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Highmark Federal Credit Union v. Rachelle L. Hunter

May 16, 2012

HIGHMARK FEDERAL CREDIT UNION,
PLAINTIFF AND APPELLEE,
v.
RACHELLE L. HUNTER,
DEFENDANT AND APPELLANT, AND CREDIT COLLECTIONS BUREAU
DEFENDANT.



APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA THE HONORABLE JEFF W. DAVIS Judge

The opinion of the court was delivered by: Gilbertson, Chief Justice

CONSIDERED ON BRIEFS ON MARCH 19, 2012

[¶1.] Rachelle Hunter received a loan from Highmark Federal Credit Union to purchase a home and property. A flood damaged the home a few years later. There was no flood insurance. Hunter argues Highmark was negligent in failing to warn her to purchase flood insurance and in failing to purchase the insurance at her expense. Hunter appeals from the circuit court's grant of summary judgment.

FACTS

[¶2.] In 2005, Highmark made a loan to Hunter to purchase a manufactured home and lot in Hermosa, South Dakota. Hunter signed a document titled "Standard Flood Hazard Determination" that indicated the property was in a 100-year flood area. The document included a section titled "Notice to Borrower about Federal Flood Disaster Assistance." Under that section, the following language provided in part:

The Flood Disaster Protection Act of 1973, as amended, mandates federally insured or regulated lenders to require the purchase of flood insurance on all buildings being financed that are located in [Special Flood Hazard Areas] of communities participating in the [National Flood Insurance Program]. The flood insurance must be maintained for the term of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance at your expense.

No flood insurance was purchased by either Hunter or Highmark. In 2007, a flood damaged the home and the personal property inside.

[¶3.] The Flood Disaster Protection Act of 1973 (FDPA), as amended, 42 U.S.C. §§ 4001-4129, and Code of Federal Regulations, 12 C.F.R. § 760, place certain requirements on federally regulated financial institutions. Such institutions cannot make a loan secured by improved real estate in an area designated as a special flood hazard unless the property is covered by flood insurance. Before the loan can be made, the borrower must obtain the insurance. If the borrower does not, the institution is authorized and required to obtain the flood insurance at the borrower's expense.

[¶4.] After the flood, Highmark filed a foreclosure action against Hunter. Highmark demanded the balance of the loan plus interest. Hunter counterclaimed, alleging that Highmark did not inform her she needed to purchase flood insurance. She also argued Highmark was negligent in failing to purchase the required flood insurance and add the premium cost to her account. Hunter asserted that such failure was a breach of Highmark's statutory duty and was negligent as a matter of law.

[¶5.] Highmark moved for summary judgment, contending that there were no genuine issues of material fact regarding its foreclosure complaint and it was entitled to judgment as a matter of law. As to Hunter's counterclaim, Highmark argued that it had no statutory or common-law duty to Hunter under the FDPA so Hunter's counterclaim should be dismissed. The circuit court denied the motion in October 2008. In 2009, the parties stipulated to foreclosure and a sheriff's sale of the property. Under the stipulation, Hunter's counterclaim would continue. [¶6.] In May 2011, Highmark moved for summary judgment on Hunter's counterclaim. After a hearing, the circuit court granted the motion. Hunter appeals.

STANDARD OF REVIEW

[¶7.] "Summary judgment is examined de novo: we give no deference to [the court's] ruling." Adrian v. Vonk, 2011 S.D. 84, ¶ 8, 807 N.W.2d 119, 122. "Summary judgment in a negligence case is appropriate when the trial judge resolves the duty question in the defendant's favor." Hendrix v. Schulte, 2007 S.D. 73, ¶ 8, 736 N.W.2d 845, 847.

ANALYSIS

[¶8.] The National Flood Insurance Act of 1968 (NFIA), 42 U.S.C. §§ 4001-4129, established the National Flood Insurance Program (NFIP). Congress enacted the FDPA in 1973, amending the NFIA to require flood insurance for loans secured by improved real estate located within a designated special flood hazard area. 42 U.S.C. § 4012a(b).*fn1 Lending institutions must notify a borrower of the flood insurance requirement; if the ...


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