Midouin v. Downey Savings and Loan Association, F.A. et al
Filing
24
ORDER granting in part and denying in part 19 Motion to Dismiss. For the reasons set forth in the attached Memorandum and Order, (i) defendants' motion to dismiss plaintiff's claim for rescission pursuant to 15 U.S.C. § 1635 is den ied; (ii) defendants' motion to dismiss plaintiff's claim for damages pursuant to 15 U.S.C. § 1640 for failure to honor plaintiffs request for rescission is denied; (iii) defendants' motion to dismiss plaintiffs additional claims for damages pursuant to 15 U.S.C. § 1640 is granted; (iv) defendants' motion to dismiss plaintiff's claims for damages pursuant to 12 U.S.C. §§ 2605(e)(2) and (e)(2)(A) is denied; (iv) defendants' motion to dismiss plain tiff's claim for damages pursuant to 12 U.S.C. § 2605(e)(3) is granted, with leave for plaintiff to amend within 30 days of this Order; and (v) defendants' motion to dismiss plaintiff's claim for damages pursuant to New York General Business Law § 349 is granted. Ordered by Judge Kiyo A. Matsumoto on 9/28/2011. (Winterkorn, Margaret)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
----------------------------------X
GEORGIA MIDOUIN, an individual,
Plaintiff,
- against –
MEMORANDUM & ORDER
09-CV-4140 (KAM)(JO)
DOWNEY SAVINGS AND LOAN
ASSOCIATION, F.A.,
U.S. BANK,
JOHN & JANE DOES 1-10,
Defendants.
----------------------------------X
MATSUMOTO, UNITED STATES DISTRICT JUDGE:
Georgia Midouin (“plaintiff”) commenced this action on
September 25, 2009 against Downey Savings and Loan Association,
F.A. (“Downey”), U.S. Bank National Association (“U.S. Bank”),
and John & Jane Does 1-10 (collectively, “defendants”),
asserting claims for (1) rescission pursuant to the Truth in
Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”) (Count One); (2)
damages pursuant to TILA (Count Two); (3) damages pursuant to
the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605
(“RESPA”) (Count Three); and (4) damages pursuant to New York
General Business Law (“NYGBL”) § 349 (Count Four).
1, Complaint, filed 9/25/2009 (“Compl.”), ¶¶ 55-98.)
(See ECF No.
Presently
before the court is a motion to dismiss the Complaint for
failure to state a claim, pursuant to Federal Rule of Civil
Procedure 12(b)(6), filed by U.S. Bank as successor in interest
to the Federal Deposit Insurance Corporation (“FDIC”), which was
appointed as receiver for Downey.
at 1.) 1
(See ECF No. 19-2, Def. Mem.
For the reasons discussed below, defendants’ motion is
granted in part and denied in part.
BACKGROUND
The facts as alleged in the Complaint, which the court
accepts as true for purposes of defendants’ Rule 12(b)(6)
motion, are as follows.
This action arises out of a closed-end
credit transaction in which Downey provided plaintiff a $325,000
loan to refinance and cash out the value of her home and
existing mortgage loan on her primary residence located in
Cambria Heights, New York (the “property”).
¶¶ 5, 14, 35.)
(ECF No. 1, Compl.
In 2006, plaintiff submitted financial
information to First Rate Capital Corporation (“First Rate”), to
apply for a loan to refinance her mortgage.
(Id. ¶¶ 14-15.)
Plaintiff alleges that although First Rate did not request any
income verification, First Rate assured her that she qualified
for mortgage loan approval and promised her that she could
obtain a loan at the best possible interest rate despite her
fixed income.
(Id. ¶¶ 16-17.)
On November 24, 2006, First Rate provided plaintiff
with a Good Faith Estimate of Settlement Charges from Downey,
1
To the extent a claim alleged against U.S. Bank is dismissed in this
Memorandum and Order, that claim is also dismissed against defendants Downey
and John and Jane Does 1-10. Accordingly, although the instant motion was
filed by U.S. Bank, the court will refer to it as “defendants’ motion.”
2
which set forth estimated settlement charges totaling $5,989.88,
and a Federal Truth-In-Lending Disclosure Statement.
¶¶ 18-19; see also id. at 19.) 2
(Id.
Plaintiff subsequently accepted
the proposed mortgage loan with Downey and plaintiff attended
the settlement and closing (the “Closing”) on December 11, 2006.
(Id. ¶¶ 21-24.)
Plaintiff alleges that at the Closing, Downey provided
her with a $325,000 loan and copies of the following documents:
(i) a Good Faith Estimate of Settlement Charges, dated December
11, 2006, (the “Good Faith Estimate”), (id. at 20, 21); 3 (ii) a
Federal Truth-in-Lending Disclosure Statement, dated December
11, 2006, (the “TILA Disclosure Statement”), (id. at 22); (iii)
four copies of a Notice of Right to Cancel, dated December 11,
2006, (id. at 23-26); (iv) two copies of a U.S. Department of
Housing and Urban Development Settlement Statement, dated
December 11, 2006, (the “HUD-1 Settlement Statement”), (id. at
27-30); (v) an unsigned Uniform Residential Loan Application,
(id. at 31-34); (vi) the Lender’s Instructions, Itemization of
Charges, dated December 11, 2006, (id. at 35); and (vii) a
Statement of Mortgage Closing, (id. at 36).
(Id. ¶ 24.)
2
Citations to page numbers in the Complaint are to those page numbers
automatically assigned by the court’s electronic case filing system.
3
The Complaint attaches two Good Faith Estimates of Settlement Charges, both
dated December 11, 2006, reflecting different amounts charged and different
total estimated charges. (See ECF No. 1, Compl. at 20, 21.)
3
The Good Faith Estimate that plaintiff received at the
Closing set forth estimated settlement charges totaling more
than $17,000, including $360 in recording fees.
(See id. at 20,
21.)
The TILA Disclosure Statement stated that the “annual
percentage rate” was 8.005 percent, the “finance charge” was
$627,119.76, and the “amount finance[d]” was $321,704.60.
at 22.)
(Id.
Thus, the total amount owed pursuant to the loan was
$948,824.36.
(Id.)
The TILA Disclosure Statement also set
forth the loan repayment schedule and indicated that the loan
contained a variable interest rate.
(See id.)
The HUD-1 Settlement Statement, which plaintiff signed
on December 11, 2006, itemized settlement charges that were to
be paid from the proceeds of the loan but were not included in
the amount disclosed on the TILA Disclosure Statement as
“finance charges.”
(See id. at 30.)
These settlement charges
totaled $17,843.23, including, but not limited to: (i) $195.00
for recording the deed; (ii) $280.00 for recording the mortgage;
(iii) $80.00 for the release.
(Id. at 30.)
In addition, the
HUD-1 Settlement Statement indicated that plaintiff received a
cash payment of $45,109.99.
(Id. at 29.)
The Uniform Residential Loan Application that
plaintiff received at the Closing, which plaintiff alleges she
4
did not sign, stated that plaintiff’s total monthly income was
$5,469.00.
(Id. at 32.)
Plaintiff also alleges that at the Closing, she did
not receive a Variable Rate Promissory Note, an Adjustable Rate
Rider, an Equal Credit Opportunity Act Disclosure, a Fair
Housing Act Disclosure, a Privacy Disclosure, a Patriot Act
Disclosure, or a Consumer Credit Score Disclosure.
(Id. ¶ 25.)
At some point after the Closing, plaintiff’s monthly
payments on her loan began to rise.
(Id. ¶ 37.)
Plaintiff
asserts that after reviewing the loan documents, she noticed for
the first time that her monthly income was inflated on the
Uniform Residential Loan Application.
(Id. ¶ 38.) 4
After making
this discovery, plaintiff contacted First Rate and demanded that
the mortgage broker correct her monthly income and adjust her
monthly payment schedule accordingly.
(Id. ¶ 39.)
However, the
mortgage broker refused to change the information or facilitate
a work-out agreement with U.S. Bank, which had taken over for
Downey as the lender.
(Id. ¶ 40; see also ECF No. 19-2,
Memorandum of Law In Support of Defendant U.S. Bank’s Motion To
Dismiss Plaintiff’s Complaint (“Def. Mem.”) at 4 n.2.)
