Opinion
Civil Action No. 02-1973.
August 26, 2004
MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION
I. RECOMMENDATION
For the reasons stated below, it is respectfully recommended that the Defendant Mercantile Mortgage Company's Motion for Summary Judgment (Doc. 44), the Motion for Summary Judgment of Credit Based Asset Servicing and Securitization, LLC (Doc. 48); and [Defendant Renaissance Settlements, LLC's] Motion for Summary Judgment (Doc. 51) be granted in part and denied in part. Specifically, it is recommended that the Defendants' motions be granted as to all of the Plaintiffs' federal statutory claims, and denied with regard to the remaining state law claims. In addition, it is recommended this case be remanded to the Lawrence County Court of Common Pleas for further proceedings.
II. REPORT
BACKGROUND 1. Procedural History
The Plaintiffs, Gladys A. Wingert ("Wingert") and Freida I. Livermore ("Livermore"), commenced this civil action in the Court of Common Pleas in Lawrence County, Pennsylvania, on October 10, 2002. See Def. Mercantile Mortgage Co.'s Notice of Removal (Doc. 1; hereinafter cited as "Def.'s Removal Notice"). Named as Defendants are Lerner Development, Inc. ("Lerner"), a home improvement contractor; Cross Country Mortgage, Inc. ("Cross Country"), a mortgage lending broker; Mercantile Mortgage Company ("Mercantile"), a mortgage lender; Renaissance Settlements, LLC ("Renaissance"), a business engaged in providing "settlement services in closing on mortgage loans"; and Credit Based Asset Servicing and Securitization, LLC ("C-BASS"), an assignee of the mortgage at issue. See Compl. (attached as Ex. A to Def.'s Removal Notice) ¶¶ 3-7.
The Complaint generally alleges — as characterized by plaintiffs' counsel in its subsequent briefing — that the Defendants "singly and in combination" engaged in a "predatory lending" scheme in violation of "various state and federal laws . . . along with common law theories of liability." See Br. in Opp. to Mercantile Mortgage's Mot. for Summ. J. (Doc. 57; hereinafter cited as "Pls.' Mercantile Br.") at 1.
The Complaint specifically alleges the following federal causes of action against the various Defendants:
(1) Claims against Mercantile, C-BASS, Cross Country, and Renaissance under the Federal Truth in Lending Act, 15 U.S.C. Section 1601 et seq., as amended by the Home Ownership Act and Equity Protection Act of 1994 ("HOEPA/TILA"), 15 U.S.C. Sections 1639 and 1640, based on, among other things, their purported failure to make certain credit term disclosures prior the consummation of the loan transaction. See Count II. The Plaintiffs seek rescission of under 15 U.S.C. Section 1635 and civil damages under 15 U.S.C. Section 1640. See id. "Wherefore Clause";
(2) Claims against the same Defendants under the Real Estate and Settlement Procedures Act ("RESPA"), 12 U.S.C. Section 2601, et seq., based on the Defendants alleged failure to issue a good faith estimate of settlement costs prior to closing as well as their alleged imposition of duplicative and excessive costs related thereto. See Count IV. The Plaintiffs seek joint and several damages against these Defendants. See id. "Wherefore Clause"; and
(3) Claims against Mercantile, C-BASS, and Cross Country under the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. Section 1691, et seq., based on the Defendants alleged failure to notify the Plaintiff of action taken on her loan application within the required time. See Count V. The Plaintiffs seek damages and recission. See id. "Wherefore Clause."
The Plaintiff brings the following causes of action based on the state law of Pennsylvania:
(1) Claims against all the Defendants under the Pennsylvania Unfair Trade Practices Act, 73 P.S. Section 201-1, et seq., based on the Defendants alleged "unfair and deceptive acts and practices" which purportedly created" a likelihood of confusion [and/]or misunderstanding." See Count VI. The Plaintiffs seek joint and several damages under the statute. See id. "Wherefore Clause";
(2) Claims against Cross Country under the Pennsylvania Mortgage Bankers and Brokers Act 63 P.S. Section 456.01, et seq. and/or the Credit Services Act, 73 P.S. Section 2181, et seq., seeking damages or a refund of the amount paid to Cross Country by the Plaintiffs. See Count VIII; id. "Wherefore Clause";
(3) Breach of contract and negligence claims against Lerner based on alleged deficiencies in the construction/remodeling of the Plaintiffs' bathroom pursuant to an alleged contract between the Lerner and the Plaintiffs. See Count I. These claims are also brought against C-BASS to the extent that it "is a holder of contract as [an] assignee." See id. The Plaintiffs seek damages, return of the consideration under the agreement, and rescission of the mortgage loan. See id. "Wherefore Clause";
(4) Breach of fiduciary duty claims against Cross Country based on its alleged misconduct in obtaining a loan for the Plaintiffs that was "not consistent with the Plaintiffs' ability to pay." See Count III. The Plaintiffs seek damages. See id. "Wherefore Clause"; and
(5) Conspiracy claims against all the Defendants, alleging that the Defendants "act[ed] in concert" to "create a predatory lending situation." See Count VII. This count seeks rescission and damages. See id. "Wherefore Clause"
On November 14, 2002, the Defendants removed this action to the United States District Court for the Western District of Pennsylvania. See Def.'s Removal Notice. The Plaintiff's subsequent efforts to remand the case to state court were denied. See Memorandum Order (Doc. 19) (denying the Plaintiff's Motion to Remand).
