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United States Bankruptcy Court,
D. Massachusetts.
In re Pearl MAXWELL, Debtor
Pearl MAXWELL, Plaintiff
v.
FAIRBANKS CAPITAL CORPORATION, Defendant
No. 00-14283-JNF, ADV. 00-1568.
July 16, 2002.
Tara Twomey, Debtor, Jamaica Plain.
Shiva Karimi, Fairbanks Capital Corp.,
Boston.
ORDER
FEENEY,
Bankruptcy J.
*1 In accordance with the Memorandum
dated July 16, 2002, the Court hereby grants the Motion of Pearl Maxwell for
Partial Summary Judgment with respect to Counts A, C, D and H of her nine count
Complaint, overrules the Opposition of the Defendant, Fairbanks Capital
Corporation and denies the Cross-Motion for Summary Judgment of Fairbanks
Capital Corporation. The Court shall schedule a trial on the remaining counts
of the Debtor's Complaint, as well as a further hearing on damages.
MEMORANDUM
I. INTRODUCTION
The matters before the Court are the Motion
for Partial Summary Judgment filed by the Plaintiff, Pearl Maxwell
("Maxwell" or the "Debtor"); and the Opposition to Debtor's
Motion for Partial Summary Judgment and Cross-Motion for Summary Judgment filed
by the Defendant, Fairbanks Capital Corporation ("Fairbanks"). The
Court heard the Motion for Partial Summary Judgment and the Opposition and
Cross-Motion on May 9, 2002 and took the matters under advisement. The Court
now makes its findings of fact and conclusions of law in accordance with Fed. R. Bankr.P. 7052.
The Debtor filed an adversary complaint
against Fairbanks on November 29, 2000. The Debtor formulated nine counts in
her Complaint as follows: Count A: Violation of the Fair Debt Collection
Practices Act, 15 U.S.C. §
§ 1692- 1692o(West
1998)("FDCPA"); Count B: Violation of the Truth in Lending Act, 15 U.S.C. § § 1601-1667e (West 1998)("TILA"); Count C: Violation of the
Real Estate Settlement Procedures Act, 12 U.S.C. § § 2601-2617 West 2002) ("RESPA"); Count D: Violation of
the Massachusetts Consumer Credit Cost Disclosure Act, Mass. Gen. Laws Ann. Ch. 140D, § § 1-34 (West 1991
& Supp.2001)("MCCCDA");
Count E: Violation of Mass
Gen. Laws Ch. 183, § 60 (West 1991
& Supp.2001); Count
F: Violation of Mass. Gen.
Laws Ch. 183, § 63 (West 1991 &
Supp.2001); Count G:
Violation of the Massachusetts Consumer Protection Act, Mass. Gen. Laws Ann. Ch. 93A, § § 1-11 (West 1997) ("Chapter 93A");
Count H: Unconscionability; and Count I: Breach of Contract. In moving for
Partial Summary Judgment, the Debtor sought judgment only with respect to
Counts A, C, D, and H.
Specifically, in her Motion for Partial
Summary Judgment, the Debtor stated that she is entitled to judgment on Count A
as a result of Fairbanks's conduct in "demanding payments due that were in
fact not due at the time of the demand and by attempting to collect monies
which are not expressly authorized by the agreement or law;" that she is
entitled to judgment on Count C because of Fairbanks's conduct in "failing
to respond to two qualified written requests for information;" that she is
entitled to judgment on Count D because she "was not provided a Truth In
Lending Statement or Notice of her Right of Rescission at the time of the loan;"
and that she is entitled to judgment on Count H because "the terms of the
mortgage loan in this circumstance, where the monthly payment nearly equaled
the borrowers [sic] total monthly income and the balloon payment exceeded the
original principal balance, are so unfair and oppressive as to be
unconscionable."
*2 Fairbanks, in its Opposition,
contended that Maxwell is not entitled to partial summary judgment because it
is not subject to the FDCPA, stating it is not a "debt collector,"
or, in the alternative, that "its actions fall within the 'bona-fide
error' exception;" that it is not subject to RESPA because the Debtor did
not make a "qualified written request," and, in the alternative, if
there were a qualified written request, the Debtor failed to show a pattern and
practice of non-compliance with RESPA's provisions; that the Debtor is not
entitled to rescission under MCCCDA because there is evidence that the required
disclosures were made; and, finally, that it is entitled to judgment on Count H
because "none of the Maxwell loans are unconscionable."
The Debtor submitted a Statement of
Undisputed Facts with her Motion for Partial Summary Judgment supported by
references to the record developed in this proceeding. Fairbanks did not submit
a separate Statement with its Cross Motion. The issues presented include
whether Fairbanks has a bona-fide error defense under the FDCPA, and whether
the Debtor is entitled to rescind the agreement pursuant to which she executed
the Note and Mortgage at issue in this proceeding because the payment terms
were unconscionable and because Fairbanks can not produce evidence that Truth
in Lending disclosures were made to the Debtor. For the reasons set forth
below, the Court grants the Debtor's Motion for Summary Judgment, overrules Fairbanks's
Opposition and denies its Cross- Motion for Summary Judgment.