Nonetheless, plaintiff continued making monthly payments on her
4
Although plaintiff refers to the “Universal Residential Loan Application,”
(ECF No. 1, Compl. ¶ 38), the court notes that the document attached to the
Complaint is titled a “Uniform Residential Loan Application”, (id. at 31; see
also id. ¶ 24).
5
loan using the cash proceeds that she received at the Closing.
(ECF No. 1, Compl. ¶ 41.)
On March 20, 2009, plaintiff’s counsel sent Downey a
letter seeking rescission of plaintiff’s loan pursuant to the
Truth in Lending Act, 15 U.S.C. § 1635.
at 59-63.)
(Id. ¶ 43; see also id.
The letter alleged, inter alia, (i) inaccuracies in
the HUD-1 Settlement Statement; (ii) a discrepancy between the
loan amount stated on the Uniform Residential Loan Application
and the amount stated in public records; and (iii) a failure to
provide plaintiff with all the required documents at Closing.
(See id. ¶¶ 44-46; see also id. at 60-61.)
The letter asserted
that upon rescission, plaintiff “will tender all sums to which
[Downey] is entitled.”
(Id. at 62.)
Finally, the letter
demanded certified copies of several documents from plaintiff’s
loan file.
(See id. at 62-63.)
On April 3, 2009, U.S. Bank responded to plaintiff’s
counsel, stating that the requests made in her March 20, 2009
letter were being reviewed.
(Id. ¶ 47; see also id. at 64.)
Plaintiff subsequently failed to make her July 1, 2009 and
subsequent loan payments, thereby defaulting on her loan.
¶¶ 41-42; see also id. at 66-67.)
(Id.
On August 5, 2009, U.S. Bank
sent plaintiff a Notice of Intent to Foreclose, which informed
plaintiff that unless she made her overdue loan payments within
30 days of the notice, U.S. Bank “will have no option but to
6
begin foreclosure proceedings without further notice.”
(Id.
¶ 48; see also id. at 65.)
Plaintiff filed the instant action on September 25,
2009, alleging violations of the Truth in Lending Act, the Real
Estate Settlement Procedures Act, and New York General Business
Law.
(See generally id.) 5
Plaintiff seeks rescission of her
loan, statutory and actual damages, and attorney’s fees.
id. at 16-17.)
(See
In addition, she seeks to enjoin defendants from
“instituting, prosecuting, or maintaining a proceeding” on
plaintiff’s property or “from otherwise taking any steps to
deprive Plaintiff’s ownership” of her property.
(Id. at 16.)
U.S. Bank served plaintiff with the instant motion to
dismiss on December 17, 2010.
(See ECF No. 19, Notice of
Motion, dated 12/17/2010; ECF No. 19-2, Def. Mem.)
opposed the motion on January 11, 2011.
Plaintiff
(See ECF No. 18,
Plaintiff’s Motion Opposing Defendants’ Motion To Dismiss
Complaint, dated 1/11/11; ECF No. 18-3, Plaintiff’s Memorandum
of Law Opposing Defendants’ Motion To Dismiss, dated 1/11/11
5
Plaintiff also alleges that Downey is “not duly authorized to write
mortgage loans in the State of New York and [is] not listed by the State of
New York Banking Department website search engine.” (ECF No. 1, Compl.
¶ 32.) Pursuant to New York Banking Law Section 590, which governs licensed
mortgage bankers, an entity that issues five or more mortgage loans in one
year must be licensed by the superintendent, unless it is an “exempt
organization.” N.Y. Banking Law § 590(2)(a). Organizations deemed exempt
from the licensing requirement include federal savings banks and federal
savings and loan associations. Id. § 590(1)(e). Because Downey Savings and
Loan Association, F.A. is a “federal savings and loan association,” which is
expressly exempted from the licensing requirement of Section 590(2)(a), any
claim that Downey was not authorized to write mortgages in New York is
dismissed.
7
(“Pl. Opp.”).)
U.S. Bank served its reply, and the fully
briefed motion was filed, on January 18, 2011.
(See ECF No. 21,
Reply Memorandum of Law In Further Support of Defendant U.S.
Bank’s Motion To Dismiss Plaintiff’s Complaint, dated 1/18/11
(“Def. Reply”).)
DISCUSSION
I.
Legal standard
A.
Motion To Dismiss Pursuant to Rule 12(b)(6)
To survive a motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6), “a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief
that it is plausible on its face.’”
Ashcroft v. Iqbal, 129 S.
Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 570 (2007)).
This standard is met “when the plaintiff
pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.”
Id.
A court should not dismiss a
complaint for failure to state a claim if the factual
allegations sufficiently “raise a right to relief above the
speculative level.”
Twombly, 550 U.S. at 555.
The court’s
function “is merely to assess the legal feasibility of the
complaint, not to assay the weight of the evidence which might
be offered in support thereof.”
636, 639 (2d Cir. 1980).
Geisler v. Petrocelli, 616 F.2d
“[T]he issue is not whether a
8
plaintiff will ultimately prevail but whether the claimant is
entitled to offer evidence to support the claims.”
Todd v.
Exxon Corp., 275 F.3d 191, 198 (2d Cir. 2001) (quoting Scheuer
v. Rhodes, 416 U.S. 232, 236 (1974)).
A court deciding a motion to dismiss pursuant to Rule
12(b)(6) must accept as true all factual allegations contained
in the complaint and draw all inferences in favor of the nonmoving party.
Global Network Commc’ns, Inc. v. City of New
York, 458 F.3d 150, 154 (2d Cir. 2006).
Nevertheless, the court
“need not accord legal conclusions, deductions or opinions
couched as factual allegations . . . a presumption of
truthfulness.”
In re NYSE Specialists Sec. Litig., 503 F.3d 89,
95 (2d Cir. 2007) (citation and internal quotation marks
omitted).
In deciding a motion to dismiss, the court is not
limited to the face of the complaint, but may also consider
“documents attached to the complaint as exhibits, and documents
incorporated by reference in the complaint.”
DiFolco v. MSNBC
Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (citations
omitted).
II.
Analysis
A.
Claims Under the Truth in Lending Act
1. The Truth in Lending Act
The Truth in Lending Act, 15 U.S.C. § 1601 et seq.
(“TILA”), was enacted by Congress “to assure a meaningful
9
disclosure of credit terms so that the consumer will be able to
compare more readily the various credit terms available to him
and avoid the uninformed use of credit, and to protect the
consumer against inaccurate and unfair credit billing and credit
card practices.”
15 U.S.C. § 1601(a); see Beach v. Ocwen Fed.
Bank, 523 U.S. 410, 412 (1998).
In enacting TILA, Congress
delegated authority to the Federal Reserve Board of Governors to
promulgate implementing regulations and interpretations, known
as Regulation Z.
See 15 U.S.C. § 1604(a); see also 12 C.F.R.
§ 226 et seq.
In general, TILA requires creditors to provide
borrowers clear, conspicuous, and accurate disclosures of the
loan terms and other material information.
§ 1632.
See 15 U.S.C.
The required material disclosures include, but are not
limited to, the amount financed, the annual percentage rate, the
finance charge, the total of payments, and the payment schedule.
See 12 C.F.R. § 226.18; see also id. §§ 226.23(a)(3) n.48,
226.32(c)-(d); 15 U.S.C. § 1602(u).
The “finance charge” is
defined as the “cost of consumer credit as a dollar amount.
It
includes any charge payable directly or indirectly by the
consumer and imposed directly or indirectly by the creditor as
an incident to the extension of credit.”
see also 15 U.S.C. § 1605(a).
12 C.F.R. § 226.4(a);
Regulation Z lists several
examples of finance charges, including interest, points, loan
10
fees, appraisal fees, credit report fees, mortgage insurance
premiums, and debt cancellation fees.
See 12 C.F.R. § 226.4(b).
In addition, Regulation Z expressly permits creditors to exclude
certain fees from the finance charge, including taxes and fees
“that actually are or will be paid to public officials for
determining the existence of or for perfecting, releasing, or
satisfying a security interest,” provided that such fees are
itemized and disclosed.
Id. § 226.4(e); see also 15 U.S.C.
§ 1605(d) (exempting from computation of finance charge “fees
and charges prescribed by law which actually are or will be paid
to public officials for determining the existence of or for
perfecting or releasing or satisfying any security related to
the credit transaction”); McAnaney v. Astoria Fin. Corp., 357 F.
