Opinion
NO. 2017-CA-000671-MR
03-16-2018
DENISE FRAKES AND TERRY FUGATE APPELLANTS v. SPECIALIZED LOAN SERVICES, LLC AND DEUTSCHE BANK NATIONAL TRUST CO. APPELLEES
BRIEF FOR APPELLANTS: Brandon N. Voelker Fort Mitchell, Kentucky BRIEF FOR APPELLEES: Neal F. Bailen Bethany A. Breetz Jennifer A. Pekman Louisville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM BOONE CIRCUIT COURT
HONORABLE JAMES R. SCHRAND, JUDGE
ACTION NO. 16-CI-00926 OPINION
AFFIRMING
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BEFORE: CLAYTON, JOHNSON, AND NICKELL, JUDGES. JOHNSON, JUDGE: Denise Frakes and Terry Fugate ("Frakes"), appeal from the March 16, 2017 order of the Boone Circuit Court dismissing their complaint against Specialized Loan Servicing, LLC ("SLS"), and Deutsche Bank National Trust Company ("Mortgagor"), pursuant to the Rules of Civil Procedure ("CR") 12.02(f) for failure to state a claim. After reviewing the record in conjunction with the applicable legal authorities we AFFIRM the order of the Boone Circuit Court.
Terry Fugate is not a party to the mortgage, but claims a marital interest in the property.
BACKGROUND
On August 24, 2001, Frakes signed a note and mortgage payable to People's Choice Home Loan, Inc. for $228,750.00 on property she acquired by deed in 2000. By executing the loan and mortgage, Frakes agreed to the terms of payment including insurance and taxes on the property that was mortgaged.
The property in question actually consist of two buildings. One is the home Frakes lives in and the other is an unattached building.
Beginning in 2009, Frakes attempted, unsuccessfully, to obtain a loan modification. As of 2012, Frakes was in default of her mortgage. At some point in time, the roof of one of the two buildings on Frakes' property was damaged and an insurance claim was filed. As is common, the insurance proceeds check was issued to both Frakes and Mortgagor, with the funds being held by SLS as the mortgage servicer. Frakes made demands on SLS asking that the insurance proceeds be given to her. The record does not reflect that any renovations were undertaken by either party. In addition, over the objections of Frakes, SLS entered the property and took various actions, including changing the locks, in order to secure the property.
After these actions, on July 15, 2016, Frakes filed her complaint in the court. Both SLS and Mortgagor filed a CR 12.02 motion to dismiss the complaint on the basis that Frakes had failed to state a claim for which relief could be granted.
On December 6, 2016, Frakes obtained service on CIT Bank, which then filed a motion to dismiss based upon CR 12.02. On January 13, 2017, Frakes filed a response to SLS and Mortgagor's motion to dismiss. On March 14, 2017, the court heard arguments of all parties, and on March 16, 2017, issued an order dismissing Frakes' complaint against SLS and Mortgagor based on CR 12.02 failure to state a claim upon which relief can be granted.
Frakes' claims against CIT Bank are still pending in the circuit court and are not a part of this appeal. --------
On April 17, 2017, Frakes filed this appeal.
STANDARD OF REVIEW
A motion to dismiss pursuant to CR 12.02, for failure to state a claim upon which relief may be granted is a question of law, and we review the issue de novo. Since it is a pure question of law, a reviewing court owes no deference to a trial court's determination. Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010).
ANALYSIS
In their complaint and brief filed in the circuit court on January 13, 2017, Frakes states four claims for relief. The first is a claim under the Kentucky Consumer Protection Act as codified in Kentucky Revised Statutes ("KRS") 367.170 et seq. However, the court found, and we agree, that the Kentucky Consumer Protection Act does not apply to claims relating to real property or a mortgage on real property. In Craig v. Keene, 32 S.W.3d 90, 91 (Ky. App. 2000), we determined that the Kentucky Consumer Protection Act does not apply to real estate transactions by an individual homeowner. We again ruled on this issue in Joiner v. Tran & P Properties, LLC, 526 S.W.3d 94, 99 (Ky. App. 2017). Thus, as a matter of law, the court was correct in dismissing Frakes' claim under the Kentucky Consumer Protection Act.
The next three issues which Frakes appeals all concern the mortgage agreement. Frakes alleges a claim for implied good faith and fair dealing pointing to three different actions by SLS and Mortgagor. Frakes alleges that SLS retained the insurance proceeds, Mortgagor refused to modify her mortgage, and SLS or Mortgagor made a phone call to her insurer concerning the vacant building on the property causing her insurer to cancel her insurance.
However, in each case, the court found that the actions by SLS and Mortgagor were provided for in the mortgage agreement. The mortgage agreement allowed SLS to retain the insurance proceeds for the purpose of repairs. Contrary to Frakes' argument, the check was issued to both her and Mortgagor and Mortgagor, knowing that Frakes was in default, kept the proceeds to guarantee repairs to the mortgaged property. The mortgage agreement at paragraph 5 allowed for the Mortgagor to keep the proceeds to assure that its property was properly repaired, thus there was no breach of the mortgage agreement.
As to Frakes' claim that she was damaged by a phone call from the Mortgagor to her insurance carrier, again the terms of the mortgage allowed the Mortgagor to guarantee that both buildings were legally insured. If Frakes left one building vacant, that is a legitimate concern for Mortgagor and the insurer.
Finally, Frakes alleges that Mortgagor had an obligation to modify her mortgage, yet she points to no provision in the mortgage or law which would require Mortgagor to take such action, and her expectations are not a basis for a complaint.
In each of the alleged actions, which form the basis of Frakes' claims for breach of good faith and fair dealing, Frakes provides no proof of any breach of the mortgage agreement itself. While Kentucky law recognizes the obligation of good faith performance in contracts, violation of the good faith covenant alone does not give rise to an independent cause of action. J. S. v. Berla, 456 S.W.3d 19, 25 (Ky. App. 2015). Absent insurance contracts, Kentucky law does not recognize an independent tort for breach of good faith and fair dealing, and in this appeal, Frakes has made no claim for breach of the mortgage contract. Id.
We find no error in the court's dismissal of her claims concerning a breach of an implied covenant of good faith and fair dealing by either Mortgagor or SLS. In fact, the actions by SLS and the Mortgagor were in accordance with the terms of the mortgage which Frakes admits she signed.
As to Frakes' final two claims, conversion of the insurance proceeds by SLS and Mortgagor and their entering the property to inspect and change the locks, are without merit. Again, the terms of the mortgage, paragraphs 5 and 7, allowed for SLS to protect the property covered in their mortgage. The court so found, and we agree.
In liberally construing the material facts of the complaint, the oral arguments made by Frakes, and her pleadings, we concur with the Boone Circuit Court that Frakes would not be entitled to relief under any set of facts which could be proved. Accordingly, we find that the court committed no error in dismissing Frakes' complaint pursuant to CR 12.02(f).
CONCLUSION
Based upon the foregoing, we AFFIRM the March 16, 2017, Boone Circuit Court's Order Granting Defendants' Motion to Dismiss.
ALL CONCUR. BRIEF FOR APPELLANTS: Brandon N. Voelker
Fort Mitchell, Kentucky BRIEF FOR APPELLEES: Neal F. Bailen
Bethany A. Breetz
Jennifer A. Pekman
Louisville, Kentucky