THOMAS et al v. JERSEY MORTGAGE CO. et al
Filing
120
OPINION. Signed by Judge Kevin McNulty on 9/8/16. (cm )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
MOSELL THOMAS and
VERNA THOMAS,
Civ. No. 13-0648 (KM)( MAF)
Plaintiffs,
OPINION
V.
JERSEY MORTGAGE CO., AURORA
LOAN SERVICING, LLC, SETERUS,
INC. and FEDERAL NATIONAL
MORTGAGE ASSOCIATION,
Defendants.
KEVIN MCNULTY, U.S.D.J.:
I.
Introduction
This is a suit by Mosell and Verna Thomas against a mortgage comany,
a loan servicer, and their successors in interest. It comes before the court on
motions for summary judgment pursuant to Rule 56, Fed. R. Civ. P., filec by
defendants Aurora Loan Service LLC (“Aurora”) (ECF no. 102), Federal National
Mortgage Association (“FNMA”) (ECF no. 103), Seterus Inc. (“Seterus”) (ECF no.
104), and Jersey Mortgage Co. (“Jersey Mortgage”) (ECF no. 109).
The Thomases, seeking to buy an investment/rental property, originally
applied for two loans—a $224,000 adjustable rate loan at 7.125% and a
$56,000 second mortgage at a fixed rate of 13.6%. That arrangement was
superseded when Mr. Thomas rejected the idea of a second mortgage. It was
replaced by a single, fixed rate loan of $251,750 at 9.05%. Some of the papers
in the file, however, appear to relate to the earlier proposal. The Thomases have
fastened on the figure of 7.125%, contending that they were misled and should
have received a fixed-rate mortgage at that rate. They have conveniently
1
jettisoned the other terms of the earlier offer: that the 7.125% loan was
adjustable, that it was for a smaller dollar amount, and that it was
accompanied by a second mortgage at a fixed rate of 13.6%. The Thomases,
represented by counsel, signed a note and mortgage and accompanying
paperwork, all providing that the loan in its final form was a fixed rate loan in
the amount of $251,750, at 9.05%. They urge that they did not read the many
documents that they signed, and are unsophisticated in matters of real estate,
despite having purchased some 5—10 commercial properties. They made
monthly payments under the 9.05% mortgage without complaint, raising their
objections to the loan’s terms only after they defaulted.
As I have implied, plaintiffs’ claims are vulnerable on the facts. As it
happens, however, discovery has disclosed multiple barriers to these claims as
a matter of law: Rooker-Feidman, res judicata, the inapplicability of TILA and
the statute of limitations. On those legal bases, summary judgment is awarded
to defendants.
A. Background
The plaintiffs, Mosell and Verna Thomas, have resided at 43 Winston
Drive, Somerset, New Jersey, for over 35 years. (DSMF ¶1)1 Mr. Thomas has a
four-year college degree and has taken graduate courses in organic chemistry.
He worked as a teacher, a salesman for chemical companies, and an insurance
salesman before going out on disability in 1997. (M. Thomas Dep. 9:23—10:18,
ECF no. 107-13 at 4—5) Mr. Thomas denies even the most basic understanding
of real estate and mortgages. He is, however, experienced in the purchase of
real estate. He has purchased two single family homes, as well as between five
and ten multi-family buildings, and one eight-unit apartment complex. (M.
Thomas Dep. 20:18—22:22, ECF no. 107-13 at 7—8)
One of those rental/investment properties was a single-family home, 112
South Lawrence Avenue in Franklin Township (the “Property”). (DSMF
2, 4)
¶J
DSMF
=
Statement of Material Facts not in dispute in support of all
Defendants’ motion for Summary Judgment, ECF no. 104-2.
2
The Agreement of Sale between the seller, John Simko, and the Thomases is
dated July 19, 2006; the original purchase price was $280,000. (DSMF ¶f 3, 5)
(An agreed credit of $15,000 for repairs later reduced the price to $265,000.)
(DSMF
¶
7; see ECF no. 107-15 at 35, 37)
On September 6, 2006, Mrs. Thomas executed an agreement with Jersey
Mortgage, checking the box stating that she did not want to lock in the rate.
(DSMF
¶
15; ECF no. 107-15 at 41; ECF no. 115-2 at 13) A Good Faith
Estimate, dated September 6, 2006 (but apparently not signed by Mrs. Thomas
until October 6, 2006), states that the loan amount is $224,000, and the loan
is a 5/6 ARM. That abbreviation signifies that the rate was to be fixed at
7.125% for five years, then adjusted every six months thereafter. (DSMF
¶J 39—
40; ECF no. 107-15 at 23). (ECF no. 115-2 at 20) A TILA disclosure form,
signed by Mrs. Thomas on October 6, 2006, reflects an APR of 10.2 18%.2 The
form states at the top that it is “neither a contract nor a commitment to lend.”
(ECF no. 107-15 at 40) This loan as originally proposed required mortgage
insurance. (ECF no. 107-15 at 45) The fax header indicates that these
documents were all faxed by Mr. Thomas on October 9, 2006.
The remainder of the purchase price, as originally proposed, was to be
covered by a second loan—a second mortgage securing a $56,000 fixed rate
loan at 13.6%. As Mr. Thomas stated in his deposition, however, he rejected
the idea of a second mortgage. (M. Thomas Dep. 47:24, ECF no. 107-13 at 14)
Although there is some confusing criss-cross in the communications, it
emerges clearly that the final terms of the loan were different from those for
The Thomases portray the discrepancy between the 7. l25°/o interest rate and
the 10.2 18% APR as a fraudulent switch. A basic rate of interest, however, is not the
same as an APR; the latter includes all costs, including points, taking into account the
variable rate, and is intended to warn the consumer of the true annual cost of the
loan. Generally, the APR rate is calculated, not based on the introductory or “teaser”
rate, but as if the variable-rate index were applied today.
