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Nationstar Mortgage LLC v. Stafsholt

Supreme Court of Wisconsin

March 23, 2018

Nationstar Mortgage LLC n/k/a Bank of America, NA, as successor by merger to BAC Home Loans, Plaintiff-Appellant-Cross-Respondent,
Robert R. Stafsholt, Defendant-Respondent-Cross-Appellant-Petitioner, Colleen Stafsholt f/k/a Coleen McNamara, unknown spouse of Robert R. Stafsholt, unknown spouse of Colleen Stafsholt, f/k/a Colleen McNamara, Richmond Prairie Condominiums Phase I, Association and The First Bank of Baldwin, Defendants.

          Oral Argument: October 23, 2017

          REVIEW OF A DECISION OF THE COURT OF APPEALS Reported at 373 Wis.2d 309, 895 N.W.2d 103

          Source of Appeal from Circuit Court county St. Croix L.C. No. 2011CV224, Scott R. Needham Judge

          For the defendant-respondent-cross-appellant-petitioner, there were briefs filed by Nathan M. Brandenburg, Steven J. Weintraut, and Siegel, Brill, P.A., Minneapolis, Minnesota. There was an oral argument by Steven J. Weintraut.

          For the plaintiff-appellant-cross respondent, there was a brief filed by Amy M. Salberg and Salberg Law Firm, LLC, West Bend. There was an oral argument by Amy M. Salberg.

          Justices: Concurred: Dissented: Not Participating: ABRAHAMSON, J. did not participate.


         ¶1 This is a review of an unpublished, per curiam decision of the court of appeals reversing the St. Croix County Circuit Court's[1] order awarding attorney fees and costs to Robert Stafsholt ("Stafsholt") and against Nationstar Mortgage LLC ("Nationstar") on the basis of equitable estoppel. Nationstar Mort. LLC v. Stafsholt, No. 2015AP1586, unpublished slip op. (Wis. Ct. App. Dec. 28, 2016) (per curiam).

         ¶2 Stafsholt raises two issues for our review.[2] First, whether the circuit court properly awarded attorney fees to Stafsholt. Within this issue are two sub-issues: (a) whether circuit courts acting in equity possess the power to award attorney fees to prevailing parties in order to make them whole; and (b) if so, whether the circuit court properly exercised its discretion in this case. Second, whether the circuit court erroneously exercised its discretion in allowing Nationstar to collect interest on the principal amount of the loan during the default period.

         ¶3 We reverse the decision of the court of appeals. As to the first issue, circuit courts may include attorney fees as part of an equitable remedy "in exceptional cases and for dominating reasons of justice." Sprague v. Ticonic Nat'1 Bank, 307 U.S. 161, 167 (1939) . The circuit court properly exercised its discretion because it applied the proper standard of law to the facts of record when it concluded that Bank of America acted in bad faith and then awarded attorney fees to Stafsholt.

         ¶4 As to the second issue, we hold that Nationstar may collect interest accrued during litigation because Stafsholt would receive a windfall if he was both excused from paying interest and received his attorney fees. We remand the matter to the circuit court for determination of the reasonable attorney fees Stafsholt incurred before the court of appeals and this court, and to then calculate the balance of the loan.


         ¶5 Stafsholt and his ex-wife Colleen Stafsholt ("Colleen") owned property in New Richmond, Wisconsin. In October 2002, Colleen executed a note in the amount of $208, 000, which was secured by a mortgage on the property owned by Stafsholt and Colleen. Though the mortgage changed hands many times, only four servicers are relevant to this appeal: Bank of America ("BOA") was the servicer while the events underlying this case took place; Ocwen Loan Servicing, LLC ("Ocwen") and BAC Home Loans ("BAC") were both servicers while this case was pending at the circuit court; and Nationstar Mortgage LLC ("Nationstar") has serviced the loan from the time of post-trial motions through the present appeal.