Supp. 2d 578, 586 (E.D.N.Y. 2005) (“Regulation Z also provides
that satisfaction and recording fees are finance charges that
are allowed to be excluded, but only if those charges are
disclosed and are reasonable.”).
A creditor’s failure to comply with TILA’s
requirements can subject the creditor to statutory and actual
damages and may entitle the borrower to rescission.
U.S.C. §§ 1635, 1640.
11
See 15
2. Rescission Under the Truth in Lending Act
a. Understatement of Finance Charges
TILA provides that a borrower whose loan is secured by
her “principal dwelling” and who has not been provided the
required disclosures has the right to rescind her loan.
U.S.C. § 1635(a).
See 15
The right to rescind extends until midnight
of the third business day after the latest of (i) consummation
of the transaction, (ii) delivery of a notice of the right to
rescind, and (iii) delivery of all the required material
disclosures.
§ 1635(a).
12 C.F.R. § 226.23(a)(3); see also 15 U.S.C.
If the creditor fails entirely to deliver the
required notice of the right to rescind or to provide the
required material disclosures, the borrower’s right to rescind
the transaction expires three years after the earlier of (i) the
date of consummation of the transaction and (ii) the date the
property is sold.
15 U.S.C. § 1635(f); 12 C.F.R.
§ 226.23(a)(3).
Plaintiff asserts that she is entitled to rescind her
loan pursuant to TILA “[a]s a result of Defendants[’] failure to
provide accurate material disclosures . . . .”
Compl. ¶ 56.)
(ECF No. 1,
Defendants move to dismiss plaintiff’s request
for rescission, arguing that because plaintiff received all of
the notice and disclosures required by law, she may not benefit
12
from an extended three-year rescission right and her action is
therefore time barred.
(ECF No. 19-2, Def. Mem. at 6-7.)
The Complaint specifically alleges that the amounts
listed on Line 1201 of the HUD-1 Settlement Statement for
recording fees and filing fees were “not bona fide and
reasonable.”
(ECF No. 1, Compl. ¶ 29.)
Those amounts indicate
that defendants charged plaintiff a total of $555 in recording
fees, including $195 for recording the deed, $280.00 for
recording the mortgage, and $80.00 for the release.
30.)
(Id. at
Plaintiff alleges that “the actual cost of Recording Fees
and filing fees for this Transaction [was]: Mortgage $187.00;
Deed $52.00 + Filing Fee $75.00, and Satisfaction of Mortgage
$42.00,” for a total of only $356.
(Id. ¶ 28; see also id. at
55-58; ECF No. 18-3, Pl. Opp. at 10.)
Plaintiff further
alleges, “[t]he inaccuracy of the TILA Disclosure Statement,
Finance Charges varies by more than $100.00 and is understated.”
(ECF No. 1, Compl. ¶ 45.)
Drawing all reasonable inferences in
plaintiff’s favor, as the court must, she appears to be alleging
that defendants charged her $199 more to record the transaction
than they actually paid to public officials to do so.
In McAnaney v. Astoria Financial Corp., 665 F. Supp.
2d 132, 148 n.16 (E.D.N.Y. 2009), the district court noted that
a recording fee was “properly excluded from the finance charge
to the extent that it comes under the exception for ‘[f]ees and
13
charges prescribed by law which actually are or will be paid to
public officials’” under 15 U.S.C. § 1605(d(1), but found that
where the creditor collected $36.50 from the borrower for
recording and the county filing fee was only $34.00, “the
overpayment of $2.50 should have been included in the finance
charge.”
Thus, because plaintiff has asserted that the amount
of recording and filing fees disclosed at Closing in the HUD-1
Settlement Statement exceeded the amount actually paid to a
public official, she alleges an understatement in the disclosed
finance charge. 6
Defendants insist that even if the finance charge is
understated, dismissal is nonetheless warranted because any
alleged inaccuracy in the finance charge falls within the
tolerances for accuracy provision under TILA and Regulation Z.
(ECF No. 19-2, Def. Mem. at 10-13; ECF No. 21, Def. Reply at 25.)
See 15 U.S.C. § 1605(f); 12 C.F.R. § 226.23(g).
6
Pursuant
Although defendants argue in their memorandum of law that any inaccurate
disclosures with respect to the recording and filing fees were overstatements
and therefore “not considered material disclosure violations under Regulation
Z,” (see ECF No. 19-2, Def. Mem. at 11), defendants appear to have abandoned
this argument in their reply brief, (see ECF No. 21, Def. Reply at 2-5). In
any event, this argument is meritless because the case law supports the
proposition that overcharging a borrower for recording and filing fees
constitutes an understatement of the finance charge. See McAnaney v. Astoria
Fin. Corp., 665 F. Supp. 2d 132, 148 n.16 (E.D.N.Y. 2009); see also Payton v.
New Century Mortg. Corp., Nos. 03 C 333, 03 C 703, 2003 U.S. Dist. LEXIS
18366, at *12-13 (N.D. Ill. Oct. 10, 2003) (holding that only the actual
recording fee paid to a public official was properly excluded from the
finance charge); Frazier v. Accredited Home Lenders, Inc., 607 F. Supp. 2d
1254, 1261 (M.D. Ala. 2009) (where good faith estimate showed that plaintiff
was charged $120 for the recording fee, but the actual amount paid for
recording was only $56, the court found that “$64 of the recording fee was
not bona fide and should be added to the finance charge”).
14
to TILA and Regulation Z, a finance charge “shall be considered
accurate” if the amount disclosed “(i) is understated by no more
than 1/2 of 1 percent of the face amount of the note or $100,
whichever is greater; or (ii) is greater than the amount
required to be disclosed.”
12 C.F.R. § 226.23(g)(1); see also
15 U.S.C. § 1605(f)(2)(A).
In this case, if applicable, this
provision would permit an understatement of up to $1,625 on
plaintiff’s $325,000 mortgage before plaintiff may rescind on
this basis.
Plaintiff argues that she is exempted from the
tolerance for accuracy provision by 15 U.S.C. § 1635(i)(2),
which governs “rescission rights in foreclosure” and provides
that “after initiation of any judicial or nonjudicial
foreclosure process,” a finance charge shall be considered
accurate if it is understated by no more than $35.
Compl. ¶ 50; ECF No. 18-3, Pl. Opp. at 11-14.)
C.F.R. § 226.23(h)(2). 7
(ECF No. 1,
See also 12
Plaintiff asserts that “the foreclosure
7
Defendants argue that the $35 tolerance applies only if the foreclosure
process has been initiated “AND if either (i) ‘a mortgage broker fee is not
included in the finance charge in accordance with the laws and regulations in
effect at the time the consumer credit transaction was consummated’ OR (ii)
‘the form of notice of rescission for the transaction is not the appropriate
form of written notice.’” (ECF No. 19-2, Def. Mem. at 9 (citing 15 U.S.C.
§ 1635(i)(1); ECF No. 21, Def. Reply at 2.) See also 12 C.F.R.
§ 226.23(h)(1). However, defendants offer no support for this reading of the
statute. Further, a plain reading of 15 U.S.C. § 1635(i)(1) demonstrates
that the additional conditions defendants seek to impose are not, in fact, a
prerequisite for the $35 tolerance level to apply to plaintiff’s rescission
claim after a foreclosure process has been initiated. Rather, 15 U.S.C.
§ 1635(i)(1) offers borrowers an additional opportunity for rescission after
the initiation of the foreclosure process where (a) a mortgage broker fee is
not included or (b) the form of notice of rescission was not appropriate.
15
process [was] initiated” on August 5, 2009, when U.S. Bank sent
her a Notice of Intent to Foreclose.
(ECF No. 18-3, Pl. Opp. at
14; see also ECF No. 1, Compl. ¶ 48; id. at 65.)
Defendants, on
the other hand, contend that foreclosure proceedings did not
commence until June 23, 2010, when U.S. Bank filed a foreclosure
action in New York State court. 8
(ECF No. 19-2, Def. Mem. at 10
n.4; ECF No. 21, Def. Reply at 3-4.)
For the purpose of determining the applicable
tolerance for disclosures in a rescission action, “[t]he
question is not whether . . . a judicial foreclosure action was
commenced but whether a judicial foreclosure process was.”