2
More fundamentally, however, this was the original loan proposal, not the loan
the Thomases got. The fixed-rate 9.05% loan they actually received had an APR of
9.3662%. (ECF no. 107-15 at 46)
3
which the Thomases originally applied. In its final form, the loan was a single
fixed rate loan, at a higher loan to value ratio, with no second mortgage and no
mortgage insurance. As a result, the rate was higher. (DSMF
¶f
50, 51)
A notice of program change from Jersey Mortgage, dated September 27,
2006, and signed by the Thomases at closing on October 18, 2006, reflected
the changes (DSMF
¶J
18, 19, 20):
DESCRIPTION OF PROGRAM CHANGE
80/20
-
100% LTV 5/6 ARM TO 95% LTV -30 YEAR FIXED
(ECF no. 107-15 at 9; ECF no. 1 15-2 at 10; see also Uniform Residential Loan
Application, ECF no. 107-15 at 28.)
On September 28, 2006, defendant Jersey Mortgage Co. faxed the Green
firm a mortgage commitment letter. The following day, Green faxed it to Mr.
Thomas under a cover letter asking for confirmation that there was no longer a
second mortgage. (DSMF ¶ 11) This commitment, which explicitly superseded
any earlier commitment, locked in a 30 year fixed rate mortgage loan at 9.05%,
in the amount of $251,750. (DSMF ¶j 9, 41, 55; ECF no. 107-25) Also included
in the September 28 fax was a Truth in Lending (TILA) disclosure statement
and a Good Faith estimate. (DSMF ¶ 10—14)
The TILA disclosure stated that the total amount financed would consist
of a single loan of $251,750. The interest rate was fixed at 9.05%, and the
monthly P&I payment would be $2034.70. The Thomases executed the TILA
statement. (ECF no. 107-15 at 46) The Good Faith Estimate contained the
same loan terms, plus an estimate of closing costs, and was likewise executed
by the Thomases on October 5, 2006. (ECF no. 107-15 at 47)
The Thomases executed an Amendment to Mortgage Commitment, dated
October 17, 2006, stating the amount of $251,750 and rate of 9.05%, with two
discount points, totaling $5035. (ECF no. 107-14 at 57; ECF no. 115-2)
4
On October 18, 2006, the Thomases executed a uniform residential loan
application in the amount of $251,750 at 9.05%. (ECF no. 107-15 at 28)3 They
executed a fixed-rate note at 9.05% on a loan of $251,750 for a term of 30
years. (DSMF
¶
56; ECF no. 107-14 at 36) They executed a mortgage in the
amount of $251,750. (DSMF
¶
60; ECF no. 107-14 at 39) The Thomases
executed an Affidavit and Agreement, dated October 18, 2006, which disclosed
the 9.05% interest rate, the amount of the loan, and the $2034 initial monthly
payment. (ECF no. 107-15 at 15)
The Thomases stated in the same Affidavit that they would live at the
subject Property as their principal residence starting within 30 days. (DSMF
¶
46; ECF no. 107-15 at 15) The Thomases executed an Occupancy Agreement
stating that they would occupy the Property as their primary residence, and
that failure to do so would constitute an event of default. (ECF no. 107-15 at
20; ECFD no. 115-2 at 12; see DSMF
¶J
16, 17) On October 18, 2006, the
Thomases executed an Affidavit of Title which states that “after today,” they
would live at the subject Property. (DSMF’ ¶ 43; ECF no. 107-14 at 59) Mrs.
Thomas executed a letter to Jersey Mortgage stating that they were selling their
current home and purchasing the Property “[b]ecause we are down sizing.”
(ECF no. 107-15 at 34)
At his deposition, Mr. Thomas acknowledged that, at the time of the
closing, his intent was not actually to live at the Property, but to hold it as a
rental unit. (DSMF ¶ 44; M. Thomas Dep. 32:11—25, ECF No. 107-13 at 10)
The Thomases retained Jeffrey C. Green, Esq., of Green & Green, to
represent them in the purchase. (DSMF ¶ 6) The closing took place on October
18, 2006, at the office of Green & Green, which are located around the corner
from the Thomases’ Somerset home. Signing the documents at closing was
There is also in the record another loan application, signed October 18, 2006,
for a 5/6 ARM in the amount of $224,000 at 7.125%, plus a second mortgage of
$56,000. (ECF no. 107-15 at 23; see also 107-15 at 14 (adjustable interest rate
disclosure)) No explanation is given.
3
5
Jeffrey Green’s law partner, his brother, Terry Phillip Green, Esq. (DSMF
4
¶
22—24, 26—27)
The Green firm charged the Thomases a fee of $850, plus costs of $145,
to handle the closing, as reflected in the HUD— 1 statement, which they signed.
(DSMF
¶
58; ECF no. 107-14 at 63; ECF no. 1 15-2 at 15) The firm’s services
included finalizing the contract, dealing with home inspection issues, setting
up the closing, ordering title insurance and survey, attending the closing and
disbursing loan funds, recording the deed, and obtaining the title policy.
(DSMF
¶f
28—30) The Green firm ensured that the mortgage lien was in first
position, and to that limited extent may be regarded as acting as the agent of
the title company. (DSMF ¶ 34)
The closing was conducted in accordance with instructions from Jersey
Mortgage Co. (DSMF ¶j 48, 49) The Green firm has never done any direct
business with, or been retained by, Jersey Mortgage. The Green firm was not
paid by Jersey Mortgage or the title insurer for handling the closing. Jersey
Mortgage had separate counsel, paid for at closing by the Thomases as buyers.
(DSMF ¶J 26, 36—37)
The servicing disclosure statement, executed by the Thomases on
October 18, 2006, disclosed that the loan would likely be assigned, and told
them they would be informed as to the identity of their servicer. (DSMF 42;
¶
ECF no. 107-15 at 7) On October 23, 2006, Jersey Mortgage sent Verna
Thomas a letter stating that the servicing of the loan would be transferred to
Aurora Loan Services, LLC. (DSMF’ ¶ 59; ECF no. 107-15 at 6) Aurora was not
previously involved in the negotiation or closing of the loan. The mortgage itself
was assigned to Aurora on August 29, 2008. (ECF no. 115-2 at 18)
On September 8, 2008, Aurora commenced a foreclosure action, Aurora
Loan Services, LLC v. Mosell J. Thomas and Vema Thomas, et al., No. F-3477008 (N.J. Super. Ct., Ch. Div., Somerset Cty.) (DSMF
4
¶
63) The Thomases
This was seemingly the “change of attorney” of which the Thomases complain.
