Michelina Iaffaldano v. Sun West Mortgage Company, Inc.

• Court: Court of Appeals for the Eleventh Circuit
• Decided: April 9, 2019
• Docket: 18-11098
• Status: Unpublished

Opinion

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[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

No. 18-11098 ________________________

D.C. Docket No. 2:17-cv-14222-RLR

MICHELINA IAFFALDANO,

Plaintiff-Appellant,

versus

SUN WEST MORTGAGE COMPANY, INC.,

Defendant-Appellee.

________________________

Appeal from the United States District Court for the Southern District of Florida ________________________

(April 9, 2019)

Before MARCUS, GRANT and HULL, Circuit Judges.

PER CURIAM:

Plaintiff Michelina Iaffaldano, a Florida homeowner, brought this suit

against defendant Sun West Mortgage Company Inc. (“Sun West”), the servicer of Case: 18-11098 Date Filed: 04/09/2019 Page: 2 of 14

a reverse mortgage that Iaffaldano obtained on her home. In her complaint,

Iaffaldano alleged, among other things, that Sun West violated the Real Estate

Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2605, and its implementing

regulation, Regulation X, 12 C.F.R. § 1024, when it charged her for force-placed

hazard insurance instead of advancing monies to her insurance carrier through an

escrow account.

Following a two-day bench trial, the district court entered judgment in favor

of Sun West. After careful review of the record and the parties’ briefs, and with

the benefit of oral argument, we affirm.

I. BACKGROUND

A. Reverse Mortgage

Iaffaldano resides in a home in St. Lucie County, Florida, which is subject to

a home-equity conversion mortgage, commonly called a “reverse mortgage,” that

she took out in 2009. A reverse mortgage is a financial instrument designed to

allow older homeowners to convert their home equity into liquid assets. Estate of

Jones v. Live Well Fin., Inc., 902 F.3d 1337, 1338-39 (11th Cir. 2018). As in a

typical reverse-mortgage transaction, Iaffaldano received a loan that is secured by

a mortgage on her home. See id. The loan was for $255,000. Iaffaldano was not

obligated to repay the loan until a later “triggering” event, such as if she sold the

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home. See id. Indeed, Iaffaldano was not required to make monthly payments to

Sun West.

Under the mortgage’s terms, Iaffaldano was required to maintain hazard

insurance (“insurance”) on her property and pay all necessary insurance premiums

and taxes. When obtaining the mortgage, Iaffaldano signed a written form electing

to make those insurance and tax payments herself. Iaffaldano did not establish an

escrow account, or otherwise set aside funds, with Sun West to pay for her

insurance and taxes. At trial, a representative of Sun West confirmed that

Iaffaldano did not have an escrow account with it or any other monetary set-aside

for insurance and taxes.

Iaffaldano initially purchased the necessary insurance coverage, but the

policy lapsed in 2010 when she did not pay the premiums. Despite numerous

notifications sent by Sun West, she still failed to renew the insurance.

B. 2013 Repayment Plan Agreement

Eventually and upon the request of Iaffaldano, Sun West advanced her a

total of $5,407 so that she could obtain insurance for her property in 2012 and

2013. Sun West paid the premiums directly to the insurance carrier, the People’s

Trust Insurance Company, and Iaffaldano’s property was properly insured from

August 2012 through August 2014. During this time period, Sun West also

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advanced Iaffaldano $644 in funds to pay her taxes, increasing the amount to

$6,051 that she owed Sun West.

In 2013, Iaffaldano and Sun West entered into a Repayment Plan Agreement

(“Agreement”), wherein Iaffaldano agreed to repay Sun West the $6,051 in

advanced funds in 12 monthly installments of $504.25. Under the Agreement, Sun

West did not set aside any additional money for future insurance premiums and

taxes. Rather, the Agreement concerned only Iaffaldano’s repayment of the money

Sun West already had advanced to pay her insurance and taxes in 2012 and 2013.

The Agreement made clear that Iaffaldano’s failure to make the scheduled

payments could result in a default of the reverse mortgage.

Iaffaldano, however, did not make any payments at all to Sun West under

the Agreement and therefore defaulted on both that Agreement and the reverse

mortgage. According to Sun West, this signaled that Iaffaldano neither intended to

obtain insurance for her property on her own, nor intended to reimburse Sun West

for the $6,051 it had advanced for her insurance and taxes in 2012 and 2013.