         ¶6 One of the terms in the mortgage requires the Stafsholts to maintain insurance on their home. In July 2010, Colleen received two letters from BOA asking for proof of insurance for the time period beginning June 2010, when the previous policy expired. BOA informed Colleen it would purchase Lender Placed Insurance ("LPI") if it did not receive the requested proof of insurance. If BOA received proof of insurance that demonstrated no lapse in coverage, it would cancel any LPI purchased at no charge. In September, BOA purchased LPI and notified the Stafsholts of its purchase.[3]

         ¶7 After receiving the notice from BOA regarding the purchase of the LPI, Stafsholt called BOA because he was "irritated" that BOA continued to fail to recognize the insurance he purchased. Stafsholt requested the LPI be taken off his account. The BOA representative with whom Stafsholt spoke informed him she could not do anything about the LPI charge, and he would need to speak with "the next elevated level of customer service" to have the charge removed. The representative told Stafsholt that the only way he could reach the next level of customer service was to skip a mortgage payment and become delinquent.[4]

         ¶8 Stafsholt followed the phone representative's advice and skipped his September and October payments in order to reach the next level of customer service, even though he had the financial ability to pay his mortgage. Stafsholt never communicated with the next level of BOA customer service. Instead, he received a letter dated September 16, 2010, detailing BOA's intent to accelerate the mortgage.

         ¶9 BOA charged Stafsholt for LPI from December 2010 through July 2012, as evidenced by various reinstatement quotes that always included LPI. Stafsholt called BOA five times between December 30, 2010, and January 27, 2011, in an effort to get the LPI charges removed from his account to no avail. He then sent BOA an offer to reinstate the loan in May 2011. The offer was for $10, 573.60, which represented nine monthly loan payments, without LPI or other fees, less $500 for expenses. Stafsholt continued to make similar offers before trial, but BOA never responded.

         ¶10 BAC, then servicing the loan, filed a foreclosure action against the Stafsholts in February 2011 based on the default. After a series of mergers and assignments, Ocwen became the loan's servicer and was substituted as plaintiff in December 2013.

         ¶11 Stafsholt raised equitable estoppel as an affirmative defense. He asserted that Ocwen was "estopped from foreclosing on the property" because its predecessors-in-interest "created the dispute" and "induced" the default. Stafsholt's answer also raised a number of counterclaims: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) equitable estoppel; (4) a request for declaratory judgment; and (5) assignment of the mortgage pursuant to Wis.Stat. § 846.02 (2013-14) .[5]

         ¶12 Following a bench trial, the circuit court issued findings of fact and conclusions of law in April 2015. The circuit court made four key conclusions of law for purposes of this appeal: (1) BOA improperly charged the Stafsholts for LPI; (2) the Stafsholts established the affirmative defense of equitable estoppel because BOA "caused the Stafsholts to default on the Mortgage and Note" through the "misrepresentations of the BOA agent"; (3) BOA and its successors improperly commenced and maintained the foreclosure proceeding from February 2011 to the date of the order (April 2015); and (4) BOA breached the implied covenant of good faith and fair dealing.

         ¶13 The circuit court concluded that due to BOA's improper actions, Stafsholt was entitled to a declaratory judgment finding that BOA breached the note and mortgage and, furthermore, that Ocwen could not recover the costs and expenses incurred by Ocwen and its predecessors-in-interest. Based on these conclusions, the circuit court dismissed the foreclosure action and reinstated the Stafsholts' mortgage. The court permitted Ocwen to recover $172, 108.17, which represented the principal balance of the loan. The court did not allow Ocwen to recover interest that accrued during litigation, nor did it allow Stafsholt to recover his attorney fees.

         ¶14 Stafsholt moved for reconsideration, claiming that the principal balance of the loan due was actually $10, 167.38. Stafsholt argued that because of the attorney fees and other costs he incurred as a result of the litigation, he was "left in a worse financial position than he would have been had he just done what most homeowners do ...: capitulate and pay the improper charges." Stafsholt reached his balance through the following calculations: $172, 108.17 of principal as of the default minus $71, 940.79 for attorney fees and costs, [6] and a $90, 000 payment he made in April 2015.

