Kahraman et al v. Countrywide Home Loans, Inc.

Filing 37

ORDER granting 29 Motion for Summary Judgment: For the reasons set forth in the attached Memorandum and Order, Countrywide's motion for summary judgment (Doc. No. 29) is granted as to plaintiffs' federal law claims, which are dismissed with prejudice. Plaintiffs' remaining state law claims are dismissed without prejudice, this Court declining to exercise supplemental jurisdiction. Plaintiffs' request to filed a Second Amended Complaint (Doc. No. 28)to amplify their state law claims is moot. The Clerk of Court is directed to enter judgment accordingly, and close the file. Ordered by Judge Roslynn R. Mauskopf on 8/8/2012. (Mauskopf, Roslynn)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-----------------------------------------------------------X
SERVET KAHRAMAN and FATMA
KAHRAMAN,
MEMORANDUM AND ORDER
09-CV-2970 (RRM) (RML)

Plaintiffs,
- against COUNTRYWIDE HOME LOANS, INC.,
Defendant.
-----------------------------------------------------------X
ROSLYNN R. MAUSKOPF, United States District Judge.

Plaintiffs Servet and Fatma Kahraman have sued their mortgage lender, defendant
Countrywide Home Loans, Inc. (“Countrywide”), in connection with a home mortgage
refinancing. The Kahramans have asserted federal, state, and common-law claims against
Countrywide for failing to make required disclosures and for misrepresenting their income
during the loan application process. They seek rescission of the refinanced loan, statutory and
actual damages, and fees. Currently before the Court are Countrywide’s motion for Summary
judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, and a request by the
Kahramans to amend their complaint. For the reasons stated below, Countrywide’s motion for
summary judgment is granted as to all federal claims, which are dismissed with prejudice, the
Kahramans’ state and common-law claims are dismissed based on the Court’s decision to decline
supplemental jurisdiction, rendering moot the Kahramans’ request to amend their complaint for a
second time to amplify their state law claims.

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BACKGROUND
I. Factual Background
In July of 2006, the Kahramans refinanced their Countrywide mortgage loan. (Pls.’ 56.1
Stmt. (Doc. No. 31) at 1; Pls.’ Mem. Opp. (Doc. No. 34) at 5.) While the original principal
amount of their mortgage loan was $424,000, at refinancing the payoff figure was $341,682.44.
(Pls.’ 56.1 Stmt. at 1; Pls.’ Mem. Opp. at 5.) Countrywide extended the Kahramans a new loan
(the “Loan”) in the original amount of $424,000, secured by their residence. (Pls.’ 56.1 Stmt. at
1–2.) The Loan was used in part to pay the balance of their previous mortgage loan. (Pls.’ Mem.
Opp. at 5.)
At the closing on July 15, 2006, the Kahramans signed a loan application indicating that
Servet Kahraman’s monthly income was $8,000. (Pls.’ 56.1 Stmt. at 2.) The Kahramans allege—
and Countrywide has not squarely denied—that an earlier loan application signed on July 5,
2006 did not contain the $8,000 figure, and that Countrywide added the figure without their
knowledge or consent prior to closing. (Id. at 2–3; see Def.’s Reply Mem. Law Supp. (Doc. No.
35) at 7–8.) At closing, the Kahramans each signed a “Notice of Right to Cancel” form, each
acknowledging receipt of two copies of the Notice and one copy of a “Federal Truth in Lending
Disclosure Statement.” (Pls.’ 56.1 Stmt. at 2; Bjurstrom Dec. Ex. C (Doc 29-16) (Notice of Right
to Cancel); see also Bjurstrom Dec. Ex. G (Doc No. 29-20) (Truth in Lending Disclosure
Statement).) The Kahramans now allege that they only received one copy of the “Notice of Right
to Cancel.” (Pls.’ 56.1 Stmt. at 5.)
In 2008, Servet Kahraman’s income decreased, and the Kahramans subsequently
defaulted on the Loan. (Id. at 3.) The Kahramans attempted to obtain a loan modification, but

