United States District Court, N.D. Illinois, Eastern Division
July 26, 2004.
CANDE SAGAN and SHERRY SAGAN, Plaintiffs,
OPTION ONE MORTGAGE CORP. and WACHOVIA BANK, N.A., f/k/a FIRST UNION NATIONAL BANK, Defendants.
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
proceeds in determining the "total loan amount."
Option One contends that the "total points and fees" included
the following items:
$4,529.00 Broker's fee
70.00 Tax service fee 50.00 Funding fee
12.00 Flood certification fee
210.00 Closing fee
15.00 Overnight courier fee
$4,886.00 Total points and fees
If Option One is correct, then the "total loan amount" for
HOEPA purposes would be $61,201.80 ($66,500.00, less $412.20,
less $4,886.00). The "total points and fees" of $4,886.00 amount
to 7.98% of $61,201.80. Thus if Option One is correct in its
calculation of total points and fees, HOEPA disclosures were not
The Sagans challenge Option One's calculation. They contend
that the prepayment penalty of $2,053.44 on the prior loan, the
appraisal fee of $275.00, the $376.00 title insurance fee, and a
second $15.00 overnight courier fee each should be considered as
part of the total points and fees. If the Sagans are correct with
regard to any one of these charges, Option One is not entitled to
summary judgment, and the Sagans may be entitled to summary
The Sagans' argument regarding the prepayment penalty on the
prior loan is predicated on their contention that Option One was
the lender on the prior loan and thus received the prepayment
penalty. But the Sagans have no evidence to support that
contention. Though Option One collected payments on the prior
loan, it did so as a servicer of the loan, not as an assignee. A
servicer is an entity responsible for receiving scheduled
periodic payments from the borrower, see 12 U.S.C. § 2605(i)(2)
& (3) (cross-referenced in 15 U.S.C. § 1641(f)(3)), but it is not
considered an assignee of the loan for purposes of TILA (of which
HOEPA is a part) "unless the servicer is or was the owner of the
obligation." 15 U.S.C. § 1641(f)(1). The document that made
Option One the servicer demonstrates that it did not own the
earlier debt; all that was assigned was the right to collect payments. See Pltfs' Summ.
Judg. Ex. A, "Notice of Assignment, Sale or Transfer of Servicing
Rights." Though Option One did collect the prepayment penalty, it
did so on behalf of BNC Mortgage and then disbursed that amount
to BNC. See Esparza Affid. ¶ 7.
The Sagans argue that the appraisal and title insurance charges
charged by Option One were not reasonable and thus are included
in the calculation of "points and fees." See
12 C.F.R. § 226.32(b)(1) & 226.4(c)(7). Their argument, however, is largely
predicated on the contention the Court has just rejected, namely
the claim that Option One was the assignee of the prior loan. The
Sagans say that because the property had just been appraised and
title insurance had been obtained less than a year earlier in
connection with the BNC Mortgage loan, it was unreasonable for
Option One to reappraise the property and obtain new title
insurance in connection with the loan in this case. The Court
likely would reject this argument even were the Sagans correct
that Option One was the assignee of the prior loan as TILA
defines that term. Any number of events could have occurred in
the intervening months that could have imposed encumbrances on
the property or affected its value, and thus it could not have
been unreasonable for Option One to obtain new title insurance
and have the property reappraised. But more importantly, the
Court has already concluded that there is no evidence that Option
One owned the prior loan or that it did anything other than
collect payments as a servicer. Because Option One was making a
loan on the property for the first time, no reasonable fact
finder could determine that it was unreasonable to obtain title
insurance and an appraisal. (The Sagans do not argue that the
particular charges for these items were too high.)