II. PROCEDURAL BACKGROUND
On June 22, 2000, the Debtor filed a Chapter
13 petition. The Debtor previously had filed a Chapter 13 petition on December
7, 1999. Approximately three and one-half months later, on March 24, 2000, the
Court dismissed the Debtor's prior Chapter 13 case because the Debtor, who had
been granted permission to pay the filing fee in installments, failed to pay
the balance of the filing fee. See 11 U.S.C. §
707(a)(2); Fed. R. Bankr.P. 1006(b).
In the Debtor's prior Chapter 13 case, the
Court, on March 1, 2000, granted Fairbanks relief from the automatic stay
because neither the Debtor nor any party in interest filed an objection to the
motion. In the instant case, Fairbanks filed a Motion for Relief from the
Automatic Stay on June 30, 2000. The Debtor timely filed an objection, and the
Court conducted a number of hearings. On November 30, 2000 the Debtor filed an
Assented to Motion to Consolidate Debtor's Complaint and Motion to Lift Stay
Filed by Fairbanks Capital. The Court granted the Motion to Consolidate on
December 5, 2000.
In the instant adversary proceeding,
Fairbanks failed to raise a statute of limitations defense in its Answer. On
December 13, 2001, it filed a Motion to Dismiss with respect to Counts B
through H of the Debtor's Complaint on grounds that those counts are time
barred by applicable statutes of limitation. On December 17, 2001, Fairbanks
also filed a Renewed Motion to Amend Answer together with a Proposed Answer and
a Demand for a Jury Trial in which it again attempted to raise applicable
statutes of limitation as defenses to the Debtor's claims. The Debtorfiled
oppositions to Fairbanks's motions.
*3 At a hearing conducted on January
30, 2002, this Court denied the Renewed Motion to Amend Answer but granted
Fairbanks's Motion to Dismiss in part. The Court dismissed Count B with respect
to the Debtor's TILA claim, citing Beach v. Ocwen Fed. Bank, 523 U.S. 410 (1998). The Court, however, determined that even if applicable statutes
of limitation precluded any affirmative recoveries by the Debtor because of
expired statutes of limitation, her recoupment claims, if any, are preserved by
Mass. Gen. Laws Ch. 260,
§ 36 (West 1992). [FN1] One
day after the January 30, 2002 hearing, the Court ordered the completion of
discovery by March 29, 2002.
III. FACTS
The Debtor is an 83 year old woman with
minimal schooling and limited financial resources. Fairbanks is a corporation
organized and existing under the laws of Utah. According to the individual
designated by Fairbanks to appear for a deposition pursuant to Fed.R.Civ.P. 30(b)(6), Vince Brando ("Brando"), [FN2]
Fairbanks's principal business is servicing residential mortgage loans, and it specializes
in sub- and non-performing loans. Fairbanks buys loans in bulk without checking
to ascertain whether each loan is accompanied by proper documentation.
Fairbanks claims to be the holder of a Note
dated February 12, 1991 given by the Debtor and her granddaughter, Maritza
Ranger ("Ranger"), to Aetna Finance Company d/b/a ITT Financial
Services ("ITT"), in the original principal amount of $149,150.50,
secured by a mortgage on the Debtor's property located at 49 Stockton Street,
Dorchester, Massachusetts. Fairbanks, however, cannot produce the Note and,
from the existing record, discussed below, it is unclear whether it ever
possessed the Note or whether it has lost, misplaced or misfiled the Note.
Brando testified at his deposition that
Fairbanks paid $129,344 for the Debtor's loan. He admitted, however, that
Fairbanks at one point claimed to have paid $175,955 for the Debtor's loan.
Indicating that the correct payment amount was $129,344, Brando added that
Fairbanks paid 86.2 cents on the dollar for the loan. Later in his deposition,
Brando indicated that Fairbanks has no documents in its possession to
substantiate payment of that amount, and Fairbanks cannot identify any account,
fund or other source of monies from which that amount was paid. Moreover,
Fairbanks, through Brando, admitted that it is a debt collector under the
FDCPA. It also represented itself as such in correspondence with the Debtor.
The circumstances surrounding the Debtor's
execution of the Note and Mortgage to ITT are set forth both in the Debtor's
Complaint and in the Statement of Undisputed Facts (the "Statement").
Fairbanks's stated in its Answer that it could neither admit nor deny these
facts. These background facts are undisputed.