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were unsuccessful. (Id. at 4.) They then sent Countrywide a notice of rescission on or about July
8, 2009, just one week prior to the third anniversary of the closing. (Id.)
II. Procedural Background
On July 10, 2009, the Kahramans commenced this action, seeking to rescind their
mortgage loan under the federal Truth in Lending Act (“TILA”), based on Countrywide’s alleged
failure to provide each plaintiff with two copies of the Notice of Right to Cancel. (Compl. (Doc.
No. 1).) On April 30, 2010, plaintiffs amended their complaint to include: an additional TILA
rescission claim based on Countrywide’s failure to use the proper form for the Notice of Right to
Cancel; a claim under the Credit Repair Organizations Act (“CROA”), 15 U.S.C. §§ 1679–79j
(2006); a claim under New York’s Deceptive Practices Act, N.Y. Gen. Bus. Law § 349; and a
claim for common law fraud. (Am. Comp. (Doc. No. 11).)
Countrywide has now moved for summary judgment on all of the Kahramans’ claims.
(See Def.’s Mem. Law Suppt. (Doc. No. 30).) The Kahramans have opposed the motion, and
have also asked for leave to amend their complaint for a second time. (Pls.’ Mem. Opp.; Pls.’
Letter of Dec. 11, 2011 (Doc. No. 28).) Countrywide has replied in support of its motion, and has
opposed the Kahramans’ request for leave to amend. (Def.’s Reply Mem. Law Suppt. ; Def.’s
Letter of Dec. 15, 2011 (Doc. No. 36).)
DISCUSSION
I. Summary Judgment Standard of Review
Summary judgment is appropriate when the pleadings, depositions, interrogatories,
admissions, and affidavits demonstrate that there are no genuine issues of material fact in dispute
and that one party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists “if the

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evidence is such that a reasonable jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In deciding a summary judgment motion, a district court must draw all reasonable
inferences in favor of the nonmoving party. See id. at 249 (citing Adickes v. S.H. Kress & Co.,
398 U.S. 144, 158–59 (1970)); Castle Rock Entm’t, Inc. v. Carol Publ’g Grp., Inc., 150 F.3d
132, 137 (2d Cir. 1998). The court must not “weigh the evidence but is instead required to view
the evidence in the light most favorable to the party opposing summary judgment, to draw all
reasonable inferences in favor of that party, and to eschew credibility assessments.” Amnesty
Am. v. Town of W. Hartford, 361 F.3d 113, 122 (2d Cir. 2007) (quoting Weyant v. Okst, 101 F.3d
845, 854 (2d Cir. 1996)).
Once a movant has demonstrated that no genuine issue of material fact exists, then “the
nonmoving party must come forward with ‘specific facts showing that there is a genuine issue
for trial.’” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)
(quoting Fed. R. Civ. P. 56(e)) (emphasis in original). There must exist more than mere
“metaphysical doubt as to the material facts” to defeat a summary judgment motion. Id. at 586.
The non-moving party must present “concrete evidence from which a reasonable juror could
return a verdict in his favor.” Anderson, 477 U.S. at 256. Only disputes over material facts “that
might affect the outcome of the suit under the governing law” will properly preclude the entry of
summary judgment. Id. at 248; see also Matsushita, 475 U.S. at 586.

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II. Plaintiffs’ TILA Claim
1. TILA Framework
TILA was enacted by Congress “to assure a meaningful disclosure of credit terms” to
consumers. Barberan v. Nationpoint, 706 F. Supp. 2d 408, 421 (S.D.N.Y. 2010) (citing 15
U.S.C. § 1601; Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998); Ford Motor Credit Co. v.
Milhollin, 444 U.S. 555, 559 (1980)). Congress has specifically designated the Federal Reserve
Board as the primary source for interpretation and application of TILA. Id. (citing Milhollin, 444
U.S. at 566).
Under TILA, as interpreted by the Board, consumers entering certain credit transactions
involving security interests in their principal dwelling have a right to rescind the transaction until
midnight on the third business day after the credit transaction, delivery of the rescission notice,
or delivery of all material disclosures, whichever is latest. Id. (citing 15 U.S.C. § 1635(a)). If a
borrower does not receive certain disclosures, the right to rescind the transaction extends for
three years. Id. at 421–22; 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3). The three year
extension is triggered if a creditor does not “clearly and conspicuously disclose” the security
interest in the principal dwelling, the right to rescind, how to exercise rescission (with a form to
exercise rescission designating the creditor’s address), the effects of rescission, and the
expiration date of rescission. Barberan, 706 F. Supp. 2d at 421 (citing 15 U.S.C. § 1635(a); 12
C.F.R. § 226.23(b)(1)). The creditor must also make all “material disclosures,” which include
“the required disclosures of the annual percentage rate, the finance charge, the amount financed,
the total of payments, [and] the payment schedule . . . .” 12 C.F.R. § 226.23(a)(3) & n.48.

