOR PUBLICATION

KIRSCH, Judge

Florence R. Lacy-McKinney (Lacy-McKinney) appeals the trial court`s entry of summary judgment in favor of Taylor, Bean & Whitaker Mortgage Corp. (Taylor-Bean) on Taylor-Bean`s action to foreclose on Lacy-McKinney`s mortgage that was insured by the Federal Housing Administration (FHA).1 On appeal, Lacy-McKinney raises two issues that we restate as: I. Whether a mortgagee`s compliance with federal mortgage servicing responsibilities is a condition precedent that may be raised as an affirmative defense to the foreclosure of an FHA-insured mortgage; and Whether the trial court erred when it entered summary judgment in favor of Taylor-Bean on its mortgage foreclosure action against LacyMcKinney.

II.

We reverse and remand. FACTS AND PROCEDURAL HISTORY The facts most favorable to Lacy-McKinney, the non-moving party, reveal that she purchased a home on Manchester Drive in South Bend, Indiana (the Property) in January 2007. Lacy-McKinney financed the Property via an FHA-insured mortgage with Liberty Mortgage Inc. Lacy-McKinney`s loan was subsequently transferred to GMAC Mortgage. Newport Shores Mortgage, Inc. solicited Lacy-McKinney to refinance her loan. This solicitation by Newport Shores, acting as a loan broker, led to Lacy-McKinney`s loan with Taylor-Bean that is the subject of these foreclosure proceedings. On September 19, 2007, Lacy-McKinney entered into a note (Note) with Taylor-

A footnote in Appellee`s Brief states that the loan between Lacy-McKinney and Taylor-Bean was subsequently sold and assigned to BAC Home Loans Servicing, LP. Appellee's Br. at 1 n.1. In keeping with the approach of the parties, we will continue to refer to the lender/mortgagee as Taylor-Bean.
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Bean, which was secured by the mortgage that is the subject of this foreclosure action (Mortgage). The loan with Taylor-Bean was an FHA-insured loan subject to federal statutes and the regulations of the United States Department of Housing and Urban Development (HUD).2 The Note and Mortgage each placed certain limitations on Taylor-Bean`s ability to require Lacy-McKinney to immediately pay the Note in full in the event of Lacy-McKinney`s default. Section 6(B) of the Note, in pertinent part, provided: If Borrower defaults by failing to pay in full any monthly payment, then Lender may, except as limited by regulations of the Secretary in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest. . . . In many circumstances regulations issued by the Secretary will limit Lender's rights to require immediate payment in full in the case of payment defaults. This Note does not authorize acceleration when not permitted by HUD regulations. As used in this Note, Secretary means the Secretary of Housing and Urban Development or his or her designee. Appellant's App. at 23 (emphasis added). Section 9 of the Mortgage addressed grounds for acceleration of the debt and, in pertinent part, provided: (a) Default. Lender may, except as limited by regulations issued by the Secretary in the case of payment defaults require immediate payment in full of all sums secured by this Security Instrument if [borrower defaults] . . . . ... (d) Regulations of HUD Secretary. In many circumstances regulations issued by the Secretary will limit Lender`s rights, in the case of payment defaults, to require immediate payment in full and foreclose if not paid. This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary.
For clarity, we will hereinafter refer to a loan and mortgage issued by an FHA approved lender as a HUD-insured mortgage.
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Id. at 28 (emphasis added). Taylor-Bean received Lacy-McKinney`s first loan payment on November 15, 2007. Appellee's App. at 55. Her 2008 payments were received by Taylor-Bean on January 31, February 15, March 17, April 17, May 21, and June 27. Id. at 55-56. Each payment, however, was credited to the prior month because Taylor-Bean had no record of having received Lacy-McKinney`s December 2007 payment. Taylor-Bean maintained a record called the Mortgage Servicer System Memo Report (System Report), in which it recorded all communications and other actions taken in connection with Lacy-McKinney`s Mortgage. Appellant's App. at 211-21. The System Report revealed that Taylor-Bean sent Lacy-McKinney a telephonic automated dialer reminder each month that her payment was late. Id. Additionally, starting on January 14, 2008, Taylor-Bean sent numerous form letters. Id. Some of these letters informed LacyMcKinney as to the amount she owed for overdue mortgage payments plus late charges and included a HUD pamphlet entitled, How to Avoid Foreclosure, while others reminded Lacy-McKinney of the overdue payments and urged her to call the Taylor-Bean office in order to discuss this matter at length. Appellee's App. at 33-41. On March 12, 2008, LacyMcKinney called Taylor-Bean to inform the company that she had mailed her March payment in the amount of $780.00, and she was told that the payment would be applied to February because Taylor-Bean had not received the December 2007 payment. Appellant's App. at 213. As part of its May 14, 2008 System Report entry, Taylor-Bean made the following

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notation: Loss Mitigation Referral sent to imaging. Id. at 215. Loss mitigation is a servicing responsibility that requires HUD lenders, like Taylor-Bean, to take actions which can reasonably be expected to generate the smallest financial loss to HUD. 24 C.F.R

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