In the winter or early spring of 1988,
Maxwell and Ranger were approached by a door-to-door salesman who suggested a
variety of home repairs to the Debtor's home, including replacement of siding
and installation of new windows. The salesman referred Maxwell and Ranger to
ITT to enable them to finance the repairs and to consolidate other outstanding
loans. On April 13, 1988, Maxwell and Ranger consolidated their existing debts,
which included two mortgages, one in the sum of $24,683.87 to Connecticut
National Bank and the other in the sum of $76,596.86 to First American
Services, and funded the home repairs by borrowing $137,611.01 from ITT. The
1988 ITT loan was secured by a first mortgage on the Debtor's Stockton Street
property. The term of the loan was 15 years with an Annual Percentage Rate
("APR") of 16.78%. The monthly payment was $1,908. Additionally, the
prepaid finance charge was $12,384, almost 10% of the amount financed. The
Debtor paid additional fees for recording the mortgage ($102.50), to an
attorney ($700), to "Lenders Service" ($275), and for title insurance
($266.30).
*4 At the loan closing, Vinyl
Distributors was paid $22,602.08 for the repairs to the Debtor's home, although
Ranger, in an affidavit, indicated that the payment to Vinyl Distributors was
made before the work was completed. Moreover, although it had been paid from
the loan proceeds, Vinyl Distributors, according to Ranger, never finished the
repairs.
On February 12, 1991, ITT refinanced the 1988
loan with a second loan in the principal amount of $149,150.50. The Mortgage
executed by Maxwell and Ranger sets forth that amount, as well as a five year
term and a 16% APR. In her Complaint, the Debtor alleged, upon information and
belief, the following: 1) that the second ITT loan required a regular monthly
mortgage payment of approximately $2,005.00; 2) that the second ITT loan was
negatively amortized, "meaning that the monthly payment of $2,005.00 was
insufficient to pay the interest accruing on the account;" 3) that she
would have been required to make a final balloon payment at the end of the term
of the loan in a sum greater than the original amount of the loan; 4) that, at
the time the loan was consummated, ITT did not provide her with the required
TILA and MCCCDA disclosures; 5) that she was not informed that a balloon
payment was required; 6) that, at the time of the second ITT loan, her annual
income was approximately $4,000 and Ranger's annual income was approximately $22,000;
7) that the annual mortgage payments under the loan would almost equal her
income combined with Ranger's income; 8) that in 1993 she and ITT agreed to
reduce the payments under the note to $800.00 per month; 9) that ITT did not
inform her that the reduced payment would result in further negative
amortization and increase the amount of the balloon payment; 10) that ITT
assigned the Note and Mortgage to Transamerica Financial Services
("Transamerica"); 11) that after the loan matured, Transamerica did not
renew or extend the note pursuant to Mass. Gen. Laws Ch. 183, §
60, although it
continued to accept payments in amounts ranging from $200.00 to $3,062.55; and
12) that all payments made by Transamerica were not credited to the Debtor's
account.
In its Answer, in response to the Debtor's
allegations set forth in paragraphs 18-26 of her Complaint, paraphrased above,
Fairbanks indicated that those paragraphs did not refer to it and that it did
not have information regarding the Debtor's allegations. Accordingly, it
answered that it lacked information to admit or deny them.
In her Statement of Undisputed Facts, the
Debtor reiterated the allegations made in her Complaint in more detail. In
support of her factual assertions, she relied on Ranger's affidavit,
Fairbanks's admissions and a Schedule of Payments, which was "[p]repared
using software accompanying the publications of the National Consumer Law
Center," as well as Brando's deposition testimony, and other documentary
evidence
In its Response to the Debtor's Request for
Admissions, Fairbanks admitted that under the terms of the 1991 Note, the
Debtor's monthly payment for 59 months was $2,005.71. It refused to accede to
Plaintiff's request that it admit that she would owe a balloon payment of
$149,600.71 when the loan matured, claiming the request was unintelligible.
Despite Fairbanks's assertion that the Debtor's request was unintelligible, if
the monthly payments were $2,005.71, as Fairbanks admitted, a balloon payment
in the sum of $149,600.71 would be due and owing when the loan matured. That
sum is supported by the Schedule of Payments prepared using the National
Consumer Law Center's software, and it is an amount that is in excess of the
original principal amount of the 1991 loan from ITT.
*5 According to tax returns attached
to the Statement of Undisputed Facts, in 1990, the Debtor's adjusted gross
income was $5,671 and Ranger's adjusted gross income was $18,756, for a
combined total of $24,427. The annual payments due and owing ITT totaled $24,068.52,
an amount equal to 98.5% of the Maxwell's and Ranger's total annual income.
Fairbanks does not have any documentation to
establish that the required TILA/MCCCDA disclosures were made to the Debtor.
Ranger in an affidavit attached to the Debtor's Statement of Undisputed Facts,
stated: "I attended a loan closing with my grandmother in Rhode Island on
February 12, 1991, and we did not receive any documents related to that
loan." Fairbanks produced no evidence to counter Ranger's sworn statement.