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2. Analysis
i. Rescission amount limit
As an initial matter, the Kahramans’ complaint seeks more rescission rights than TILA
would entitle them to. The Kahramans’ amended complaint asks this Court to “rescind under
TILA the $424,000 mortgage and loan that the Kahramans received from Countrywide Home
Loans, Inc., and terminate any security interest that Countrywide has in the Kahramans’
Wantagh, New York home.” (Am. Comp. (emphasis added).) But all of plaintiffs’ allegations
concern their July 15, 2006 refinancing transaction, and not their original home loan, which was
made years earlier, by an entity eventually owned by Countrywide at the time of refinancing (See
id. at 2.) On the day that the Kahramans refinanced their mortgage, they owed Countrywide
$341,682.44 on that original loan. (Id.; Pls.’ Mem. Opp. at 5.)
Under the Federal Reserve Board’s implementation of TILA,
[t]he right to rescind does not apply to . . . a refinancing or consolidation by the
same creditor of an extension of credit already secured by the consumer’s
principal dwelling [except] to the extent 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 plaintiffs’ opposition papers acknowledge this limitation.
When the lender who refinances a mortgage loan is the same lender as the one
who also made the previous loan that the borrowed is refinancing, the borrower’s
three-day right to cancel only gives her the right to cancel the amount of new
credit that exceeds the balance on her previous loan. She cannot cancel her entire
new loan. . . . That means that during the three days after the Kahramans closed
on [the Loan], they were only entitled to cancel . . . $82,317.56 of the $424,000
loan, because $341,682.44 was the remaining balance on their previous
Countrywide loan . . . .
(Pls.’ Mem. Opp. at 5–6 (emphasis in original) (citing 12 C.F.R. § 226.23(f)(2)).) While the
Kahramans allege that Countrywide’s Right to Cancel Notice ambiguously suggests that they can

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cancel their entire loan, they refer to this interpretation, the same one still set forth in their
amended complaint, as “erroneous[]” and “false[].” (Id. at 6.)
Section 226.23(f)(2) clearly governs plaintiffs’ rescission rights under TILA, and
plaintiffs have presented no legal argument why they are otherwise entitled to rescission of their
entire loan, or to a complete release of Countrywide’s security interest, which predated their
refinancing. Accordingly, the Kahramans’ TILA rescission claim must be limited only to that
portion of their refinancing loan which exceeds the sum of (1) the unpaid principal balance on
their original loan, (2) any earned unpaid finance charge on the existing debt, and (3) amounts
attributed solely to the costs of the refinancing or consolidation.1 In any event, for the reasons
below, the Court finds their TILA claim untimely.
ii. Timeliness of the Rescission Claim
The Kahramans brought the instant suit long after the three-day rescission period set forth
at 15 U.S.C. § 1635(a). They argue, however, that they are entitled to an extended three-year
period for rescission, due to two errors allegedly made by Countrywide at closing. See 12 C.F.R.
§ 226.23(a)(3). First, they allege that Countrywide failed to provide them each with two copies
of the notice of their right to rescind the transaction (“NRR”). (Am. Compl. ¶ 24a); see 12 C.F.R.
§ 226.23(b)(1) (“In a transaction subject to rescission, a creditor shall deliver two copies of the
notice of the right to rescind to each consumer entitled to rescind . . . .”). Second, they allege that
Countrywide used the wrong form for their NRR, thereby failing to “clearly and conspicuously”
inform them of their rescission rights and the effects thereof. (Am. Compl. ¶ 24b); see 15 U.S.C.

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Further, although plaintiffs’ “Request for Damages” paragraph includes a claim for statutory damages under TILA,
Countrywide’s motion for summary judgment as to this demand is GRANTED. Plaintiffs filed this action far outside
TILA’s one-year statute of limitations for statutory damages. See 15 U.S.C. § 1640(e). This statute of limitations is
separate from the three-year statute applicable to violations of the disclosure requirements in § 1639. Id.