6
answered the complaint. They did not deny having defaulted on the payments
as of May 1, 2008. The matters they raised in defense included the following:
(a) Aurora’s agents made false representations; (b) they changed the interest
rate from 7.125% to 10.2 18% and increased the monthly payments from
$1503.13 to $2321.16; (c) they violated the Unfair Trade Practices and
Consumer Protection Law; (d) they failed to provide the disclosures required by
TILA, 15 U.S.C. § 1635, 1638, regarding high cost loans; (e) they took
advantage of the Thomases’ change of lawyers to increase the interest rate.
(DSMF ¶ 65; Answer, ECF no. 107-1)
Aurora moved for summary judgment in the foreclosure action, and the
Thomases opposed the motion. Their opposition included the Thomases’
contentions that the lender had fraudulently switched the interest rate from
the 7.125% rate quoted in the September Good Faith Estimate to the 10.128%
rate in the TILA disclosure, and hidden the change amidst the large volume of
5
papers at the closing. On January 6, 2009, the court in the foreclosure action
entered an order granting summary judgment to Aurora, striking the
Thomases’ answer, and transferring the case to the foreclosure unit. (ECF no.
107-2) Judge Derman found that the requisites of a valid mortgage and default
as of May 1, 2008, were met. The TILA defense, which consisted of the
Thomases’ unadorned citations of statutory sections, was found inadequate.
The allegations of fraud, the court found, were supported by no evidence of
record. The TILA disclosure and Good Faith Estimate were provided to counsel
on the same date; they reflected different calculations (the higher APR included
closing costs and fees, for example). The actual Note and Mortgage were in the
hands of the Thomases and their counsel, who witnessed their signatures. The
difference between the estimate and the actual interest rate reflected a higher
amount borrowed (the estimate was for a loan of $224,000, not the final
amount of $251,750) as well as different terms (e.g., adjustable vs. fixed rate,
Again, neither of these figures was the rate of the loan the Thomases actually
received, which was a fixed rate of 9.05% and APR of 9.3662%. See p.3 n.2, supra.
5
7
see supra). The Thomases, the Court found, had paid the mortgage in
accordance with its terms without complaint for approximately a year and a
half, until they defaulted. The court concluded that there was no showing of
fraud or misrepresentation. (See Decision, ECF no. 107-2)
On February 23, 2010, a final judgment of foreclosure was entered in
favor of Aurora, in the amount of $287,036.48, and a Sheriff’s sale was
ordered. (DSMF
¶
68; ECF no. 107-4)
On July 23, 2010, Aurora assigned the mortgage to FNMA. The
assignment was duly recorded. (DSMF ¶ 66; ECF no. 1 15-2 at 19) FNMA
engaged Seterus, Inc. to service the loan. (DSMF
¶
66) Before that point,
defendants FNMA and Seterus had no involvement in the loan. (DSMF
¶
62)
On December 10, 2010, the Thomases filed a petition in bankruptcy in
this District, No. 10-48206-RTL. (DSMF ¶ 69; ECF no. 107-16 at 2) The
Thomases declared as assets their Somerset home, as well as rental properties,
including the subject Property here. They sought a modification of the terms of
their mortgage loans. See Thomas v. U.S. Bank Nat. Ass’n, 2012 WL 646056
(D.N.J. Feb. 28, 2012).
FNMA, per Seterus, moved for relief from the automatic stay in order to
permit the Sheriff’s sale to proceed. (DSMF ¶ 70; ECF no. 107-17) In response
to that motion, the Thomases again raised the claim that the lender had
violated TILA, failed to make necessary disclosures, and impermissibly raised
the interest rate. (DSMF
¶
71, ECF no. 107-18) By order dated April 4, 2012,
Bankruptcy Judge Raymond T. Lyons granted the motion for relief from the
stay. (DSMF ¶ 72; ECF no. 107-19) An appeal to district court was dismissed
on jurisdictional grounds. (ECF no. 107-2 1)
In 2012, Seterus as servicer wrote to the Thomases offering options for
loan modification. No response was received. (DSMF ¶J 74, 75)
8
The Thomases moved in Superior Court to stay the Sheriff’s sale. That
motion was denied. (ECF no. 107-22)
The Sheriff’s sale occurred on January 29, 2013. The judgment on the
writ of execution totaled $328,732.45. (DSMF
¶
77) There being no competitive
bids, FNMA bought the Property for $1000. FNMA resold the property for
$140,000, sustaining a net loss of approximately $188,000. (DSMF
¶
78, 79)
See ECF no. 107-24, passim.
B.
This federal court action
Two days after the Sheriff’s sale, on January 31, 2013, the Thomases
filed this federal court action. (ECF no. 1) The Complaint alleges that, in
connection with the mortgage transaction, beginning in June 2006, Defendants
violated the “federal TILD (Laws),” (1 take this to be a reference to TILA); United
States fraud laws, “US 15.4.6”; fraud and civil conspiracy laws, “15:4.6.2,
15.4.6.6”; and “7.7 breach of contract.”
The pleading is not artful, but it is clear that the Thomases allege, as
they did in the foreclosure action, that Jersey Mortgage quoted one interest
rate, but the actual rate, as finalized, was higher. Additionally, Jersey Mortgage
allegedly doubled the closing costs. Jersey Mortgage allegedly hired the
Thomases’ then-attorney to represent it at the closing, leaving the Thomases
“without legal representation.” At some point thereafter, Aurora serviced the
mortgage, which it purchased from Jersey Mortgage, and later transferred it to
FNMA, at which time it was serviced by Seterus. Compi. at
¶J
1—5. The
Complaint allegesthat the resulting harms include foreclosure, and that the
Thomases’ physical and mental wellbeing, as well as their credit standing, has
deteriorated.