C. Force-Placed Insurance

On December 31, 2013, Sun West instituted a foreclosure action in Florida

state court due to Iaffaldano’s failure to pay the required insurance premiums and

taxes under the reverse mortgage. Thereafter, in August 2014, Iaffaldano’s

insurance coverage lapsed again. As a result, Sun West sent two letters

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encouraging Iaffaldano to purchase insurance and explaining that if she did not do

so, Sun West would be required to force-place the insurance, which is typically

more expensive. Iaffaldano still did not obtain insurance for her property.

In September 2014, because of this lapse, Sun West obtained a force-placed

insurance policy for Iaffaldano’s property through Proctor Financial, Inc.

(“Proctor”), with whom it has an exclusive business relationship to purchase that

type of insurance. 1 Because the Department of Housing and Urban Development

requires continual insurance coverage on reverse mortgages, Sun West’s

force-placed policy was effective retroactively to eliminate a gap in coverage in

2012. Sun West obtained force-placed insurance again for Iaffaldano in 2015. In

total, Sun West paid $11,736.30 for the force-placed insurance policy, that is

$4,942.77 for each year in 2014 and 2015, and $1,850.76 for the 2012 coverage.

D. Past Due Balance Brought Current

In July 2016, the past due balance Iaffaldano owed to Sun West was brought

current through funds provided by the Florida Hardest-Hit Fund Elderly Mortgage

Assistance Program (“ELMORE”), a state-run forgivable loan program. The state

agency gave $36,689.68 to Sun West, of which $30,758.05 was used to pay off

1 “Force-placed insurance,” as defined by RESPA, is “hazard insurance coverage obtained by a servicer of a federally related mortgage when the borrower has failed to maintain or renew hazard insurance on such property as required of the borrower under the terms of the mortgage.” 12 U.S.C. § 2605(k)(2). 5 Case: 18-11098 Date Filed: 04/09/2019 Page: 6 of 14

Iaffaldano’s past due balance, representing the accumulated insurance premiums

and taxes owed on Iaffaldano’s reverse mortgage. After paying the balance

Iaffaldano owed, there was extra money left over, $5,931.63, that Sun West in

2016 placed in a trust account. This 2016 trust account was later used to pay for

property insurance that came due in the future. Once Iaffaldano’s balance was

current, Sun West dismissed the foreclosure action.

Ultimately, Iaffaldano personally did not make any payments to Sun West to

cover the cost of the force-placed insurance that it purchased for her home in 2014

or 2015. Nor did she personally repay Sun West for the funds it advanced her to

cover her insurance premiums and taxes in 2012 and 2013.

II. PROCEDURAL HISTORY

In her amended complaint, Iaffaldano alleged in relevant part that Sun West

and Proctor violated RESPA, 12 U.S.C. § 2605(m), with the force-placed

insurance transactions in 2014 and 2015 because the charges were not bona fide

and reasonable. Iaffaldano also alleged that Proctor engaged in an unlawful

business relationship with Sun West. The district court entered judgment for

Proctor on both claims. Iaffaldano does not seek review of the district court’s

disposition of her claims against Proctor. Thus, Sun West is the only defendant on

appeal.

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In the parties’ joint pretrial statement, Iaffaldano alleged further that Sun

West violated Regulation X, specifically 12 C.F.R. § 1024.17, when it purchased

the force-placed insurance in 2014 and 2015 because her 2013 Repayment Plan

Agreement established an escrow account. Iaffaldano argued that, under 12 C.F.R.

§ 1024.17(k)(5), Sun West was prohibited from force-placing insurance on her

property in 2014 and 2015 and, instead, had an affirmative obligation to advance

her additional funds through an escrow account so that she could purchase and

maintain her voluntary insurance coverage through the People’s Trust Insurance

Company. Iaffaldano alleged that she was damaged as a result because the

force-placed insurance in 2014 and 2015 was unnecessary and more expensive.

After the bench trial, the district court determined, inter alia, that

Iaffaldano’s force-placed insurance claims lacked merit. As to her allegation that

Sun West violated 12 C.F.R. § 1024.17(k)(5) by force-placing the insurance

instead of advancing her additional funds for her insurance premiums, the district

court concluded that RESPA does not create a private right of action for allegations

that a mortgage servicer violated § 1024.17(k)(5). In addition, the district court

found that § 1024.17(k)(5) does not apply in any event because Iaffaldano had not

proven that she had an escrow account with Sun West in 2014 and 2015 or that the

2013 Repayment Plan Agreement established such an escrow account.

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Accordingly, the district court entered judgment in favor of Sun West on her

claims. This appeal followed.2

III. DISCUSSION

On appeal, Iaffaldano argues that the district court erred in finding that no

private right of action existed for her claims that Sun West violated

§ 1024.17(k)(5) when it purchased the force-placed insurance. She contends that

§ 1024.17(k)(5) was promulgated under § 6 of RESPA, specifically 12 U.S.C.