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§ 1635(a). As explained below, neither error entitles the Kahramans to the extended rescission
period. Accordingly, their TILA rescission claim is untimely.
a. Failure to provide two copies of the NRR
The Kahramans allege that Countrywide failed to provide them with two copies each of
the NRR. At closing, the Kahramans signed a statement at the bottom of their Notice of Right to
Cancel, indicating that they “each acknowledge receipt of two copies of NOTICE of RIGHT TO
CANCEL and one copy of the Federal Truth in Lending Disclosure Statement.” (Bjurstrom Dec.
Ex. C.) They nevertheless allege that they together received only one copy of the NRR.2 (Aff.
Servet Kahraman Opp. ¶9–13; see Pls.’ 56.1 Stmt. at 5.) While their signatures create a
rebuttable presumption of full delivery, see 15 U.S.C. § 1635(c), the parties disagree about
whether Servet Kahramans’ affidavit testimony is sufficient to rebut the presumption and avoid
summary judgment. However, the Court need not reach this issue.3
While the Second Circuit has never squarely addressed whether failure to provide extra
copies of an NRR entitles a consumer to an extended rescission period, it has held that “perfect
disclosure” is not required under TILA, Gambardella v. G. Fox & Co., 716 F.2d 104, 118 (2d
Cir. 1983), and that TILA’s “purpose is to require ‘meaningful disclosure,’ not ‘more
disclosure.’” Turner v. General Motors Acceptance Corp., 180 F.3d 451, 457 (2d Cir. 1999)

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This allegation distinguishes the instant case from cases like Iannuzzi v. Am. Mortg. Network, Inc., 727 F. Supp. 2d
125 (E.D.N.Y. 2010), in which the court denied summary judgment to mortgagee defendants where plaintiff
mortgagors conceded that they signed a written acknowledgement at closing, but stated in sworn affidavits that they
received no copies of the required TILA disclosure forms. Id. at 135.

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As the court recognized in Iannuzzi, district courts applying the rebuttable presumption of 15 U.S.C. § 1635(c)
have disagreed as to whether sworn statements by borrowers asserting that they did not receive the requisite copies
of their notice of right to rescind, despite signed acknowledgments to the contrary, are sufficient to preclude
summary judgment. 727 F. Supp. 2d at 136 & n.14.

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(quoting Milhollin, 444 U.S. at 568). 4 Under similar interpretations of TILA, other courts have
held that merely receiving one copy of the NRR instead of two (or more) should not extend a
consumer’s right of rescission to three years under 12 C.F.R. § 226.23(a)(3). 5 See, e.g.,
Martenson v. RG Financing, No. 09–cv–1314, 2010 WL 334648, at *10 (D. Ariz. Jan. 22, 2010)
(finding plaintiff not likely to succeed on the merits of a rescission claim under TILA, because,
inter alia, plaintiff “does not allege that receiving only one copy [of her NRR] prevented her
from exercising her right to cancel or that she would have exercised the right if she had received
two copies”); Henderson v. GMAC Mortg. Corp., No. C05-5781RBL, 2008 WL 1733265, at *6
n.5 (W.D. Wash. Apr. 10, 2008) (finding “simply no support [under TILA] for the claim that a
technical failure to provide multiple copies of a document excuses a borrower from his end of the
bargain”); see also Am. Mortg. Network, Inc. v. Shelton, 486 F.3d 815 (4th Cir. 2007) (declining
to address “hyper-technical” violations of TILA, and stating in dicta that lender “substantially
complied” when it delivered one copy of an NRR instead of four).

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This Court recognizes, but declines to follow, those other courts that have applied a “strict liability standard,” to
TILA, such that “even minor or technical violations” impose rescission liability on the creditor. Siver v.
CitiMortgage, Inc., 830 F. Supp. 2d 1194, 1197 (W.D. Wash. 2011). These courts elsewhere, have found the
rescission period extendable to three years simply for failing to provide two copies each of an NRR. See, e.g., Smith
v. Argent Mortg. Co., 331 Fed. Appx. 549, 557 (10th Cir. 2009); Sibby v. Ownit Mortg. Solutions, Inc., 240 Fed.
Appx. 713, 715 (6th Cir. 2007); Marr v. Bank of America, N.A., No. 10–C–0658, 2012 WL 781706, at *3 (E.D. Wis.
Mar. 07, 2012); DeCosta v. U.S. Bancorp, No. DKC 10–0301, 2010 WL 3824224, at *4 (D. Md. Sep. 27, 2010);
Davison v. Bank One Home Loan Servs., No. 01–2511–KHV, 2003 WL 124542, at *4 (D. Kan. Jan 13, 2003);
Cooper v. First Gov’t Mortg. & Investors Corp., 238 F. Supp. 2d 50, 64 (D.D.C. 2002); c.f. Aubin v. Residential
Funding Co., LLC, 565 F. Supp. 2d 392, 397 n.3 (D. Conn. 2008) (declining to “wade into the apparent conflict
among circuits regarding whether technical errors are sufficient to trigger the three-year rescissory period.”
(collecting cases)).

