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Holm v. Wells Fargo Home Mortgage, Inc.

Supreme Court of Missouri, En Banc

February 28, 2017

DAVID and CRYSTAL HOLM, Respondents,
v.
WELLS FARGO HOME MORTGAGE, INC., and FEDERAL HOME LOAN MORTGAGE CORPORATION (FREDDIE MAC), Appellants.

         APPEAL FROM THE CIRCUIT COURT OF CLINTON COUNTY The Honorable R. Brent Elliott, Judge

          Mary R. Russell, Judge

         This case arises out of the 2008 foreclosure of the family residence of David and Crystal Holm (the Holms). The Holms filed a wrongful foreclosure action against Wells Fargo Home Mortgage, Inc., for allegedly foreclosing on their home without right. They also filed a quiet title action against the Federal Home Loan Mortgage Corporation (Freddie Mac), which took title to the house after the foreclosure sale.[1]

         During pretrial proceedings, a number of discovery disputes arose between the parties, requiring the trial court to issue numerous orders compelling the mortgage companies to produce documents and witnesses for deposition. Because of their obstructive discovery tactics, the trial court sanctioned the mortgage companies by striking their pleadings and preventing them from: (1) presenting any evidence at trial; (2) objecting to the Holms' evidence; and (3) cross-examining any of the Holms' witnesses. Shortly after the sanctions order was entered, the Holms waived their right to a jury trial.

         On the day of trial, the mortgage companies demanded the case be tried to a jury, arguing they had a constitutional right to jury trial, which they had never waived. The trial court denied the request and proceeded to a bench trial. The court entered judgment in favor of the Holms on their wrongful foreclosure claim, awarded them actual and punitive damages, and quieted title to the house in the Holms.

         The mortgage companies appealed from the imposition of sanctions, denial of their request for a jury trial, and entry of judgment for the Holms on the wrongful foreclosure and quiet title claims. The mortgage companies also contest the propriety of the actual and punitive damages awarded by the trial court.

         This Court holds that the trial court properly exercised its discretion in sanctioning the mortgage companies for their discovery violations. Additionally, the trial court's conclusion that Wells Fargo wrongfully foreclosed on the Holms' house was supported by substantial evidence and was not against the weight of the evidence. Because the mortgage companies had a constitutional right to have a jury determine the extent of the Holms' actual and punitive damages on the wrongful foreclosure claim, the trial court's judgment awarding damages and quieting title to the house in the Holms must be reversed. The trial court's judgment is affirmed in part and reversed in part, and the case is remanded for a new trial before a jury on the Holms' damages for wrongful foreclosure.

         Factual Background

         In 2001, the Holms purchased their home, which is located in Clinton County. The Holms executed a deed of trust on the house to secure a promissory note. The deed of trust identified the lender/mortgagee as Commercial Federal Mortgage Corporation. At some point after the Holms bought the house, Freddie Mac acquired the promissory note and Wells Fargo began servicing the note on behalf of Freddie Mac.

         The Holms' house suffered significant storm damage in the spring of 2008. An insurance check for $4, 467.74 was issued to the Holms to cover the cost of the storm damage. The check was made payable to the Holms and to Wells Fargo. The Holms sent the check to Wells Fargo to obtain its endorsement so the Holms could use the funds to repair their house. Wells Fargo refused to return the check.

         In June 2008, Kozeny and McCubbin, L.C. (Kozeny), acting as attorneys for Wells Fargo, notified the Holms that their note had been accelerated and they would need to pay $6, 608.93 to reinstate the note. In a letter to Kozeny, the Holms disputed the notice of default. They acknowledged that they had been behind on their payments but stated they had a payment plan in place with Wells Fargo. The Holms also contended their loan was erroneously accelerated because an agent of Wells Fargo saw the Holms removing items from their storm-damaged barn and mistakenly believed they were abandoning their home. The Holms believed the insurance check was retained by Wells Fargo and would be applied to bring their note current.

         Kozeny responded by informing the Holms that they instead would be required to pay the entire loan amount, plus fees and costs, to reinstate the promissory note. The Holms sent a second letter to Kozeny disputing the amount of the debt and requesting Wells Fargo return the insurance check endorsed so the Holms could apply that amount toward reinstatement of their loan.

