On November 22, 2019, Plaintiffs Alfredo and Chelsie Dominguez (“collectively “Plaintiffs” or “Dominguez”) refinanced their manufactured home with Wallick & Volk, working with loan originator and W&V employee, Christina Bingham. In February 2020, W&V sold the loan and transferred servicing to The Money Source, Inc. (“TMS”). Nine months later in November 2020, Plaintiffs’ hazard insurance policy premium became due but was not paid by TMS from the loan servicer’s escrow account, resulting in cancellation of the policy on February 6, 2021, for non-payment of premium. On March 22, 2021, more than a year after W&V transferred the loan to TMS, the home suffered severe fire damage.
Plaintiffs sought to recover approximately $300,000 for the loss of real and personal property, as well as emotional distress damages and attorney fees, resulting from the fire that destroyed their home on March 22, 2021.
Defendant The Money Source, Inc. (“TMS”) filed a motion to exclude Plaintiffs Alfredo Dominguez and Chelsie Dominguez’s (“Plaintiffs”) expert Curtis Novy’s expert reports and testimony.
Mortgage Lending Expert Witness
Curtis L. Novy is a licensed financial crimes investigator and seasoned mortgage & real estate expert witness with many years of experience. His work focuses on complex investigations, corporate risk management, elder financial abuse, private equity & family office investigations, and providing court certified expert witness testimony.
Discussion by the Court
Qualifications
TMS first argued that Novy is unqualified to offer mortgage servicing opinions because his expertise is in mortgage fraud investigations and underwriting.
Novy, however, has over 30 years of experience in commercial and residential lending, which includes “loan servicing compliance.” Since 1997, Novy has served in various capacities in the mortgage industry—his expertise includes lending operations, mortgage banking standards and practices, and ensuring loans meet industry standards. Furthermore, since 1997, Novy has been retained as a subject matter expert and consultant, where his areas of testimony included mortgage lending for both commercial and residential mortgages. Novy also testified that he received Housing and Urban Development (“HUD”) training as to loan servicing matters and he has reviewed loan servicing records as part of his role in compliance and auditing. The Court therefore found Novy’s qualifications met the knowledge and experience of an expert to discuss the mortgage servicing industry.
In their response, Plaintiffs attached a declaration from Novy expounding upon his expertise and expert conclusions. The Court held that this declaration amounts to an untimely supplemental expert report because it was produced after the deadline to disclose supplement expert witness opinions.
Reliability
TMS argued that Novy’s opinion lacks reliability, calling it speculative and full of legal conclusions.
Preliminary Report Opinion No. 4
TMS argued that opinion number 4 in Novy’s preliminary report improperly opined that “TMS failed to properly audit the loan file from Wallick & Volk and therefore accepted all liability and risks.” Novy relied on HUD regulations to reach this conclusion. TMS also argued that Novy did not identify the correct HUD regulations in his deposition testimony.
The Court found that this statement is an improper legal conclusion because Novy concluded that TMS violated HUD standards and accepted liability. As an expert, Novy may address the factual question of whether TMS deviated from the customs, practices, and standards of the mortgage industry, but not the ultimate legal issue of whether TMS is liable.
TMS also argued that Novy improperly testified that Chelsie Dominguez “had no obligation to provide TMS with the Perkin Insurance Policy” because he “had not reviewed the Deed of Trust” to verify who was required to provide proof of insurance. In fact, Novy’s report explained that he did review the Deed of Trust. He testified at this deposition that he did so but could not “recollect the exact wording in there.” Therefore, the Court found this testimony reliable.
Supplemental Report Opinion No. 5
TMS argued that Novy’s opinion number 5, concluding that TMS failed to service the loan to HUD standards, was unreliable. TMS failed to develop this argument. The Court found that Novy’s conclusion was reliable because he had “a sufficient basis to support an opinion.”
Novy relied on TMS procedures, loan servicing records, deposition testimony, HUD QC Audit Checklist, and his knowledge of industry standards and practices.
The Court reserved the question of whether Novy’s opinion that TMS did not service the loan to HUD standards as an improper legal conclusion for trial.
Supplemental Report Opinion No. 6
TMS argued that Novy’s opinion number 6, which concluded that TMS failed to properly monitor its subcontractor work, was unreliable because he never managed or oversaw an insurance vendor.
The Court found that Novy’s opinion is reliable. Novy testified that he relied on the deposition testimony of Linda Case, who was responsible for managing Assurant, TMS’s servicing vendor. Novy also relied on HUD regulations and “QC plan standards.”
Supplemental Report Opinion No. 7
TMS argued that Novy’s opinion number 7, which concluded that it was improper of TMS to place Plaintiffs’ loan in default status, was unreliable because Novy testified that he did not know the reason the loan was put in default status.
The Court found Novy’s opinion reliable because he had “a sufficient basis to support the opinion.” Novy reviewed TMS procedures, loan servicing records, deposition testimony, and HUD QC Audit Checklist, which includes property insurance verification. Using these materials and his expertise, Novy concluded that it was improper to put the loan in default status.
Supplemental Report Opinion No. 8
TMS argued that Novy’s opinion number 8, concluding that TMS did not follow FHA (“Federal Housing Administration”) Guidelines to ensure that hazard insurance is filed and settled “expeditiously,” was unreliable because Novy testified that he had no opinion as to the industry standard timing.
The Court found Novy’s opinion reliable because his conclusion was based on his knowledge and experience from the industry. Novy testified that HUD does not set a timeline but that “based on [his] 30-plus years of experience” the timing should be between 30 days to 90 days.
Held
The Court granted in part and denied in part the Defendant The Money Source, Inc.’s motion to exclude expert Curtis Novy’s reports and testimony. It also struck Curtis Novy’s declaration.
Key Takeaway:
Novy reviewed TMS procedures, loan servicing records, deposition testimony, and HUD QC Audit Checklist and used his extensive knowledge of industry standards and practices to arrive at his conclusions. However, Novy may address the factual question of whether TMS deviated from the customs, practices, and standards of the mortgage industry, but not the ultimate legal issue of whether TMS is liable.
Case Details:
| Case Caption: | Dominguez Et Al V. Wallick And Volk Incorporated Et Al |
| Docket Number: | 2:22cv768 |
| Court: | United States District Court for the District of Arizona |
| Order Date: | August 23, 2024 |
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