Johnson v. FHLMC, No. 13-35596 (9th Cir. 2015)
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Plaintiff, a homeowner, appealed the dismissal of his action against Freddie Mac, for breach of contract and breach of fiduciary duty where Freddie Mac purchased plaintiff's mortgage from Taylor Bean, the loan originator, on a secondary market. Taylor Bean failed to pay the insurance premium from an escrow account and caused plaintiff's insurance to be cancelled. The court concluded that plaintiff failed to allege facts that, if true, would establish
that Freddie Mac had a contractual duty to service the loan where the Deed of Trust expressly disavows any assumption of servicing obligations by a subsequent purchaser of the loan, and Freddie Mac never expressly assumed any such obligations. The court concluded that Washington law did not prohibit this arrangement and that this arrangement is typical for such home loans. Finally, the court concluded that plaintiff's breach of fiduciary duty argument failed because Section 20 of the Deed of Trust where the duty to hold the money for the insurance premiums in escrow remained with the loan servicer, Taylor Bean. Accordingly, the court affirmed the judgment.
Court Description: Mortgages. The panel affirmed the district court’s Fed. R. Civ. P. 12(b)(6) dismissal of a homeowner’s claims for breach of contract and breach of fiduciary duty brought against the Federal Home Loan Mortgage Corporation (“Freddie Mac”), arising after the homeowner’s home was foreclosed. Freddie Mac had purchased the homeowner’s mortgage from Taylor, Bean & Whitaker Mortgage Co., the loan originator. Taylor Bean, which had continued to service the loan after selling it to Freddie Mac, failed to pay the insurance premium from an escrow account and caused the homeowner’s insurance to be cancelled. The panel held that the homeowner failed to allege facts that would establish that Freddie Mac had a contractual duty to service the loan where Freddie Mac never agreed to assume the servicing obligations when it purchased the loan from Taylor Bean, the Deed of Trust provided that the obligations would remain with Taylor Bean, and Washington law did not prohibit the arrangement. The panel also held that Freddie Mac did not assume the fiduciary duty of an escrowee because under the Deed of Trust the duty to hold money for the insurance premiums in escrow remained with the loan servicer, Taylor Bean. JOHNSON V. FHLMC 3
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