Specifically, in Defendant's Response to Debtor-Plaintiff's Second Request for
Admissions Propounded to the Defendant, Fairbanks admitted that it had no HUD-1
settlement documents for the 1991 ITT loan; that it had no Truth in Lending
disclosure documents for the 1991 loan; that it had no Notice of Right of
Rescission for the 1991 loan; and that it had no documents establishing that
the Debtor was informed or otherwise notified of her rescission rights with
respect to the 1991 loan. Fairbanks, however, specifically denied that a
"Non-Performing Loan Sale Agreement" dated September 10, 1999 between
Fairbanks and FC Capital Corp. was the only documentary evidence of the
Debtor's indebtedness. Fairbanks also refused to admit or deny that it had no
Disclosure Statement for the 1991 loan because the Debtor did not define
"Disclosure Statement."
According to Fairbanks, on or about January
15, 1998, the servicing rights to the 1991 loan were transferred to it. No
documentation substantiates this assertion, particularly because the
Non-Performing Loan Sale Agreement between Fairbanks and FC Capital Corp. is
dated September 10, 1999 and the Assignment from Transamerica to Fairbanks,
discussed in more detail below, is dated "October 1999."
Despite the acquisition of servicing rights,
Brando, testified that Fairbanks
"never had the prior payment history from the prior servicer."
Deposition Transcript at 77.
[FN3] He added that he
could not say what happened when the prior lender owned the loan. When pressed
as to how Fairbanks could determine the amount the Debtor owed it if it lacked
a payment history, the witness stated: "I go off of whatever that computer
has for me and what it offers me, because that's all the information that we
would have. No one would have any more or less than that." Id.
Brando also testified that he could not recall seeing a date upon which the
Debtor's note went into default. Additionally, he indicated that he was told
only that the Debtor owed principal, interest and a corporate advance, stating
"I don't remember if he [a superior named Aaron Lewis] told me exact what
was the arrears. That's the only three figures I remember him telling me."
Id. at 79. When asked how he would know whether interest would continue
to accrue after the maturity date of the Debtor's loan, Brando replied that
"[i]t all falls back on that same theory as whatever is put into our
system or computer, that's how I get all my information." Id. at
91.
*6 Fairbanks maintains a Contact
History Report, which is a computerized record of information about the status
of the loans that it services. Its personnel document letters it sends to
mortgagors, phone calls and other events associated with the servicing of its
loans beginning with a so-called "hello letter." Specifically, the
Report contains the date, the time, the identity of the person at Fairbanks
making the contact or taking a specific action, the type of contact or event,
the date of completion and a description of the contact or event. For example,
Fairbanks' Contact History Report for Maxwell's loan contains the following
entries, beginning with a "hello letter."
-------------------------------------------------------------------------------
Date Time/Who Type Complete Description
-------------------------------------------------------------------------------
01/01/98 : SHELLEY LETT 02/02/98 Hello Letter
-------------------------------------------------------------------------------
01/27/98 1:31 PM NOTE 01/27/98 per scrub: Status: Current. no note so
BRENTT [sic] mortgage. no current pay history.
Rebuilt file. no title work. Unable to
confirm lien position. Need to order
title work. Rate on system is 0. APR
16% BLT
-------------------------------------------------------------------------------
01/29/98 : STANF FLUP 02/05/98 Need 1st Lien Holder Balance Updat e.
Last Update Was: / / Last Balance Was:
0.00
-------------------------------------------------------------------------------
1/30/98 : SHELLEY LETT 02/03/98 Hello letter
-------------------------------------------------------------------------------
01/30/98 : SHELLEY LETT 02/02/98 Hello Letter--TA-x9 Servicing Started
1/15/98
-------------------------------------------------------------------------------
?/98 : MIKE FLUP 02/18/98 Need 1st Lien Holder Balance Update. La
st Update Was: / / Last Balance Was:
0.00
-------------------------------------------------------------------------------
02/10/98 8:45 AM CONT 02/10/98 Borr cld in wanted info on h er loan I
HEIDI advised that because of the audit were
not able to gv her the info that she
needs at this time and we will call her
when we are able.
-------------------------------------------------------------------------------
As is evident from the descriptions set forth above, Fairbanks's employees use a type of shorthand to describe the contact or event, do not adhere to rules of grammar, punctuation, or capitalization, and, presumably, because they are working in haste or transcribing the content of a conversation while it is taking place, make a lot of spelling and other mistakes. Thus, for example, "borr" and "brrwr" stand for borrower, " "tt" stands for talked to, "FC" or "fc" stand for foreclosure, and "BPO" stands for broker's price opinion. Moreover, the Contact History Report sets forth the events in reverse chronological order. In the example above, the Court set forth the events in chronological order.
In the hello letter to the Debtor dated January 30, 1998, Fairbanks, referring to a payment of $2,005.71, stated the following:
We are pleased to inform you that the servicing of your
mortgage loan, that is, the right to collect payments from you, has been
assigned, sold or transferred from Transamerica Home Loan to Fairbanks Capital
Corp. effective January 15, 1998. Fairbanks began accepting payments on your
loan on January 15, 1998.
