Taylor v. Deutsche Bank National Trust Co.

Filing 29

MEMORANDUM AND OPINION. Signed by District Judge James R. Spencer on 10/18/10. (kyou, )

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION OTHO L. TAYLOR, Plaintiff, v. DEUTSCHE BANK NATIONAL TRUST CO., Defendant. Civil Action No. 3:10CV149

MEMORANDUM OPINION THIS MATTER is before the Court on Defendant Deutsche Bank National Trust Company's Motion for Summary Judgment. For the reasons that follow, the Court will GRANT the Motion. I. BACKGROUND T h e f o l l o w i n g f a c t s a r e n o t i n d i s p u t e . I n O c t o b e r 2 0 0 7 P l a i n t i ff Otho L. Taylor entered into a refinance credit consumer transaction with Delta Funding Corporation (Delta Funding) in which Taylor was the borrower and Delta Funding was the creditor. Delta Funding retained the deed of trust for Taylor's primary r esidence to secure the loan, the proceeds of which were applied to the costs of the loan, existing mortgages on the home, and consumer debts. The pr i n c i p a l a m o u n t o f t h e l o a n w a s $ 1 7 0 , 0 1 0 . ( P l . ' s E x . C , a t 1). Delta Funding disclosed the amount financed as $162,911.28. (Pl.'s Ex. F, at 1).The amount of the disclosed prepaid finance charge was $7,098.72, calculated as the principal amount of the loan less the amount financed. (Def.'s Mem. Supp. Summ. J. 3). The prepaid 1

finance charge consisted of settlement fees--including administrative, broker, processing, delivery, and recording fees--but did not include other fees incurred incident to the transaction, such as a $245 charge for "abstract or title search," a $395 "title examination" fee, and a $31 "release" charge associated with either Taylor's prior mortgage or another lien. (Pl.'s Ex. C, at 2; Def.'s Mem. Supp. Summ. J. 34, 10). Delta instead included these fees, which totaled $2,563.48, in the amount financed. (Def.'s Mem. Supp. Summ. J. 8). Deutsche Bank National Trust Company (Deutsche Bank) later became the assignee of the note. Taylor defaulted on the loan, last making a paymen t in 2008. (Johnson Decl. ¶¶ 78). After Deutsche Bank initiated foreclosure proceedings through its substitute trustee Samuel I. White, P.C. (White) in October 2009, Taylor, by counsel, claimed rescission of the c r e d i t t r a n s a c t i o n p u r s u a n t t o t h e f e d e r a l T r u t h i n L e n d i n g A c t . (Pl.'s Ex. I). Upon receipt of the notice, Deutsche Bank cancelled the foreclosure sale scheduled for November 2009. Later in November 2009, Deutsche Bank notified Taylor that it did not agree that T I L A r e s c i s s i o n w a s a v a i l a b l e t o h i m . ( P l . ' s E x . J ) . W h i t e t h e n scheduled another foreclosure for March 2010. Taylor, by counsel, responded to White's action b y s e n d i n g a n o t h e r rescission claim and by filing the instant Complaint seeking enforcement of the rescission action and asking the Court to alter the timing of tender to allow him time to sell the home or raise the funds to tender the principal amount of the loan back to the bank. Following discovery, Defendant Deutsche Bank filed this Motion for Summary Judgment.