Defendants Lerner and Cross Country have not responded to the Plaintiffs' action, nor has counsel entered an appearance on their behalf. Accordingly, on April 23, 2004, the District Court entered default judgments against those parties. See Order (Doc. 68; hereinafter cited as "Judgment Order").
Now before the court are three motions for summary judgment filed by the remaining Defendants — i.e., Mercantile, C-BASS, and Renaissance. See Def. Mercantile Mortgage Co.'s Mot. for Summ. J (Doc. 44); Mot. for Summ. J. of Credit Based Asset Servicing and Securitization, LLC (Doc. 48); [Renaissance's] Mot. for Summ. J. (Doc. 51). The briefing has come to a close, and the Defendants' motions are now ripe for adjudication.
2. Facts
Wingert is a forty nine year old woman, who resides at 617 Madison Avenue, New Castle, Pennsylvania. See Dep. of Gladys A. Wingert (attached as Ex. F to App. to Def. Mercantile Mortgage Co.'s Mot. for Summ. J., Concise Statement of Material Facts, and Mem. in Supp. (Doc. 47); hereinafter cited as "Wingert Dep.") at 5-6. Livermore is the Wingert's mother, an eighty eight year old, who resides at 613 Madison Avenue, New Castle, Pennsylvania. See id. at 6.
Document 47 will hereinafter be referred to as "Mercantile's Exs." in the analysis that follows.
On February 21, 2001, a representative of Lerner came to Wingert's residence soliciting home improvement work. See id. at 12, 14. The Plaintiff indicated that repairs were needed in her bathroom. See Compl. ¶ 10. On the same day, Lerner produced a Home Improvement Contract, which both Wingert and Livermore signed. See Wingert Dep. at 14-15; see also Dep. Ex. 1 (attached as Ex. 1 to Mercantile's Exs.; hereinafter cited as "Dep. 1") at 44 (copy of the Home Improvement Contract; hereinafter cited as "HIC"). According to the contract, the cost of the construction was estimated at $22,500. See Wingert Dep. at 15. In addition to performing the work, Lerner agreed to obtain the proper financing to fund the improvements, as well as refinance a prior mortgage estimated to be in the amount of $10,000. See Wingert Dep. at 15; see also HIC.
Wingert's deposition testimony indicates that she co-owns her residence with her mother. See Wingert Dep. at 16.
In order to obtain financing, Lerner filled out a credit application on the Plaintiffs' behalf. See generally Wingert Dep. at 17-26; see also Dep. 1 at 45-46 (copy of Credit Application for Property Improvement Loan; hereinafter "Credit App'n."). The application lists the monthly salaries of Wingert and one of her sons, totaling $1700. See Credit App'n. The application approximates the value of the home at $65,000, and notes a mortgage balance of $10,000. See id. The application also identifies $25,200 of other debts, relating to car payments and a credit card. See id.; Wingert Dep. at 21. After being given an opportunity to review the document, the Plaintiffs both signed it. See Wingert Dep. at 23; see also Credit App'n.
This amount is considerably less than the amount Wingert later represented that she was able to pay at the time of the application. That is, according to her deposition testimony, Wingert understood that her credit would be assessed based on the salaries of four people, as opposed to two: herself, her mother, and her two sons. See Wingert Dep. at 19. Based on Wingert's estimates, the aggregate monthly salary between the four of them would have amounted to $2915. See id. at 19-21.
Wingert does not recall discussing this figure with Lerner. See Wingert Dep. at 22 ("I don't know where he got that $65,000 from."). In addition, the parties dispute whether this was a reasonable estimate of the property's value. More specifically, the Plaintiffs maintain the property was assessed at $22,000 in September of 1999. See Wingert Dep. at 59.
The Plaintiff's application was subsequently forwarded to Cross Country, a mortgage broker retained by Lerner to secure financing for the Plaintiffs. See Pls.' Mercantile Br. at 1. On February 22, 2001, Cross Country issued a Uniform Residential Loan Application ("URLA"). See Dep. Ex. 2 (attached as Ex. 2. to Mercantile's Exs.; hereinafter cited as "Dep. 2") at 87-89 (copy of the Uniform Loan Application; hereinafter cited as "URLA"). The URLA recites essentially the same terms with regard to Plaintiffs' credit history, and identifies under "Type of Mortgage and Terms of Loan" a loan in the amount of $45,000, with an interest rate of 10.5% to be paid over 360 months. See URLA at 87.
