Hagan v. Credit Union of America et al

Filing 48

MEMORANDUM AND ORDER granting 42 Defendant Credit Union of America's Motion to Dismiss for Failure to State a Claim; and granting 44 Defendant Member Mortgage Services' Motion to Dismiss for Failure to State a Claim. Signed by District Judge J. Thomas Marten on 4/23/2012.Mailed to pro se party Toni J. Hagan by regular mail. (jlw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS

TONI J. HAGAN,
Plaintiff,

vs.

Case No. 11-1131-JTM

CREDIT UNION OF AMERICA and MEMBER
MORTGAGE SERVICES,
Defendants.

MEMORANDUM AND ORDER
Ms. Hagan seeks rescission of a mortgage loan and its subsequent refinancing. Credit Union
of America and Member Mortgage Services have each filed a Motion to Dismiss under Fed. R. Civ.
P. 12(b)(6) (Dkt. Nos. 42 & 44). For the following reasons, the motions are granted.

I. Standard of Review: 12(b)(6)
Under the standards of 12(b)(6), the court accepts factual allegations in a complaint as true
and draws reasonable inferences in favor of the plaintiff. Gann v. Cline, 519 F.3d 1090, 1092 (10th
Cir. 2008). The complaint must contain enough allegations of fact to state a claim to relief that is
plausible on its face. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “‘Plausibility’ in
this context refers to the scope of the allegations in a complaint: if they are so general that they
encompass a wide swath of conduct, much of it innocent, then the plaintiffs ‘have not nudged their
claims across the line from conceivable to plausible.’” Robbins v. Oklahoma, 519 F.3d 1242, 1247
(10th Cir. 2008) (quoting Twombly, 550 U.S. at 570). “The plausibility standard is not akin to a

‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted
unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 556). Thus,
“where the well-pleaded facts do not permit the court to infer more than a mere possibility of
misconduct, the complaint has alleged – but it has not ‘show[n] – that the pleader is entitled to
relief.’” Id. at 679 (quoting FED. R. CIV. P. 8(a)(2)). The court may not provide additional factual
allegations “to round out a plaintiff’s complaint or construct a legal theory on a plaintiff’s behalf.”
See Whitney v. New Mexico, 113 F.3d 1170, 1173-74 (10th Cir. 1997).

II. The Allegations and Factual Background
Ms. Hagan is a pro se litigant. She filed her fifty-six-page original Complaint on May 12,
2011, consisting of her allegations, pages of corporate information about Credit Union and Member
Mortgage, a United States Department of Housing and Urban Development Settlement Statement,
Truth in Lending Disclosure Statements, and assorted other documents. On August 31, 2011, without
having served the original Complaint, Ms. Hagan filed a substantially rewritten Amended Complaint
(Dkt. No. 8), which begins with five pages of unnumbered allegations and continues with thirty-three
numbered paragraphs across the remaining twenty-two pages, interspersed with sections quoting
legal documents and various laws. No documents are attached. While her pleadings are not a model
of clarity, they must be construed liberally. See Price v. Philpot, 420 F.3d 1158, 1162 (10th Cir.
2005).“[The] court, however, will not supply additional factual allegations to round out a plaintiff’s
complaint or construct a legal theory on a plaintiff’s behalf.” Whitney v. New Mexico, 113 F.3d 1170,
1173-74 (10th Cir. 1997). “The broad reading of the plaintiff’s complaint does not relieve the
plaintiff of the burden of alleging sufficient facts on which a recognized legal claim could be based.”
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Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991).
Ms. Hagan explicitly requests rescission of a mortgage loan agreement and subsequent
refinancing for real property located at 1601 E. Winterset Circle, in Goddard, Kansas. The original
mortgage loan was made in late August 2008. The refinancing occurred in mid-January 2009. Ms.
Hagan bases the request for rescission on provisions of the Truth in Lending Act (TILA), 15 U.S.C.
§ 1601 et seq.; the Home Owner’s Equity Protection Act (HOEPA), which is an amendment to TILA
at 15 U.S.C. § 1639; and “HPA”, which is never explained but presumably refers to the Homeowners
Protection Act, 12 U.S.C. § 4901 et seq. She also alleges that false statements and misleading
representations were made, that she was wrongfully induced into entering the mortgage and
refinancing agreements, that certain disclosures were withheld or not provided in violation of law,
and that underwriting guidelines and standards were violated. In explaining these allegations, she
cites the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601 et seq., and the Kansas
Mortgage Business Act, Kan. Stat. Ann. § 9-2201 et seq., in addition to TILA and HOEPA. There
are additional allegations of improper notarization, changing mortgage documents after closing,
levying excessive and prohibited charges, and failure to make timely payments out of escrow.
Credit Union and Member Mortgage make numerous arguments in their motions. They argue
that no right of rescission exists under TILA for residential mortgage transactions or any refinancing
that incorporates less than the unpaid principal balance. Additionally, they argue that if the Amended
Complaint can be construed to seek money damages, it is outside the one-year statute of limitations
provided by TILA. The companies argue the transactions do not qualify under HOEPA, and that to
the extent they do, they are both ineligible for rescission and are time-barred. They further argue that
RESPA does not provide a private cause of action for good-faith estimates and settlement statements
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and that other sections of RESPA cited by Ms. Hagan do not apply. They add that Ms. Hagan failed
to plead actual damages under RESPA, that the Kansas Mortgage Business Act provides no private
cause of action, and that the fraud claims are time-barred and were not pled with sufficient
particularity.

