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Newland v. Morgan Stanley Private Bank, N.A.

United States District Court, E.D. Tennessee, Knoxville

May 24, 2017

STEVE AND CATHY NEWLAND, Plaintiffs,
v.
MORGAN STANLEY PRIVATE BANK, N.A., WELLS FARGO BANK, N.A., PHH MORTGAGE CORP., F.V.I, INC., SHAPIRO & INGLE LLP NORTH CAROLINA SPECIALIZED LOAN SERVICING, LLC, SHAPIRO & INGLE, LLP TENNESSEE, SPECIALIZED ASSET MANAGEMENT, LLC, MORGAN STANLEY MORTGAGE CAPITAL HOLDINGS, LLC, SKY REALTY, LLC, and SAXON MORTGAGE SERVICES INC., Defendants.

          GUYTON JUDGE

          MEMORANDUM AND ORDER

          REEVES UNITED STATES DISTRICT JUDGE

         Steve and Cathy Newland, acting pro se, have brought this action seeking to set aside the foreclosure and sale of their property, and for compensatory damages. Pending before the court are Shapiro & Ingle's motion for judgment on the pleadings [R. 24] and the Newlands motion to amend complaint [R. 59].

         I. Background

         The Newlands filed their original complaint on June 3, 2015, in the Circuit Court for Sevier County, Tennessee. The original complaint alleges that in March 2002, the Newlands entered into a Tennessee Open-End Deed of Trust to secure a credit line of up to $250, 000. The terms of the credit agreement required the Newlands to pay off the balance of the credit line within ten years, or by March 20, 2012. The Newlands aver that Morgan Stanley Private Bank, N.A., falsified the Deed of Trust after the Newlands had executed it. The complaint goes on to state that Morgan Stanley failed to acknowledge or correct the falsified Deed of Trust and began foreclosure proceedings against the Newlands. The Newlands filed a complaint in state court that was resolved by a mediated settlement agreement.

         In May 2012, the Newlands entered into a Home Equity Line of Credit Modification Agreement with Wells Fargo. The terms of the Modification Agreement required the Newlands to make monthly interest only payments on the unpaid principal balance of $238, 686.84 for five years starting in June 2012 and continuing through May 2017, at which time the Newlands agreed to pay the entire loan balance in full. The Newlands allege they sent the executed Modification Agreement to Morgan Stanley, but the agreement was never recorded with the Register's Office.

         The Newlands later received a letter from Morgan Stanley informing them of a change in servicers to PHH Mortgage. The Newlands state that the first statement from PHH was not in compliance with the Modification Agreement. The Newlands state they paid all amounts due through June 2012. They continued to remit payments after June 2012, although they allege their prior payments had not been credited to their account. On June 5, 2012, Morgan Stanley reported the Newlands as delinquent. The Newlands allege that PHH continued to send false statements and they had no obligation to remit payments based on erroneous billing statements. The Newlands sent a check in the amount of $774.99 that was returned marked “not enough to cure default.” The Newlands next received a letter dated August 3, 2012, from PHH stating “as of today, you loan is 3 payments past due.” During the next several months, PHH continued to return some payments, accepted and processed some payments, and failed to acknowledge, process or return some payments, according to the Newlands. PHH ceased to provide any monthly billing statements to the Newlands after April 2013. On April 26, 2013, PHH and Wells Fargo referred the Newlands account to Shapiro & Kirsch, LLP (n/k/a Shapiro & Ingle, LLP of Memphis[1]) for foreclosure.

         On August 16, 2014, the Newlands received a letter from one of the Shapiro Defendants stating, “as of June 19, 2014, our client has advised us that the amount of the debt was $260, 377.23.” On September 9, 2014, the Newlands responded to the letter disputing the validity of the debt. The Newlands state they continued to send letters to the Shapiro Defendants disputing the debt, but defendants failed to address the issues raised in their letters.

         Shapiro & Ingle LLP (of Charlotte, North Carolina), acting as Substitute Trustee, notified the Newlands that the property was going to be sold by public auction on May 15, 2015. On May 19, 2015, the Shapiro Defendants caused a Trustee's Deed to be recorded in Sevier County conveying the property to FV-1 for a sale price of $205, 000.

         Among other allegations, the Newlands allege the Shapiro Defendants failed to meet the minimal statutory foreclosure procedures; the foreclosure sale was based on false information; and the Shapiro Defendants failed to record and abide by the Modification Agreement. The Newlands allege one or both of the Shapiro Defendants caused a sale to be conducted on May 15, 2015, “at a closed and locked Sevier County courthouse, while all the streets surrounding the courthouse were closed, ” and that the auctioneer who conducted the sale did so in “a normal tone of voice.” The Newlands make general allegations of a “below market sale price” and that they will suffer “severe damages and irreparable harm” if the foreclosure is not set aside.

         The lawsuit was removed to this court on July 20, 2015. The Shapiro Defendants filed a motion for judgment on the pleadings on February 17, 2016 [R. 24]. The Shapiro Defendants aver that the Newlands owe over three years of payments they are unable to pay; and there is no allegation tending to show the Shapiro Defendants, as substitute trustee, pursued foreclosure in bad faith. The Newlands filed a response on March 11, 2016 [R. 26]. The Newlands then moved to amend their complaint on April 21, 2017 [R. 59]. The Shapiro Defendants responded to that motion on May 5, 2017 [R. 61]. The Newlands filed a reply on May 11, 2017 [R. 63].

         II. Motion to Amend Complaint

         When there are pending before the court both a dispositive motion and a motion to amend the complaint, the court must first address the motion to amend the complaint. See Ellison v. Ford Motor Co., 847 F.2d 297, 300 (6th Cir. 1988). Under Federal Rule of Civil Procedure 15(a), judges are directed to grant leave to amend pleadings freely “when justice so requires.” The determination of whether the circumstances of a case are such that justice would require the allowance of an amendment is left to the sound discretion of the court. Hayden v. Ford Motor Co., 497 F.2d 1292, 1294 (6th Cir. 1974).

         In support of their motion to amend, the Newlands state that they wish to describe in further detail assertions against the Shapiro Defendants that were unknown to them when the original complaint was filed and to include joined party defendants, Saxon Mortgage Services, Inc., and Morgan Stanley Mortgage Capital Holdings, LLC. The Newlands further state the motion to amend was filed prior to the deadline set by the court in the scheduling order. The Newlands aver that the Shapiro Defendants will not suffer undue prejudice from the filing of the ...


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