II.
Standard on a motion for summary judgment
Federal Rule of Civil Procedure 56(a) provides that summary judgment
should be granted “if the movant shows that there is no genuine dispute as to
9
any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc., 477 U.s. 242,
248 (1986); Kreschollek v. S. Stevedoring Co., 223 F.3d 202, 204 (3d Cir. 2000).
In determining whether there is a “dispute as to any material fact,” In
deciding a motion for summary judgment, a court must construe all facts and
inferences in the light most favorable to the nonmoving party. See Boyle v.
Cnty. of Allegheny Pa., 139 F.3d 386, 393 (3d Cir. 1998). The moving party
bears the burden of establishing that no genuine issue of material fact
remains. See Celotex Corp. v. Catrett, 477 U.S. 317, 322—23 (1986). “[Wjith
respect to an issue on which the nonmoving party bears the burden of proof
the burden on the moving party may be discharged by ‘showing’—that is,
pointing out to the district court—that there is an absence of evidence to
support the nonmoving party’s case.” Celotex, 477 U.S. at 325.
Once the moving party has met that threshold burden, the non-moving
party “must do more than simply show that there is some metaphysical doubt
as to material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 586 (1986). The opposing party must present actual evidence that
creates a genuine issue as to a material fact for trial. Anderson, 477 U.S. at
248; see also Fed. R. Civ. P. 56(c) (setting forth types of evidence on which
nonmoving party must rely to support its assertion that genuine issues of
material fact exist). “[U]nsupported allegations
...
and pleadings are insufficient
to repel summary judgment.” Schoch v. First Fid. Bancorporation, 912 F.2d 654,
657 (3d Cir. 1990); see also Gleason v. Norwest Mortg., Inc., 243 F.3d 130, 138
(3d Cir. 2001) (“A nonmoving party has created a genuine issue of material fact
if it has provided sufficient evidence to allow a jury to find in its favor at trial.”).
If the nonmoving party has failed “to make a showing sufficient to establish the
existence of an element essential to that party’s case, and on which that party
will bear the burden of proof at trial,
...
there can be ‘no genuine issue of
material fact,’ since a complete failure of proof concerning an essential element
of the nonmoving party’s case necessarily renders all other facts immaterial.”
10
Katz v. Aetna Cas. & Sur. Co., 972 F.2d 53, 55 (3d Cir. 1992) (quoting Celotex,
477 U.S. at 322—23).
III.
Discussion
A.
Rooker-Feidman
Although defendants do not raise jurisdictional grounds, I am required to
do so sua sponte where an issue of subject matter jurisdiction is apparent. See
Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 278, 97 S. Ct.
568 (1977); Nesbit v. Gears Unlimited, Inc., 347 F.3d 72, 76—77 (3d Cir. 2003).
Many of the Thomases’s claims, though not well defined, would be barred by
the Rooker-Feidman doctrine, which is of jurisdictional stature. See District of
Columbia Court of Appeals v. Feldman, 460 U.S. 462, 482 (1983); Rooker v.
Fidelity Trust Co., 263 U.S. 413, 416 (1923). Although the factual predicate for
a jurisdictional dismissal was not apparent from the spare pleadings, it has
now been established in discovery. A final judgment of foreclosure decided
many of the very matters that the Thomases present to this court for decision.
A federal district court does not sit to hear appeals from state court
judgments. Rooker-Feidman operates to prevent a disgruntled party in state
court litigation from collaterally attacking the results of that litigation in federal
court, claiming constitutional or other error. See also B. S. v. Somerset County,
704 F.3d 250 (3d Cir. 2013). To put it another way, Rooker-Feidman bars
“cases brought by state-court losers complaining of injuries caused by statecourt judgments rendered before the district court proceedings commenced
and inviting district court review and rejection of those judgments.” Exxon
Mobil Corp. v. Saudi Basic Indus., Inc., 544 U.S. 280, 284, 125 S.Ct. 1517
(2005).
The Rooker-Feldman doctrine applies when, “in order to grant the federal
plaintiff the relief sought, the federal court must determine that the state court
judgment was erroneously entered or must take action that would render that
judgment ineffectual.” FOCUS v. Allegheny County Court of Common Pleas, 75
F.3d 834, 840 (3d Cir. 1996). Thus Rooker-Feidman holds that lower federal
11
courts cannot entertain federal claims that (1) were previously adjudicated in
state court or (2) are inextricably intertwined with a prior state court decision.
Feldman, supra; Rooker, supra; Guarino v. Larsen, 11 F. 3d 1151, 11 56—57 (3d
Cir. 1993); Port Auth. Police Benev. Ass’n v. Port Auth., 973 F.2d 169, 178 (3d
Cir. 1992).
This case involves a “state-court judgment[] rendered before the district
court proceedings commenced.” Exxon Mobil, 544 U.S. at 284. A final judgment
of foreclosure was entered by the State court on February 23, 2010. (DSMF
¶
68; ECF no. 1074)6 This action was not filed until January 31, 2013.
The remaining question is whether the claims in this federal court action
were previously adjudicated in, or are inextricably intertwined with, that state
foreclosure proceeding. The state foreclosure judgment necessarily decided in
Aurora’s favor the following essential elements: the validity of the note and
mortgage; the alleged default; and the Bank’s right to foreclose. See Great Falls
Bank v. Pardo, 263 N.J. Super. 388, 394, 622 A.2d 1353, 1356 (Ch. Div. 1993).
“If the relief requested in the federal action requires determining that the state
court’s decision is wrong or would void the state court’s ruling, then the issues
are inextricably intertwined and the district court has no subject matter
jurisdiction to hear the suit.” FOCUS, 75 F.3d at 840. See also In re Madera,
586 F.3d 228, 232 (3d Cir. 2009) (federal court lacks jurisdiction over postforeclosure claim for rescission of the mortgage); In re Knapper, 407 F.3d 573,
581 (3d Cir. 2005); Ayres-Fountain v. E. Say. Bank, 153 F. App’x 91, 92 (3d Cir.