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In addition, some courts have questioned whether the language of the Federal Reserve Board’s regulations even
authorizes an extended rescission period for this particular violation. See King v. Long Beach Mortg. Co., 672 F.
Supp. 2d 238, 250–51 (D. Mass. 2009) (“By deliberately choosing to use the singular form “notice” instead of the
plural form ‘notices’ or ‘two copies of the notice,’ the Federal Reserve Board intended that delivery of a single copy
of the Notice would not trigger an extension of the rescission right.”); accord McKenna v. Wells Fargo Bank, N.A.,
No. 10–10417–JLT, 2011 WL 1100160 (D. Mass. Mar. 21, 2011); Kassner v. Chase Home Finance, LLC, No. 11–
10643–RWZ, 2012 WL 260392 (D. Mass. Jan 27, 2012).

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Finding these principles persuasive, and viewing the facts in the light most favorable to
plaintiffs, the Kahramans are not entitled to an extended rescission period as they received
“meaningful disclosure.” Even assuming that the Kahramans could properly rebut their written
acknowledgement that at closing they received four copies of the NRR, there is no dispute that
they received at least one NRR, and that the NRR accurately disclosed plaintiffs’ rights under
TILA, including their right of rescission. Moreover, the Kahramans have not shown that their
rights were in any way affected by receiving only one copy. See Yarney v. Wells Fargo Bank,
N.A., No. 3:09–CV–00050, 2010 WL 3075460, at *9 (W.D. Va. Aug. 5, 2010) (dismissing under
12(b)(6) TILA rescission claims where plaintiff “ha[d] not alleged that she did not receive actual
notice of the right to rescind,” nor that she was harmed by receiving only one NRR). Indeed,
Servet Kahraman has stated at deposition that he has no desire to actually cancel his loan with
Countrywide (Sims Dec. Ex. 6 (Servet Kahraman Tr.) at 81:13–16), and both Servet and Fatma
Kahraman have confirmed that their ultimate objective is to use the threat of rescission to obtain
a modification of a loan they freely entered into. (Id. at 80:3–6; Sims Dec. Ex. 7 (Fatma
Kahraman Tr.) at 33:9–13.)
b. Use of an improper form for the NRR
As an alternative ground for extending the rescission period, the Kahramans argue that
Countrywide used the wrong form to disclose their rescission rights. Countrywide notified the
Kahramans of their right to cancel their refinancing transaction on a form patterned on Federal
Reserve Board Model Form H-8, 12 C.F.R. § 226.23 app. H-8, which is designed for general
transactions. See Santos-Rodriguez v. Doral Mortg. Corp., 485 F.3d 12, 15 (1st Cir. 2007). The
Kahramans argue that Countrywide should have used a form patterned on Form H-9, 12 C.F.R. §
226.23 app. H-9, which is designed for same-lender refinancing transactions. See Santor-

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Rodriguez, 485 F.3d at 15. They submit that Countrywide, by using the improper form, failed to
provide clear notice of their right to rescind the refinancing loan. (Am. Comp. ¶¶ 24–25.)
Title 15, United States Code, § 1635(h) does not require use of a particular form to
inform consumers of their rescission rights, but instead authorizes the use of “the appropriate
form of written notice published and adopted by the [Federal Reserve Board], or a comparable
written notice . . . .” (emphasis added). Likewise, the Federal Reserve Board’s regulations permit
a creditor to “provide the appropriate model form in Appendix H . . . or a substantially similar
notice.” 12 C.F.R. § 226.23(b)(2) (emphasis added). Accordingly, merely using a form modeled
after form H-8 rather than form H-9 for a refinancing transaction would not entitle a mortgagor
to rescission unless the form failed to “clearly and conspicuously” inform the mortgagor of his
rescission rights and the effects thereof. Santos-Rodriguez, 485 F.3d at 17.
A refinance lender who uses forms modeled on form H-8 rather than H-9 can still meet
its disclosure obligations under TILA and its regulations. Id. The H-8-based form must explain
that the mortgagors are entering a transaction that would result in a mortgage on their home; that
they have a legal right to rescind the transaction without cost within three days; and that, if they
rescind the transaction, the mortgage created by the refinancing transaction will also be
cancelled. See id. The form must also satisfy the requirements of 12 C.F.R. § 226.23(d) by
sufficiently informing the mortgagors of certain effects of rescission. See Santos-Rodriguez, 485
F.3d at 17. A refinancer’s use of a form meeting these requirements, even if not based on form
H-9, will not trigger the three year extended rescission period. Id.; accord Stallman v.
Countrywide Home Loans, Inc., No. 1:10 CV 1006, 2011 WL 400103, at *5 (N.D. Ohio Feb. 1,
2011). 6

