As Wisconsin slowly pulls itself out of the real estate doldrums with the rest of the country, state courts’ dockets are teeming with property owners struggling to stay in their homes.
In a recent Dane County case decided by the Wisconsin Court of Appeals in SunTrust Mortgage v. Vicki M. Lane, 2012 AP 782, a three-judge panel affirmed that even if a foreclosure lender had failed to return calls, improperly closed a case and made promises about a loan modification that never occurred, there was not enough “egregious” behavior to prove damages for emotional harm, bad faith or unclean hands.
“Not every episode of incompetence or internal institutional confusion amounts to improper dealings,” the court wrote.
In 2006, Vicki Lane was working with Fairway Independent Mortgage to get a home loan. She failed to qualify for conventional loan and was directed to an interest-only loan product with no income verification, using guidelines from end lender SunTrust.
In order to qualify for the loan, according to Lane’s testimony, she was told by a loan representative at the broker’s offices to miss several rent payment to have a higher balance in her bank account. She also alleged she was told her monthly payments could be up to 60 percent of her monthly gross income.
But Lane still moved forward and closed on a duplex property where she would live on the first floor and rent out the second.
Within two years, the economy had turned, Lane was no longer employed and her mortgage broker’s talk about refinancing her into a better loan within a year disappeared. She missed her first payment to SunTrust in March of 2009, but was able to start making payments again to her second lender in June 2009.
According to court testimony, after Lane obtained a modification from her second lender, she contacted SunTrust to see if she could start making payments again on her mortgage, but was refused.
Lane said, starting at the end of March 2009, she sent pay stubs, bank account balances and other documents that SunTrust requested to try and approved for a loan modification. Lane testified that she re-sent the documentation less than a month after that, and again three months later, in addition to making more than 30 calls to SunTrust over a nine-month period.
SunTrust responded that their typical decision-making process for a modification takes three to six months after all documents are received.
“Lane understood that until she had steady employment history, she would be unable to get a loan modification,” SunTrust’s brief stated.
Court documents revealed Lane allegedly overstated her income, understated her expenses, falsely claimed she had filed for bankruptcy and gave incorrect information about her rental unit in her documentation, all which slowed down the process of getting her modification approved or denied.
SunTrust closed the modification file in October 2009. Although Lane called several more times in October and November, she received a notice of foreclosure Nov. 23, 2009. That same day, a SunTrust employee noted that Lane was “not active in [loan modification].”
Lane never heard a final answer from SunTrust, which filed its petition for foreclosure that same year.
Within a year, SunTrust and co-defendant Fairway Mortgage moved for summary judgment on the complaint. The court dismissed the charge of unclean hands against SunTrust in summary judgment, but said Lane sufficiently presented a question of fact to go to trial for breach of good faith and fair dealing.
After the first morning of testimony at the November 2011 trial, Fairway Mortgage settled with Lane for $20,000 and a full release. When the trial was over, Dane County Circuit Judge Shelley Gaylord found that Lane failed to present enough evidence to show bad faith and unfair dealings, and dismissed her claim. The court granted SunTrust judgment of foreclosure nine months later.
Lane appealed what she considered the circuit court’s incorrect decision both at trial and during the summary judgment hearing, asking the appellate court to review her allegations of unclean hands, damages for emotional distress and bad conduct. Lane did not appeal the foreclosure judgment itself.
Lane’s appeal pushed hard at the idea that the original loan offered by SunTrust was “doomed to fail” and by its nature gave SunTrust “unclean hands.”
To succeed in a claim for unclean hands, Lane had to show that SunTrust’s conduct using “unclean hands” actually caused the harm from which Lane now seeks relief. If SunTrust had been “guilty of substantial misconduct regarding the matter in litigation,” the foreclosure could be denied.
But that was not the case, the appellate court said.
“The terms of the loan were never found to be unlawful,” the court stated, “and the borrower never said that she was not informed of the terms.”
Lane also asked the appellate court to look again at her emotional distress claim, suggesting that SunTrust’s extended failure to respond was outrageous and caused her real injury.
“The stressful part” Lane stated in her appeal, was “calling over and over, and faxing in documents over and over … and never getting a serious answer.”
Lane testified the whole process took a huge toll on her physically. She claimed it affected her sleep, increased her back pain and scoliosis, and she ended up “taking two different medications to address” the problems, according to her brief.
Counsel for SunTrust acknowledged that their loan modification was not perfect, but reiterated that the actual facts did not support damages for emotional distress.
“The Wisconsin statute [Section 224] does not even identify emotional distress as compensable,” according to SunTrust’s brief. Also, there had been no reported case in Wisconsin awarding damages for emotional distress from this mortgage broker regulation.