The record is unclear as to whether the information contained therein was based on the Plaintiffs' former application, or whether a face-to-face interview was conducted. Compare URLA at 89 (box checked stating "face-to-face interview") with Wingert Dep. at 36 (stating that she could not remember meeting with any employees of Cross Country). Nevertheless, the Plaintiff signature appears on the URLA, followed by the date of February 22, 2001.
On the same day, Cross Country also prepared a Truth in Lending Disclosure Statement, which appears to have been signed by Wingert. See Dep. 2 at 152 (copy of Truth in Lending Disclosure Statement). According to this document, the "Amount Financed" was $41,091.72, at a 12.516% interest rate over 360 months. See id. The monthly payments were estimated at $441.34 for the first 359 months, and 454.52 on the final month. See id.
The following day, Cross Country prepared a Good Faith Estimate "GFE" with regard to the Plaintiffs' pending loan application. See Dep. 2 at 149 (copy of Good Faith Estimate; hereinafter "GFE"). The GFE estimates the monthly payments under the loan to be $475.66 based on $52,000 total amount, with a 10.5% interest rate paid over 360 months. See id. The GFE also notes that no "lender has yet been obtained." See id. The Plaintiff admitted in her deposition that she received the GFE at some point before the closing of the loan. See Wingert Dep. at 49. This document was also signed by Wingert, but not dated. See GFE.
What events transpired between February 23, 2001 and the date of closing are unclear from the record. In large part this is due to Wingert's inability to remember what documents she received and when she received them. See, e.g., Wingert Dep. at 65-67. Nevertheless, on April 12, 2001, Mercantile was selected as the lender to finance the Plaintiffs' loan. See Pls.' Mercantile Br. at 2; see also Dep. 2 at 7-8 (Broker — Referral Agreement executed by Cross Country and Mercantile dated April 12, 2001). In addition, at some point during this time, Cross Country notified Wingert that Renaissance would be performing the closing services. See Wingert Dep. at 80.
The closing occurred on April 23, 2001 at Livermore's house. See Wingert Dep. at 87. At this time, Renaissance presented the Plaintiffs with the numerous documents relating to the final terms of the loan as well as various disclosure statements. See, e.g., Wingert Dep. at 93 (stating "[Renaissance] just showed up with the whole stack of documents, and [I] signed one right after the other, so I didn't have time to read them").
Most notably, Renaissance presented for the first time a Balloon Note with an Addendum to Note (referred to collectively as "the Balloon Note"), which represented the final terms of the loan. See Wingert Dep. at 84; see also Dep. 2 at 26-29 (copy of the Balloon Note with Addendum to Note; hereinafter cited as "BN"). Under the terms of the Balloon Note, the Plaintiffs would be obligated to make periodic payments of $437.07 for fifteen years, and then on April 27, 2016, the Plaintiffs would have to pay the remainder of the debt in one lump sum. See BN at 26. According to the final Truth-in-Lending Disclosure Statement ("TILA Disclosure") — also presented at closing — the lump payment would amount to $38,364.57. See Dep. 2 at 67-68 (copy of Federal Truth-in-Lending Disclosure Statement; hereinafter cited as "TILA Disclosure"). The total loan amount was listed as $45,000, with a 11.25% interest rate. See BN at 26.
The court notes, however, that these figures are not entirely consistent with the amounts listed in the TILA Disclosure. Compare id. with TILA Disclosure (listing loan amount as $41,835.67 with interest rate of 12.32%).
Renaissance also presented a U.S. Housing and Urban Development Settlement Statement that summarized the terms of the loan and various settlement charges. See Dep. 2 at 64-66 (copy of HUD Statement).
In apparent contradiction, however, the closing documents also included a second Uniform Residential [Loan] Application. See Dep. 2 at 69-71 (copy of the second URLA). The second URLA outlines terms similar to the prior URLA issued by Cross Country — i.e., a 360 month term at 10.85% — and makes no reference to the fifteen year term or the balloon payment. See id.
Despite the inconsistencies between these documents and the former ones, the Plaintiffs nevertheless signed each of them. See documents cited supra.
The court also notes that while the TILA Disclosure notified the Plaintiffs of their three-day right to cancel the transaction, the record is devoid of any evidence suggesting that she took any steps to do so. See TILA Disclosure at 68.
From May 27, 2001 through August 27, 2001, Wingert proceeded to make payments under the Balloon Note. See Wingert Dep. at 99. During this time, Mercantile assigned the Plaintiff's mortgage to C-BASS. See generally Dep. 1 at 65-86 (copy of Complaint in Mortgage Foreclosure; hereinafter cited as "Foreclosure Compl."). In August, 2001, however, the Plaintiff quit her job due to "personal issues between [her]self and the boss" and was no longer able to make payments on the loan. See Wingert Dep. at 100. She did not make the September 27, 2001 payment, nor did she make payments on any of the subsequent installments. See Foreclosure Compl. at 66.