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II. LEGAL STANDARD A m o t i o n f o r s u m m a r y j u d g m e n t l i e s o n l y w h e r e " t h e r e i s n o g e n ui n e i s s u e a s t o a n y material fact" and where "the moving party is entitled to judgm ent as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). All "factual disputes and any competing, rational inferences [are resolved] in the light most favorable to the party opposing that motion." Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003) (internal quotation marks a nd citations omitted). In maki ng its decision, a court must look to the affidavits or other specific facts pled to determine whether a triable issue exists. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 24749 (1996). "[I]f the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine i s s u e a s t o a n y m a t e r i a l f a c t a n d t h a t t h e m o v a n t i s e n t i t l e d t o judgment as a matter of law," Fed. R. Civ. P. 56(c), it is the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial." Drewitt v. Pratt, 999 F.2d 774, 77879 (4th Cir. 1993) (internal quotation marks omitted). "Mere unsupported speculation is not sufficient to defeat a summary judgment motion if the undisputed evidence indicates the other party should win as a matter of law." Francis v. Booz , Allen & Hamilton, Inc. , 4 5 2 F.3d 299, 308 (4th Cir. 2006). Summary judgment should not be granted, however, if "the e v i d e n c e i s s u c h t h a t a r e a s o n a b le jury could return a verdict f o r t h e n o n m o v i n g p a r t y . " Anderson , 477 U.S. at 248. III. DISCUSSION The federal TruthinLending Act (TILA) regulates the relationship between lenders and borrowers to facilitate the "informed use of credit" by "assur[ing] a meaningful 3

disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him." 15 U.S.C. § 1601(a) (20 0 6 ) . T o t h a t e n d , T I L A requires that creditors make certain disclosures to borrowers, including disclosures of the finance charge and of the borrower's right to rescind the transaction if the creditor retains a security interest in the borrower's principal dwelling. Id. §§ 1635(a), 1638(a). A c r e d i t o r ' s f a i l u r e t o p r o v i d e p r o p e r n o t i c e o r m a k e r e q u i r e d d i sclosures enables the borrower to rescind the credit transaction within three years of closing. Id. §§ 1635(a),(f). U p o n a d e b t o r ' s v a l i d r e s c i s s i o n claim, "he is not liable for a n y f i n a n c e o r o t h e r c h a r g e , a n d any security interest given by the obligor . . . becomes void." Id. § 1635(b). A failure to make the required disclosures, or a failure to recognize a valid rescission, also subjects a lender to statutory damages of up to $1,000 per offense. See 15 U.S.C. § 1640(a)(2)(A)(ii). A. Notice of the Right to Rescind For notice of a borrower's right of rescission to be proper under TILA, a creditor must provide that notice in a separate document that "clearly and conspicuously disclose[s]" the right to rescind. 15 U.S.C. § 1635(a). Pursuant to authority delegated by Congress, 15 U.S.C. §§ 1604(b), the Board of Governors of the Federal Reserve System has promulgated a set of model notice forms as part of its comprehensive TILA regulations known as Regulation Z. See 12 C.F.R. §§ 226.1226.59 (2010); id. § 226 apps. G, H. To comply with the notice requireme n t s , a c r e d i t o r m u s t u s e e i t h e r o n e o f t h e s e m o d e l f o r m s or a "substantially similar notice." Id. § 226.23(b)(2); see also 15 U.S.C. § 1604(b). Delta Funding provided Plaintiff Taylor with a onepage document entitled "Right to Cancel." (Pl.'s Ex. G). This notice of Taylor's right to rescind uses the exact language 4