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Again, courts that impose a strict liability interpretation of TILA’s disclosure requirements have reached a different
result on similar issues. See, e.g., Handy v. Anchor Mortgage Corp., 464 F.3d 760, 764 (7th Cir. 2006) (finding

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Here, Countrywide’s H-8 based form provided the required information. (See Bjurstrom
Dec. Ex. C.) Plaintiffs argue that Countrywide’s form is nevertheless fatally ambiguous under
TILA because the term “this transaction” could be read to imply a right to rescind their entire
$424,000 loan, while in fact, as discussed supra, a refinancing homeowner is only entitled to
rescind the amount of their new loan that exceeds the balance of their original mortgage loan.
(Pls.’ Mem. Opp. at 6–7.) Plaintiffs argue that Santos-Rodriguez “ignores [this] critical
ambiguity” in the H-8 form when used in the refinancing context. (Id. at 7.) In fact, the SantosRodriguez court addressed and properly dismissed this very interpretation, finding that the H-8
form informed the plaintiffs “clearly and conspicuously” that “rescission would only operate as
to their pending refinance transaction,” and thus that “any conclusions . . . they might have
drawn from that disclosure about their previously existing mortgages were unreasonable (and,
thus, not the valid basis for any TILA claim).” 485 F.3d at 18 (citing Gambardella, 716 F.2d at
118). This Court agrees, as the average refinancing borrower would understand rescission of a
refinancing “transaction” to return them to the status quo ante of their outstanding mortgage, and
not to grant them a windfall by cancelling their entire mortgage. See Veale v. Citibank, 85 F.3d
577, 580 (11th Cir. 1996) (“We hold that . . . the H-8 form provides sufficient notice that the
current transaction may be cancelled but that previous transactions, including previous
mortgages, may not be rescinded.”); see also Joy Iroanyah v. Bank of America, N.A., 2012 WL
874329, at *5 (N.D. Ill. Mar. 14, 2012) (“Rescission unwinds the rescinded transaction, with

three-year rescission period available where new mortgagee erroneously gave mortgagor both an H-8 and H-9 form,
and noting that “TILA does not easily forgive ‘technical’ errors.”) However, as noted above, the Second Circuit has
refused to grant statutory damages under TILA for technical inaccuracies unlikely to mislead consumers.
Gambardella, 716 F.2d 117–18. This accords with other circuits’ holdings that TILA’s standards are “less
demanding than a requirement of perfect notice.” Santos-Rodriguez, 485 F.3d at 16n.6 & 17 (citing Veale, 85 F.3d at
581 (11th Cir. 1996); Smith v. Chapman, 614 F.2d 968, 972 (5th Cir. 1980)). It also accords with Congress’s 1995
amendments to TILA, which were intended to provide “higher tolerance levels for . . . honest mistakes in carrying
out disclosure obligations.” See id. at 17.

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each side returning whatever it received from the other to restore the status quo ante.”)
Accordingly, because Countrywide’s form provided sufficient notice of the Kahramans’
rescission rights, it too cannot serve as grounds to extend their rescission period.
Because the Kahramans were only entitled to a three-day rescission period, their TILA
rescission claim is untimely, and Countrywide’s motion for summary judgment as to this claim is
granted.7
III. Plaintiffs’ Credit Repair Organizations Act Claim
In their amended complaint, the Kahramans have added a claim that Countrywide
violated the Credit Repair Organization Act, 15 U.S.C. §§ 1679–79j (“CROA”). They allege that
Countrywide altered their loan application to make Servet Kahraman’s gross monthly income
appear greater than it was, thereby falsely representing their creditworthiness in the loan
application process. Even assuming this to be true, the Kahramans would not be entitled to
relief.

