The opinion of the court was delivered by: MATHEW KENNELLY, District Judge
MEMORANDUM OPINION AND ORDER
Candy and Sherry Sagan, who live in Hammond, Indiana in a home
they inherited, obtained a mortgage loan from BNC Mortgage, Inc.
in 1999 to finance repairs on their home and payment of back
taxes. BNC assigned the servicing of the loan to Option One
Mortgage Corp. See Pltfs' Summ. Judg. Ex. A, "Notice of
Assignment, Sale or Transfer of Servicing Rights." The Sagans
defaulted on their loan payments and went to a mortgage broker to
attempt to refinance. An application was submitted to Option One,
which made a $66,500 mortgage loan to the Sagans in June 2000.
The loan was closed by Indiana Title Network Company. The loan
proceeds were disbursed as follows:
Disbursed to others
$49,939.38 Payoff former loan
636.21 Property taxes
445.69 Held for last payment owed on former loan
$51,021.28 Total disbursed Settlement charges*fn1
$ 4,529.00 Broker's fee (to Illiana Mortgage)
275.00 Appraisal fee
70.00 Tax service fee (to Option One)
50.00 Funding fee (to Option One)
12.00 Flood certification fee (to Option One)
412.30 Interest on loan for June 2000
210.00 Closing fee (to Indiana Title Network Co.)
50.00 Title search (to Indiana Title Network Co.)
376.00 Title insurance (to Indiana Title Network Co.)
140.00 "EPA, LOC, COMP & ARM END" (to Indiana Title Network Co.)
45.00 Overnight courier fee (3 x $15.00) (to Indiana Title Network Co.)
23.00 Wire fee (to Indiana Title Network Co.)
55.00 Recording fees
$ 6,247.30 Total settlement charges
The remainder of the loan proceeds, $9,231.42, was disbursed to
the Sagans. See Dfdts' Summ. Judg. Ex. F (RESPA statement).
The loan was assigned to a trust for which Wachovia Bank serves
as trustee. The Sagans made only one payment on the Option One
loan and then defaulted. Wachovia Bank filed a foreclosure suit
in Indiana state court in December 2000, and a judgment of
foreclosure was entered on April 23, 2001.
On March 22, 2002, the Sagans, acting through counsel, sent
Option One a letter purporting to rescind the loan transaction
pursuant to the Truth in Lending Act, 15 U.S.C. § 1635. The
letter stated that the points and fees on the loan had exceeded
8% of the total loan amount, and thus the Sagans were entitled to
have received the additional disclosures required by the Home
Owners Equity Protection Act, 15 U.S.C. § 1639(a)(1). Because
these disclosures had not been given, the Sagans' letter said, their right to rescind
the loan transaction, which otherwise would have expired three
days after the transaction, remained open. See
15 U.S.C. § 1639(j). The letter also stated that the Sagans were "poor and
unsophisticated consumers" with a $700 per month income and that
the loan had been made without regard to their ability to pay,
purportedly in violation of 15 U.S.C. § 1639(h), which prohibits
lenders from engaging in a practice of making HOEPA-covered
mortgages without regard to the borrowers' ability to repay.
Counsel asserted in the letter that the security interest granted
by the mortgage was rendered void by the rescission, and he
requested that Option One "return to [the Sagans] all monies paid
and to take action necessary or appropriate to reflect
termination of the security interest." Dfdts' Summ. Judg. Ex. J.
Option One responded with a letter dated April 11, 2002 stating
that the points and fees on the loan had not exceeded 8% of the
total loan amount. Dfdts' Summ. Judg. Ex. K. The calculation by
which Option One reached this conclusion was set out in the
letter. The letter also stated that contrary to the claim in the
Sagans' letter, their loan application had disclosed an income of
$3500 per month.
On February 21, 2003, the Sagans' home caught fire, resulting
in extensive damage. (The record does not disclose how the Sagans
were still living in the house so long after entry of the
foreclosure judgment, but that does not affect the matters the
Court must decide in this case.) They remained in the house and
tried to raise money for repairs. A claim was made under their
homeowner's insurance policy. As the mortgagee, Option One was
designated on the policy as co-insured, and it was entitled to
apply the proceeds of the insurance claim to the outstanding
balance on the loan. Option One obtained a check for just over
$34,000 in settlement of the insurance claim and notified the Sagans that this would be
applied to the loan balance unless the Sagans contacted Option
One. They did not do so, and Option One applied the proceeds to
the loan balance.