Accordingly, C-BASS commenced a foreclosure action against property on August 23, 2002. See generally Foreclosure Compl. The Plaintiffs subsequently sought the legal advice, and on September 9, 2002, plaintiffs' counsel sent the Defendants a letter requesting rescission. See Dep. 1 at 95-97 (copy of letter from Frank J. Piatek to Defendants dated September 9, 2002).
ANALYSIS 1. The Plaintiffs' Federal Causes of Action
The court recognizes that the Defendants have each filed independent motions for summary judgment; nevertheless, the motions present overlapping issues that may be resolved collectively. In order to bring order to this litigation, the court will address each of the Plaintiffs' federal causes of action in turn.
A. The Plaintiffs' HOEPA/TILA Claims: Count II.
The court recognizes that the Defendants have raised the issue of the statute of limitations with regard to the Plaintiffs' HOEPA/TILA claims as well as their RESPA claims. See, e.g., Br. in Supp. of Mot. for Summ. J. for Credit Based Asset Servicing and Securitization, LLC (Doc. 49; hereinafter cited as "C-BASS' Br.") at 4-5. Nevertheless, as the undersigned concludes that these claims fail on the merits, it will not address these arguments in the analysis that follows. Cf. Solar v. Millenium Fin., Inc., 2002 WL 1019047, *2 (E.D. Pa. May 17, 2002) (noting that the statute of limitations under both statutes is "equitable" rather than "jurisdiction" in nature).
The Defendants' primary argument with regard to these claims is that HOEPA/TILA does not apply to the loan transaction at issue because it is not a "high-rate" loan as defined by the statute and relevant regulations; accordingly, the Plaintiffs' claims under HOEPA/TILA must be dismissed. See generally Def. Mercantile Mortgage Co.'s Mem. in Supp. of Mot. for Summ. J. (Doc 45; hereinafter cited as "Mercantile's Br.") at 3-6; C-BASS' Br. at 8. The court agrees.
HOEPA/TILA defines the loans that are subject to its provisions as consumer credit transactions secured by the consumer's principal dwelling, in which "the total points and fees payable by the consumer at or before closing will exceed the greater of — (i) 8 percent of the total loan amount; or (ii) $400." See 15 U.S.C. § 1602(aa)(1)(B); see also Regulation Z, 12 C.F.R. Part 226, Supp. I, § 226.32(a)(1)(ii) (defining the "coverage" of HOEPA/TILA in the same terms).
To be sure, the statute also provides an alternative means of establishing that a loan is "high-rate" — i.e., where "the annual percentage rate at consummation of the transaction will exceed by more than ten percentage points the yield of Treasury securities having comparable periods of maturity on the fifteen day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor[.]" See 15 U.S.C. § 1602(aa)(1)(A). The Plaintiffs, however, have failed to establish that this section applies. Even if the court were to accept the receiving date set forth by the Plaintiffs — April 12, 2001 — the relevant comparable Treasury rate on March 15, 2001 was 4.81%. See http://www.federalreserve. gov/releases/h15/data/b/tcm10y.txt.; see also Official Staff Commentary to Regulation Z, 12 C.F.R. Part 226, Supp. I, § 226.32(a)(1)(i) (noting that to calculate the comparable rate of a fifteen year note, the lower of the 10-year and 20-year yield rates is selected). The rate identified in the TILA Disclosure of 12.32% does not exceed 4.81% by ten percentage points. See TILA Disclosure at 67. Nor does the rate identified in the Balloon Note — 11.25% — exceed this figure by ten points. See BN at 26.
The Defendants argue that the "total points and fees" payable by the Plaintiffs in this instance amount to $3,266.83. See Mercantile Br. at 5. Based on their calculations, this amounts to only 7.26% of the total loan amount of $45,000. See id. Thus, the 8% threshold has not been met. See id.
The Plaintiffs' only meaningful challenge to the Defendants' points and fees calculation is that it improperly excludes a $450 "Yield Spread" paid to Cross Country outside of closing. See Pls.' Mercantile Br. at 7-9. According to the Plaintiffs, the "points and fees" calculation must include "[a]ll compensation paid to mortgage brokers . . . even if the fee is payable directly [or] indirectly. . . ." See id. at 9 (citations and internal quotations omitted). The Plaintiffs maintain that the yield spread was paid indirectly as part of the interest rate for the Balloon Loan. See id. This argument, however, lacks merit.
A yield spread premium has been defined as a "a bonus paid to a broker when it originates a loan at an interest rate higher than the minimum interest rate approved by the lender for a particular loan." See In re Bell, 309 B.R. 139, 153 n. 9 (Bankr. E.D. Pa. 2004). Moreover, "[t]he lender then rewards the broker by paying it a percentage of the `yield spread' ( i.e., the difference between the interest rate specified by the lender and the actual interest rate set by the broker at the time of origination) multiplied by the amount of the loan." See id. (citation omitted).