2005) (barring post-foreclosure federal claim for rescission of mortgage and
damages); Moncrief v. Chase Manhattan Mortgage Corp., 275 F. App’x 149, 153
(3d Cir. 2008) (barring a claim for “redress” of state court judgment in a
foreclosure action).
A Sheriffs sale is not required to establish finality. See Patetta v. Wells Fargo
Bank, NA, Civ. No. 09-2848, 2010 WL 1931256, at *7 (D.N.J. May 13, 2010). A sale
did in fact take place on January 29, 2013, however, just before the federal complaint
was filed.
6
12
The state court considered and decided many of the matters presented
here. The Thomases’ federal claims have a common thread: that Jersey
Mortgage violated TILA and that they were defrauded as to the interest rate,
which was switched at or before the time of closing. The Thomases’ answer to
the foreclosure complaint alleged that Aurora’s “agents” (they mean Jersey
Mortgage, its predecessor in interest) defrauded them by raising the interest
rate from 7.125% to 10.218%, failed to provide the disclosures required by
TILA, and did so by taking advantage of the confusion occasioned by the
Thomases’ change of lawyers. (Answer, ECF no. 107-1)
Aurora moved for summary judgment in the foreclosure action, and the
Thomases opposed that motion. Judge Derman found that the requisites of a
valid mortgage and default, beginning in May 1, 2008, were met. She rejected
the TILA defense, which was unsupported by evidence. The allegations of fraud
could not stand because the TILA disclosure and Good Faith Estimate,
supplanting earlier offers, were provided to counsel. The actual Note and
Mortgage, also in the hands of the Thomases and their counsel, reflected the
change in the negotiated terms of the loan. The Thomases had, the Court
found, paid the mortgage in accordance with its terms without complaining of
invalidity for approximately a year and a half. The court concluded that there
was no fraud or misrepresentation, and entered summary judgment against
the Thomases. (See Decision, ECF no. 107-2)
To hold—as the Thomases ask this Court to do—that the defendants
defrauded them about the interest rate or violated TILA would potentially
invalidate the foreclosure judgment. See Knapper 407 F.3d at 581. These are
thus, to some degree, claims “brought by state-court losers complaining of
injuries caused by state-court judgments rendered before the district court
proceedings commenced and inviting district court review and rejection of
those judgments.” Exxon Mobil, 544 U.S. at 284. To that extent, then, they are
barred by Rooker-Feidman.
13
Rooker-Feidman disposes of any claim that is not “independent” of the
merits of the foreclosure. To some extent, however, the claims may be
independent. The Thomases seek to obtain damages on various grounds. It is
difficult to tell, but these may consist of more than just an unwinding of what
was lost in the foreclosure. To remove doubt, I consider in the alternative the
primary grounds asserted in the defendants’ summary judgment motions.
B.
Res judicata/Entire Controvery
Claims that survive scrutiny under Rooker-Feldman may nevertheless be
barred by parallel doctrines of res judicata. See Ayres-Fountain, 153 F. App’x
at 93 (“even if review of the complaint were not barred by Rooker—Feldman, we
agree with the District Court that Ayres—Fountain’s claims were barred by res
judicata”). I find that to be the case here. The New Jersey doctrines of claim
preclusion, issue preclusion, and the entire controversy rule furnish additional
and alternative grounds for summary judgment in defendants’ favor.
Whether a state court judgment should have a preclusive effect in a
subsequent federal action depends on the law of the state that adjudicated the
original action. See Greenleaf v. Garlock, Inc., 174 F.3d 352, 357 (3d Cir. 1999)
(“To determine the preclusive effect of [the plaintiffs] prior state action we must
look to the law of the adjudicating state.”). See also Allen v. McCumj, 449 U.s.
90, 96, 101 S. Ct. 411, 415 (1980). New Jersey claim preclusion law, like
federal law, has three essential elements: (1) a final judgment on the merits; (2)
a prior suit involving the same parties or their privies; and (3) a subsequent
suit based on the same transaction or occurrence. Watkins v. Resorts Int’l Hotel
and Casino, Inc., 124 N.J. 398, 412, 591 A.2d 592, 599 (1991) (state law);
United States v. Athione Indus., Inc., 746 F.2d 977, 983 (3d Cir. 1984) (federal
law). If those three requirements are met, then the doctrine bars “the parties or
their privies from relitigating issues that were or could have been raised in that
action.” Allen, 449 U.S. at 94, 101 S. Ct. at 414; Watkins, 124 N.J. at 412, 591
A.2d at 599 (“Claim preclusion applies not only to matters actually determined
14
in an earlier action, but to all relevant matters that could have been so
determined.”)
Claim preclusion in the traditional sense tends to be subsumed by New
Jersey’s “entire controversy” rule. The entire controversy rule emphasizes, not
just claims within the scope of the prior judgment, but all claims and parties
that a party could have joined in a prior case based on the same transaction or
occurrence. The entire controversy doctrine thus “requires a party to bring in
one action ‘all affirmative claims that [it} might have against another party,
including counterclaims and cross-claims,’ and to join in that action ‘all parties
with a material interest in the controversy,’ or be forever barred from bringing a
subsequent action involving the same underlying facts.” Rycoline Prods., Inc. v.
C & W Unlimited, 109 F’.3d 883, 885 (3d Cir. 1997) (quoting Circle Chevrolet Co.
v. Giordano, Halleran & Ciesla, 142 N.J. 280, 662 A.2d 509, 513 (1995)).