         ¶15 The circuit court granted in part Stafsholt's motion for reconsideration. It concluded that Stafsholt was entitled to recover a portion of his attorney fees and costs based on equitable estoppel. The court reasoned that equitable estoppel allowed Stafsholt to receive an offset for his attorney fees because it "is used to 'prevent the assertion of what would otherwise be an unequivocal right.'" That is, equitable estoppel applies to preclude Nationstar from recovering the entire balance on the note, which would otherwise be an unequivocal right. The court concluded that the remedy in this case "should serve to make [Stafsholt] whole."

         ¶16 The circuit court utilized the factors outlined in Standard Theatres v. DOT, 118 Wis.2d 730, 349 N.W.2d 661 (1984), to determine the reasonableness of the attorney fees sought by Stafsholt. The court reduced Stafsholt's claimed attorney fees and costs of $71, 940.79 by ten percent ($7, 194.08) using the "lodestar method, " as articulated in Standard Theatres, [7] resulting in an award of $64, 746.71 for attorney fees. The circuit court then deducted $40, 239.82 from the attorney fee award, representing the amount of interest the court had previously denied, because the court concluded that allowing Stafsholt to recover attorney fees and not pay interest accrued during litigation would be a windfall for Stafsholt. This left a net award of $24, 506.89 in attorney fees and costs.

         ¶17 The court then held that the remaining principal balance on the loan was $57, 601.28. It reached this number by subtracting the allowed attorney fees of $24, 506.89 and the $90, 000 payment made by Stafsholt from the principal balance of $172, 108.17 ($24, 506.89 $90, 000.00 = $114, 506.89; $172, 108.17 - $114, 506.89 = $57, 601.28). The court ordered Ocwen to assign the mortgage to Stafsholt pursuant to Wis.Stat. § 846.02(1) if Stafsholt paid the amount due by August 1, 2015.

         ¶18 Nationstar, which was substituted as plaintiff after acquiring the note, appealed the order dismissing the foreclosure and the portion of the order granting Stafsholt's claims for attorney fees and costs. Stafsholt cross-appealed, arguing that the circuit court erred in reducing his requested attorney fees and costs.

         ¶19 The court of appeals affirmed the circuit court's holding that BOA breached the implied covenant of good faith and fair dealing when it charged Stafsholt for LPI. Nationstar, unpublished slip op., ¶37. The court of appeals concluded that the circuit court's finding that BOA committed wrongful actions in telling Stafsholt to default on his mortgage was supported by the record; therefore, it affirmed the circuit court's determination that Stafsholt established equitable estoppel as an affirmative defense. Id., ¶¶39, 55. The court also affirmed the circuit court's grant of declaratory judgment to Stafsholt on his breach of contract claim because Stafsholt did, in fact, have proof of insurance and did supply BOA with that proof. Id., ¶58. Consequently, Nationstar was not entitled to collect costs and fees for LPI or the foreclosure. Id., ¶70-71.

         ¶20 However, the court of appeals reversed the circuit court's award of attorney fees to Stafsholt. In doing so, it relied on the American Rule ("parties to litigation typically are responsible for their own attorney's fees") to conclude that the circuit court did not have the power to award attorney fees in this case. Id., ¶¶61-62. It declined to address Stafsholt's argument that the circuit court possessed the inherent authority to award his attorney fees because the argument was not raised in the circuit court and, furthermore, was first raised in Stafsholt's reply brief to the cross-appeal, which deprived Nationstar of any opportunity to respond. Id., ¶67.

         ¶21 Finally, the court of appeals reversed the circuit court as to Nationstar's collection of interest during litigation. Id., ¶75. The court of appeals held that the circuit court's analysis was

a fair and logical way to resolve the parties' dispute over Nationstar's recovery of interest. . . . However, in practice, applying this analysis in the instant case would result in accomplishing by indirect means what we have already determined cannot be done directly: awarding Stafsholt a portion of his attorney fees and costs.

Id. The court of appeals then remanded to the circuit court to determine "whether there are other grounds on which the circuit court could have determined it was appropriate to prohibit Nationstar from ...

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