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Even if the Kahramans could show mistakes by Countrywide entitling them to an extended rescission period,
equitable considerations would counsel against permitting them to rescind their loan. TILA’s requirements are to be
“reasonably construed and equitably applied.” Shelton, 486 F.3d at 819 n.4; Aubin, 565 F. Supp. 2d at 397 (citing
Shelton). “Although TILA statutorily grants the right to rescind, rescission nevertheless remains an equitable
remedy.” Duren v. First Gov’t Mortg. & Investors Corp., 221 F.3d 195 (D.C. Cir. 2000) (table). As such, rescission
under TILA is subject to the same concerns attendant to rescission at common law. See Rosenfield v. HSBC Bank,
USA, No. 10–1442, --- F.3d ----, 2012 WL 2087193, at *8–9 (10th Cir. June 11, 2012). Accordingly, a court may
decline enforcement where doing so would “deprive the lender of his legal due,” or result in “stark inequity” to the
lender. See Byron v. EMC Mortg. Corp., No. 3:09–cv–197, 2009 WL 2486816 (E.D. Va. Aug. 10, 2009) (quoting
Powers v. Sims, 542 F.2d 1216, 1222 (4th Cir. 1976)). In this case, the Kahramans have never alleged that they were
damaged by Countrywide’s minor alleged oversights, or that Countrywide failed to notify them of their right to
rescind the transaction. Balancing the interest of Countrywide—to enforce a contract into which all parties entered
freely—against the clear intent of the Kahramans as discussed above—to use technical violations under TILA to
force a modification of that contract’s terms— rescission would be an inequitable remedy. See Byron, 2009 WL
2486816, at *4 (denying rescission where plaintiff borrower would receive an “unconscionable windfall” if
permitted to rescind for the “technical error” that she received only one copy of an NRR); see also Yarney, 2010
WL 3075460, at *9 (W.D. Va. Aug. 5, 2010) (dismissing rescission claims under TILA where plaintiff “ha[d] not
alleged that she did not receive actual notice of the right to rescind,” nor that she was harmed by receiving only one
NRR).

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The stated purposes of CROA are:
(1) to ensure that prospective buyers of the services of credit repair
organizations are provided with the information necessary to make an
informed decision regarding the purchase of such services; and
(2) to protect the public from unfair or deceptive advertising and business
practices by credit repair organizations.
15 U.S.C. § 1679(b). Under CROA, “[n]o person may . . . make any statement . . . which is
untrue or misleading . . . with respect to any consumer’s credit worthiness, credit standing, or
credit capacity to . . . any person . . . to whom the consumer has applied or is applying for an
extension of credit . . . .” § 1679b(a)(1). A violation of CROA entitles a plaintiff to damages in
the amount of “any actual damage sustained by such person . . . [or] any amount paid by the
person to the credit repair organization,” § 1679g(a)(1), and under certain conditions, punitive
damages, § 1679g(a)(2).
As an initial matter, federal district courts disagree as to whether § 1679b generally
applies to mere lending institutions such as Countrywide. See Hayrioglu v. Granite Capital
Funding, LLC, 794 F. Supp. 2d 405, 414 (E.D.N.Y. 2011) (citing cases on both sides); see also
Enriquez v. Countrywide Home Loans, FSB, 814 F. Supp. 2d 1042 (D. Hawaiʻi, 2011) (finding
that Countrywide Home Loans, FSB was not a credit-repair organization under CROA); Dodds
v. BAC Home Loans Servicing, LP, CV. No. 10–00371 DAE KSC, 2011 WL 1483971, at *1 n.2
(D. Hawaiʻi Apr. 19, 2011) (finding same as to a successor-in-interest to the instant defendant).
The Kahramans have not alleged that Countrywide offered them any other form of credit repair
that might entitle them to relief. See Nixon v. Alan Vester Auto Grp., Inc., No. 1:07CV839, 2008
WL 4544369, at *7 (M.D.N.C. Oct. 8, 2008) (dismissing CROA claims against car financers
where plaintiff “[did] not allege that any of the Defendants were credit repair organizations or
held themselves out as offering any form of credit repair services.”).
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But even if § 1679b applied to Countrywide, the Kahramans’ claim would make
Countrywide liable for misrepresenting the Kahramans’ income to itself as part of the lending
process. Hayrioglu rejected this same “strained reading,” finding that it is not “a sensible
understanding of the statutory language or of the Congress’s intent.” 794 F. Supp. 2d at 415
(citing Whitley v. Taylor Bean & Whitacker Mortg. Corp., 607 F. Supp. 2d 885, 899 (N.D. Ill.
2009)). This Court agrees that overstating an applicant’s income as part of an internal loan
approval process does not alone constitute a violation of 15 U.S.C. § 1679b(a)(1). Accordingly,
the Kahramans have not stated a claim to relief under CROA.
Moreover, even if Countrywide’s misrepresentation were actionable under CROA, the
Kahramans have not shown that it was the cause of their injury. Countrywide’s purported
misstatement of Servet Kahraman’s income improved, rather than impaired, the Kahramans’
access to credit that they were actively seeking. After the Kahramans were approved for the
refinancing loan, they signed a one-page “Truth in Lending Disclosure Statement” that clearly
set forth their liability under the refinanced loan: 359 monthly payments of $3,222.71, and a final
payment of $3,217.29. (Bjurstrom Dec. Ex. G.) The Kahramans also received and endorsed
forms reflecting the allegedly misstated income at closing. (Id. Ex. F.) As plaintiffs
acknowledge in their Amended Complaint, “nearly all of Mr. Kahraman’s $3,583 monthly
income went to making the Kahramans’ . . . mortgage payment, which left them only Mrs.
Kahraman’s salary to live on.” (See Am. Compl. ¶¶ 17–18) Thus, the Kahramans knowingly
undertook a credit obligation that they acknowledge would be difficult to afford. The size of the
Kahramans monthly payments and the sufficiency of their actual income to meet those payments
should have informed plaintiffs well before the economic events of 2008 of the need to seek