We have described the entire controversy doctrine as “New Jersey’s
specific, and idiosyncratic, application of traditional res judicata
principles.” Rycoline Prods., Inc. v. C & W Unlimited, 109 F.3d 883,
886 (3d Cir. 1997). A mainstay of New Jersey civil procedure, the
doctrine encapsulates the state’s longstanding policy judgment
that “the adjudication of a legal controversy should occur in one
litigation in only one court[.j” Cogdell v. Hosp. Ctr. at Orange, 560
A.2d 1169, 1172 (N.J. 1989); see also N.J. Const. art. VI, § 3, ¶ 4
(“[Ljegal and equitable relief shall be granted in any cause so that
all matters in controversy between the parties may be completely
determined.”); Smith v. Red Top Taxicab Corp., 168 A. 796, 797
(N.J. 1933) (“No principle of law is more firmly established than
that a single or entire cause of action cannot be subdivided into
several claims, and separate actions maintained thereon.”)....
Ricketti v. Barry, 775 F.3d 611, 613 (3d Cir. 2014).
Like traditional res judicata, the entire controversy doctrine applies in
federal court “when there was a previous state-court action involving the same
transaction.” Bennun v. Rutgers State Univ., 941 F.2d 154, 163 (3d Cir. 1991).
It extinguishes any subsequent federal-court claim that could have been
joined, but was not raised in the prior state action:
Under the entire controversy doctrine, a party cannot withhold
part of a controversy for separate later litigation even when the
15
withheld component is a separate and independently cognizable
cause of action. The doctrine has three purposes: (1) complete and
final disposition of cases through avoidance of piecemeal decisions;
(2) fairness to parties to an action and to others with a material
interest in it; and (3) efficiency and avoidance of waste and delay.
See DiTrolio v. Antiles, 142 N.J. 253, 662 A.2d 494, 502 (N.J. 1995).
As an equitable doctrine, its application is flexible, with a case-bycase appreciation for fairness to the parties.
Paramow-tt Aviation Corp. u. Agusta, 178 F.3d 132, 137 (3d Cir. 1999).
The preclusive effect of the rule is explicit: “Non-joinder of claims or
parties required to be joined by the entire controversy doctrine shall result in
the preclusion of the omitted claims to the extent required by the entire
controversy doctrine... .“ N.J. Ct. R. 4:30A. But the rule applies only to claims
that could have been permissibly joined in the prior proceeding. And the entire
controversy rule itself notes the limitations on claims in a foreclosure
proceeding:
“...
except as otherwise provided by R. 4:64-5 (foreclosure actions)
The cited rule, N.J. Ct. R. 4:64-5, limits permissible claims in mortgage
7
foreclosure actions to those which are “germane” to the foreclosure. It follows,
therefore, that only claims germane to the prior mortgage foreclosure will be
7
4:64-5. Joinder of Claims in Foreclosure
Unless the court otherwise orders on notice and for good cause shown,
claims for foreclosure of mortgages shall not be joined with non-germane
claims against the mortgagor or other persons liable on the debt. Only
germane counterclaims and cross-claims may be pleaded in foreclosure
actions without leave of court. Non-germane claims shall include, but not
be limited to, claims on the instrument of obligation evidencing the
mortgage debt, assumption agreements and guarantees. A defendant
who chooses to contest the validity, priority or amount of any alleged
prior encumbrance shall do so by filing a cross-claim against that
encumbrancer, if a co-defendant, and the issues raised by the crossclaim shall be determined upon application for surplus money pursuant
to R. 4:64-3, unless the court otherwise directs.
Claims that could not have been brought in the first proceeding also include
those that were “unknown, unarisen, or unaccrued” at the time. Mystic Isle Dev. Corp.
v. Perskie & Nehrnad, 142 N.J. 310, 662 A.2d 523, 530 (1995) (citations omitted).
Those exceptions are not implicated here. The entire controversy rule applies to
parties, as well as claims, that were not joined in the prior action. See Ricketti, supra
(requiring particular safeguards as to absent parties).
16
precluded in a later action. If the litigant could not have brought non-germane
claims in the prior action, then they cannot be precluded by the prior
judgment. As to what claims are “germane,” the seminal case is Leisure
Technology—Northeast v. Klingbeil Holding Co., 137 N.J. Super. 353, 349 A.2d
96 (App. Div. 1975). “The use of the word ‘germane’ in the language of the
rule,” said the Appellate Division, “undoubtedly was intended to limit
counterclaims in foreclosure actions to claims arising out of the mortgage
transaction which is the subject matter of the foreclosure action.” 349 A.2d at
98—99 (emphasis added). See also Zebrowski v. Wells Fargo Bank, N.A., No.
CIV.l:07CV05236JHR, 2010 WL 2595237, at *6 (D.N.J. June 21, 2010)
(Rodriguez, J.); see also Joan Ryno, Inc. v. First Nat. Bank of S. Jersey, 208 N.J.
Super. 562, 570, 506 A.2d 762, 766 (App. Div. 1986).
The entire controversy rule applies here. The state court mortgage
foreclosure was “a previous state-court action involving the same transaction,”
i.e., the mortgage, the default, and the foreclosure itself. Bennun, 941 F.2d at
163 (3d Cir. 1991). The subject matter of that prior action necessarily
embraced that of this federal action, and the parties are the same or their
privies.
In the alternative, the three prerequisites to claim preclusion apply here.
(1) There was a final judgment on the merits.
(2) The prior suit involved the same parties or their privies.
(3) The subsequent suit (i.e., this one) is based on the same transaction
or occurrence. It grows out, and is based on, the validity, or not, of the
mortgage. Watkins, 124 N.J. at 412, 591 A.2d at 599.
Judge Derman’s decision on the summary judgment motion leaves little
doubt that the issues currently asserted germane to, and therefore were
properly considered in, the foreclosure action. She considered, and rejected,
the Thomases’ contentions under TILA. She held that the Thomases’ contention
that the mortgage was obtained by fraud (the switching of the interest rate, and
so forth) was obviously “germane” in that it would bar foreclosure. (ECF no.
17
107-2 at 11—12) She nevertheless found no evidence of fraud. She held that the
Thomases, represented by counsel, could not have reasonably been misled as
to the final terms of the mortgage.