The court recognizes that the Plaintiffs also dispute the total loan amount referenced by the Defendants. See id. However, even if the lower figure identified in the TILA Disclosure was used — that is, $41,835.67 — the percentage would only amount to 7.8%, still falling below the 8% required under the statute.
Even if the court were to assume the Plaintiffs are correct in stating that the yield spread was an indirect finance charge paid by the Plaintiffs, the argument ignores the plain language of the statute, which expressly provides for the inclusion of "fees payable by the consumer at or before closing[.]" See 15 U.S.C. § 1602(aa)(1)(B) (emphasis added); Regulation Z, 12 C.F.R. Part 226, Supp. I, § 226.32(a)(1)(ii) (emphasis added). That is, even if the Plaintiffs paid the yield spread through a higher interest rate, it would not be paid at or before closing. Rather, it would be paid over the course of the loan.
The Plaintiffs have not properly referenced any evidence in the record to support this theory. Moreover, "Parag. 19 and 20 of Mercantile's Answers to Interogatories" — identified in the Plaintiffs' Br. to support this contention — do not address the yield spreads. See Def. Mercantile Mortgage Co.' Answers to Pls.' First Set Interrogs. (attached as Ex. to Pls.' Exs. to their Concise Statement of Material Facts to Mercantile Mortgage Co.'s Mot. for Summary Judgment (Doc. 63)) ¶¶ 19, 20. Conversely, while paragraphs 13 and 14 relate to the issue of yield spreads, they do not indicate that the yield spread at issue in this case had any bearing on the interest rate of the loan. See id. ¶¶ 13,14.
Accordingly, the court concludes that the Defendants did not err by failing to include the cost of the yield spread in its points and fees calculation. Indeed, this conclusion is consistent with the majority — if not the entirety — of the decisions addressing this issue. See, e.g., In re Bell, 309 B.R. 139 153 (holding under similar circumstances that "even if the yield spread premium in this case [wa]s part of the finance charge, it was clearly not paid by the [consumer] at or before closing . . . [t]herefore, the yield spread premium is not included in the points and fees calculation"); In re Mourer, 309 B.R. 502, 505 (W.D. Mich. 2004) (holding that because yield spread premium at issue was payable over the course of the loan — to the extent that it was payable by the consumer at all — that "[i]t necessarily follow[ed] the [yield spread premium] [wa]s not properly included in the calculation of the 8% trigger"); Noel v. Fleet Fin., Inc., 971 F.Supp. 1102, 1110-1112 (E.D. Mich. 1997) (holding that although a yield spread premium was a finance charge under TILA, it was not a prepaid finance charge paid by the borrowers at or before the consummation of the transaction; rather, it was paid indirectly by the borrower over the course of the loan in the form of a higher interest rate).
As the Plaintiffs have failed to establish that the loan at issue here is subject to the provisions of HOEPA/TILA, it follows that the Plaintiffs' claims under the statute should be dismissed. It is therefore recommended that the Defendants' motions be granted to the extent that they seek dismissal of the Plaintiffs' claims under HOEPA/TILA in Count I of the Complaint
2. The Plaintiff's RESPA Claims: Count IV
The Plaintiffs' claims under RESPA are premised on three theories: first, that the Defendants failed to provide a good faith estimate as required under 12 U.S.C. Section 2604 ("Section 2604"); second, that the yield spread premium paid to Cross Country constituted an illegal kickback in violation of 12 U.S.C. Section 2607 ("Section 2607"); and third, that the Defendant assessed duplicate and/or excessive fees with regard to the loan in violation of 12 U.S.C. Section 2607 and/or Section 1210. See Pls.' Mercantile Br. at 13-19; see also Count IV. Having carefully reviewed the record and relevant law, the court concludes that each of these theories fails.
As to the Defendants' alleged failure to provide a good faith estimate, the case law makes clear that RESPA does not provide a private right of action to remedy such violations. See Brophy v. Chase Manhattan Mortgage Co., 947 F.Supp. 879, 881-83 (E.D. Pa. 1996) (holding, after a thorough review of its legislative history, that Section 2604 did not provide private right of action to remedy the defendants' alleged failure to provide plaintiffs with a good faith estimate of the charges associated with the settlement of their mortgage); see also e.g., Collins v. FMHA-USDA, 105 F.3d 1366, 1368 (11th Cir. 1997) (affirming dismissal of RESPA claims based alleged failure to issue a good faith estimate of settlement charges, "because there [wa]s no private civil action for a violation of [Section 2604], or any regulations relating to it"). If there is any authority to the contrary, the Plaintiffs have failed to cite it.
Turning to the Plaintiffs' second theory, Section 2607, stated generally, "prohibits the giving or receiving of fees for referral [— e.g., kickbacks —] as part of a real estate settlement service." See Schuetz v. Banc One Mortgage Corp., 292 F.3d 1004, 1005-06 (9th Cir. 2002) (citing 12 U.S.C. §§ 2607(a) (c)(2)). Nevertheless, it "permits fees that are paid for facilities actually furnished or services actually performed in the making of a loan." See id. (citations omitted). The legal issue before the court, therefore, is whether the yield spread premium paid by Mercantile to Cross Country constituted an illegal referral fee as defined by RESPA, or conversely, whether it was related to actual goods and services provided by Cross Country.