§ 2605(k). Because § 2605(f) provides an express private right of action for

violations of § 6 of RESPA, Iaffaldano asserts that a private right of action exists

for her claims that Sun West violated § 1024.17(k)(5). Alternatively, Iaffaldano

argues that her claims are cognizable under the Qualified Written Request

provision of RESPA found at 12 U.S.C. § 2605(e).3

We need not decide whether a private right of action exists under RESPA for

Iaffaldano’s force-placed insurance claims. Even assuming arguendo that a private

right of action exists, the district court did not clearly err in finding that Iaffaldano

2 After a bench trial, we review the district court’s conclusions of law de novo and the district court’s findings of fact for clear error. Garcia-Celestino v. Ruiz Harvesting, Inc., 843 F.3d 1276, 1284 n.4 (11th Cir. 2016). We review the district court’s interpretation of federal statutes and regulations de novo. Silva-Hernandez v. U.S. Bureau of Citizenship & Immigration Servs., 701 F.3d 356, 361 (11th Cir. 2012); Stansell v. Revolutionary Armed Forces of Colombia, 771 F.3d 713, 733 (11th Cir. 2014). 3 Because this claim was first raised on appeal, we will not consider it. See Access Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1331 (11th Cir. 2004).

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did not have an escrow account with Sun West in 2014 and 2015 to trigger any

obligation under § 1024.17(k)(5) in the first place.

A. RESPA and Force-Placed Hazard Insurance

RESPA is a consumer protection statute that regulates the real estate

settlement process. Hardy v. Regions Mortg., Inc., 449 F.3d 1357, 1359 (11th Cir.

2006). RESPA requires mortgage servicers to comply with the obligations

specified in § 6, including provisions concerning the administration of escrow

accounts, as well as any regulations issued to carry out the statute’s purposes. See

12 U.S.C. §§ 2605(a)-(m).

In 2010, Congress added new obligations to § 6 of RESPA with respect to

force-placed hazard insurance coverage. See Dodd-Frank Wall Street Reform and

Consumer Protection Act of 2010 (“Dodd-Frank Act”), Pub L. No. 111-203, 124

Stat. 1376 (2010), at § 1463 (2010). In particular, a mortgage servicer is

prohibited from “obtain[ing] force-placed hazard insurance unless there is a

reasonable basis to believe the borrower has failed to comply with the loan

contract’s requirements to maintain property insurance.” 12 U.S.C.

§ 2605(k)(1)(A). In order to have such a reasonable basis, the servicer must meet

the statutory requirements of 12 U.S.C. § 2605(l) and its implementing rules. Id.;

12 U.S.C. § 2065(k)(1)(E).

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In 2013, the Consumer Financial Protection Bureau promulgated new rules

in Regulation X to implement the Dodd-Frank Act’s force-placed hazard insurance

protections. See Mortgage Servicing Rules Under the Real Estate Settlement

Procedures Act, 78 Fed. Reg. 10696, 10696 (Feb. 14, 2013). As relevant here,

Regulation X now provides borrowers with additional protections against

force-placed hazard insurance if they have an escrow account established with their

mortgage servicer. Specifically, § 1024.17(k)(5) provides that, if a borrower has

an established escrow account, a servicer is obligated to disburse funds from that

escrow account to pay for the borrower’s hazard insurance premiums and may not

obtain force-placed insurance unless the servicer has a reasonable basis to believe

the borrower’s hazard insurance has been canceled or not renewed for reasons

other than nonpayment of premium charges. 12 C.F.R. § 1024.17(k)(5)(i)-(ii).

B. No Escrow Account

As the district court correctly concluded, Iaffaldano’s force-placed insurance

claims hinge on whether or not she had an escrow account with Sun West in 2014

and 2015 to trigger the protections under § 1024.17(k)(5). Iaffaldano contends that

she did have an escrow account by virtue of the 2013 Repayment Plan Agreement.

We disagree.

We start with the definition of an “escrow account” in Regulation X. For

purposes of 12 C.F.R. § 1024.17, an escrow account means:

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any account that a servicer establishes or controls on behalf of a borrower to pay taxes, insurance premiums (including flood insurance), or other charges with respect to a federally related mortgage loan, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay. The definition encompasses any account established for this purpose, including a “trust account”, “reserve account”, “impound account”, or other term in different localities. An “escrow account” includes any arrangement where the servicer adds a portion of the borrower’s payments to principal and subsequently deducts from principal the disbursements for escrow account items. For purposes of this section, the term “escrow account” excludes any account that is under the borrower’s total control.