III. The Viability of the TILA, HOEPA, and RESPA Claims
A. Ms. Hagan’s Claim Is Not Viable Under TILA
Violations of TILA can be redressed by rescission and damages. Pennington v. EquiFirst
Corp., No. 10-1344, 2010 WL 3981442, at *2 (D. Kan Oct. 8, 2010). Damages claims are subject
to a one-year statute of limitations. 15 U.S.C. § 1640(e). The original mortgage loan at issue here
was made in August 2008, and the refinancing took place in January 2009. Ms. Hagan’s original
Complaint was filed in May 2011, outside the statute of limitations. Thus, to the extent that she seeks
damages in the Amended Complaint, such a remedy is time barred under TILA.
But if certain disclosures required by TILA are not made, the right to rescind a loan does not
expire until three years after the transaction is consummated. See 15 U.S.C. § 1635(f). So rescission
is not time-barred here. The right of rescission, however, does not extend to “residential mortgage
transactions.” Id. § 1635(e)(1). TILA defines a residential mortgage transaction as one “in which a
mortgage deed of trust, purchase money security interest arising under an installment sales contract,
or equivalent consensual security interest is created or retained against the consumer’s dwelling to
finance the acquisition or initial construction of such dwelling.” Id. § 1602(x). Ms. Hagan argues the
original mortgage loan does not fit the definition of a residential mortgage transaction. But the
Amended Complaint states that she moved into the house on the property—which makes it her

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dwelling. See Compl. ¶ 4; see also § 1602(w). The definitions of “dwelling” under 15 U.S.C. § 2681,
which relates to lead exposure reduction, and 12 U.S.C. § 5102, which relates to mortgage licensing,
are not relevant. Further, a mortgage deed of trust exists regardless of whether Ms. Hagan is making
payments to the previous homeowner. Thus, the original mortgage loan is exempt from rescission
claims under TILA.
The refinancing agreement is also exempt from rescission under TILA. According to 15
U.S.C. § 1635(e)(2), transactions which constitute “a refinancing or consolidation (with no new
advances) of the principal balance then due and any accrued and unpaid finance charges of an
existing extension of credit by the same creditor secured by an interest in the same property,” are
exempt from rescission. So refinancing agreements may only be rescinded under this provision if
“the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge
on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.”
12 C.F.R. § 226.23(f)(2). The Amended Complaint alleges the refinanced loan was for $98,000,
$2,666 of which were loan charges and fees, which leaves $95,334 to be refinanced. Compl. p. 2324. It further alleges that at the time of refinancing $95,362 remained on the original loan. Compl.
p. 6. Because the new amount financed did not exceed the unpaid principal balance, the refinancing
agreement is exempt from rescission under TILA.
Certain allegations could conceivably cloud the mathematical analysis of the amount
remaining on the original loan versus the amount loaned in the refinancing, but they do not change
the legal outcome. For example, Ms. Hagan alleges that because part of an escrow fund was
mishandled, the amount remaining on the original loan at the time of refinancing should have been
$94,960. Compl. p. 23. She further alleges that out of the $2,666 in loan charges and fees related to

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the refinancing, $256 were improper charges. Compl. p. 24. Even taking this into account, the new
amount financed would not exceed the combined unpaid principal balance and the costs attributed
to the refinancing. Thus the refinancing agreement would still be exempt from rescission under
TILA.

