TELLADO et al v. INDYMAC MORTGAGE SERVICES et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE PETRESE B. TUCKER ON 7/25/2011. 8/9/2011 ENTERED AND COPIES E-MAILED.(amas)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
JOSE TELLADO AND
INDYMAC MORTGAGE SERVICES,
a division of OneWest Bank, FSB,
July ___, 2011
After a bench trial in this matter on November 8, 2010, and pursuant to Fed. R. Civ. P. 52(a), the
Court makes the following Findings of Fact:
This is an action for damages in connection with the mortgage refinancing services
received by Plaintiffs, Jose and Maria Tellado, for their residential real property located
at 519 Morris Street, Philadelphia, Pennsylvania (the “Property”).
Plaintiffs, who are husband and wife, are also low-income senior citizens who speak
On or around June 2007, Plaintiff Jose Tellado heard a Spanish-language radio
advertisement for mortgage refinance services. Plaintiff Mr. Tellado called the
telephone number provided in the advertisement and reached a man named Carlos
Enrique, and the two conversed exclusively in Spanish.
Mr. Enrique assisted Plaintiff Jose Tellado with the submission of a loan application.
Mr. Enrique also arranged for a closing agent to visit the Tellado home with the loan
On July 3, 2007, Mr. Philip Bloom, a closing agent and notary, came to the Property with
the loan documents. Mr. Bloom acted as a representative of Indymac Bank, F.S.B., and
had been provided instructions on how to conduct the loan closing. Plaintiffs received a
copy of these instructions.
Plaintiffs saw the final loan terms for the first time in their home at closing.
The loan transaction, from the initial contact with Mr. Enrique until the loan closing, was
conducted in Spanish.
The loan documents provided at the loan closing, including the Note, the Mortgage, and
the Notice of Right to Cancel, were provided in English.
One of the loan documents received by the Plaintiffs was a Notice of Right to Cancel, a
model form mandated by the Truth in Lending Regulation Z, referenced in section
226.23 of title 12 of the Code of Federal Regulations, Appendix H.
Plaintiffs’ daughter, Marcelina Fuster, was present at the closing, at the suggestion of
Mr. Enrique, to act as an interpreter. She assisted in translating the closing agent’s
verbal instructions, as well as his explanations of the loan documents, from English to
Spanish for the Plaintiffs. Ms. Fuster did not have the opportunity to read, nor to
translate the loan documents themselves.
Plaintiffs are unable to read English and did not understand the contents of the
documents that they were signing at closing. At the time of the closing, Plaintiffs had
the intention of entering into a fixed rate mortgage. Plaintiffs were unaware that the first
ten years of payments under the loan would not be applied to the principal, that the loan
had an adjustable rate, or that the loan documents contained falsified information
concerning their monthly income.
In connection with the July 3, 2007 transaction, Plaintiffs purchased the mortgage
refinancing services for a price in excess of $25. The original lender in this transaction
was Indymac Bank, F.S.B.
Subsequently, on July 11, 2008, Indymac Bank, F.S.B. went into receivership, and the
Federal Deposit Insurance Corporation (FDIC) was appointed its receiver. As a result,
certain assets and liabilities of Indymac Bank, F.S.B., including the Plaintiffs’ mortgage
loan, were transferred to Indymac Federal Bank, F.S.B., for which the FDIC served as
Under a Master Purchase Agreement (the “MPA”) dated March 18, 2009, Defendant
OneWest Bank, FSB (“OneWest Bank”), acquired the Plaintiffs’ loan, formerly held by
Indymac Bank, F.S.B., from the FDIC.
In the MPA, Defendant agreed to assume certain liabilities associated with loans
acquired from the FDIC. In Section 4.02 of the MPA, there are enumerated certain
liabilities that the Defendant did not assume, however, such excluded liabilities are
unclear, as Schedule 4.02(a) referenced in the MPA detailing excluded liabilities was not
provided to the Court.