At the end of the letter, Fairbanks included
"Disclosures Pursuant to Section 6 of the Real Estate Settlement
Procedures Act (RESPA)(12
USC 2605)." [FN4]
*7 The Contact History Report
documents the Debtor's efforts to obtain from Fairbanks information about her
loan. Ironically, it also documents efforts by Fairbanks to get information
from the Debtor or her agents about her loan. The entry in the Contact History
Report dated January 27, 1998 establishes that Fairbanks had no information
whatsoever about the Debtor's loan: "no note so [sic] mortgage, no current
pay history. Rebuilt file. no title work. Unable to confirm lien
position." Additionally, what information it had was wrong, i.e,
"Status Current."
On February 12, 1998, less than two weeks
after Fairbanks mailed the Debtor a hello letter, Sandra M. McKee
("McKee"), a Foreclosure Prevention Counselor from Ecumenical Social
Action Committee, Inc., called Fairbank, on behalf of the Debtor,
"requesting servicer information." She indicated that she would fax
permission to Fairbanks to enable its personnel to disclose information about
Maxwell's loan directly to her. On February 26, 1998, a Fairbanks's employee
indicated that he had not received the fax. On March 4, 1998 McKee called
Fairbanks again. The Contact History Report reveals that McKee volunteered
information about Maxwell. A Fairbanks employee recorded that McKee stated that
"brrwr is on a balloon note and is is [sic] mature / / she wanted to see
what can be done to avoid FC [foreclosure] / / I avsd [advised] we need to wait
until file has been audited and I then [sic] we can discuss it I avsd her ti
[sic] will take a few weeks...." On April 1, 1998, McKee called Fairbanks
again inquiring about the Debtor's loan, particularly "prncple
balance..... the status .... and the terms of loan ...." McKee informed
Fairbanks that the Debtor was supposed to make a balloon payment in 1996 but
never did so. On April 7, 1998, McKee again faxed a release to Fairbanks, which
it received, and talked to Woody, advising him that she would put "a
package together to show us what brr can do."
On April 14, 1998, McKee sent a letter to
Fairbanks's "Payoff Department." In the letter she stated: "I am
working with the above borrower and am requesting an itemized pay-off
figure for this loan. I have twice received the information below, which does
not show arrearages and a total payoff amount." McKee included with her
letter a copy of a "Statement of Mortgage Loan Account as of February 19,
1998" in which Fairbanks indicated that the original balance was
$149,151.00; the principal balance was $149,925.22; the total payment was
$2,005.71; the loan type was "CONV. RES."; the loan date was
February, 1991; the maturity date was March, 1996; the due date was March, 1997
and the interest rate was 5.999% [sic].
On April 16, 1998, a Fairbanks employee made
the following entry in the Contact History Report: "brr cn not pay debt,
Sandra fr/ESAC [Ecumenical Social Action Committee] is going to put the house
up fr/sale td [told] her mean while [sic] we will proceed with FC we have no
other choice." On the same day, Fairbanks sent McKee a letter indicating
that the principal balance of the loan was $149,925.22, that the interest due
was $113,927.91, and that "Force Place Ins." owed was $750, for a
total payoff amount of $264,603.13.
*8 One week later, on April 23, 1998,
Fairbanks sent the Debtor a demand letter, claiming it was owed $363,603.38, an
amount $99,000.25 more than what it had claimed just seven days earlier. In the
letter it stated the following:
This letter constitutes formal notice of default under the
terms of the Note and Mortgage or Deed of Trust because of failure to make
payments set forth in the Note.
As of 04-23-98 total payment due are: $ 299,850.44
Plus delinquent interest payments of: $ 63,752.94
For a combined total amount due of: $ 363,603.38
In the letter, Fairbanks advised the Debtor
that in the event she failed to pay the above sums on or before May 23, 1998,
it would accelerate the entire unpaid balance (even though the loan had matured)
and initiate foreclosure proceedings. It also advised the Debtor of the
following:
The Fair Debt Collection Practices Act requires us to
inform you that this is an attempt to collect a debt. Any information obtained
will be used for that purpose. Unless you dispute the validity of the debt
within 30 days after receipt of this notice, we shall assume the debt to be
valid. If you notify us in writing of your dispute within this 30-day period,
we will obtain verification of the debt and will mail you a copy. Upon your
written request within the 30-day period we will provide you with the name and
address of the original creditor if different from the current creditor. The
Fair Debt Collection Practices Act permits institution of legal action prior to
the expiration of the aforementioned 30-day period.
On April 24, 1998, the Debtor wrote a letter
to Mara Willis at Fairbanks requesting specific information about her loan
"[u]nder the guidelines of the Real Estate Settlement Procedures Act
(RESPA)." After identifying her loan number and the street address of her
property, she asked Fairbanks to provide her with copies of original loan
documents, including the HUD Settlement Sheet, the TILA Disclosures, a copy of
the Complete Mortgage, the Loan Note and Notice of Right of Rescission.
Fairbanks did not respond to the Debtor's letter.