15

additional income, a smaller home, or a different financial arrangement.8 If two years later the
Kahramans experienced the injury they plead—“economic loss and mental anguish, and . . . the
prospective loss through foreclosure of the premises that are their home,” (Am. Compl. ¶ 46)—
they have not offered facts from which to conclude that Countrywide caused their harm by
facilitating their efforts to obtain a loan.
For the foregoing reasons, Countrywide’s motion for summary judgment as to the
Kahramans’ CROA claim is granted.
IV. Plaintiffs’ Remaining Claims
In their two remaining claims, the Kahramans allege that Countrywide violated New
York’s Deceptive Practices Act (the “DPA”), and that Countrywide fraudulently induced them to
refinance their home. (Am. Compl. ¶¶ 28–38.)
“In the interest of comity, the Second Circuit instructs that ‘absent exceptional
circumstances,’ where federal claims can be disposed of pursuant to Rule 12(b)(6) or summary
judgment grounds, courts should ‘abstain from exercising pendent jurisdiction.’” Birch v.
Pioneer Credit Recovery, Inc., No. 06–CV–6497T, 2007 WL 1703914, at *5 (W.D.N.Y. June 8,
2007) (quoting Walker v. Time Life Films, Inc., 784 F.2d 44, 53 (2d Cir. 1986)).
In the instant case the Court, in its discretion, “‘decline[s] to exercise supplemental
jurisdiction’” over plaintiff’s state law claims because “it ‘has dismissed all claims over which it
has original jurisdiction.’” Kolari v. New York-Presb’n Hosp., 455 F.3d 118, 122 (2d Cir. 2006)
(quoting 28 U.S.C. § 1367(c)(3)); see also Cave v. E. Meadow Union Free Sch. Dist., 514 F.3d
240, 250 (2d Cir. 2008) (“We have already found that the district court lacks subject matter

8

The Kahramans’ signed loan application indicates that their refinancing actually lowered their monthly housing
expenses by nearly $1800. (Bjurstrom Dec. Ex. F at 2.) While not relied upon for this opinion, this calculation
suggests that Countrywide’s facilitation of the Kahramans’ loan application process, far from causing them injury,
might have staved off foreclosure of their home for a few more years.

16

jurisdiction over appellants’ federal claims. It would thus be clearly inappropriate for the district
court to retain jurisdiction over the state law claims when there is no basis for supplemental
jurisdiction.”); Karmel v. Claiborne, Inc., No. 99 Civ. 3608(WK), 2002 WL 1561126, at *4
(S.D.N.Y. July 15, 2002) (“Where a court is reluctant to exercise supplemental jurisdiction
because of one of the reasons put forth by § 1367(c), or when the interests of judicial economy,
convenience, comity and fairness to litigants are not violated by refusing to entertain matters of
state law, it should decline supplemental jurisdiction and allow the plaintiff to decide whether or
not to pursue the matter in state court.”); see, e.g., Done v. Option One Mortg., No. 09–CV–4770
(JFB), 2011 WL 1260820, at *10 (E.D.N.Y. Mar. 30, 2011) (dismissing mortgagor’s TILA
claims and other federal claims as time barred, and declining jurisdiction over remaining state
law claims).
CONCLUSION
For the above reasons, Countrywide’s motion for summary judgment (Doc. No. 29) is
granted as to plaintiffs’ federal law claims, which are dismissed with prejudice. Plaintiffs’
remaining state law claims are dismissed without prejudice.9
Upon entry of judgment, the Clerk shall close the file in this court.
SO ORDERED.

Roslynn R. Mauskopf

Dated: Brooklyn, New York
August 8, 2012

____________________________________
ROSLYNN R. MAUSKOPF
United States District Judge

9

Plaintiffs’ request to file a Second Amended Complaint (Doc. No. 28) in order to amplify their state law claims is
moot.

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