233 F. Supp. 3d 865
D. Or.2017Background
- Norman and Lawana Gray obtained a mortgage in 2003; Fannie Mae owned the loan and Seterus serviced it. Howard Gray (Norman’s brother) was a cosigner but later discharged in bankruptcy and quitclaimed his interest in 2011; he never lived at the property or paid the mortgage.
- Lawana applied for a loan modification in Sept. 2010; the Grays entered a trial payment plan and were offered a HAMP permanent modification in Dec. 2010 with an acceptance deadline of Jan. 31, 2011.
- The Grays returned acceptance documents around Jan. 25, 2011, having interlineated the form to remove Howard’s name; they made payments under the modification through May 2011.
- Seterus completed a non-judicial foreclosure sale on Jan. 19, 2011—before Seterus received the Grays’ signed documents—and later rescinded the modification, citing the altered documents.
- Plaintiffs sued (ECOA, FHA, breach of contract including covenant of good faith and promissory estoppel). The court held Fannie Mae immune under the Merrill doctrine and dismissed it; remaining claims against Seterus survive to trial. A three-day bench trial was set.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Applicability of Merrill doctrine / Fannie Mae liability | Fannie Mae is liable for servicer conduct and should remain a defendant | Fannie Mae is a federal instrumentality and cannot be held liable for Seterus’s acts | Court: Fannie Mae immune under Merrill; dismissed as a defendant |
| Disparate impact under FHA | Seterus’ policies/culture have a disparate impact on non-married co-owners/co-borrowers (lack of ability to produce divorce decrees, etc.) | Statistical proof insufficient; policies lawful | Court: Denied Seterus summary judgment on disparate impact; claim survives |
| ECOA adverse action & discouragement claims | Grays say a permanent modification was granted then rescinded without adverse action notice and that Seterus discouraged applicants | Seterus says no permanent modification was in force and it followed procedures | Court: Genuine factual disputes; ECOA adverse action and discouragement claims survive (denied summary judgment) |
| ECOA inquiry/evaluation claims (marital status/inquiry/evaluation) | Plaintiffs assert improper questions/evaluation practices regarding marital status | Seterus points to testimony showing no marital-status questioning and no evidence of differential evaluation | Court: Inquiry and marital-status inquiry claims dismissed; evaluation claim dismissed for lack of response/evidence |
| FHA claims (disparate treatment / failure to advise about cosigner) | Grays say Seterus failed to advise whether Howard needed to participate and discouraged them | Seterus contends Grays never told them Howard wouldn’t participate | Court: Material factual disputes exist; FHA claims denied summary judgment and survive |
| Breach of contract / covenant & promissory estoppel | Grays contend a binding modification existed (after correction) and Seterus breached covenant/promised modification | Seterus contends Grays’ alterations rejected the offer (no valid contract) | Court: Factual disputes remain; Seterus summary judgment denied on contract claims |
Key Cases Cited
- Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (Merrill doctrine immunizes certain federal instrumentalities)
- Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054 (9th Cir. 2002) (summary judgment "genuine issue" standard explained)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (summary judgment and genuine issue jury standard)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden-shifting principles)
- U.S. ex rel. Adams v. Aurora Loan Servs., Inc., 813 F.3d 1259 (9th Cir. 2016) (discusses circumstances in which entities like Fannie Mae may be federal instrumentalities)
- Hinton v. Federal National Mortgage Ass'n, 137 F.3d 1350 (5th Cir.) (affirming treatment of Fannie Mae as federal instrumentality for Merrill analysis)