Glucksman v. First Franklin Fin. Corp., 601 F. Supp. 2d 511, 513
(E.D.N.Y. 2009).
In this case, although U.S. Bank did not file
a foreclosure action until June 23, 2010, see U.S. Bank v.
Midouin, No. 9952/2010 (N.Y. Sup. Ct.), it sent plaintiff a
Notice of Intent to Foreclose on August 5, 2009, (see ECF No. 1,
Compl. at 65).
“The fact that [defendant] did not file a
Indeed, 15 U.S.C. § 1635(i)(1) expressly provides that the rescission rights
provided by that section are “in addition to any other right of rescission
available under this section for a transaction.” (emphasis added).
8
Defendants cite McCutcheon v. America’s Servicing Co., 560 F.3d 143 (3d
Cir. 2009) in support of their argument that “sending a notice of intent to
foreclose is not equivalent to initiating the foreclosure process” and that
foreclosure proceedings did not commence until U.S. Bank filed its
foreclosure action in state court. (ECF No. 21, Def. Reply at 2-3; see also
ECF No. 19-2, Def. Mem. at 9-10.) However, in that case, the Third Circuit
Court of Appeals emphasized that Pennsylvania law “expressly differentiates
the sending of an Act 91 letter from the actual initiation of foreclosure”
and further noted that the creditor “did not follow through on its warning
and actually initiate foreclosure.” McCutcheon, 560 F.3d at 149. Defendants
have not proferred any similar circumstances in this case.
16
Summons and Complaint for foreclosure [until June 23, 2010] is
not dispositive. . . .
The court need not determine here
whether and when the foreclosure process actually began; these
are questions of fact better left to examination after
discovery.”
Glucksman, 601 F. Supp. 2d at 513.
Thus, viewing
the allegations in the light most favorable to plaintiff, as it
must, the court finds it plausible that a judicial foreclosure
process had been initiated against the property by the time
plaintiff commenced the instant action seeking rescission, and
therefore the applicable tolerance for accuracy is $35.
ECF No. 1, Compl. ¶ 50.)
(See
Accordingly, because plaintiff has
alleged that defendants understated the finance charge “by more
than $100.00,” (id. ¶ 45), and she filed her claim within three
years of the December 11, 2006 Closing date, she has presented a
plausible claim to relief.
b. Plaintiff’s Willingness and Ability to Tender the
Loan Proceeds
Finally, defendants argue that even if the finance
charge was not fully disclosed, plaintiff’s failure to assert
that she is willing and able to tender the loan proceeds
requires dismissal of her rescission claim.
(ECF No. 19-2, Def.
Mem. at 14-15; ECF No. 21, Def. Reply at 5-7.)
Title 15 U.S.C. Section 1635(b) sets forth the
sequence of events that must be followed when a borrower seeks
17
rescission of her loan.
Within twenty days of the borrower’s
notification that she is exercising her right of rescission, the
creditor must return any money or property given as earnest
money, downpayment, or otherwise, and reflect the termination of
its security interest that was created by the transaction.
After the creditor has satisfied these obligations, the borrower
must tender the property or its reasonable monetary value.
U.S.C. § 1635(b). 9
The statute does not require the debtor to
tender the loan proceeds prior to rescission.
Rather, it is
apparent from the plain language of the statute that the
9
15
The full text of 15 U.S.C. § 1635(b) reads as follows:
When an obligor exercises his right to rescind under
subsection (a) [of this section], he is not liable
for any finance or other charge, and any security
interest given by the obligor, including any such
interest arising by operation of law, becomes void
upon such a rescission. Within 20 days after receipt
of a notice of rescission, the creditor shall return
to the obligor any money or property given as earnest
money, downpayment, or otherwise, and shall take any
action necessary or appropriate to reflect the
termination of any security interest created under
the transaction. If the creditor has delivered any
property to the obligor, the obligor may retain
possession of it. Upon the performance of the
creditor’s obligations under this section, the
obligor shall tender the property to the creditor,
except that if return of the property in kind would
be impracticable or inequitable, the obligor shall
tender its reasonable value. Tender shall be made at
the location of the property or at the residence of
the obligor, at the option of the obligor. If the
creditor does not take possession of the property
within 20 days after tender by the obligor, ownership
of the property vests in the obligor without
obligation on his part to pay for it. The procedures
prescribed by this subsection shall apply except when
ordered by a court.
18
borrower’s obligation to tender the property arises only “[u]pon
the performance of the creditor’s obligations.”
Id.
The statute further provides, however, that a district
court may alter this sequence of rescission and tender.
See 15
U.S.C. § 1635(b) (“The procedures prescribed by this subsection
shall apply except when otherwise ordered by a court.”).
Numerous courts have exercised their equitable discretion under
TILA to condition rescission of a loan on the borrower’s return
of the loan proceeds to the creditor. 10
Whether the court, in
its equitable discretion, should require plaintiff to tender the
loan proceeds prior to rescission “will depend on the equities
present in a particular case.”
862 (9th Cir. 1974).
Palmer v. Wilson, 502 F.2d 860,
See, e.g., Moazed v. First Union Mortg.
Corp., 319 F. Supp. 2d 268, 272 (D. Conn. 2004) (granting
creditor’s motion for summary judgment and refusing to enforce
borrower’s attempted rescission where “it [was] undisputed that
10
See Scott v. Long Island Sav. Bank, No. 85-CV-2904, 1989 U.S. Dist. LEXIS
15720, at *10 (E.D.N.Y. Dec. 29, 1989), vacated in part on other grounds, 937
F.2d 738 (2d Cir. 1991) (“Courts have held that ‘although the right to
rescind is statutorily granted [under TILA], it remains an equitable doctrine
subject to equitable considerations.’” (quoting Brown v. Nat’l Permanent Fed.
Sav. & Loan Ass’n, 683 F.2d 444, 447 (D.C. Cir. 1982))); Palmer v. Wilson,
502 F.2d 860, 862 (9th Cir. 1974) (“[I]t is within the district court’s
equitable power . . . to condition enforcement of the rescission order on the
debtor’s tender of the principal of the loan received from the creditor.”);
Rudisell v. Fifth Third Bank, 622 F.2d 243, 254 (6th Cir. 1980) (“[S]ince
rescission is an equitable remedy the court may condition the return of
monies to the debtor upon the return of property to the creditor.”); Powers
v. Sims & Levin, 542 F.2d 1216, 1222 (4th Cir. 1976) (“[W]hen rescission is
attempted under circumstances which would deprive the lender of its legal
due, the attempted rescission will not be judicially enforced unless it is so
conditioned that the lender will be assured of receiving its legal due.”).
19
the principal balance cannot be returned” and rescission would
create a windfall for borrower).
Here, the court finds that plaintiff has sufficiently
alleged her willingness and ability to return the loan proceeds
to defendants.
Although the Complaint itself does not expressly
tender the loan, the court may also consider the exhibits
attached to the Complaint and any documents incorporated by
reference in the Complaint.
See, e.g., Ogbon v. Beneficial
Credit Servs., No. 10-CV-03760, 2011 U.S. Dist. LEXIS 11615, at
*7 (S.D.N.Y. Feb. 1, 2011) (looking to police report
incorporated by reference into the complaint to determine when
credit card account was opened).
The March 20, 2009 letter from
plaintiff’s counsel to Downey seeking rescission of plaintiff’s
loan, which plaintiff attached to the Complaint, expressly
stated that plaintiff “would like to discuss tender arrangements
for the amount due” and represented that upon rescission of her
loan, plaintiff “will tender all sums to which [Downey] is
entitled.”
(ECF No. 1, Compl. at 62.)
To that end, counsel
requested “an itemized loan disbursement statement, the loan
charges, the current principal balance, and all payments
received from [plaintiff], so that [plaintiff] may determine the
exact amount needed for tender.”
(Id. at 61.)
Defendants have not cited any binding authority that
requires plaintiff to allege with specificity her ability to
20
tender in order to state a claim for rescission under TILA,
particularly where the instant plaintiff advised defendants that
she would tender sums due to defendants.
Moreover, the court at
this time lacks sufficient evidence to assess the equities and
exercise its discretion to condition rescission on plaintiff’s
tender of the loan.
Rather, these are issues of fact more
appropriately resolved at a later stage in the litigation.