As defenses, the claims that the Thomases bring here were actually
asserted in the foreclosure; as counterclaims, they could have been. Under
doctrines of res judicata and the entire controversy rule, the state court’s final
judgment of foreclosure extinguishes the analogous claims that the Thomases
bring here.
C.
8
TILA: Commercial Transaction
The Thomases allege violations of the Truth in Lending Act (“TILA”), 15
U.S.C.
§ 1635. The gist of the allegations is that the disclosures they received
in 2006 were inadequate or misleading. TILA, however, applies only to
consumer transactions, not commercial ones. Mr. Thomas, despite many
representations to the contrary at the time, now admits that the subject
Property was not, and was never intended to be, the Thomases’ residence. It
was a rental property.
TILA explicitly applies to consumer credit transactions, defined as those
in which “the party to whom credit is offered or extended is a natural person,
and the money, property, or services which are the subject of the transaction
are primarily for personal, family, household or agricultural purposes.” 15
Viewing the matter from an alternative perspective, the Thomases are
collaterally estopped from asserting factually that they were fraudulently misled as to
the interest rate or that the TILA disclosures were inadequate or misleading. See
Winters v. N. Hudson Reg’l Fire & Rescue, 212 N.J. 67, 50 A.3d 649, 659 (2012)
(collateral estoppel, or issue preclusion, requires (1) the issue to be precluded is
identical to the issue decided in the prior proceeding; (2) the issue was actually
litigated in the prior proceeding; (3) the court in the prior proceeding issued a final
judgment on the merits; (4) the determination of the issue was essential to the prior
judgment; and (5) the party against whom the doctrine is asserted was a party to or in
privity with a party to the earlier proceeding.)
8
18
§ 1602(h). Implementing that general principle are certain explicit
U.S.C.
exemptions:
This subchapter [i.e., 15 U.S.C.
following:
§ 1601—1667fJ does not apply to the
(1) Credit transactions involving extensions of credit primarily for
business, commercial, or agricultural purposes....
(3) Credit transactions, other than those in which a security interest
is or will be acquired in real property, or in personal property used or
expected to be used as the principal dwelling of the consumer and
other than private education loans (as that term is defined in section
1650(a) of this title), in which the total amount financed exceeds
$50,000.
15 U.S.C.
§ 1603 (“Exempted Transactions”).
It is the purpose of the loan, not the character of the secured property,
that controls the characterization of the credit transaction as consumer or
commercial. The court must consider the purpose of the transaction as a
whole:
Even if a transaction has some personal purpose, the TILA does
not necessarily apply... Moreover, several courts have agreed that
simply because the loan is secured by a family home does not
mean that the loan was primarily personal. See, e.g., Sherrill v.
Verde Capital Corp., 719 F.2d 364, 367 (11th Cir. 1983); Bokros v.
Assocs. Fin., Inc., 607 F. Supp. 869, 872 (N.D. 111.1984); In re
DiPietro, 135 B.R. 773, 777 (Bankr. E.D. Pa.1992).
St. Hill v. Tribeca Lending Corp., 403 F. App’x 717, 720 (3d Cir. 2010) (although
the mortgage collateral was the plaintiff’s home, the purpose of the loan was to
pay business creditors, so the loan was outside the scope of TILA).
In particular, a loan used to acquire a rental property is not a consumer
credit transaction subject to TILA:
As the District Court explained, Taggart could not show RESPA
and TILA violations because, among other reasons, the financed
property at issue in this case was a rental property at the relevant
time. RESPA and TILA do not apply to transactions primarily for
19
business purposes. See 12 U.S.C. § 2606; 15 U.S.C. § 1603(1); 24
C.F.R. § 3500.5(b); 12 C.F.R. § 226.3(a)(1); 46 Fed.Reg. 50288 (Oct.
9, 1981) (Truth in Lending Official Staff Commentary explaining
that the extension of credit for rental property, including a rentedout single-family house, is a transaction for a business purpose).
Taggart v. Wells Fargo Home Mortgage, Inc., 563 F. App’x 889, 892 (3d Cir.
2014).
In a RESPA case (RESPA incorporates the business-purpose rule of
TILA), I summarized the applicable law as follows:
The TILA exempts credit extended for business or commercial
purposes. 15 U.S.C. § 1603(1); Regulation Z, 12 C.F.R. § 226.3(a).
The RESPA includes the same exemption for business credit
transactions. 12 U.S.C. § 2606(a)(1); 24 C.F.R. § 3500.5(b)(2). The
Board of Governors of the Federal Reserve System has directly
addressed credit transactions to acquire rental property in its
Official Staff Commentary on TILA Regulation Z:
Non-owner-occupied rental property. Credit extended to
acquire, improve, or maintain rental property (regardless of
the number of housing units) that is not owner-occupied is
deemed to be for business purposes. This includes, for
example, the acquisition of a warehouse that will be leased
or a single-family house that will be rented to another person
to live in.
Truth in Lending; Official Staff Commentary, 46 Fed. Reg. 50288,
50297 (Oct. 9, 1981) (as amended 75 Fed. Reg. 7658 (Feb. 22,
2010)). Such commentary is “dispositive” unless “demonstrably
irrational.” Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565,
100 S. Ct. 790, 63 L.Ed.2d 22 (1980) (deferring to Federal Reserve
Board opinions interpreting TILA and Regulation Z). Consequently,
courts have consistently held that loans obtained to purchase nonowner occupied rental property are for a “business purpose” and
are not covered by TILA. Antanuos v. First Nat’l Bank of Arizona,
508 F. Supp. 2d 466, 470-7 1 (E.D.Va.2007) (no right to rescind
under TILA where loan was secured for commercial rental property
and not the mortgagors’ principal dwelling); In re Fricker, 113 B.R.
856, 866-67 (E.D. Pa. 1990) (loan received by debtors in exchange
for mortgage on nonowner-occupied property was for “business
purposes,” and thus was exempt from TILA); Puckett v. Georgia
Homes, Inc., 369 F. Supp. 614, 618-19 (D.S.C. 1974) (purchase of
mobile home for rental purposes exempt from TILA disclosure
requirements).