In determining whether a payment from a lender to a mortgage broker is permissible under Section 2607, courts follow a two-prong test. See e.g., In re Apgar, 291 B.R. 665, 678-79 (E.D. Pa. Bankr. 2003); see also, e.g., Scheutz, 292 F.3d at 1014; Glover v. Standard Federal Bank, 283 F.3d 953, 966 (8th Cir. 2002); Schmitz v. Aegis Mortgage Corp., 48 F.Supp.2d 877, 880-81 (D. Minn. 1999). The court must first determine whether "the goods or facilities were actually furnished or services were actually performed for the compensation paid." See In re Apgar, 291 B.R. at 678 (citation omitted). If this element is shown, the court turns to whether "the payments are reasonably related to the value of the goods or facilities that were actually furnished or services that were actually performed." See id. (citation omitted).
In applying this test, "yield spread premiums are not per se legal or illegal[.]" See id. at 279 (citation omitted). Rather, the court must undergo a case-by-case, "functional reasonableness analysis" that contemplates the total compensation paid to the broker in relation to the goods and services provided by the mortgage broker. See Schmitz, 48 F.Supp.2d at 882 (citation omitted); see also In re Apgar, 291 B.R. at 679 ("In sum, the pivotal question is whether a mortgage broker's total compensation [including the fees paid by the borrower paired with the yield spread premium] is . . . reasonably related to the total value of goods or facilities provided or services performed.") (citation omitted).
As to the first prong of the analysis, there is no meaningful dispute that Cross Country provided compensable goods, facilities, and services with regard to the Plaintiffs' loan. By Wingert's own admission, Cross Country: gathered credit information from Wingert to assist potential lenders and filled out a credit application — e.g., the URLA, see Wingert Dep. at 33-34, 79-80; processed the loan application and issued a good faith estimate, see id. at 40-42, 49; counseled Wingert as to the terms of the loan and the loan process, see id. 43-45, 69-70, 146; initiated and ordered an appraisal of the Plaintiffs' property and consulted with Wingert following the appraisal to address her concerns regarding it, see id. at 56-60, 79; prepared and distributed necessary legal disclosures, see id. at 79-80; and contacted Wingert to notify her of details regarding closing, see id. at 80. These actions are consistent with the type of goods and services contemplated under the law. See Schmitz, 48 F.Supp.2d at 882-83.
"Valid loan origination services" include:
(a) Taking information from the borrower and filling out the application;
(b) Analyzing the prospective borrower's income and debt and pre-qualifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford;
(c) Educating the prospective borrower in the home buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product;
(d) Collecting financial information (tax returns, bank statements) and other related documents that are part of the application process;
(e) Initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit);
(f) Initiating/ordering requests for mortgage and other loan verifications;
(g) Initiating/ordering appraisals;
(h) Initiating/ordering inspections or engineering reports;
(i) Providing disclosures (truth in lending, good faith estimate, others) to the borrower;
(j) Assisting the borrower in understanding and clearing credit problems;
(k) Maintaining regular contact with the borrower, realtors, lender, between the application and closing to appraise them of the status of the application and closing to appraise them of the status of the application and gather any additional information as needed;
(l) Ordering legal documents;
(m) Determining whether the property was located in a flood zone or ordering such a service;
(n) Participating in the loan closing.
See id. at 882-83. Goods and facilities include "appraisals, credit reports, and other documents required for a complete loan file, and compensable facilities, such as a reasonable portion of the broker's retail or store-front operation." See id. at 883 (citation and internal quotations omitted).
Nor have the Plaintiffs raised a genuine issue of material fact as to whether the compensation received by Cross Country in connection with its work was reasonable. In assessing the reasonableness of a broker's compensation, a court considers the "fees paid in relation to price structures and practices in similar transactions and in similar markets." See Schmitz, 48 F.Supp.2d at 883 (citation and internal quotations omitted). The Defendants had provided this type of evidence in the form of an affidavit by George Hanzimanolis ("Hanzimanolis"), an purported expert in the field. See generally Aff. of George Hanzimanolis (attached as Ex. B to Mercantile's Exs.). Hanzimanolis, having reviewed the documents and testimony in this case, concluded that the "$450 yield spread paid to Cross Country Mortgage was entirely reasonable within the industry." See id. ¶ 10. Moreover, he states "[t]he yield spread bears a reasonable relationship to the value of the goods and services provided by Cross Country as the mortgage broker on this transations." See id. ¶ 11. That is, "[i]n order to collect the [total] fee that Cross Country [should be] entitled to in this transaction, the yield spread was used to reduce the `upfront' points that the borrower would otherwise need to pay Cross Country." See id. The Plaintiffs have offered no evidence to rebut or otherwise challenge Hanzimanolis' assessment that the yield spread premium and total compensation received in connection with the loan at issue were reasonable.