On August 5, 2009, Plaintiffs sent a Notice of Cancellation to Indymac Mortgage
Services, a division of Defendant OneWest Bank, alerting the entity of Plaintiffs’
intention to file suit if a favorable response was not received within ten (10) days.
OneWest Bank failed to provide any response to the Notice of Cancellation within (10)
ten days after receiving such notice. OneWest Bank responded to Plaintiffs in a letter
dated October 15, 2009, denying Plaintiffs’ request to rescind the mortgage loan
After commencing this action on August 24, 2009, Plaintiffs began escrowing their
Plaintiffs ceased escrowing payments upon receipt from OneWest Bank of a Notice of
Intention to Foreclose. Plaintiffs continued to make monthly payments to prevent
foreclosure on the Property during the pendency of this action.
As of November 8, 2010, the bench trial date in this matter, Plaintiffs were up to date on
their payment obligations under the loan at issue.
Determination that the mortgage on their home is void following their
submission to OneWest Bank of a notice of cancellation, as required under
73 P.S. § 201-7(g).
Determination that, by failing to honor the Notice of Cancellation and inform
Plaintiffs of their intent to collect the proceeds of the loan within ten (10)
business days as required under 73 P.S. § 201-7 (g), OneWest Bank has
forfeited the right to any further payment.
If the mortgage is not cancelled, Plaintiffs seek in the alternative triple
damages based on the amount of refunded payments they would have
received, and the security instrument that would have been terminated if
Defendant had taken the appropriate steps to cancel the loan as follows:
Triple damages based on the amount of payments made by Plaintiffs
to date, at least $30,043.36, for a total of $90,130.08, pursuant to 73
P.S. § 201-9.2(a).
Actual damages in the amount of the security instrument that
OneWest failed to terminate, and which OneWest retains as a lien
against Plaintiff’s home, in the amount of $115,000.00, pursuant to
73 P.S. § 201-9.2(a).
Conclusions of Law
Plaintiffs Asserted a Valid Claim for Damages Arising From OneWest’s Failure to Cancel
the Mortgage Transaction
A Federal Law Preempts only State Law Directly in Conflict with the Scope of Such
Generally, the law of preemption, which has its roots in the Supremacy
Clause, dictates that federal law preempts state law when Congress has
shown intent to create federal regulation in a particular field so pervasive as
to leave no room for state supplementation.
Pursuant to 12 C.F.R § 545.2, The Office of Thrift Supervision (OTS) has the
“plenary and exclusive power . . . to regulate all aspects of the operations of
Federal savings associations, as set forth in section 5(a) of the [Home
Owners Loan] Act. This exercise of the Office’s authority is preemptive of
any state law purporting to address the subject of the operations of a
Federal savings association.”
The OTS, however, makes an exception for, inter alia, state contract and
commercial laws which only incidentally affect the lending operations of
Federal savings associations or are otherwise consistent with the purpose of
the regulation. 12 C.F.R. § 560.2(c)(1).
While the Third Circuit has not yet ruled on the preemptive relationship
between the Home Owners Loan Act (“HOLA”) and the Pennsylvania Unfair
Trade Practices and Consumer Protection Law, 73 P.S. §201-7 (“UTPCPL”),
the Southern District of New York held that the New York Consumer Fraud
Statute is not directly aimed at lenders, and has only an incidental impact on
lending relationships without creating any conflict with the federal
objectives identified in 12 C.F.R. § 560.2. Binetti v. Wash. Mut. Bank, 446 F.
Supp. 2d 217 (S.D.N.Y. 2006).
In Binetti, the Southern District of New York pointed to a December 24,
1996, OTS opinion which concluded that the New York Consumer Fraud
Statute is the type of commercial law designed to “establish the basic norms
that undergird commercial transactions” that the OTS has indicated it does
not intend to preempt. Id. at 219.
A state law that generally dictates the underpinnings of fair trade practices
is distinguishable from a state law that is directly aimed at lenders, which
courts have consistently held to be preempted by HOLA and similar federal
acts. See Binetti v. Wash Mut. Bank at 220 (citing 1999 OTS LEXIS 4).