20
Hemandez v. M&T Bank, No. 15—CV-470 (KM), 2016 WL 816746, at *2 (D.N.J.
Feb. 25, 2016).
The closing documents for the Thomases’ loan required them to
represent repeatedly that they were purchasing the Property as their primary
residence. They did so, even stating that they were selling their Somerset home
and “down-sizing.” See p. 3, supra.
Those representations, however, were false; the Thomases continued to
live in their Somerset home. In depositions, Mr. Thomas admitted under oath
that they did not intend to sell their home, and that the Property was never
intended to be the Thomases’ residence:
Q: All right. Now, it says you’re selling your home at 43 Winston Drive
[Somerseti. You actually didn’t have your home up for sale at the time
you wrote this, did you?
A: No, we didn’t.
Q: All right. And it says you’re buying the property in Somerset [sic], the
112 North Lawrence Avenue property because you were downsizing, is
that correct?
A: That’s what they asked me to say.
Q: All right.
A: That was from the mortgage company.
Q: In actuality, weren’t you buying the 112 North Lawrence Avenue
property as an investment?
A: Yeah, I would say that.
Q: You were going to rent it out?
A: Yeah, I was going to rent it out.
(M. Thomas Dep. 32:11—25, ECF No. 107-13 at 10)
This mortgage and loan had a commercial purpose, i.e., the acquisition of
a rental property, one of several owned by the Thomases. TILA does not apply.
On the TILA claims, then, summary judgment is granted in favor of the
defendants on this alternative ground.
21
D.
Statute of Limitations
1.
TILA
Any TILA claim would also be barred by the statute of limitations. A
claim for monetary damages under TILA has a one-year statute of limitations,
which runs from the date of closing of the loan. See 15 U.S.C.
§ 1640e; In re
Community Bank of Northern Virginia, 622 F.3d 275, 303 (3d Cir. 2010). A
request for rescission under TILA must be brought within three years. That is a
firm deadline, i.e., a statute of repose that is not subject to tolling. See 15
U.S.C.
§ 1635(f); Community Bank, 622 F.3d at 301 n.18; Williams v. Wells
Fargo Home Mortg., Inc., 410 F. App’x 495, 499 (3d Cir. 2011).
This loan closed on October 18, 2006. This action was brought over six
years later, on January 31, 2013. The discovery rule would not have
appreciably tolled the limitations period. If the interest rate was higher than
expected, the Thomases surely discovered that, at the latest, in connection with
their first loan payment on December 1, 2006. In his deposition, Mr. Thomas
admitted that he discovered that the rate was too high “right after the closing
and they sent us the payment slip.” The reference is evidently to the First
Payment Letter. (ECF no. 107-15 at 18) That Letter, signed by the Thomases,
discloses the total monthly payment and instructs them to include a copy with
their first payment, due on December 1, 2006. Mr. Thomas testified that,
although he was alerted to the alleged fraud at that time, he did not take any
action because “I didn’t know anybody I could call.” (M. Thomas Dep. 153:19—
23, ECF no. 107-13 at 40) The First Payment Letter, however, bears the name,
address, and telephone number of Jersey Mortgage.
The TILA claims are barred by the statute of limitations.
2.
Other claims
The Thomases’ remaining claims are not clearly identified or elaborated,
but they seem to sound in fraud and breach of contract.
22
The statute of limitations for a fraud claim is six years. N.J. Stat. Ann.
§
2A:14-1. That limitations period runs from when the fraudulent act or omission
occurred, or could have been discovered through the exercise of reasonable
diligence. See Southern Cross Overseas Agencies, Inc. v. Wah Kwong Shipping
Grp. Ltd., 181 F.3d 410, 425 (3d Cir. 1999) (New Jersey law). The applicable
statute of limitations for breach of contract is likewise six years. N.J. Stat. Ann.
§ 2A: 14-1. The contract limitations period runs from the time of the opposing
party’s breach or repudiation of the contract. See Peck v. Donovan, 565 F.
App’x 66, 69 (3d Cir. 2012) (New Jersey law); N.J. Div. of Taxation v. Selective
Ins. Co. of America, 399 N.J. Super. 315, 326 (App. Div. 2008).
Once again, any cause of action for fraud or breach of contract accrued
at or about the time that this loan closed on October 18, 2006. This action was
brought more than six years later, on January 31, 2013. The discovery rule, for
the reasons expressed in the preceding subsection, could not have appreciably
tolled the limitations period, because Mr. Thomas admits that he knew the
relevant facts immediately after the closing.
The Thomases’ miscellaneous state law causes of action are barred by
the statute of limitations.
E.
“Hiring away” the Thomases’ attorney
The Thomases allege that Jersey Mortgage “hired away” their attorney,
the Green firm, thereby denying them counsel. The record is insufficient to
raise a genuine material issue of fact as to that claim.
As noted in the factual discussion above, see pp. 5—6, the Green firm
represented the Thomases, and only the Thomases. Jersey Mortgage had its
own counsel. As is the practice in the northern part of this State, the buyer’s
attorney handled the closing paperwork and conducted the closing. See
generally Sears Mortgage Corp. v. Rose, 134 N.J. 326, 339—40, 634 A.2d 74
(1993). Mr. Thomas objects that this role distracted Green from giving Thomas
his full attention. Mr. Thomas’s evident dissatisfaction with Green’s services
23
does not equate to a finding that Green was “hired away” by Jersey Mortgage
and render Jersey Mortgage liable. There is no evidence that Jersey Mortgage
hired, retained, or otherwise enlisted the services of Green. Nor are Green’s
efforts to ensure good title evidence that he was “really” working for Jersey
Mortgage or the title company; ensuring that title properly passed to the
Thomases was part of Green’s job.
Summary judgment is granted to the defendants on the “hiring away”
claim.
CONCLUSION
The defendants’ motions for summary judgment are granted. An
appropriate order accompanies this opinion.
Dated: September 8, 2016
MCNULTY
United States District Judge
24
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