As the Plaintiffs' have failed to create a genuine issue of material fact with regard to either Cross Country's having actually provided goods and service or the reasonableness of the compensation for those services, summary judgment should be granted in favor of the Defendants. Accord, e.g., Schuetz, 292 F.3d at 1014 (holding that yield spread premiums did not violate Section 2607 where the plaintiff failed to rebut evidence that the defendant mortgage broker performed "compensable goods, facilities, and services" and that the total fees were "reasonably related" to the value that the mortgage broker contributed to the transaction); Schmitz, 48 F.Supp.2d at 882-84 (granting summary judgment in favor of defendants where plaintiff failed to raise genuine issue of fact with regard to defendants "actual provision of valuable services or . . . the reasonable compensation for those services").
What remains, therefore, is the Plaintiff's third theory — that the Defendants assessed excessive and/or duplicative fees with regard to the Plaintiff's loan. The Plaintiffs have failed to provide any evidentiary support for this theory; accordingly, summary judgment should also be granted in favor of the Defendants as to this claim. See Zezulewicz v. Port Auth. of Allegheny County, 290 F.Supp.2d 583, *590 (W.D.Pa.,2003) ("[A] party opposing summary judgment must do more than simply show that there is some metaphysical doubt as to the material facts[;]" rather, "the non-moving party must go beyond the pleadings and show, through its own affidavits or by the depositions, answers to interrogatories and admissions on file, the specific facts showing that there is a genuine issue for trial") (citations and internal quotations omitted).
In sum, as the Plaintiffs' have failed to state a claim under any of their theories, it is recommended that District Court grant the Defendants' motions for summary judgment with regard to the Plaintiff's claims under the RESPA.
3. The Plaintiff ECOA Claims: Count V.
The Plaintiffs claim that the Defendants failed to comply with the notice requirements of the ECOA, which require a creditor to provide written notification of any "adverse action" taken on a completed credit application. See Pls.' Mercantile Br. at 20. According to the Plaintiffs, an "adverse action" may include "a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the same terms requested." See id. (citing 15 U.S.C. Section 1691(d)(6)). Here, they maintain that the difference between the terms of the initial application on February 21, 2001 and Balloon Note presented at closing amounted to an adverse action on their original application.
The court recognizes that the Plaintiffs have attempted to articulate ECOA claims based on age discrimination; however, the Plaintiffs have failed to reference any evidence to support even a prima facie case in this regard. See, e.g., Guisewhite v. Muncy Bank Trust Co., 1996 WL 511525, *4 (M.D. Pa. Mar. 23, 1996) (stating that "[i]n order to establish a prima facie case, [a plaintiff alleging age discrimination under the ECOA] must prove that: (1) he belongs to a protected class, (2) he applied for and was qualified for a loan, (3) despite his qualifications he was rejected, and (4) younger individuals of similar credit stature were given loans or were treated more favorably than [the plaintiff] in the application process") (citation omitted). That is, there is no evidence that the Plaintiffs' were "qualified" for the terms of the originally proposed loan or that others were treated more favorably in the loan process. Compare id. with Pls.' Mercantile Br. at 19-20. Nevertheless, the Plaintiffs correctly point out that a failure to provide notice of an adverse credit decision may be actionable in the absence of allegations of discrimination. See e.g., Williams v. Thomas Pontiac-GMC-Nissan-Hyundai, 1999 WL 787488, *3 (N.D. Ill. Sept. 24, 1999).
Although this argument seems compelling on its face, it overlooks the narrower definition of "adverse action" set forth in both the implementing regulations of the ECOA and the relevant case law. That is, both the regulations and case law have interpreted the term "adverse action" to exclude instances where the "denial of credit [are] coupled with counteroffers that are accepted [by the borrower]." See Regulation B, 12 C.F.R. § 202.2(c)(1)(i); see also, e.g., Ricciardi v. Ameriquest Mortgage Co., 2004 WL 739965, *2 (E.D. Pa. March 15, 2004) (noting "that [the] denial [of credit] coupled with a counteroffer is excluded from the ECOA's written notice requirement, where the applicant accepts the counteroffer) (citation omitted); In re Armstrong, 288 B.R. 404, 421 (Bankr. E.D. Pa. 2003) (stating that "Regulation B refines and narrows the definition of `adverse action' by excluding from the set of such actions denial of credit that are coupled with counteroffers that are accepted") (citations omitted).
The parties do not dispute that the Plaintiffs were presented with a counteroffer on the day of closing — that is, the terms of the Balloon Note — and that the Plaintiffs accepted those terms. See Pl.'s Mercantile Br. at 20 (characterizing the Balloon Note as a "counteroffer"); see also BN at 28 (Balloon Note signed by the Wingert); Wingert Dep. at 87-88 (acknowledging that she signed the document at closing after having been given some explanation of the meaning of the terms of the note).
