Johnson v. Federal Home Loan Mortgage Corp.
2015 U.S. App. LEXIS 12098
| 9th Cir. | 2015Background
- Joel Johnson refinanced his home in 2008 with Taylor, Bean & Whitaker (Taylor Bean) under a Deed of Trust requiring borrower payments into an escrow for homeowner's insurance.
- Taylor Bean sold Johnson’s note and Deed of Trust to Freddie Mac, while Taylor Bean remained the loan servicer under a servicing contract.
- Taylor Bean failed to pay the insurance premium from escrow; Safeco cancelled Johnson’s policy. Taylor Bean later went bankrupt; Freddie Mac replaced the servicer.
- Johnson’s house burned in January 2009; Safeco denied the claim because the policy had been cancelled; lender-placed insurance and eventual payments followed, but Johnson’s mortgage fell into default and his home was foreclosed.
- Johnson sued Freddie Mac for breach of contract and breach of fiduciary duty; the district court dismissed under Fed. R. Civ. P. 12(b)(6). Johnson appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Freddie Mac assumed servicing obligations by purchasing the note | Johnson: Freddie Mac "assumed all" Taylor Bean’s rights and obligations, including servicing and escrow duties | Freddie Mac: Deed of Trust and servicing arrangements expressly keep servicing obligations with the servicer; Freddie Mac never agreed to assume them | Court: Freddie Mac did not assume servicing obligations; Section 20 disavows assumption by purchaser |
| Whether an assignee is liable for assignor’s executory obligations under Washington law | Johnson: assignee steps into assignor’s shoes, so Freddie Mac must assume duties | Freddie Mac: Under Washington law, an assignee is not liable for executory obligations absent express assumption; Section 20 controls | Court: Washington law allows splitting payment-rights from servicing; express disavowal controls; no assumption |
| Whether Freddie Mac assumed fiduciary/escrowee duties tied to escrowed insurance funds | Johnson: purchasing the Deed of Trust brought fiduciary duty to hold/pay escrowed insurance premiums | Freddie Mac: Deed of Trust and contract show escrow duties remained with servicer (Taylor Bean) | Court: Freddie Mac did not assume fiduciary/escrowee duties; obligations stayed with servicer |
| Whether complaint stated plausible claims under Rule 12(b)(6) given contractual documents | Johnson: alleged facts that Freddie Mac’s purchase made it liable | Freddie Mac: complaint contradicted the Deed of Trust and failed to plead facts showing express assumption; legal conclusions insufficient | Court: Dismissal affirmed; plaintiff’s conclusory assertion contradicted contract and is legally insufficient |
Key Cases Cited
- Am. Bankers Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F.3d 1401 (9th Cir. 1996) (discussing typical seller/servicer arrangements and Freddie Mac Sellers’ & Servicers’ Guide)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (court need not accept legal conclusions as true)
- Lee v. City of Los Angeles, 250 F.3d 668 (9th Cir. 2001) (considering extrinsic documents incorporated by reference in a complaint)
- Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580 (9th Cir. 2008) (allegations that contradict referenced documents need not be accepted)
- Paullus v. Fowler, 367 P.2d 130 (Wash. 1961) (assignee stands in assignor’s shoes — discussed by parties)
- Lewis v. Boehm, 947 P.2d 1265 (Wash. Ct. App. 1997) (assignee of executory contract not liable absent express assumption)
- Bain v. Metro. Mortg. Group, Inc., 285 P.3d 34 (Wash. 2012) (addresses beneficiary’s foreclosure rights; does not preclude separating servicing from note ownership)