See,
e.g., Palmer, 502 F.2d at 862-63 (remanding so district court
could request additional affidavits or hold an evidentiary
hearing concerning whether it should condition the grant of
rescission on repayment by the borrower); Johnson v. Chase
Manhattan Bank USA, N.A., No. 07-CV-526, 2007 U.S. Dist. LEXIS
50569, at *15 (E.D. Pa. July 11, 2007) (denying as premature a
motion to dismiss for failure to tender loan proceeds where
“[t]here is not yet any record . . . of the plaintiffs’
inability to return the proceeds of the loan or any of the other
circumstances this court would be obliged to consider if making
a decision on equitable grounds”).
Accordingly, defendants’
motion to dismiss plaintiff’s claim for rescission is denied.
3. Damages Under the Truth in Lending Act
Plaintiff further claims that she is entitled to
damages pursuant to 15 U.S.C. § 1640.
Specifically, in Count
Two of the Complaint, plaintiff alleges that defendants (i)
failed to provide accurate required disclosures prior to
21
consummation of the transaction, in violation of 15 U.S.C.
§ 1638(b) and 12 C.F.R. § 226.17(b); (ii) failed to make the
required disclosures “clearly and conspicuously” in writing, in
violation of 15 U.S.C. § 1632(a) and 12 C.F.R. § 226.17(a)(1);
(iii) understated the finance charge, in violation of 15 U.S.C.
§ 1605 and 12 C.F.R. § 226.4; and (iv) failed to provide an
accurate TILA Disclosure Statement, in violation of 15 U.S.C.
§ 1602(u) and 12 C.F.R. § 226.23(a)(3).
¶ 65.)
(ECF No. 1, Compl.
In addition, in Count One of the Complaint, which is
incorporated in full into Count Two, plaintiff asserts that
defendants’ “failure to lawfully respond [to plaintiff’s
rescission notice] gives rise to statutory and actual damages
under 15 U.S.C. § 1640.”
11
(Id. ¶ 60; see also id. ¶ 63.) 11
Count One alleges, in relevant part:
58. Defendants have a fiduciary duty and
obligation to perform upon a valid notice of
rescission by canceling this specific
Transaction as well as any enforcement thereof.
Accordingly, any alleged security instrument
and notice of default and election to sell is
void and unenforceable under 15 U.S.C.
§ 1635(b).
59. Defendants had twenty-days (20) to refund
or credit the alleged account all monies paid
and to void the security interest, or seek
judicial guidance.
60. Defendants performance is a condition
precedent to Plaintiff’s duty to tender and
failure to lawfully respond gives rise to
statutory and actual damages under 15 U.S.C.
§ 1640.
(ECF No. 1, Compl. ¶¶ 58-60.)
22
a. Alleged Failure to Provide Required Disclosures
Defendants assert that plaintiff’s claims for damages
under TILA are time barred.
17.)
(See ECF No. 19-2, Def. Mem. at 15-
Pursuant to 15 U.S.C. § 1640(e), a borrower seeking
damages under TILA must file an action “within one year from the
date of the occurrence of the violation.”
15 U.S.C. § 1640(e).
Even after the one-year period has expired, however, a borrower
may nonetheless assert the right to damages “in an action to
collect the debt . . . as a matter of defense by recoupment or
set-off in such action.”
Id.
It is well-settled law that where
a claim for damages under TILA is premised on the failure to
provide material disclosures, “the ‘date of the occurrence of
the violation’ is no later than the date the plaintiff enters
the loan agreement or, possibly, when defendant performs by
transmitting the funds to plaintiffs.”
Cardiello v. Money
Store, Inc., No. 00-CV-7332, 2001 U.S. Dist. LEXIS 7107, at *19
(S.D.N.Y. June 1, 2001), aff’d, 29 F. App’x 780 (2d Cir. 2002);
see also Johnson v. Scala, No. 05-CV-5529, 2007 U.S. Dist. LEXIS
73442, at *10 (S.D.N.Y. Oct. 1, 2007) (“Case law supports the
notion that the statute of limitations for TILA claims does not
start running upon the discovery of the non-disclosure, but,
rather, upon the funding of the loan.”).
Plaintiff argues that the one-year statute of
limitations does not apply here because her claims for damages
23
in effect constitute a recoupment defense to the foreclosure
sale initiated by defendants.
19.)
(ECF No. 18-3, Pl. Opp. at 17-
Plaintiff’s argument is unavailing.
In contrast to the
language in 15 U.S.C. § 1635(i)(2), which reduces the tolerance
for accuracy applicable for rescission “after initiation of any
judicial or nonjudicial foreclosure process,” the language in 15
U.S.C. § 1640(e) refers only to an “action to collect the debt .
. . .”
(emphasis added).
In order to bring a claim for damages
after the one-year limitations period has expired, plaintiff
must assert her claims as a defense by recoupment “in a
collection action brought by the lender.”
412.
Beach, 523 U.S. at
“[B]ecause here plaintiff asserts [her] TILA claim
affirmatively, in an action for damages that [she herself]
commenced, and not as a defense ‘in an action to collect the
debt,’” her claim cannot constitute a recoupment defense.
Van
Pier v. Long Island Sav. Bank, FSB, 20 F. Supp. 2d 535, 536
(S.D.N.Y. 1998).
See also Woods v. Greenpoint Mortg. Funding,
Inc., No. 2:09-1810, 2010 U.S. Dist. LEXIS 41492, at *9 (E.D.
Ca. Apr. 27, 2010) (“[W]hen a debtor files suit against her
creditor, the claim by the debtor is affirmative rather than
defensive.” (citation and internal quotation marks omitted)).
Accordingly, because plaintiff did not file her claims within
one year of the December 11, 2006 Closing date, plaintiff’s
24
claims for damages based on defendants’ alleged non-disclosures
under TILA are dismissed as time barred. 12
b. Alleged Failure to Honor Rescission Notice
Nonetheless, plaintiff’s claim for damages under TILA
based on defendants’ alleged failure to honor plaintiff’s
rescission notice survives the instant motion to dismiss.
ECF No. 1, Compl. ¶¶ 58-60.) 13
(See
The failure to respond to a valid
notice of rescission within twenty days of receipt is a separate
violation of TILA.
See 15 U.S.C. § 1635(b). 14
If a creditor
12
Even assuming arguendo that plaintiff attempted to invoke the doctrine of
equitable tolling, such tolling would not be available here. The Second
Circuit has held that equitable tolling is appropriate “[w]here [the]
defendant is responsible for concealing the existence of plaintiff’s cause of
action.” Veltri v. Bldg. Serv. 32b-J Pension Fund, 393 F.3d 318, 322 (2d
Cir. 2004). Specifically, the defendant must have committed either: “(1) ‘a
self-concealing act’ – an act committed during the course of the breach that
has the effect of concealing the breach from the plaintiff; or (2) ‘active
concealment’ – an act distinct from and subsequent to the breach intended to
conceal it.” Caputo v. Pfizer, Inc., 267 F.3d 181, 189 (2d Cir. 2001). “The
courts have held uniformly that fraudulent conduct beyond the nondisclosure
itself is necessary to equitably toll the running of the statute of
limitations.” Cardiello v. Money Store, Inc., No. 00-CV-7332, 2001 U.S.
Dist. LEXIS 7107, at *15-16 (S.D.N.Y. June 1, 2001) (citation omitted).
Although plaintiff has alleged that defendants withheld information from her
“willfully, persistently, intentionally, knowingly, and/or in gross or
reckless disregard of the Plaintiff’s disclosure and substantive rights,”
(ECF No. 1, Compl. ¶ 53), she makes no allegation that defendants took
affirmative steps to conceal information from her. Thus, equitable tolling
of the statute of limitations is not appropriate in this case.
13
Defendants contend that plaintiff “waived her initial attempt to rescind
the loan” by continuing to make payments after sending a letter seeking
rescission of the loan. (ECF No. 19-2, Def. Mem. at 8 n.3.) This is
incorrect. “Plaintiff[] [has] a statutory right of rescission under TILA,
which, if exercised, voids the contract and makes later ratification legally
impossible.” Stump v. WMC Mortg. Corp., No. 02-CV-326, 2005 U.S. Dist. LEXIS
4304, at *28 (E.D. Pa. Mar. 16, 2005); see also 15 U.S.C. § 1635(b).