B. Ms. Hagan’s Claim Is Not Viable Under HOEPA
HOEPA is part of TILA and codified at 15 U.S.C. § 1639. Damage claims under HOEPA
are time-barred by the same statute of limitations as TILA damage claims. Thielen v. GMAC Mortg.
Corp., 671 F. Supp.2d 947, 953 (E.D. Mich. 2009). And under HOEPA, rescission of the original
mortgage loan would be inappropriate for the same reasons that rescission of the mortgage loan
under TILA was inappropriate—residential mortgage transactions are exempt from rescission under
§ 1635(e)(1). 12 C.F.R. § 226.32(a)(2)(i).
The refinancing loan also does not qualify for rescission under HOEPA because the act only
covers loans in two circumstances: (1) where the interest rate exceeds the yield on Treasury
securities by either eight or ten percent, depending on circumstances, or (2) where the total points
and fees paid by the consumer exceed the greater of either eight percent of the loan amount, or $400.
12 C.F.R. § 226.32(a)(1). The Amended Complaint alleges a five percent interest rate, ruling out
qualification under the interest rate provision. See Compl. p. 8, 20. And it alleges that the “true cost”
of refinancing the loan came to $5125—well less than eight percent of the alleged loan
amount—ruling out qualification under the points and fees provision. Compl. p. 20. Therefore, Ms.
Hagan has failed to state a claim under HOEPA.

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C. Ms. Hagan’s Claim Is Not Viable Under RESPA
RESPA regulates the provision of real estate “settlement services,” which are defined as “any
service[s] provided in connection with a real estate settlement, including, but not limited to . . . the
origination of a federally related mortgage loan.” 12 U.S.C. § 2602. Ms. Hagan makes claims that
the HUD-1 and Good Faith Estimate settlement forms authorized under § 2603 and § 2604 of
RESPA were, in part, incorrectly filled out. See, e.g., Compl. ¶¶ 4, 5, 6, 7, 25. But RESPA does not
provide a private cause of action to enforce violations of § 2603 and § 2604. See, e.g., Morrison v.
Brookstone Mortg. Co., 415 F. Supp. 801, 806 (S.D. Ohio 2007); Reese v. 1st Metropolitan Mortg.
Co., 2003 WL 22454658, at *3-4 (D. Kan. Oct. 28, 2003).
Ms. Hagan further alleges that the defendants misrepresented the need for title insurance, and
cites 24 C.F.R. § 3500.16, which states in pertinent part that “[n]o seller of property that will be
purchased with the assistance of a federally related mortgage loan shall violate section 9 of RESPA
(12 U.S.C. § 2608).” See Compl. ¶ 10. In turn, § 2608 provides “[n]o seller of property . . . shall
require directly or indirectly . . . that title insurance covering the property be purchased by the buyer
from any particular title company.” Neither defendant was the seller of the property, and the
Amended Complaint does not allege Ms. Hagan was required to use any particular title company.
Thus, there is no valid claim under RESPA.
Ms. Hagan makes additional allegations of RESPA violations for failure to properly manage
the mortgage escrow account. See Compl. ¶¶ 9, 11, 13. The only RESPA provisions relevant to the
administration of mortgage escrow accounts are § 2609 and § 2605. Section 2609 provides no
private cause of action. Bloom v. Martin, 865 F. Supp. 1377, 1384-85 (N.D. Cal. 1994); Payne v.
Mortg. Elec. Registration Sys., Inc., 387 B.R. 614, 630 (Bankr. D. Kan. 2008). Section 2605(e)

