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Associates Asset Management LLC v. Blackburn

Court of Appeals of Tennessee, Jackson

March 22, 2017


          Session January 17, 2017

         Appeal from the Chancery Court for Shelby County No. CH-11-0200 James R. Newsom, Chancellor

         This is a breach of contract case. After Appellant purchased a package of default loans, which contained Appellee's second mortgage note, Appellant waited almost four years to file suit against Appellee for breach of contract. Appellee raised laches as an affirmative defense. The trial court held that gross laches applied to bar Appellant's lawsuit. We conclude that the trial court abused its discretion in applying gross laches to bar Appellant's claim in that Appellee's injuries were only economic, and Appellee failed to pursue her claims for predatory lending, misrepresentation, and/or lender misconduct. Reversed and remanded.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court

         Reversed and Remanded

          Christopher W. Conner and Roman Reese, Maryville, Tennessee, for the appellant, Associates Asset Management, LLC.

          John D. Horne, Memphis, Tennessee, for the appellee, Angela Blackburn.

          Arnold B. Goldin, J., delivered the opinion of the court, in which J. Steven Stafford, P.J., W.S., and John W. McClarty, J., joined.



         I. Background

         On or about January 21, 2004, Ken McFerrin, an employee of Lifetime Funding Co., Inc. ("Lifetime"), contacted Appellee Angela Blackburn, by letter, regarding her possible purchase of property located at 5318 Cherokee Rose Lane, Memphis, Tennessee (the "Property"). Lifetime acted as the loan broker for NLC, Inc. and as sales agent for the Property. At trial, Ms. Blackburn testified that after she agreed to purchase the Property, but prior to closing, Mr. McFerrin informed her that the purchase money mortgage for the Property would be an 80/20 loan, see discussion infra. Mr. McFerrin advised Ms. Blackburn that if she entered into the transaction, paid her mortgage on time, and built her credit, she could refinance the loan after one year to a fixed-rate mortgage.

         Ms. Blackburn closed on the Property on January 30, 2004. At the closing, she signed two promissory notes; the first note was an eighty percent first mortgage note, in favor of NLC, Inc.'s affiliated entity, First NLC Financial Services, LLC, in the principle amount of $162, 400.00; this was an adjustable rate mortgage. In conjunction with the $162, 400.00 note, Ms. Blackburn executed a first mortgage deed of trust to secure the loan. The second note was a twenty-percent, second mortgage, "balloon note, " in favor of NLC, Inc. in the amount of $40, 600.00 (the "Note"). This Note is the subject of the instant appeal. The Note carried a fixed interest rate of 11.99% and had a term of fifteen years, with the first payment of interest and principle due on March 1, 2004. The Note was secured by a second Deed of Trust (the "Deed") on the Property. The Deed, which Ms. Blackburn also signed, specified that the Note may be accelerated on breach; allowed the holder of the Note to collect attorney's fees; and allowed for foreclosure on the Property. At the time of closing, Ms. Blackburn received and acknowledged two notices of Assignment, which she understood to allow NLC, Inc. to transfer the loans to OCWEN Mortgage. Thereafter, NLC, Inc. and its affiliates assigned the Note and the Deed to OCWEN Mortgage.[1]

         On or about January 17, 2005, OCWEN Mortgage sent Ms. Blackburn a letter informing her that she was in default on her first mortgage. On July 17, 2005, OCWEN Mortgage's assignee, Specialized Loan Servicing, LLC ("SLS"), notified Ms. Blackburn of its intent to foreclose on the Property, and Ms. Blackburn relinquished the Property to OCWEN Mortgage. On March 6, 2006, OCWEN Mortgage foreclosed on the Property under the first mortgage note and deed of trust.

         Although Ms. Blackburn testified that she attempted to refinance the mortgage, she discovered that refinancing could not be accomplished because the value of the Property was insufficient to support the refinance of the mortgage indebtedness. Ms. Blackburn obtained an attorney. On March 20, 2008, the attorney notified SLS that Ms. Blackburn had been the victim of predatory lending, commercial misrepresentation, and/or lender misconduct, and that she was "unable and unwilling to negotiate any repayment plan." However, Ms. Blackburn did not pursue any of these claims.

         The Note that is the subject of the instant appeal was also assigned to SLS, and Ms. Blackburn fell into default on that Note. Ms. Blackburn's last payment on the Note was on May 10, 2005, and there was no further contact between OCWEN Mortgage and Ms. Blackburn.

         On November 20, 2007, Appellant Associates Asset Management ("AAM"), a company that purchases and collects foreclosed debt, purchased Ms. Blackburn's Note as part of a default loan package. At the hearing, Mark Mancuso, who is the custodian of AAM's records, testified that Appellant bought the Note with the knowledge that the Property had been sold to satisfy the first mortgage such that the Note was unsecured at the time Appellant purchased it. According to Mr. Mancuso's testimony, on December 18, 2007, AAM sent Ms. Blackburn a letter, informing her of its purchase of the Note and of her default on same. On February 12, 2008, AAM commenced collection efforts on the Note. Between February of 2008 and February of 2009, AAM sent five additional letters to Ms. Blackburn demanding payment. Each of these letters warned of the possibility of legal action and suggested that the parties work out some solution. After February 4, 2009, there was no further communication between the parties until Appellant filed suit. On December 23, 2009, Ms. Blackburn closed on another home, in conjunction with which she incurred a new mortgage debt of approximately $186, 459.00.

         AAM filed suit against Ms. Blackburn on February 7, 2011. On February 28, 2011, Ms. Blackburn filed an answer and Tennessee Rule of Civil Procedure 12.02(6) motion to dismiss, wherein she argued, inter alia, that Appellant's complaint should be dismissed on grounds of: (1) the running of the six-year statute of limitations, Tenn. Code Ann. § 28-3-109(a)(3); (2) laches; (3) equitable estoppel; (4) voluntary assumption of speculative risks; and (5) unclean hands. AAM opposed the motion to dismiss by response filed on April 28, 2011. The case proceeded to trial on December 17, 2015. At the time of the trial, the total amount due on the Note, including principal and interest, was approximately $92, 736.12.

         On March 8, 2016, the trial court entered its findings of fact and conclusions of law, wherein it found that AAM was guilty of gross laches, thus "defeating its contractual claim." On April 14, 2016, the trial court entered a judgment in favor of Ms. Blackburn, holding that Ms. Blackburn "is hereby awarded ...

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