Accordingly, insofar as plaintiff’s counsel’s March 20, 2009 letter was a
valid request for rescission, that request is not waived by continuing to
make payments.
14
See also Woods v. Greenpoint Mortg. Funding, Inc., No. 2:09-1810, 2010
U.S. Dist. LEXIS 41492, at *10 (E.D. Ca. Apr. 27, 2010) (“T]he failure to
honor plaintiff’s rescission request or request for information is a separate
25
does not respond within the statutorily-mandated period, TILA
permits a borrower to bring an action for damages against the
creditor.
See id. § 1640(a).
A claim for damages for failure
to honor a rescission request is unquestionably subject to the
statute of limitations, which requires an action for damages to
be brought “within one year from the date of the occurrence of
the violation.”
Id. § 1640(e).
Numerous courts, however, have
held that where an action for damages is premised on a failure
to honor a rescission notice, the violation is deemed to have
occurred on “the earlier of when the creditor refuses to
effectuate rescission, or twenty days after it receives the
notice of rescission.” 15
Here, plaintiff’s counsel sent Downey a
request for rescission on March 20, 2009.
Because it does not
actionable violation of TILA.”); Stewart v. BAC Home Loans Servicing, LP, No.
10-CV-2033, 2011 U.S. Dist. LEXIS 24715, at *17 (N.D. Ill. Mar. 10, 2011) (“A
claim for damages for failure to honor rescission is based on § 1635(b) of
TILA, which requires a creditor to respond to a notice of rescission within
twenty days of receipt.”); Sall v. Bounassissi, No. 10-CV-2245, 2011 U.S.
Dist. LEXIS 75363, at *22-23 (D. Md. July 13, 2011) (holding that a claim for
damages based on creditor’s failure to honor a rescission notice “is separate
and distinct” from any claims associated with disclosures at the time of
closing); Abel v. Knickerbocker Realty Co., 846 F. Supp. 445, 449-50 (D. Md.
1994) (awarding damages for creditor’s failure to honor request for
rescission).
15
Kruse v. Countrywide Home Loan Servicing, LP, No. 09-CV-2844, 2010 U.S.
Dist. LEXIS 108248, at *9 (D. Colo. Sept. 22, 2010). See also Woods, 2010
U.S. Dist. LEXIS 41492, at *11 (“If a creditor receives a timely Notice of
Cancellation and then refuses to cancel the loan, the borrower has one year
from the refusal to file suit for damages pursuant to 15 U.S.C. § 1640.”
(citing Miguel v. Country Funding Corp., 309 F.3d 1161, 1165 (9th Cir.
2002))); Sall, 2011 U.S. Dist. LEXIS 75363, at *22-23 (“Because [plaintiff]
sued within a year of his rescission notice (and its subsequent denial), his
claim for damages is timely.”); Sherzer v. Homestar Mortg. Servs., No. 07-CV5040, 2010 U.S. Dist. LEXIS 137315, at *34 (E.D. Pa. May 7, 2010) (violation
deemed to have occurred “on the date by which the lender was required to
respond to the notice of rescission”), adopted in relevant part, 2010 U.S.
Dist. LEXIS 66354 (E.D. Pa. June 30, 2010).
26
appear that Downey refused to effectuate rescission within 20
days after plaintiff’s request, the one-year statute of
limitations began to run on April 9, 2009, 20 days after
plaintiff’s notice of rescission.
Plaintiff filed her Complaint
on September 25, 2009, less than one year after April 9, 2009.
Thus, insofar as defendants move to dismiss as untimely
plaintiff’s claim for damages based on defendants’ failure to
honor plaintiff’s request to rescind the transaction,
defendants’ motion is denied.
B.
Damages Under the Real Estate Settlement Procedures
Act
Plaintiff’s next cause of action seeks damages
pursuant to the Real Estate Settlement Procedures Act, 12 U.S.C.
§ 2601 et seq. (“RESPA”).
The principal purpose of RESPA is to
“insure that consumers throughout the Nation are provided with
greater and more timely information on the nature and costs of
the settlement process and are protected from unnecessarily high
settlement charges . . . .”
12 U.S.C. § 2601(a).
Under RESPA,
the servicer of a “federally related mortgage loan,” which
includes a loan “secured by a first or subordinate lien on
residential real property,” is required to provide a written
response within 20 days of receiving a “qualified written
request” for information about the servicing of such a loan
unless the action requested is taken within that period.
27
Id.
§ 2605(e)(1); see also id. § 2602(1)(A).
RESPA also requires
the servicer, within 60 days of receiving the request, to “make
appropriate corrections” or to “conduct[] an investigation [and]
provide the borrower with a written explanation” of the reasons
for any action taken.
Id. § 2605(e)(2).
Further, “[d]uring the
60-day period beginning on the date of the servicer’s receipt
from any borrower of a qualified written request . . . a
servicer may not provide information regarding any overdue
payment . . . to any consumer reporting agency.”
§ 2605(e)(3).
Id.
A servicer who fails to comply with any of these
requirements is subject to actual and statutory damages.
Id.
§ 2605(f). 16
Plaintiff alleges that defendants violated RESPA by
(i) “failing to make any appropriate corrections to the
Plaintiff’s account in response to [her March 20, 2009 qualified
written request],” in violation of 12 U.S.C. § 2605(e)(2)(A);
16
Title 12 U.S.C. Section 2605(f) provides, in relevant part:
Whoever fails to comply with any provision of this
section shall be liable to the borrower for each such
failure in the following amounts:
(1) Individuals
In the case of any action by an individual, an amount
equal to the sum of –
(A) any actual damages to the borrower as a
result of the failure; and
(B) any additional damages, as the court may
allow, in the case of a pattern or practice of
noncompliance with the requirements of this
section, in an amount not to exceed $1000.
12 U.S.C. § 2605(f)(1).
28
(ii) “refusing to cease its collection efforts of the rescinded
transaction,” in violation of 12 U.S.C. § 2605(e)(2); and (iii)
“providing information to consumer reporting agencies regarding
overdue payments allegedly owed by Plaintiff,” in violation of
12 U.S.C. § 2605(e)(3).
(ECF No. 1, Compl. ¶¶ 71-73.)
For
these alleged violations, plaintiff seeks statutory and actual
damages.
(Id. ¶ 75.)
1. Alleged Reporting to Consumer Reporting Agencies (12
U.S.C. § 2605(e)(3))
To allege a violation of 12 U.S.C. § 2605(e)(3),
plaintiff must assert (i) that she sent defendants a qualified
written request; (ii) that defendants submitted information
regarding plaintiff’s overdue payments to a credit reporting
agency; and (iii) that defendants submitted such information
within 60 days after defendants received plaintiff’s qualified
written request. 17
See Gorham-DiMaggio v. Countrywide Home
Loans, No. 08-CV-019, 2009 U.S. Dist. LEXIS 52078, at *26-27
(N.D.N.Y. June 19, 2009); Ploog v. HomeSide Lending, Inc., 209
F. Supp. 2d 863, 868 (N.D. Ill. 2002).
17
Title 12 U.S.C. Section 2605(e)(3) provides:
During the 60-day period beginning on the date of the
servicer’s receipt from any borrower of a qualified
written request relating to any dispute regarding the
borrower’s payments, a servicer may not provide
information regarding any overdue payment, owed by
such borrower and relating to such period or
qualified written request, to any consumer reporting
agency . . . .
29
Here, defendants do not dispute that plaintiff’s March
20, 2009 letter was a qualified written request. 18
(See ECF No.
19-2, Def. Mem. at 19; ECF No. 21, Def. Reply at 9.)
Further,
the Complaint alleges that “[u]pon information and belief,”
defendants provided information regarding plaintiff’s overdue
payments to consumer reporting agencies.
¶ 73.)
(ECF No. 1, Compl.
However, plaintiff fails to allege when such information
was provided.