provided in Regulation Z's model rescission notice. See 12 C.F.R. § 226, App. H8. While the P l a i n t i f f a c k n o w l e d g e s t h a t " t h e n o t i c e o f r i g h t t o c a n c e l , t a k en alone, was in proper form," h e c o n t e n d s t h a t a s e p a r a t e a r b i t r a t i o n a g r e e m e n t , w i t h i t s o w n cancellation provisions, "essentially contradicted [his] ri ghts under TILA" and undermin e d t h e r i g h t t o r e s c i n d . (Pl.'s Mem. Opp'n Summ. J. 1213). That agreement, described in a separate fourpage document, includes the right to c a n c e l t h e a r b i t r a t i o n a g r e e m e n t w i t h i n t h i r t y d a y s . ( P l . ' s Ex. H, at 3). T h e a r b i t r a t i o n a g r e e m e n t ' s c a n c e l l a t i o n p r o v i s i o n s t a t e s , " T o c a n c e l t h i s Arbitration Agreement after the closing, you must mail a letter stating `I wish to cancel the Arbitration Agreement in connection with loan number 0103500518'. . . ." Id. The a g r e e m e n t c o n t i n u e s b y i d e n t i f y i ng the address to which the bor r o w e r m u s t m a i l t h e l e t t e r , providing the thirtyday deadline for cancellation, and listing other information that the letter must include: borrower's na me, address, and phone; loan number; and date of cancellation. Id. The final paragraph of the arbi t r a t i o n a g r e e m e n t ' s c a n c e l l a t i o n provision notifies the signer that "You cannot cancel at closing, and no other method can be used to cancel this Arbitration Agreement after the closing." Id. The Plaintiff argues that becaus e the requirements for cancelli n g t h e a r b i t r a t i o n agreement were "drastically different" from those for rescinding the entire credit transaction, the presence of the a r b i t r a t i o n a g r e e m e n t l i m i t e d Taylor's ability to rescind the credit transaction. (Pl.'s Mem. Opp. Summ. J. 13). To support this argument, he cites a Fourth Circuit case holding that a plaintiff's notice of rescission is only a "claim seeking rescission" until "the creditor acknowledges that the right of rescission is available, or

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[until] the appropriate decision maker has so determined." Am. Mortg. Network, Inc. v. Shelton (Shelton), 486 F.3d 815, 821 (4th Cir. 2007) (quoting Large v. Conseco Finance Servicing Corp., 292 F.3d 49, 5455 (1st 2002)). Plaintiff's argument misses the critical p o i n t e n t i r e l y . T h e q u e s t i o n i s , d o e s t h e e x i s t e n c e o f t h e a r b i t r a t i o n c a n c e l l a t i o n p r o v i s i o n negate a separate and clear notice of the right to rescind the entire credit transaction. The obvious answer is no. Nothing in TILA either forbids separate arbitration agreements or requires creditors to use identical cance llation language and requiremen t s i n r e s c i s s i o n n o t i c e s a n d other provisions associated with credit transactions. Delta Fun d i n g p r o v i d e d T a y l o r w i t h n o t i c e o f h i s r i g h t t o c a n c e l i n a separate document using the e x a c t l a n g u a g e m o d e l e d i n Regulation Z. The arbitration agreement was a separate agreemen t with clearly identified cancellation provisions. The fact that the documents' cancellation requirements were d i f f e r e n t h a s n o e f f e c t o n t h e c larity and conspicuousness of t h e r e s c i s s i o n n o t i c e . Therefore, the Court finds that the rescission notice satisfies TILA's requirements.

B. Disclosure of the Finance Charge TILA requires creditors to disclose to borrowers the finance charges associated with c r e d i t t r a n s a c t i o n s , a n d f a i l u r e t o d i s c l o s e p r o p e r l y i s g r o u n ds f o r r e s c i s s i o n w i t h i n t h r e e years of consummation of the credit transaction. 15 U.S.C. § 1635(f). For a property that has entered foreclosure, the disclosed finance charge is considered "accurate . . . if the disclosed finance charge: (i) is understated by no more than $35; or (ii) is greater than the amount required to be disclosed." Id. § 2 2 6 . 2 3 ( h ) ( 2 ) . T I L A d e f i n e s t h e f i n a n c e c h a r g e a s

