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Horton v. Country Mortgage Services

January 4, 2010


The opinion of the court was delivered by: George W. Lindberg Senior U. S. District Court Judge


On November 5, 2008, Charlotte Horton ("plaintiff"), guardian of Anna Richardson ("Richardson"), filed a fourth amended complaint against Country Mortgage Services, Inc. ("CMS"), Fremont Investment & Loan ("Fremont"), Deutsche Bank National Trust Company ("Deutsche Bank"), Mortgage Electronic Registration Systems, Inc. ("MERS"), and Wells Fargo Bank, N.A. ("Wells Fargo"). Plaintiff alleged claims for violation of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. (count I) and rescission of a note and mortgage (count II) against Deutsche Bank, Fremont, MERS, and Wells Fargo, and for violation of the anti-kickback provisions of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. 2607(a), against Fremont and CMS (count III). On April 22, 2009, Ace Securities Corporation ("Ace") and HSBC were substituted in place of Deutsche Bank. Fremont and MERS filed a joint motion for summary judgment on counts I and III; Ace and Wells Fargo filed separate motions for summary judgment on counts I and II; and HSBC joined in Wells Fargo's motion for summary judgment, or alternatively, Ace's motion for summary judgment. For the reasons stated below, Fremont and MERS' joint motion for summary judgment is granted in part and denied in part; Ace's motion for summary judgment is granted in part and denied in part; Wells Fargo's motion for summary judgment is granted in part and denied in part; and HSBC's motion for summary judgment is denied.

The parties filed statements of fact and responses pursuant to this court's Local Rule 56.1. See U.S. Dist. Ct., N.D. Ill., L.R. 56.1. Rule 56.1 requires a moving party to provide "a statement of material facts as to which the moving party contends there is no genuine issue and that entitles the moving party to a judgment as a matter of law." U.S. Dist. Ct., N.D. Ill., L.R. 56.1(a)(3).

The opposing party is required to file "a response to each numbered paragraph in the moving party's statement, including, in the case of any disagreement, specific references to the affidavits, parts of the record, and other supporting materials relied upon." U.S. Dist. Ct., N.D. Ill., L.R. 56.1(b)(3)(B). When the responding party's statement fails to dispute the facts set forth in the moving party's statement in the manner dictated by the rule, those facts are deemed admitted for purposes of the motion. Cracco v. Vitran Express, Inc., 559 F.3d 625, 632 (7th Cir. 2009); see U.S. Dist. Ct., N.D. Ill., L.R. 56.1(b)(3)(C).

Fremont made a mortgage loan to Richardson with an initial principal balance of $150,000, secured by Richardson's home. The closing for this transaction took place at Richardson's home on October 24, 2005. Richardson, a CMS loan officer, a closing agent for Absolute Title Services, Inc., Richardson's grandson Bryan Richardson ("Bryan"), and Richardson's daughter Phyllis Richardson were present at the closing. During the closing, the closing agent delivered various loan documents to Richardson. Bryan placed these documents in a drawer where they remained until Bryan turned them over to attorney Ruben Garcia ("Garcia") on January 31, 2006. Garcia, who had been appointed guardian ad litem for Richardson on January 26, 2006, initiated an investigation into the transaction.

CMS, as mortgage broker, procured the loan and performed a number of services for Richardson. CMS charged a yield spread premium of $2,250 and a loan origination fee of $2,580 for its services. Additionally, CMS was paid $530.50 for other goods and services. CMS' fees were disclosed to Richardson. On March 13, 2006, plaintiff was appointed guardian over Richardson's estate. Plaintiff brings this action as Richardson's court-appointed guardian.

Under Federal Rule of Civil Procedure 56(c), a movant is entitled to summary judgment when the pleadings, depositions, answers to interrogatories, and admissions on file, together with any admissible affidavits, demonstrate there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When considering a motion for summary judgment, this court must construe all facts and make all reasonable inferences in the light most favorable to the non-moving party. Id. at 255.

In count I, plaintiff alleges that the creditor failed to deliver two copies of a notice of right to cancel ("notice to cancel") and one copy of a Federal Truth in Lending Disclosure Statement ("disclosure statement") in violation of TILA. Plaintiff contends that failure to deliver these documents extends her right to rescind the loan transaction. Plaintiff requests rescission of the loan, statutory damages, attorney's fees and costs, and removal of all adverse credit information relating to the loan.