Without more, plaintiff’s claim is insufficient
to state a violation of 12 U.S.C. § 2605(e)(3), and is dismissed
without prejudice. 19
Nevertheless, because leave to amend a
18
A “qualified written request” is a written correspondence that “(i)
includes, or otherwise enables the servicer to identify, the name and account
of the borrower; and (ii) includes a statement of the reasons for the belief
of the borrower, to the extent applicable, that the account is in error or
provides sufficient detail to the servicer regarding other information sought
by the borrower.” 12 U.S.C. § 2605(e)(1)(B). Plaintiff’s counsel’s March
20, 2009 letter includes plaintiff’s name and account number, states that
plaintiff seeks to rescind the transaction, lists a number of alleged errors
in the disclosures plaintiff received upon Closing, and requests “an itemized
loan disbursement statement, the loan charges, the current principal balance,
and all payments received” from plaintiff. (See ECF No. 1, Compl. at 59-63.)
The court finds for purposes of this motion that plaintiff made a qualified
written request.
19
See, e.g., Gorham-DiMaggio, 2009 U.S. Dist. LEXIS 52078, at *26 (finding
insufficient to state a cause of action plaintiff’s allegation that “‘[a]fter
the June request for an explanation of her escrow and an accounting,
Defendants provided information regarding an overdue payment to the consumer
reporting agency’”); Jones v. Select Portfolio Servicing, Inc., No. 08-CV972, 2008 U.S. Dist. LEXIS 33284, at *30 (E.D. Pa. Apr. 22, 2008) (dismissing
claim under 12 U.S.C. § 2605(e)(3) where plaintiff “makes no allegation that
Defendant reported any information regarding Plaintiff’s loan to any consumer
reporting agency at any time, let alone within the requisite sixty day period
for a RESPA violation”); Corazzini v. Litton Loan Servicing LLP, No. 1:09-CV199, 2011 U.S. Dist. LEXIS 63565, at *38-39 (N.D.N.Y. June 15, 2011) (where
complaint alleged that defendant placed “incorrect and derogatory information
on [her] credit report before the statutory mandated time frame,” court found
that such “bare allegations are insufficient to survive summary judgment”).
Cf. Taggart v. Norwest Mortg., Inc., No. 09-CV-1281, 2010 U.S. Dist. LEXIS
2263, at *14 (E.D. Pa. Jan. 11, 2010) (where complaint alleged that
“derogatory entries concerning the loan in question appeared on his credit
reports within the 60-day period,” plaintiff pled sufficient facts to bring a
30
complaint should be freely given, the court will permit
plaintiff to amend her Complaint to cure this deficiency.
See
Fed. R. Civ. P. 15(a)(2).
2. Actual Damages Pursuant to RESPA
Defendants argue that plaintiff’s remaining claims
under RESPA also must be dismissed for failure to allege actual
damages.
(See ECF No. 19-2, Def. Mem. at 18; ECF No. 21, Def.
Reply at 8-9.)
Notably, “[t]o have a viable cause of action
under RESPA . . . individuals must show not only the failure to
comply with the provisions of Section 2605, but also actual
damages to the borrower as a result of the failure, as set forth
in 2605(f)(1)(A), as well as any additional damages that the
court may allow in the case of a pattern or practice of
noncompliance with the requirements of Section 2605, in an
amount not to exceed 1,000 dollars.”
In re Griffin, No. 10-
22431, 2010 Bankr. LEXIS 3555, at *9-10 (Bankr. S.D.N.Y. Aug.
31, 2010).
Accordingly, dismissal of a claim under 12 U.S.C.
§ 2605 is appropriate where the complaint “merely prays for
relief without specifying the injury [plaintiff] suffered.”
Gorham v. Bank of Am., N.A., No. 09-CV-1150, 2010 U.S. Dist.
LEXIS 41797, at *10-11 (N.D.N.Y. Apr. 28, 2010).
claim under § 2605(e)(3)); Ploog v. HomeSide Lending, Inc., 209
863, 868 (N.D. Ill. 2002) (allegations that defendant “provided
to a consumer reporting agency within sixty days of [plaintiff]
qualified written request” are “sufficient to state a claim for
of RESPA.”).
31
F. Supp. 2d
information
sending a
a violation
Here, the Complaint alleges that “[a]s a result of the
acts specifically alleged above, Plaintiff has suffered loss of
retirement savings, loss of income, nausea, emesis, constant
headaches, insomnia, embarrassment, and incurred an
ascertainable loss.”
(ECF No. 1, Compl. ¶ 54.) 20
Further, Count
Three of the Complaint states that plaintiff is “entitled to
recoup the actual and statutory civil penalty provided by
RESPA.”
(Id. ¶ 75.)
The court finds that plaintiff has
sufficiently alleged that she suffered damages, including but
not limited to a loss of savings and income, caused by
defendants’ purported RESPA violations. 21
Accordingly,
20
In her opposition to defendants’ motion, plaintiff states, “[a]t minimum,
actual damages would include all economic injuries that directly flow from
Defendant’s failure to make appropriate corrections to the account. These
damages may encompass: cost of photocopies and postage in sending the QWR,
time spent obtaining compliance, transportation cost, inconvenience,
additional interest, late fees, foreclosure costs, loss of home through
foreclosure, denial of access to credit, and damage to credit rating.” (ECF
No. 18-3, Pl. Opp. at 21.) However, in deciding a motion to dismiss, the
court’s review is limited to the complaint and documents attached to the
complaint or incorporated therein by reference. See DiFolco, 622 F.3d at
111. Plaintiff may not amend her Complaint via statements in her opposition
papers. See Kosovich v. Metro Homes, LLC, No. 09–CV-6992, 2009 U.S. Dist.
LEXIS 121390, at *14-15 n.6 (S.D.N.Y. Dec. 29, 2009) (“[I]t is axiomatic that
the Complaint cannot be amended by the briefs in opposition to a motion to
dismiss.” (quoting O’Brien v. Nat’l Prop. Analysts Partners, 719 F. Supp.
222, 229 (S.D.N.Y. 1989))).
21
See, e.g., Hutchinson v. Del. Sav. Bank FSB, 410 F. Supp. 2d 374, 383
(D.N.J. 2006) (cited in Gorham-DiMaggio, 2009 U.S. Dist. LEXIS 52078, at *29)
(denying motion to dismiss where complaint alleged that plaintiffs suffered
“negative credit ratings on their credit reports [and] the inability to
obtain and borrow another mortgage loan and other financing”); Cortez v.
Keystone Bank, Inc., No. 98-CV-2457, 2000 U.S. Dist. LEXIS 5705, at *39-40
(E.D. Pa. May 2, 2000) (“Actual damages encompass compensation for any
pecuniary loss including such things as time spent away from employment while
preparing correspondence to the loan servicer, and expenses for preparing,
photocopying and obtaining certified copies of correspondence.”); Johnstone
v. Bank of Am., N.A., 173 F. Supp. 2d 809, 814 (N.D. Ill. 2001) (finding
sufficient under RESPA the allegation that “[a]s a result of [defendant]
violating § 2605(e) . . . [plaintiff] . . . (3) has paid late fees; [and] (4)
32
plaintiff’s remaining claims for actual damages pursuant to 12
U.S.C. § 2605(f)(1)(A) survive defendants’ motion to dismiss. 22
C.
Damages Under New York General Business Law Section
349
Finally, invoking the court’s supplemental
jurisdiction pursuant to 28 U.S.C. § 1367, plaintiff seeks
damages and an injunction pursuant to New York General Business
Law (“NYGBL”) § 349.
The court understands plaintiff’s
allegations in Count Four of the Complaint to assert that
defendants violated NYGBL § 349 by (1) misstating plaintiff’s
monthly income on her loan application, (ECF No. 1, Compl.
¶¶ 30, 82, 86); (2) failing to require plaintiff to verify her
income or employment, (id. ¶¶ 17, 31, 86); and (3) giving
[defendant] has foreclosed on her property”); Manzano v. MetLife Bank N.A.,
No, 2:11-CV-651, 2011 U.S. Dist. LEXIS 85458, at *10 (E.D. Cal. Aug. 2, 2011)
(denying motion to dismiss where “Plaintiff avers that [defendant’s]
allegedly unlawful disclosure of adverse loan information resulted in her
inability to ‘obtain credit or refinancing’ and caused her to ‘incur
excessive interest costs and penalties . . . in excess of $100,000.00.’”).
Cf. Gorham-DiMaggio, 2009 U.S. Dist. LEXIS 52078, at *29-30 (dismissing claim
where complaint alleged only that plaintiff “was damaged”); Gorham, 2010 U.S.