The Sagans filed this suit in late June 2003. Their complaint
alleged that they were entitled to rescind the loan because they
did not receive the disclosures required by HOEPA. Both sides
have moved for summary judgment. For the reasons stated below,
the Court denies plaintiffs' motion for summary judgment and
grants defendants' motion for summary judgment.
HOEPA sets out special requirements for "high-cost" mortgage
loans. See 15 U.S.C. § 1602(aa) & 1639. A HOEPA loan is a
mortgage loan secured by a consumer's principal dwelling, other
than a loan made to finance the dwelling's original construction
or acquisition, in which the loan's annual percentage rate of
interest exceeds ten percent, or the "total points and fees"
payable by the consumer at or before the closing exceeds the
greater of eight percent of the total loan amount or $400.
15 U.S.C. § 1602(aa)(1)(A) & (B). A lender that makes such a loan is
required to provide several specific disclosures not less than
three business days before the transaction is consummated.
15 U.S.C. § 1639(a) & (b). The statute contains several other
requirements and prohibitions that are not at issue in this case.
A lender that fails to make the required disclosures faces an
extended period in which the borrower can rescind the loan
transaction under TILA. See 15 U.S.C. § 1639(j) & 1635(a).
Under normal circumstances, the rescission period is three days
after the transaction is consummated. But if the lender fails to
make the required disclosures, the period extends until three
days after the disclosures are made, up to a maximum of three
years. 15 U.S.C. § 1635(a) & (f).
The Sagans contend the longer period applies to them because
Option One failed to make the disclosures required under HOEPA.
It is undisputed that Option One did not provide HOEPA
disclosures, and thus the issue is whether it was required to do
so. Because the annual percentage rate on the loan did not exceed
ten percent, the case turns on whether the points and fees
exceeded eight percent of the total loan amount.
In evaluating each side's motion for summary judgment, the
Court views the facts in the light most favorable to the
non-moving party, drawing reasonable inferences in that party's
favor, and inquires whether the moving party has shown that there
is no genuine issue of material fact and that it is entitled to
judgment as a matter of law. See Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 255 (1986); Fed.R.Civ.P. 56(c).
Option One loaned the Sagans $66,500. The "total loan amount"
is determined by deducting prepaid interest and "total points and
fees" from the principal amount of the loan. See 12 C.F.R. Pt.
226, Supp. I, par. 32(a)(1)(ii). The term "points and fees" is
defined as follows in the regulations governing HOEPA:
(1) [P]oints and fees means:
(i) All items required to be disclosed under §
226.4(a) and 226.4(b), except interest or the
(ii) All compensation paid to mortgage brokers;
(iii) All items listed in § 226.4(c)(7) (other than
amounts held for future payment of taxes) unless the
charge is reasonable, the creditor receives no direct
or indirect compensation in connection with the
charge, and the charge is not paid to an affiliate of
the creditor; and
(iv) Premiums or other charges for credit life,
accident, health, or loss-ofincome insurance, or debt-cancellation coverage (whether or
not the debt-cancellation coverage is insurance under
applicable law) that provides for cancellation of all
or part of the consumer's liability in the event of
the loss of life, health, or income or in the case of
accident, written in connection with the credit
12 C.F.R. § 226.32(b)(1). The "items required to be disclosed
under § 226.4(a) and 226.4(b)," as referenced in §
226.32(a)(1)(i), consist of the various components of what §
226.4 includes in the "finance charge." See
12 C.F.R. § 226.4(a) & (b). The "items listed in § 226.4(c)(7)," as
referenced in § 226.32(b)(1)(iii), are described as follows:
(7) Real-estate related fees. The following fees in a
transaction secured by real property or in a
residential mortgage transaction, if the fees are
bona fide and reasonable in amount:
(i) Fees for title examination, abstract of title,
title insurance, property survey, and similar
(ii) Fees for preparing loan-related documents, such
as deeds, mortgages, and reconveyance or settlement
(iii) Notary and credit report fees.
(iv) Property appraisal fees or fees for inspections
to assess the value or condition of the property if
the service is performed prior to closing, including
fees related to pest infestation or flood hazard
(v) Amounts required to be paid into escrow or
trustee accounts if the amounts would not otherwise
be included in the finance charge.
12 C.F.R. § 226.4(c)(7).
Prepaid interest totaling $412.20 was withheld from the Sagans'
loan. It is undisputed that this amount is deducted from the loan