         Kozeny sent the Holms copies of their deed of trust and promissory note to verify the amount of the debt owed. The copy of the note sent by Kozeny was not endorsed and did not identify Freddie Mac or Wells Fargo or explain how they were entitled to enforce the note. Wells Fargo never released the insurance funds to the Holms, nor did it apply the funds to the Holms' debt.

         Kozeny was named successor trustee to the Holms' deed of trust in July 2008 and scheduled a foreclosure sale for August 2008. The Holms repeatedly contacted Wells Fargo and Kozeny before the foreclosure sale in an effort to resolve the dispute. On the night before the foreclosure sale was scheduled to take place, the Holms reached an agreement with a Wells Fargo representative. The representative told the Holms that if they agreed to pay a reinstatement amount of $10, 306.94, the foreclosure sale would be postponed. The Holms were advised to contact Kozeny the next morning to confirm the amount and arrange for delivery of the payment. The Holms were told their payment did not have to be received before the foreclosure sale scheduled at noon of the following day.

         The Holms called Kozeny the next morning as instructed. Kozeny confirmed the reinstatement amount and advised the Holms that someone would call that afternoon with directions for sending a cashier's check for the agreed-upon amount. Kozeny assured the Holms the foreclosure sale would be postponed.

         That same day, David Holm secured a cashier's check in the amount of $10, 306.94. He visited his local physician for treatment of stress, anxiety, and panic attacks. The physician directed him to go to the hospital, where he had a heart monitor attached to his chest.

         Kozeny called the Holms later that afternoon and instructed them to overnight the cashier's check to Kozeny's St. Louis office and to send a copy of the check by facsimile. The Holms followed these instructions. Unbeknownst to the Holms, however, the foreclosure sale proceeded at noon as scheduled. Freddie Mac purchased the house at the sale.

         Several days after the foreclosure sale, the Holms received a letter from Kozeny returning the cashier's check. The letter indicated the check was returned because it was not received before the foreclosure sale. The Holms received a second letter from Kozeny stating the cashier's check was returned because the funds were not "enough and/or not certified."

         The Holms retained counsel and were subsequently offered another reinstatement amount of $8, 162.24. The Holms again sent a cashier's check in that amount to Wells Fargo. Wells Fargo did not reinstate the loan but, instead, retained the check for approximately one year before returning it.

         The Holms filed a three-count petition against the mortgage companies. Count I sought compensatory and punitive damages from Wells Fargo for wrongfully foreclosing on the Holms' loan. Counts II and III were asserted against only Freddie Mac and sought to quiet title to the house in the Holms and set aside the trustee's deed recorded in favor of Freddie Mac after the foreclosure sale.

         After a lengthy period of inaction in the case, the Holms retained new counsel and initiated discovery. For several years, the parties sparred over discovery disputes.[2] In a pretrial order issued two days before the case was scheduled for trial, the trial court made a detailed account of the mortgage companies' discovery abuses on the record and concluded the mortgage companies' conduct, and the conduct of their attorneys, demonstrated "a pattern of contempt for the Missouri Supreme Court Rules, as well as this Court's rules and Orders." As sanctions for the mortgage companies' discovery abuses, the trial court struck the mortgage companies' pleadings and prohibited them from: (1) offering evidence at trial; (2) cross-examining any of the Holms' witnesses; and (3) objecting to the admission of evidence offered by the Holms regarding the issues of liability and damages. The trial court further ordered the mortgage companies to pay the Holms' attorney fees and costs incurred in pursuing discovery.

         The day after the trial court announced the sanctions, the Holms filed a waiver of their right to a jury trial. When the parties appeared for trial on the following day, the mortgage companies argued they had a right to a jury trial, which they had not waived at any point during the proceedings. The trial court concluded that the mortgage companies had waived their right to a jury trial by failing to request a jury prior to the date of trial and by failing to submit jury instructions to the court. The case proceeded to trial without a jury.

         The trial court found in favor of the Holms on Counts I and II of their petition.[3]The trial court's judgment awarded the Holms $95, 912.30 in compensatory damages, $200, 000 for emotional distress, and $2, 959, 123 in punitive damages for their wrongful foreclosure claim against Wells Fargo. The judgment also quieted title to the house in the Holms because it found the ...


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