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requires loan servicers to respond to “qualified written requests” from a borrower for information
relating to the servicing of a loan. Ms. Hagan comes closest to making a claim under § 2605(e) here:
30. Failing to provide Plaintiff with tax documents for a portion of interest paid on
the mortgage citing that Corporations did not have to disclose interest under $600.00
and failure to respond to Plaintiff written request for explanation.
31. Excess charges on the first Annual Escrow Account Summary given in February
2010 beyond what regulation allow by not adding including two actual payments
made. Failure to respond to Plaintiff’s request for or offer an explanation within the
time allowed for response. Failure to correct the excess.
Compl. ¶¶ 30, 31.
Nowhere in the Amended Complaint are damages alleged that stem from a failure to respond
—which are required to sustain a claim under the provision. See § 2605(f)(1). It is not clear who
failed to provide what information. Paragraph thirty-one does not even allege that a written request
was made, much less a qualified one. At best she has alleged only the possibility of misconduct, and
that is not enough to state a claim.
Section 2605(g) requires loan servicers to make timely payments out of escrow. Ms. Hagan
alleges: “Failure to make timely payments on taxes when fund had been impounded as required
resulting in two late payments.” Compl. ¶ 33. Again, aside from a lack of clarity as to the factual
allegations, she does not allege damages, which are necessary to state a claim under § 2605(g) of
RESPA. “A claim has facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal,
556 U.S. at 678. There is insufficient content to state a claim under § 2605(g).

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IV. Any Fraud Allegations Are Time-Barred and Were Not Made with Sufficient Particularity
Portions of the Amended Complaint could be liberally construed as a fraud claim—that Ms.
Hagan was fraudulently induced into agreeing to a refinance loan. See, e.g., Compl. p. 23 (“A ‘new
loan’ was abusive and fraudulently misrepresented . . . .”). Most, if not all, of the allegations would
fail to “state with particularity the circumstances constituting fraud or mistake.” See FED. R. CIV. P.
9(b); United States ex rel. Sikkenga v. Regence Bluecross Blueshield, 472 F.3d 702, 726-27 (10th
Cir. 2006) (holding complaint must set forth the “who, what, when, where and how of the alleged
fraud.”). Regardless, the statute of limitations for fraud in Kansas is two years. See KAN. STAT. ANN.
§ 60-513(a)(3). The refinance loan was made in January 2009. The original Complaint was not filed
until May 2011. The alleged alteration in paperwork of the end date of the original mortgage loan
from February 1, 2009 to March 1, 2009, to coincide with the start date of the refinanced loan—
allegedly discovered by Ms. Hagan in June 2009—cannot constitute fraudulent inducement. See
Compl. ¶ 20. Similarly, knowledge of the particular distribution of certain fees on the HUD
settlement form, knowledge allegedly garnered in October 2009, cannot constitute fraudulent
inducement. See Compl. ¶ 3. There are no other substantive references in the Amended Complaint
to dates within the two-year statute of limitations. Accordingly, any potential fraud claim is timebarred.

V. Other Reasons Many of Ms. Hagan’s Claims Fail
There are other reasons for dismissing most of Ms. Hagan’s claims. She cites to the Kansas
Mortgage Business Act, Kan. Stat. Ann. § 9-2201 et seq., while making certain allegations about
misleading statements, false representations, and unfair or deceptive acts. See Compl. ¶¶ 1, 2, 8. But

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enforcement of the KMBA’s requirements is entrusted to the state bank commissioner, and there is
no private cause of action under the KMBA. See KAN. STAT. ANN. § 9-2218 to 2219. To the extent
the Amended Complaint’s claims rely upon the KMBA, they must be dismissed. Certain allegations
pertain to acts allegedly committed by Land Title, Inc., and Gilstrap and Associates—actions such
as fraudulent notarization, inducement, deceptive withholding of documents, and the making of false
statements. See, e.g., Compl. ¶¶ 16 - 19, 22, 26. But Ms. Hagan did not assert claims against those
organizations in the Amended Complaint. And Credit Union and Member Mortgage are not liable
for actions allegedly committed by third parties.
IT IS ACCORDINGLY ORDERED this 23rd day of April 2012, that Credit Union of
America and of Member Mortgage Services Motions to Dismiss (Dkt. Nos. 42 & 44) are granted.

s/ J. Thomas Marten
J. THOMAS MARTEN, JUDGE

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