The Court, finding Binetti instructive, holds that the Pennsylvania Unfair Trade
Practices and Consumer Protection Law (“UTPCPL”) governs the customs and
practices surrounding commercial transactions generally, and thus is not
preempted by HOLA.
Similarly, the UTPCPL is not preempted by the Truth in Lending Act.
The Truth in Lending Act preempts state law only where the state law is in
conflict. Jamal v. WMC Mortg. Corp., 2005 U.S. Dist. LEXIS 5076 (E.D. Pa.
Mar. 28, 2005).
As noted in Jamal, “the TILA provides in relevant part at 15 U.S.C. §
‘Except as provided in subsection (e) of this section [relating credit and
charge card application and solicitation disclosures], this part and parts
B and C of this subchapter do not annul, alter, or affect the laws of any
State relating to the disclosure of information in connection with credit
transactions, except to the extent that those laws are inconsistent with
the provisions of this subchapter and then only to the extent of the
The Court in Jamal further notes that, “[s]imilarly, Regulation Z, 12 C.F.R. §
226.28(a) states in pertinent part:
‘Inconsistent disclosure requirements. (1) Except as provided in
paragraph (d) of this section [relating to special rule for credit and
charge cards], state law requirements that are inconsistent with the
requirements contained in chapter 1 (General Provisions), chapter 2
(Credit Transactions), or chapter 3 (Credit Advertising) of the act and
the implementing provisions of this regulation are preempted to the
extent of the inconsistency… .’”
The Truth in Lending Act, which focuses on consumer credit disclosures, is not
preempted by the UTPCPL, a state law only which generally governs
commercial transactions, and is not aimed at federal consumer credit practices.
Plaintiffs have a valid claim under the Pennsylvania Unfair Trade Practices and
Consumer Protection Law, 73 P.S. § 201-7 (UTPCPL) against OneWest Bank.
The loan transaction which Plaintiffs entered into on July 3, 2007 is governed by
the door-to-door sales provisions of the UTPCPL. 73 P.S. § 201-7.
Under 73 P.S. § 201-7, the right to cancel is afforded “to any consumer who
agrees to purchase goods or services with a value of $25 or more ‘as a result
of or in connection with’ contact between the seller and the consumer at the
consumer’s home.” Burke v. Yingling, 446 Pa. Super. 16, 21 (1995).
At trial, the Court determined that OneWest Bank qualifies as a seller within
the definition of the UTPCPL.
In this case, the service provided, mortgage refinancing, had a value of well over
twenty-five dollars ($25).
Additionally, such services were contracted as a result of contacts between the
Plaintiffs and OneWest Bank at Plaintiffs’ residence, including a telephone call
placed by Mr. Tellado from his home, and the loan closing which occurred at the
residence. Thus, as in Fowler v. Rauso, 425 B.R. 1657 (Bankr. E.D. Pa. 2010),
the contacts made at the residence of the consumers result in this transaction
falling within the scope of 73 P.S. § 201-7.
Under the door-to-door sales provision of the UTPCPL, at the time of the sale
or contract the buyer shall be provided with a notice of cancellation written
in the same language as that principally used in the oral sales presentation
and also in English. 73 P.S. § 201-7(b).
The buyer shall also be informed in the notice to cancel that he may avoid
the contract or sale by providing the seller with a written notice of
cancellation within three business days after the date of the transaction. 73
P.S. § 201-7(b).
IndyMac Bank, F.S.B., the original mortgagee, did not provide any documents
in Spanish, the language of the sales presentation, nor did IndyMac Bank,
F.S.B. provide additional notifications of the right to cancel within three
business days near the signature line of the Note or Mortgage, as required
by the UTPCPL. 73 P.S. § 201-7(b).
Thus, IndyMac Bank F.S.B., a division of OneWest Bank, failed to provide
proper notice of Plaintiffs’ right to cancel the transaction under the UTPCPL.