This brings us finally to the disputed $15.00 overnight courier
fee. As indicated earlier, "points and fees" for purposes of the HOEPA eight percent
calculation includes "[a]ll items required to be disclosed under
[12 C.F.R.] § 226.4(a) and 226.4(b)," except for certain items
not relevant in this case. 12 C.F.R. § 226.32(b)(1). Section
226.4(a) and (b) require disclosure of the "finance charge." That
regulation provides that the "finance charge" includes fees
charged by a closing agent under the following circumstances:
(2) Special rule; closing agent charges. Fees
charged by a third party that conducts the loan
closing (such as a settlement agent, attorney, or
escrow or title company) are finance charges only if
(i) Requires the particular services for which the
consumer is charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party charge, to
the extent of the portion retained.
12 C.F.R. § 226.4(a)(2). The parties agree that the issue in this
case is whether the creditor, Option One, "require[d] the
imposition" of the overnight courier charges. If so, the courtier
charges were part of the points and fees for purposes of HOEPA.
The Sagans actually paid three $15.00 overnight courier fees in
connection with the closing of their loan from Option One. Each
of these fees was assessed by Indiana Title Network Company,
located in Crown Point, Indiana, which conducted the loan
closing. See Kvachkoff Affid. ¶¶ 4 & 8. One of the courier fees
was incurred to send Option One the loan package, including the
original closing documents. See id. ¶¶ 7 & 8. The parties agree
that overnight delivery of the loan package was required by
Option One and that this particular $15.00 charge is properly
included in the "points and fees" for HOEPA purposes. See also
id. ¶ 7.
The Sagans contend that a second $15.00 charge, incurred to
send the payoff check from the loan proceeds by overnight delivery to Option One, was also
required by Option One and thus must be included in the HOEPA
points and fees. But in responding to Option One's summary
judgment motion, the Sagans admitted each of the following
12. Option One only required overnight delivery of
the closed loan package. Hurley Aff. ¶¶ 9, 16;
Kvachkoff Aff. ¶ 7.
13. Option One did not require the other two
deliveries for which overnight courier fees were
charged by Indiana Title. Hurley Aff. ¶¶ 10, 16;
Kvachkoff Aff. ¶ 7.
14. The closing instructions by Option One to Indiana
Title state that the "closed loan package [is] to be
returned to lender 24 hours after signing documents."
15. There are no instructions pertaining to the other
two deliveries for which overnight fees were assessed
by Indiana Title. Hurley Aff. ¶¶ 9-10; Exhibit G.
16. Indiana Title chose on its own accord, based on
its own practices and procedures, to make the other
two deliveries by overnight courier and to assess a
fee for these deliveries. Hurley Aff. ¶¶ 10-12;
Kvachkoff Aff. ¶¶ 7-9.
17. The closing instructions for the Mortgage Loan
were presented to and signed by Plaintiffs as the
June 6, 2000 closing. Hurley Aff. ¶ 5; Kvachkoff Aff.
¶ 5; Exhibit G; Plaintiffs' Responses to Request to
Admit ¶ 7.
18. Option One did not receive any portion of the
courier fees imposed by Indiana Title in connection
with the Mortgage Loan. Hurley Aff. ¶ 13; Kvachkoff
Aff. ¶ 8; Exhibit F.
See Dfdts' Jt. 56.1(a)(3) Statement of Facts ¶¶ 12;18; Pltfs'
Resp. to Dfdts' Jt. Statement of Facts ¶¶ 12-18 (stating that
each one of the quoted propositions is "undisputed"). The Sagans'
admissions of these facts preclude them from contending that the
second $15.00 fee was required by Option One. And even if they
had not done so, their evidence primarily a draft closing
statement prepared by Option One that included the second courier
fee as a charge that would be assessed is insufficient to create a genuine issue of fact
regarding whether Option One required the fee: the fact that
Option One understood the fee would be charged does not mean that
it asked or insisted that it be charged.
For the reasons stated above, the Court grants defendants'
motion for summary judgment [docket # 28-1] and denies
plaintiffs' motion for summary judgment [docket # 21-1].
Defendants' motion to modify rescission procedures is terminated
as moot [docket # 9-1]. The Clerk is directed to enter judgment
in favor of the defendants.