Congress enacted TILA "to assure a meaningful 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." 15 U.S.C § 1601(a). The Federal Reserve Board, one of the agencies charged with implementing TILA, has promulgated an implementing regulation, known as Regulation Z, that, among other things, requires creditors to make certain disclosures to consumers. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559-60 (1980); see 12 C.F.R. § 226 et seq.

TILA extends special protections to borrowers, including a right of rescission for any loan transaction in which the borrower uses her principal dwelling as security. See 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23(a)(1). TILA requires a creditor to "deliver two copies of the notice of the right to rescind to each consumer entitled to rescind." 12 C.F.R. § 226.23(b)(1). The notice of the right to cancel "shall be on a separate document that identifies the transaction and shall clearly and conspicuously disclose . . . [t]he consumer's right to rescind the transaction." 12 C.F.R. § 226.23(b)(1). TILA further requires creditors to provide certain loan information in a TILA disclosure statement. 15 U.S.C. § 1638(a); 12 C.F.R. § 226.18. If the creditor makes proper disclosures, the consumer's rescission period ends at "midnight of the third business day following consummation [of the loan], delivery of the notice [of the right to rescind], or delivery of all material disclosures, whichever occurs last." 12 C.F.R. § 226.23(a)(3). If the creditor fails to deliver the required material disclosures, "the right to rescind shall expire 3 years after consummation [of the loan], upon transfer of all of the consumer's interest in the property, or upon sale of the property, whichever occurs first." 12 C.F.R. § 226.23(a)(3). In addition, failure to provide the required TILA disclosures may be the basis for an award of statutory damages and attorneys' fees. 15 U.S.C. § 1640(a). The right to rescind a loan made by a creditor applies equally to any assignees of that creditor. 15 U.S.C. § 1641(c).

MERS moves for summary judgment on count I, arguing that plaintiff failed to provide any evidence that MERS is a creditor or assignee. Only creditors and assignees can be liable under TILA. See 15 U.S.C. §§ 1640, 1641(a). Plaintiff alleged in her complaint that "MERS, as the nominee of Fremont or its assigns, is the holder of the Mortgage that is the subject of the present action." Nowhere does plaintiff provide evidence that MERS is or was the creditor or assignee of the loan, even though she is required to do so to survive MERS' motion for summary judgment. See Celotex Corp., 477 U.S. at 322-23; Matsushita Elec. Indus. Co., Ltd v. Zenith Radio Corp. 475 U.S. 574, 586 (1986). The court therefore grants MERS summary judgment on count I. See Payton v. New Century Mortgage Corp., 2003 WL 22349118, at *5 (N.D. Ill. Oct. 14, 2003); see also Castro v. Executive Trustee Servs., LLC, 2009 WL 438683, at *8 (D. Ariz. Feb. 23, 2009); Hartman v. Deutsche Bank Nat'l Trust Co., 2008 WL 2996515, at *2-3 (E.D. Pa. Aug. 1, 2008).

Wells Fargo moves for summary judgment on count I, arguing that, as a servicer of the loan and not an assignee, it cannot be held liable under TILA. Under TILA, a "servicer" is "the person responsible for servicing of a loan (including the person who makes or holds a loan if such person also services the loan)." 12 U.S.C. § 2605(i)(2). The term "servicing" means "receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan . . . and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan."

12 U.S.C. § 2605(i)(3). TILA expressly disclaims any liability for mere servicers "unless the servicer is or was the owner of the obligation." 15 U.S.C. § 1641(f)(1). Moreover, a servicer is not to be treated as an assignee for purposes of liability under TILA "on the basis of an assignment of [an] obligation from the creditor or another assignee to the servicer solely for the administrative convenience of the servicer in servicing the obligation." 15 U.S.C. § 1641(f)(2). Plaintiff admits that Wells Fargo merely acts as the current servicer of the loan. Since Wells Fargo merely services the loan, it cannot be held liable under TILA. See Payton, 2003 WL 22349118, at *5. The court therefore grants Wells Fargo summary judgment on count I.

Fremont and Ace move for summary judgment on count I, arguing that Richardson's acknowledgment of receipt of the notice to cancel and disclosure statement creates a rebuttable presumption of delivery that plaintiff has not overcome. The significance of whether the notices were received at closing is that if they were, plaintiff's attempt to rescind more than three ...

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