Countrywide home loan law suit

Letter's wording did not meet statutory requirements for deed of

A letter sent by a couple requesting the deed to their home divided the Missouri Supreme Court 5-2, with the majority holding the language failed to meet statutory requirements; that failure was fatal to their statutory penalty claim.

It's, I think, an important decision for lenders generally in this state that face potential liability under the statute, so I think this will help clarify the law in that regard. Many lenders, and certainly my client, Countrywide, often receive letters that are anything but clear and are then faced with the quandary as to whether to comply with the statute or do as their borrowers request, said Lewis, Rice & Fingersh attorney Duane Coleman. This kind of helps alleviate that problem.

The claim arose after the Garrs paid off their mortgage to their lender, Countrywide Home Loans Inc., on Aug 2, 2002. Six days later the Garrs sent a letter via certified mail, return receipt requested, to Countrywide, stating in part:

I confirmed via the Countrywide Automated Customer Service Line that our loan with Countrywide Home Loans was paid in full on August 8, 2002 and that an escrow balance of $60.84 would be refunded to me. We still have not received a Deed of Release to release the lien against our personal residence. . . . We are demanding immediate release of the Deed of Trust against our Marlann Drive property.

The letter also requested that evidence of the release of the deed be delivered by hand and contained with it a $30 check to cover any costs associated with filing and recording the deed. Countrywide received the letter on Aug. 12 and prepared the deed of release; an officer then executed the release and mailed the letter and deed of release to the St. Louis County Recorder of Deeds, which recorded it on Aug. 26, 10 days after Countrywide's receipt of the Garrs' Aug. 8 letter. The $30 check was returned to the Garrs because Countrywide did not require it.

On Sept. 3, the Garrs sent a second letter to Countrywide informing it that they were seeking damages against Countrywide Home Loans as a result of its flagrant violation of Mo. Rev. Stat. sec. 443.130, which governs penalties for failing to execute a sufficient deed of release within 15 days of settling a debt. The letter also requested Countrywide immediately tender a check for $16,500, the statutory penalty of 10 percent of the promissory note, and give them a sufficient deed of release within 10 days, or they would file suit against Countrywide. On Sept. 12, Countrywide mailed the Garrs a copy of the deed of release.

On Nov. 13, the Garrs filed suit against Countrywide in St. Louis County Circuit Court, requesting the statutory penalty under Section 443.130. The trial court ruled in favor of the Garrs but denied the Garrs' request for prejudgment interest and attorney's fees. Both the Garrs and Countrywide appealed.

Countrywide argued in its appeal that the Garrs' failed to sufficiently place Countrywide on notice as required by Section 443.130. This section holds a mortgagor must provide the request in the form of a demand letter to the mortgagee . . . by certified mail, return receipt requested. The letter shall include good and sufficient evidence that the debt secured by the deed of trust was satisfied with good funds, and the expense of filing and recording the release was advanced.

The state Supreme Court majority agreed, finding the Garrs' letter did not contain the information needed to fulfill Section 443.103, and reversed the trial court's judgment.

First, the Garrs demanded an 'immediate release' of the deed of trust, rather than allowing for fifteen business days in which Countrywide could respond as allowed under the statute, wrote Judge Stephan Limbaugh Jr. In addition, the Garrs demanded that Countrywide record the deed of release, which is another action not required by the statute. Finally, reading the Garrs' letter as a whole, nothing places Countrywide on notice that the Garrs are making a demand under section 443.130, whether directly, by reprinting, citing, or referencing, or otherwise.

The dissenting judges, Chief Judge Ronnie White and Judge Richard Teitelman, found the opposite, however, asserting that the majority required provisions not found in the statute's wording. Countrywide, the minority maintained, was put on notice when the Garrs wrote it demanding the release of their deed.

In this case, the Garrs' demand letter complied with all statutory requirements for a valid demand letter and reasonably informed Countrywide that the plaintiffs were requesting a deed of release under section 443.130, wrote Teitelman. The Garrs sent the demand letter via certified mail, return receipt requested. In the letter, the Garrs requested a deed of release because the debt was satisfied. As expressly required by the statute and referenced in the demand letter, they enclosed funds for the expense of filing and recording the deed of release.

Nonetheless, wrote Teitelman, the majority concludes that Countrywide, a large, sophisticated mortgage lender, had no notice that the Garrs were invoking the Missouri statute that enforces a mortgagee's right to a deed of release upon satisfaction of the mortgage.

The dissent found the fact that the Garrs did not warn Countrywide it had 15 days to respond irrelevant in regard to meeting the statutory requirement because they demand the deed after settling their debt. The minority also dismissed the majority's finding that the Garrs' request for the deed was not required by the statute and disbelieved that Countrywide was confused by the Garrs' request. Finally, the two judges contended the majority was requiring the Garrs to do more than what the statute requires.

No case has ever held that a section 443.130 demand letter is effective only if the statute is cited, reprinted or referenced. The statute itself imposes no such requirement. All that is required is that the mortgagee be put on notice, via a demand letter, that the mortgagor is requesting a deed of release, wrote Teitelman. As explained above, the Garrs' demand letter satisfied every statutory requirement for a demand letter.

Furthermore, banking corporations, as are other parties, are presumed to know the law, he added, citing Round Prairie Bank of Fillmore vs. Downey and Deal vs. Bank of Smithville. Concluding that a sophisticated mortgage company is not on notice because a customer's demand letter fails to cite or reprint a copy of the statute being invoked indulges an unreasonable assumption that institutional lenders are utterly unaware of their statutory obligations unless advised by their customers.

Teitelman and White held the trial court's judgment should have been affirmed. Judges Michael Wolff, Duane Benton, Laura Denvir Stith and William Ray Price joined Limbaugh in the majority.

It's my opinion that the majority has gone to extraordinary lengths to rewrite the provisions of Section 443.130. It has added requirements to the statute not found therein, which is not the court's role, said Lashly & Baer attorney Kevin Fritz, who represented the Garrs. The Garrs' letter clearly advised Countrywide that an entry of the satisfaction of the mortgage was being requested and, therefore, completely complied with the statutory requirements as found by the lower court. The dissent by Judge Teitelman, which was joined by Judge White, is well-reasoned and is the correct interpretation of Missouri law on this issue.

We were confident that the court would reverse the decision of the trial court, although, obviously, we could only speculate as to what rationale the court would use in that regard, said Coleman. We were hopeful that the court would in some fashion reach the constitutional issue we had raised because we believe the statute in question is unconstitutionally vague, but at least in this case we got the right results.

L. Joseph Garr III, et al., respondents/cross-appellants, vs. Countrywide Home Loans Inc., appellant/cross-respondent; No. SC85578; handed down July 1.