Following the mailing of the demand letter,
Fairbanks continued to communicate with McKee, who suggested to Fairbanks that
the Debtor would be proposing a short pay off of the loan. Fairbanks, through
its personnel, attempted to obtain information from McKee about the first lien
holder on the property. On May 1, 1998, a Fairbanks employee recorded the gist
of the following conversation with McKee:
TFS [Transamerica Financial Services] should be the first
.. this loan should be a first not a second lien ... mrs [the Debtor] has no
idea where her note or deed is .. ? Sandra has made calls and looked with other
servicing co and they have no records.. Sandra concerned loan moving into fc and
wants to prevent that .. Told her that it would be difficult for brwr to be on
fb [first base?] with loan so upside down .. Her only option may be to deed the
pprty [property] over and move.. Advsd Sandra chance loan may be sold back to
TFS and she would to [sic] deal with them from then on out on fc.... Advsd her
shld knw next few weeks if loan going back to TFS or staying here.. Sandra
advses me still will look at sending over an offer on poss shrt payofff ..
*9 The same day, another Fairbanks
employee recorded that he "Clld Sandra M with ESAC for poss 1st lien
info." On May 4, 1998, an employee recorded in the Contact History Report
that he had "Rcvd notice from legal that FCC [Fairbanks] does not have the
file hence no title report--legal recomm. pulling CBR to find this info."
Approximately one month later a Fairbanks
employee reported that "[t]here was not enough info in the file, or the
C.B.R., to verify a first lien holder. We need to order a Tilte [sic]
report." The next day a different employee reported that "loan is
being repriced so it is undetermined whthr or not FCC will purchse loan."
Thus, in June of 1998, Fairbanks internal records establish that it was not the
owner of the Debtor's Note and Mortgage.
On July 31, 1998, the Contact History Report
discloses a conversation among Fairbanks's employees: "Rvwd file with WW /
/ best option is to get borrower on FB with poss to MOD/ / need to urge
borrower to get us a photo copy of Promissory note." (emphasis added).
Thus, almost six months after advising Maxwell that as servicer of her loan she
was to make payments to it, and approximately three months after it threatened
foreclosure, Fairbanks still did not have a copy of the Note and was unaware of
its lien position on the Debtor's property.
In August, 1998, Fairbanks's personnel made a
series of entries about making a deal with the Debtor. For example, an employee
wrote: "please review with attnys to see if dil poss on this loan .. and
see about the first if any on this loan...." On August 31, 1998,
Fairbanks's employees again recognized that "[t]here are no orig docs in
the file and matured note on loan..... Brwr advsd to stay in home for several
more months till decision is made...." In a follow up note for the record,
made on September 23, 1998, employees were advised to "Monitor weekly to
see if legal has made decision to FC or to move ahead to repurchase status ...
you shldl [sic] not need to call... There are no wrkouts [workouts] that combat
can offer the brrwr ..."
Between September of 1998 and mid-July 1999,
the Contact History Report reveals little activity with respect to the account
while the Debtor investigated refinancing her property, although in view of the
September 23, 1998 entry set forth above, it is questionable whether Fairbanks
would have been receptive to any offer the Debtor made. Harold Raymond
("Raymond"), a Foreclosure Prevention Counselor at the Veterans
Benefits Clearinghouse Mortgage Corporation, Inc., attempted to help the Debtor
beginning in mid-1999 though the end of that year. He assisted Maxwell in
preparing short payoff letters to Fairbanks dated July 24, 1999, September 20,
1999, and October 19, 1999.
On July 10, 1999, the Contact History Report
reveals that a Fairbanks employee changed the status of the loan "from
repurchase to current so that loan is redemanded," adding "[w]e no
longer have recourse to TA [Transamerica]. Work as normal." [FN5] On
July 13, 1999, Fairbanks sent a second demand letter to the Debtor. This time
it demanded immediate payment of $121,948.38. Again, Fairbanks referenced the
FDCPA, stating at the bottom of the letter, "This letter is from a debt
collector and is an attempt to collect a debt. Any information obtained will be
used for that purpose."
*10 Although Fairbanks demanded
$121,948.38 from the Debtor in mid-July, 1999, less than six weeks later, on
August 26, 1999, it advised Raymond that it would not accept the Debtor's offer
of $120,000. A Fairbanks employee inserted the following in the Contact History
Report:
we are first and we rather send this acct to fc and can
make more than what they are offering us. adv him need to up offer. said that
his trying to have m1 live in the house and keep the house. told him if they
want to keep house need to start selling stuff or brwr funds from relative and
get some other loan to up offer. Told him we will not accept offer at 120k. adv
him might looking at increasing offer to 179k. Said will try....
Four days later, however, a Fairbanks's
employee wrote in capital letters: "I AM NOT REFERRING TO FC YET BCSE
[because] WE HAVE TO FIND OUT WHAT LIEN POSITION WE ARE." In an apparent
reply, "Woody" indicated that Fairbanks had referred the matter to
foreclosure, adding "we can not lose any more time on this" and
"[i]n the future when you have an issue where we suspect our information
on the system is wrong we can order a preliminary title search as soon as you
find the disputed info from a debtor."