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"the sum of all charges, payable directly or indirectly by the p e r s o n t o w h o m c r e d i t i s extended, and imposed directly or indirectly by the creditor as an incident to the extension o f c r e d i t . " 1 5 U . S . C . § 1 6 0 5 ( a ) . I t " d o e s n o t i n c l u d e c h a r g e s of a t y p e p a y a b l e i n a comparable cash transaction." Id. R e g u l a t i o n Z l i s t s s e v e r a l c h a r g e s t h a t a r e n o t c o n s i d e r e d finance charges, such as credit application fees, charges for late payments or exceeding credit limits, and seller's points. 12 C.F.R. § 226.4(c). Real e s t a t e r e l a t e d f e e s a r e a l s o excluded from the finance charge, if they are "bona fide and reasonable in amount." Id. § 226.4(c)(7). Examples of excludable real estate fees include title examination fees, credit report fees, and fees for preparing loanrelated documents. Id. At the time of closing, Delta di sclosed the prepaid finance cha r g e a s $ 7 , 0 9 8 . 7 2 . Defendant Deutsche Bank now calc ulates the actual finance charg e a s $ 6 , 8 4 2 . 2 7 , r e p r e s e n t i n g a d i s c l o s u r e t h a t w a s $ 2 5 6 . 4 5 g r e a t e r t h a n t h e a m o unt required to be disclosed. (Def.'s Mem. Supp. Summ. J. 34). Because the disclosed finance charge is greater t h a n t h e a m o u n t r e q u i r e d t o b e d i s c l o s e d , i t i s a c c e p t a b l e u n d e r R e g u l a t i o n Z . S e e 12 C.F. R. § 226.23(h)(2). The Plaintiff does not dispute these amounts but instead argues that Delta Funding impermissibly excluded some charges from the finance charge calculation. First, he argues t h a t t w o o f t h e t i t l e r e l a t e d f ees charged by Delta Funding were n e i t h e r b o n a f i d e n o r reasonable because they constituted either doublecharging or "hidden finance charge[s]" that should not have been excluded from the disclosed finance charge. (Pl.'s Mem. Opp'n Summ. J. 17). Taylor first challenges the $395 title examination and the $245 abstract fee, alleging that the "imposition of both fees constitutes a form of double charging" and

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arguing that the double charging is neither bona fide nor reasonable. Id. Secondly, the P l a i n t i f f s u g g e s t s t h a t t h e $ 3 9 5 t i t l e e x a m i n a t i o n f e e , t h e $ 3 1 release charge included in the $77 recording fee, and other titlerelated fees were unreasonable. He provides information from the Internet showing title examination fees from a variety of providers and notes that none exceed $250. Thus, he argues, "[a]t least $145 of that [title examination] fee was unreasonable and a hidden finance charge." (Pl.'s Mem. Opp'n Summ. J. 17). The Plaintiff's arguments are unsupported and unpersuasive. His doublecharging argument lacks merit not only because Regulation Z recognizes both title examination fees and abstract fees as excludable from finance charge calculations, see 12 C.F.R. § 226.4(7)(i), but also because the Settlement S t a t e m e n t c l e a r l y i n d i c a t e s t h a t t h o s e f e e s w e r e p a i d t o different companies. (Pl.'s Ex. C, at 2). Similarly, the Plaintiff has no admissible evidence to support his assertion that the f e e s a r e u n r e a s o n a b l e . T h e e v i d e n c e f r o m h i s I n t e r n e t searching was not provided in discovery and is therefore not admissible at trial. Furthermore, that searching is n o t s u f f i c i e n t t o m a k e t h e P l a i n t i f f a n e x p e r t s u i t a b l e t o testify to the bona fides or reasonableness of real estate fees included in prepaid finance c h a r g e s i n a n O c t o b e r 2 0 0 7 t r a n s a c t i o n . E v e n i f t h e C o u r t w e r e to assume the veracity of Taylor's allegations, these averments would merely establish that Taylor paid more for the t i t l e e x a m i n a t i o n f e e t h a n a nother borrower might have. I n t h e a b s e n c e o f a n y e v i d e n c e r e g a r d i n g t h e e x t e n t t o w h i c h D e lta Funding augmented its return through the s e o r o t h e r f e e s a n d w i t h o u t a n y e x p e r t t e s t i m o n y o n t h e p r e v a i l i n g r a t e s f o r t h e s e f e e s o n p r o p e r t i e s s i m i l a r t o T a y l o r 's in October 2007, the Plaintiff has failed to show that the fees were neither bona fi de nor reasonable. Therefore,