It follows, therefore, that because there was no adverse action related to the Plaintiffs' credit application, the Plaintiffs' ECOA claims fail. See cases cited supra. Accordingly, the Defendants' motions for summary judgment should be granted with regard to the Plaintiffs' ECOA claims.
2. The Plaintiff's State Law Claims
The court recognizes that the Plaintiffs have alleged five counts based on state law. See discussion supra. Nevertheless, having concluded that summary judgment be granted in favor of the Defendants with regard to all of the federal claims presented in the Complaint, the undersigned recommends that the District Court decline to exercise jurisdiction over these pendant state-law claims and remand the case to Lawrence County Court of Common Pleas.
Under 28 U.S.C. Section 1367(c), a "district court may decline to exercise supplemental jurisdiction over a [state law] claim . . . if . . . the district court has dismissed all claims over which it has original jurisdiction." See 28 U.S.C. § 1367(c). Moreover, absent some compelling circumstances, it is generally proper for the district court to decline to exercise such jurisdiction. See Shaffer v. Albert Gallatin Area Sch. Dist., 730 F.2d 910, 912 (3d Cir. 1984) (holding that "pendant jurisdiction [over state law claims] should be declined where the federal claims are no longer viable, absent `extraordinary circumstances'" (citations omitted); see also, e.g., Hedges v. Musco, 204 F.3d 109, 123 (3d Cir. 2000) ("[W]here the claim over which the district court has original jurisdiction is dismissed before trial, the district court must decline to decide the pendent state claims unless considerations of judicial economy, convenience, and fairness to the parties provide an affirmative justification for doing so.") (emphasis in original; citations omitted). The undersigned is aware of no such circumstances in this case.
Accordingly, it is appropriate to remand this case to the Lawrence County Court of Common Pleas. See, e.g., Pappas v. City of Lebanon, 2004 WL 1857584, *10 (M.D. Pa. Aug. 16, 2004) (remanding case where no federal claims remained pending and noting "district courts' authority to remand removed cases after declining to exercise jurisdiction pursuant to [28 U.S.C.] § 1367(c)") (citing Hudson United Bank v. LiTenda Mortgage Corp., 142 F.3d 151, 157-58 (3d Cir. 1998)). A remand is also consistent with the desires of the Plaintiffs, who originally filed this action in state court. See discussion supra; see also Mi Yi v. Abington Mem'l Hosp., 2004 WL 1170560, *1 n. 2 (E.D. Pa. May 26, 2004) (weighing the fact that the plaintiff initially filed suit in state court in favor of remand).
Notwithstanding the recommendation that the remainder of this case be remanded, the undersigned notes that default judgments have already been entered against Lerner and Cross Country. See discussion supra. With regard to these default judgments, the "issue of the determination of damages" has not been addressed by the court. See Judgment Order. The District Court, therefore, should retain limited jurisdiction to properly resolve these issues.
Pursuant to Federal Rule of Civil Procedure 55(b)(2) ("Rule 55(b)(2)), the undersigned finds that a hearing will be required to determine the amount of damages. See Fed.R.Civ.P. 55(b)(2) (authorizing the court to conduct a hearing if necessary "to determine the amount of damages"). Thus, if the Plaintiffs intend to proceed with the default judgments against Lerner and Cross Country, they are HEREBY ORDERED to file, during the objections period, the appropriate motion(s) for a hearing pursuant to Federal Rule of Civil Procedure 55(b)(2).
If the Plaintiff timely files such a motion, the undersigned will conduct a Rule 55(b)(2) hearing, and thereafter will issue a report and recommendation regarding damages. See, e.g., Woodbury v. Sears, Roebuck Co., 152 F.R.D. 229, 233 (M.D. Fla. 1993) (recognizing validity of same procedures).
If the Plaintiff fails to timely file such a motion, the court will conclude that she does not wish to proceed to judgment against Lerner and Cross Country, and the claims will be dismissed with prejudice.
III. CONCLUSION
For the reasons stated above, it is recommended that the District Court grant in part and deny in part the Defendant Mercantile Mortgage Company's Motion for Summary Judgment (Doc. 44), the Motion for Summary Judgment of Credit Based Asset Servicing and Securitization, LLC (Doc. 48); and [Defendant Renaissance's] Motion for Summary Judgment (Doc. 51). Specifically, it is recommended that the District Court grant the Defendants' motions with regard to all of the Plaintiffs' federal statutory claims, and deny the motions with regard to remaining state law claims. In addition, it is recommended that the District Court remand the remainder of this case to the Lawrence County Court of Common Pleas for further proceedings.
In accordance with the Magistrates Act, 28 U.S.C. § 636(b) (1) (B) and (C), and Rule 72.1.4 (B) of the Local Rules for Magistrates, objections to this Report and Recommendation are due by September 15, 2004. Response to objections are due by September 27, 2004.