On September 8, 1999, Fairbanks commenced
foreclosure proceedings against Maxwell. The Contact History Report reveals
that Attorney Richard Foreman advised Fairbanks that the foreclosure complaint
would be filed by September 11, 1999. Approximately one month later, the Report
indicates that Fairbanks was struggling to sort out the series of assignments
pertaining to the Debtor's loan ("Rcvd orig unrcrd assign TA to FCC and
fwded with orig unrcrd assign from ITT to TA to TW").
On November 5, 1999, Fairbanks approved a
short payoff of the Debtor's loan in the amount of $192,000. Although that
payoff amount was approved, Fairbanks refused the Debtor's request for an
extension of time to close the refinancing transaction, and the Debtor was
unable to proceed. Because a foreclosure sale was scheduled for December 9,
1999, the Debtor filed a Chapter 13 bankruptcy petition on December 7, 1999.
Shortly thereafter, a Fairbanks employee cynically reported: "PEARL
MAXWELL (fc or short deal?) * * Dead deal because customer filed bankruptcy...
This is a stall tactic because I doubt she can afford to cure our delinquent
amount on a 60month [sic] plan .. We'll see her back on fc soon ." In
mid-December, 1999, a Fairbanks employee requested that a copy of the Debtor's
Note be forwarded from the custodian "to jill in bk [bankruptcy]
asap!!!!" Several days later, the Contact History Report indicates that
"Leslie only has LNA [Lost Note Affidavit]."
The Contact History Report also reveals that
in February of 2001 Fairbanks still had problems with the Debtor's file. An
employee reported: "We have checked with foreclosure reps; no one has
this file. Can you please doublecheck the archive records?" (emphasis
supplied). The responses from another employee: "I checked again and the
same story, if I find it I will let you know asap." In late March, an
employee wrote: "Recv'd coll. file and frwd'd to Aaron Lewis."
*11 In the Debtor's first Chapter 13
case, Attorney Richard Foreman, on behalf of Fairbanks, filed, on February 18,
2000, a Motion for Relief from the Automatic Stay. In its motion, Fairbanks
represented that it had been assigned the Debtor's Note and Mortgage and that
because the Debtor had failed to make her monthly mortgage payments it had
scheduled a foreclosure sale. It also represented the following:
The debtor executed a daily simple interest Note
which means that she accrues interest each day so the amount of outstanding
interest through the date of her filing reached $153,103.77 and at the end of
the plan an additional $121,266.60 would be added along with recoverable attorney
fees and escrow advances for a total of $430,707.28.
The Debtor previously incurred legal fees and costs in
accordance with her Note and Mortgage for foreclosure proceedings in the amount
of $3,973.34 which would be added to her pre-petition arrearages.
The Debtor has now incurred legal fees and costs in
accordance with her Note and Mortgage for foreclosure proceedings in the amount
of $600.00 and bankruptcy proceedings in the amount of $875.00 which would be
added to her post-petition arrearages.
$309,463,68 [sic] is the amount needed to payoff the loan
as the date of this Motion to which would be added prior fees and costs for
foreclosure proceedings of $3,973.34; and current fees and costs for
foreclosure proceedings of $600.00 and bankruptcy proceedings of $875.00 for a
total of $314,912.02.
Motion of Fairbanks Capital Corp. Motion for
Relief From the Automatic Stay [sic] at
2-3 (emphasis added). Thus, Fairbanks, in February 2000, represented that the
Debtor owed it $48,691.36 less than what it demanded of the Debtor in
April of 1998 and $192,963.64 more than it demanded of her on July 13,
1999.
Fairbanks attached a copy of the
"Assignment of Mortgage/Deed of Trust" to its Motion. It indicated
that the Assignment was duly recorded in the Suffolk County Registry of Deeds
on January 28, 2000 as Instrument Number 559. The Assignment, which was
recorded after Fairbanks had commenced foreclosure proceedings and after the
Debtor filed her first Chapter 13 petition, shows that it was made by HFTA
First Financial Corporation, Successor by name change to Transamerica Financial
Services, A California Corporation, by Transamerica Home Loan, Its Attorney In
Fact" and was executed by an Assistant Secretary of Transamerica
"this day of October, 1999" [sic]. It was notarized on
"October 20, 99." [sic].
In addition to filing a Motion for Relief
from the Automatic Stay in the Debtor's prior Chapter 13 case, Jill Lauritzen
("Lauritzen") filed, on behalf of Fairbanks, a Notice of Appearance
and Request to be Added to the Mailing Matrix (the "Notice"). In the
Notice, Fairbanks represented the following: "COMES NOW, Fairbanks Capital
Corp., as agent for Opportunity Funding I LLC, and hereby files its
notice of appearance...." (emphasis added). In addition, Lauritzen filed,
on behalf of Fairbanks, a proof of claim and a Lost Note Affidavit. In the
proof of claim, [FN6] which was signed by Lauritzen on January
11, 2000, and filed with the Court on January 19, 2000, Fairbanks indicated
that it, not Opportunity Funding I LLC, had a secured claim in the sum of
$309,463.68 and that the "[a]mount of arrearage and other charges at time
case filed included in secured claim above if any $430,707.28." [FN7]
Lauritzen also executed the Lost Note Affidavit, which is dated July 6, 1999.