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the Court finds that the disclosed finance charge fell within R egulation Z's tolerance range and satisfied TILA's requirements. C. Plaintiff's Ability to Tender T h e D e f e n d a n t a l s o a r g u e s t h a t t h e C o m p l a i n t s h o u l d f a i l a s a ma t t e r o f l a w b e c a u s e t h e P l a i n t i f f f a i l e d t o a l l e g e a n y a b i l i t y t o t e n d e r t h e p r i n c i pal amount of the loan back to the bank, as is required in TILA rescission actions in the Fourth Circuit. See Shelton, 486 F.3d at 81922 ("The equitable goal of rescission under TILA is to restore the parties to the status quo ante." (internal quotation marks and citation omitted)). Under Shelton, a borrower seeing TILA rescission of a credit transaction secured by his primary residence must show that he has the abilit y t o t e n d e r t h e p r o c e e d s o f t h e l o a n t o h i s c r e d i t o r i n r e t u r n for the release of the security interest upon his property. Id. at 821. Regulation Z grants c o u r t s t h e a u t h o r i t y t o m o d i f y t he procedures that follow a bor r o w e r ' s r e s c i s s i o n o f a c r e d i t t r a n s a c t i o n , i n c l u d i n g t h e p r o c e d u r e s a s s o c i a t e d w i t h t e nder. 12 C.F.R. § 2 2 6 . 2 3 ( d ) ( 4 ) . T h e P l a i n t i f f a s k s th e C o u r t t o u s e t h a t a u t h o r i t y t o a l t e r t h e t i m i n g o f t e n d e r t o e n a b l e h i m t o r a i s e t h e f u n d s t o t e n d e r b y , i f n e c e s s a r y , s e l l i n g t h e h o m e . This Court ruled against a plaintiff on the issue of tender in Hudson v. Bank of America, N.A., No. 3:09CV462, 2010 WL 2365588 (E.D. Va. June 11, 2010). In that case, the Court granted a motion to dismiss and found that the Plaintiff failed to show that he might be able to tender the funds nece ssary to complete rescission. T h a t p l a i n t i f f n e e d e d m o r e t i m e t o s e e k r e f i n a n c i n g o r a b uy e r f o r t h e h o m e , p l a n n e d t o u s e t h e d a m a g e s a w a r d e d i n the case to provide additional funds needed to tender, and was unsure of the exact amount he would have been required to tender. Id. at *5. This Court, "given the context of the case 9

and the Court's judicial experience . . . [could not] reasonably conclude that Hudson [would have been] able to pay the . . . unknown amount due within a re asonable period of time following the resolution of [that] matter." Id. Taylor is in a situation similar to that of the plaintiff in Hudson, although he does p u r p o r t t o k n o w t h e a m o u n t o f t e n d e r . N o n e t h e l e s s , a s i d e f r o m as k i n g t h e C o u r t f o r m o r e t i m e a n d i n d i c a t i n g t h a t h e w o u l d b e w i l l i n g t o s e l l t h e h o u s e "as a last resort" (Pl.'s Mem. Opp'n Summ. J. 19), Taylor has not shown that he is able to tender the funds necessary to complete rescission. Therefore, he has not met that requirement of a valid rescission claim. IV. CONCLUSION Because Delta Funding provided the proper notice of the right to rescind and p r o p e r l y d e l i v e r e d t h e m a t e r i a l d i s c l o s u r e s , a n d b e c a u s e T a y l o r h a s n o t s h o w n h i s a b i l i t y to tender, Taylor does not have the right to rescind the credit transaction. Therefore, the Court GRANTS Defendant's Motion for Summary Judgment. Let the Clerk send a copy of this Memorandum to all counsel of record. An appropriate order will issue. It is SO ORDERED.

/s/ James R. Spencer Chief United States District Judge

ENTERED this 18th day of October 2010

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