12 C.F.R. § 1024.17(b).

Here, the record evidence shows that, at the time Iaffaldano obtained the

reverse mortgage, she elected not to have Sun West set up an escrow account for

the payment of her insurance premiums and taxes. Instead, Iaffaldano agreed to

make those payments herself. There is no evidence that this election ever changed.

Indeed, at trial, the Sun West representative confirmed that Iaffaldano did not have

an escrow account with Sun West or any other monetary set-aside for insurance

coverage and taxes in 2014 and 2015.

Although a trust account was established for Iaffaldano in June 2016 when

Sun West received the ELMORE funds, that account was created well after Sun

West obtained the force-placed insurance in 2014 and 2015. Therefore, the 2016

trust account did not, and could not, trigger any § 1024.17(k)(5) obligation in 2014

and 2015.

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Despite Iaffaldano’s argument to the contrary, the 2013 Repayment Plan

Agreement did not establish an escrow account with Sun West. Nothing in the

Agreement itself set aside funds for Sun West to pay Iaffaldano’s insurance

premiums or taxes when they came due in the future. Rather, the Agreement

required Iaffaldano to reimburse Sun West for money it already had paid for her

insurance and taxes in 2012 and 2013. And when Sun West advanced those funds

in 2012 and 2013, it paid the insurance company directly out of its own funds, not

through an escrow account set up for Iaffaldano.

In trying to transform the Agreement into something it was not, Iaffaldano

argues that Sun West: (1) added the amount of money it advanced for her

insurance premiums and taxes to the principal balance on her reverse mortgage;

(2) instituted a foreclosure proceeding when she did not make her reimbursement

payments under the Agreement, providing further evidence that the amount

advanced was now considered part of the principal on her reverse mortgage; and

then (3) used the ELMORE funds to pay for the owed insurance premiums and

taxes. According to Iaffaldano, those facts bring the 2013 Repayment Plan

Agreement within § 1024.17’s definition of an escrow account because it is an

“arrangement where the servicer adds a portion of the borrower’s payment to

principal and subsequently deducts from principal the disbursements for escrow

account items.” We find this argument unavailing.

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Reimbursing Sun West for the insurance premiums and taxes that it already

had paid on Iaffaldano’s behalf in 2012 and 2013 is not an escrow account

arrangement. And that Sun West was required to secure that repayment through a

foreclosure action does not somehow transform the reimbursement payment into

an escrow account arrangement either. Finally, because Iaffaldano never made a

single principal payment to Sun West on her reverse mortgage, she has not shown

that Sun West added any such payment to the principal she owed and then used

that money to pay for escrow items.

And Iaffaldano’s characterization of the 2013 Repayment Plan Agreement

has a fatal flaw: it is entirely inconsistent with the Security Instrument she signed

in 2009 to obtain the reverse mortgage. Sun West’s authority to advance money

for insurance premiums came from Paragraph 5 of the Security Instrument, which

further stated that “[a]ny amounts disbursed by [Sun West] under this Paragraph

shall become an additional debt of [Iaffaldano] . . . secured by this Security

Instrument.” The Security Instrument then made clear that any such “additional

debt” incurred under Paragraph 5 was wholly separate from the principal of the

reverse mortgage: “This Security Instrument secures to [Sun West]: (a) . . . a

maximum principal amount of Two Hundred Fifty Five Thousand Dollars and

Zero Cents . . . ; (b) the payment of all other sums, with interest, advanced under

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paragraph 5 . . . ; and (c) the performance of Borrower’s covenants and

agreements.” (emphasis added).

Thus, Iaffaldano is incorrect when she argues that “Sun West could not have

initiated foreclosure proceedings against [her] in connection with the debt arising

from the Repayment Plan Agreement, without increasing the principal on the

reverse mortgage to include the amounts attributable to those expenses.” Sun West

was able to foreclose because Iaffaldano’s debt under the Repayment Plan

Agreement was independently secured by the Security Instrument under (b) and

Paragraph 5—not because that debt was added to principal under (a). And because

the ELMORE funds were never added to principal, Sun West did not “deduct”

anything from principal when it disbursed those funds. Despite Iaffaldano’s best

efforts to fit a square peg into a round hole, the Repayment Plan Agreement was

not an escrow arrangement as defined in § 1024.17.

For these reasons, we conclude that the district court did not err in

determining that Iaffaldano did not prove that she had an escrow account with Sun

West in 2014 and 2015. We affirm the district court’s final judgment in favor of

AFFIRMED.