Further, the door-to-door sales notice to cancel requirements of the UTPCPL
are not preempted by HOLA because they only incidentally affect the
lending operations of OneWest and are consistent with the purpose of the
The Court finds that “[t]he UTPCPL is a law of general applicability, and not
targeted directly at banking or lending.” Poskin v. TD Banknorth, N.A., 687 F.
Supp. 2d 530 (W.D. Pa. 2009).
While the Third Circuit has not issued a ruling directly addressing the issue
at hand, courts within the Ninth Circuit have provided some guidance.
In Reyes v. Premier Home Funding, Inc., 640 F. Supp. 2d. 1147 (N.D.Cal.
2009), the Court considered HOLA’s preemption of the California
Translation Law (CTA), which requires that a translation of a contract or
agreement be provided in the language in which the contract or agreement
was negotiated. The Court held that the CTA was not preempted by HOLA
because it did not require any specific statements, information or other
content to be disclosed and because it only affects lending incidentally. Id. at
1155 (emphasis added).
Reyes, as well as the case at issue, is distinguishable from several other
Ninth Circuit cases which called for federal preemption of state regulations.
Where the state regulation in question regards specific processing,
servicing, or disclosure policies or concerns the substantive financial terms
of the loan, preemption has been deemed necessary. See Parcray v. Shea
Mortg., Inc., 2010 WL 1659369 (E.D. Cal. Apr. 23, 2010)(concluding that
HOLA preempts Cal. Civ. Code § 2923.5 because it “concerns the processing
and servicing of [the plaintiff]’s mortgage”); Odinma v. Aurora Loan Servs.,
2010 WL 1199886 (N.D. Cal. Mar. 23, 2010); Murillo v. Aurora Loan Servs.,
LLC, 2009 WL 2160579 (N.D. Cal. July 17, 2009); Silvas v. E*Trade Mortg.
Corp., 421 F. Supp. 2d 1315 (S.D. Cal., 2006) (concluding that where federal
law preempts an “entire field,” a state’s provision of remedies for a violation
of federal law amounts to a form of state regulation of the affected area and
is thus preempted).
As in Reyes, the Court finds that notice of right to cancel in this matter was
incidental to the larger mortgage refinancing transaction, and thus is not
preempted by HOLA or TILA, as discussed above.
Plaintiffs Fulfilled their Burden of Proof and are Entitled to Damages under the PA
The cancellation period provided for in 73 P.S. § 201-7(e) shall not begin to run
until buyer has been informed of his right to cancel and has been provided with the
required copies of the “Notice of Cancellation.”
Because Plaintiffs never received the proper notification of their right to cancel
under the UTPCPL, the cancellation period provided for in 73 P.S. § 201-7(e) had
not begun to run at the time Plaintiffs sent a Notice of Cancellation to Defendant on
August 5, 2009.
Because no valid notice of cancellation was issued to Plaintiffs, Plaintiffs’ Notice of
Cancellation was sent within the required time constraints pursuant to 73 P.S. §
201-7(g). Plaintiffs are not required to show actual losses for remedies to be triggered
under 73 P.S. § 201-7(g)
Relief granted to Plaintiffs shall be as follows:
Defendant OneWest Bank shall refund all payments made under the
contract, cancel and return any negotiable instrument executed by the
Plaintiffs in connection with the mortgage refinancing, and take any action
necessary or appropriate to terminate promptly any security interest
created in the mortgage refinancing transaction. 73 P.S. § 201-7(g).
Under 73 P.S. § 201-9.2(a), the Court may, in its discretion, award up to
three times the actual damages sustained [due to “deceptive practices”, as
statutorily defined], but not less than one hundred dollars ($100). The
Court may provide such additional relief as it deems necessary or proper.
Because the acts in question do not rise to the level of unlawful deceptive
practices required under 73 P.S. § 201-9.2(a), the Court declines to award
damages permissible under this section.
An appropriate order follows.
BY THE COURT:
/s/ Petrese B. Tucker
Hon. Petrese B. Tucker, U.S.D.J.
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