Dist. LEXIS 41797, at *10-11 (dismissing claim where amended complaint
“merely prays for relief without specifying the injury [plaintiff]
suffered”); In re Jude Jacques, 416 B.R. 63, 73-74 (Bankr. E.D.N.Y. 2009)
(finding statement that “Plaintiff[] may recover of the Defendant actual
damages, costs and reasonable attorney fees” failed to show proximate
causation or actual pecuniary damages); Jones v. Select Portfolio Serv.,
Inc., No. 08-CV-972, 2008 U.S. Dist. LEXIS 33284, at *29 (E.D. Pa. Apr. 22,
2008) (cited in Gorham-DiMaggio, 2009 U.S. Dist. LEXIS 52078, at *29)
(dismissing claim where complaint sought “compensatory damages in excess of
$50,000, together with costs, statutory damages and other relief” but did not
allege any specific damages or allege a causal link between the alleged
violations and damages).
22
Because plaintiff does not allege anywhere in the Complaint that
defendants engaged in a “a pattern or practice of noncompliance” with RESPA,
her claim for statutory damages pursuant to 12 U.S.C. § 2605(f)(1)(B) is
dismissed.
33
plaintiff the loan, (id. ¶¶ 31, 86).
Defendants seek to dismiss
these claims, arguing that they are preempted by the Home
Owners’ Loan Act, 12 U.S.C. § 1461 et seq. (“HOLA”) and its
implementing regulations, 12 C.F.R. § 560.1 et seq. 23
For the
reasons set forth below, the court agrees that plaintiffs’
claims under NYGBL § 349 are preempted by HOLA.
The Home Owners’ Loan Act provides that the Office of
Thrift Supervision (“OTS”) is responsible for regulating
federally chartered savings associations (“FSAs”) such as
Downey.
See 12 U.S.C. §§ 1463(a), 1464(a).
(See also ECF No.
19-2, Def. Mem. at 24 (asserting that Downey Savings and Loan
Association, F.A. is a savings and loan association).)
Pursuant
to the OTS’s implementing regulations, “OTS . . . occupies the
entire field of lending regulation for federal savings
associations.”
12 C.F.R. § 560.2(a).
Further, in 12 C.F.R.
§ 560.2(b), the OTS provides illustrative examples of the types
of state laws preempted by OTS regulation, including but not
limited to state laws purporting to impose requirements
regarding “[d]isclosure and advertising, including laws
requiring specific statements, information, or other content to
23
Plaintiff states in her opposition to defendants’ motion that she “will
not argue against whether the Home Owners’ Loan Act (“HOLA”) preempts state
law.” (ECF No. 18-3, Pl. Opp. at 24.) Instead, she argues that “no
authority exists that a Truth in Lending rescission claim standing alone
preempts the New York GBL.” (Id.) Thus, plaintiff does not appear to
challenge defendants’ argument that plaintiff’s state law claims are
preempted by HOLA.
34
be included in credit application forms” (§ 560.2(b)(9)) and
“[p]rocessing, origination, servicing, sale or purchase of, or
investment or participation in, mortgages” (§ 560.2(b)(10)).
Subsection (c) identifies certain types of state laws, such as
state contract, commercial, real property, and tort law, that
“are not preempted to the extent that they only incidentally
affect the lending operations of [FSAs] . . . .”
§ 560.2(c).
12 C.F.R.
According to the OTS, the preemption analysis under
Section 560.2 proceeds as follows:
[T]he first step will be to determine
whether the type of law in question is
listed in paragraph (b). If so, the
analysis will end there; the law is
preempted. If the law is not covered by
paragraph (b), the next question is whether
the law affects lending. If it does, then,
in accordance with paragraph (a), the
presumption arises that the law is
preempted. This presumption can be reversed
only if the law can clearly be shown to fit
within the confines of paragraph (c). For
these purposes, paragraph (c) is intended to
be interpreted narrowly. Any doubt should
be resolved in favor of preemption.
Cedeno v. IndyMac Bancorp, Inc., No. 06-CV-6438, 2008 U.S. Dist.
LEXIS 65337, at *19-20 (S.D.N.Y. Aug. 25, 2008) (quoting 61 Fed.
Reg. 50951, 50966-67 (Sept. 30, 1996)).
NYGBL § 349 declares unlawful “deceptive acts or
practices in the conduct of any business, trade or commerce or
in the furnishing of any service in this state.”
Law § 349(a).
N.Y. Gen. Bus.
“[A]s a general matter, claims brought under
35
broad consumer deceptive practices such as [NYGBL] § 349 are not
preempted because they simply seek to enforce truthfulness in
commercial transactions, which is expected of federal thrift
institutions as a baseline matter.”
McAnaney, 665 F. Supp. 2d
at 167; see also Binetti v. Wash. Mut. Bank, 446 F. Supp. 2d
217, 220 (S.D.N.Y. 2006) (holding that NYGBL § 349 is “a
commercial statute of general applicability which, while having
an incidental impact on lending relationships, is excepted from
OTS preemption under [12 C.F.R.] § 560.2(c)”).
Nevertheless,
“OTS field preemption applies to state laws of general
applicability insofar as such laws are invoked to restrict
areas, such as loan-related fees, that are field-preempted under
12 C.F.R. § 560.2(b).”
Tombers v. Fed. Deposit Ins. Corp., No.
08-CV-5068, 2009 U.S. Dist. LEXIS 91208, at *17 (S.D.N.Y. Sept.
30, 2009); see also Cedeno, 2008 U.S. Dist. LEXIS 65337, at *28
(finding NYGBL § 560.2(b) preempted by HOLA where “the
plaintiff’s claims [arose] out of conduct directly regulated by
the OTS: the processing and origination of mortgages, a loanrelated fee, and the accompanying disclosure”).
Thus, a
“limited exception” to the general rule that HOLA does not
preempt claims under NYGBL § 349 exists where a party brings
“claims which attempt to establish extra-contractual substantive
requirements upon federal savings associations which more than
36
incidentally affect lending operations.”
McAnaney, 665 F. Supp.
2d at 167.
Here, the crux of plaintiff’s allegations under NYGBL
§ 349 is that the loan application Downey prepared should have
disclosed more clearly plaintiff’s income and employment
information.
Further, plaintiff appears to assert that Downey
had a duty to verify her monthly income and employment status,
and not process her loan if Downey found she could not afford to
repay it.
Insofar as plaintiff is invoking NYGBL § 349 to
regulate Downey’s conduct, her claims are aimed at conduct
directly regulated by the OTS: the disclosures included in her
credit application form and the processing of her loan.
C.F.R. § 560.2(b)(9), (10).
See 12
Because plaintiff’s claims do not
arise from a breach of contract, but rather attempt to
“establish extra-contractual substantive requirements” for
savings associations such as Downey, her claims seek an
application of state law that would more than incidentally
affect federal lending practices.
Accordingly, plaintiff’s
claims under NYGBL § 349 are preempted by HOLA. 24
CONCLUSION
For the reasons set forth above, (i) defendants’
motion to dismiss plaintiff’s claim for rescission pursuant to
24
Because plaintiff’s claims under NYGBL § 349 are preempted by HOLA, the
court need not consider whether plaintiff has sufficiently stated a claim
under NYGBL § 349.
37
15 U.S.C. § 1635 is denied; (ii) defendants’ motion to dismiss
plaintiff’s claim for damages pursuant to 15 U.S.C. § 1640 for
failure to honor plaintiff’s request for rescission is denied;
(iii) defendants’ motion to dismiss plaintiff’s additional
claims for damages pursuant to 15 U.S.C. § 1640 is granted; (iv)
defendants’ motion to dismiss plaintiff’s claims for damages
pursuant to 12 U.S.C. §§ 2605(e)(2) and (e)(2)(A) is denied;
(iv) defendants’ motion to dismiss plaintiff’s claim for damages
pursuant to 12 U.S.C. § 2605(e)(3) is granted, with leave for
plaintiff to amend within 30 days of this Order; and (v)
defendants’ motion to dismiss plaintiff’s claim for damages
pursuant to New York General Business Law § 349 is granted.
SO ORDERED.
Dated: September 28, 2011
Brooklyn, New York
__________/s/________________
KIYO A. MATSUMOTO
United States District Judge
Eastern District of New York
38
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