In her Affidavit, Lauritzen stated, among other things, that she was the
Assistant Secretary-Document Control for Fairbanks, and
*12
That, after having conducted a diligent investigation in its records and files,
the Company has been unable to locate the following original note and believes
that said original note has either been lost, misfiled, misplaced or destroyed:
A note in the original principal sum of $149,151.00 made by
Pearl Maxwell and Maritza Ranger, to Aetna Finance Company, and dated February
12, 1991.
* * *
That the records of the Company do not show that such a
note was ever released, paid off, satisfied, assigned, transferred, pledged,
hypothecated or otherwise disposed of and that such note has been either lost,
mislaid, misfiled or destroyed by the Company;
That the Company is aware that _________________________,
its successors, assigns and/or transferees (collectively, the
"Owner") rely upon the statements made herein as to such note having
been lost, mislaid misfiled or destroyed by the Company and never having been
released, paid off, satisfied, assigned, transferred, pledged, hypothecated or
otherwise disposed of....
* * *
The Company hereby indemnifies and holds the Owner harmless
from and against any and all losses, damages, penalties, fines, forfeitures,
reasonable and necessary legal fees and related costs, judgments, and other
costs and expenses resulting from any claim, demand, defense or assertion based
on or grounded upon, or resulting from the Company's breach of any covenant,
representation or warranty contained hereon or based upon the loss,
misplacement or destruction of the lost note.
Lost Note Affidavit at 1. Thus, Fairbanks,
in the Lost Note Affidavit, implicitly suggests that another unidentified
entity was the Owner of the Note.
In the Debtor's present Chapter 13 case,
Attorney Richard Foreman, on behalf of Fairbanks, filed a Motion for Relief
from the Automatic Stay, representing that the Debtor filed her Chapter 13 case
to thwart a foreclosure sale scheduled for June 22, 2000. In its Motion, which
it filed on June 30, 2000, Fairbanks stated the following:
The debtor executed a daily simple interest Note
which means that she accrues interest each day so the amount of outstanding
interest through the date of her filing reached $166,762.92 and at the end of
the plan, outstanding interest will reach $288,362.67 to which would be added
recoverable attorney fees and escrow advances.
Motion of Fairbanks Capital Corp. Motion for
Relief from the Automatic Stay at 2 (emphasis added). As a result of accruing
legal fees and escrow advances, Fairbanks represented that "$319,463.24 is
the amount needed to payoff the loan as of the date of the filing to which
would be added prior fees and costs for foreclosure proceedings of $4,710.16
and prior fees and costs for bankruptcy proceedings of $1,840.00 and current
fees and costs for bankruptcy proceedings of $920.00 for a total of:
$326,933.40." Id. Thus, Fairbanks sought $36,669.98 less
than what it demanded from the Debtor on April 23, 1998 and $204,985.02 more
than what it demanded of her on July 13, 1999.
*13 Fairbanks attached the July 6,
1999 Lost Note Affidavit to its June 30, 2000 motion. Moreover, documents
attached to Fairbanks's Motion for Relief from the Automatic Stay show that
Computer & Equipment Leasing Corporation, a Wisconsin Corporation,
successor in interest by merger to Aetna Finance Company, d/b/a ITT Financial
Services, assigned all its rights, title and interest in the Note and Mortgage
executed by Maxwell and Ranger on February 12, 1991 to Transamerica and that
Transamerica, assigned the Note and Mortgage to Fairbanks in October of 1999.
In summary, the evidence submitted
established that Fairbanks made the following six different representations to
the Debtor, her agent, McKee and to the Court as to the amount of the Debtor's
obligations to it:
April 16, 1998 letter to McKee $264,603.13
April 23, 1998 demand letter to the Debtor $363,603.38
July 13, 1999 demand letter to the Debtor $121,948.38
January 19, 2000 proof of claim $309,463.68/$430,707.28 [FN8]
February 8, 2000 Motion for Relief $314,912.02
June 30, 2000 Motion for Relief $326,933.40
In its response to the Debtor's request for admissions, Fairbanks, however, admitted that the Debtor did not owe it any of the sums it set forth in letters to her or her agent or in pleadings and documents filed with the bankruptcy court.
IV. DISCUSSION
A brief overview of the evidence is
warranted. Fairbanks, at no time, produced, or showed that it had, a payment
history for the Debtor's loan. Fairbanks, at no time, produced, or showed that
it had, copies of the TILA disclosures that are required by law, including the
MCCDA, to be given to a mortgagor. Fairbanks, at no time, produced, or showed
that it had, the original or a copy of the Debtor's Note. Thus, Fairbanks does
not have, and never had, any way of ascertaining the extent of the Debtor's obligation
under the 1991 Note to ITT. Although it knew from the Mortgage that the APR on
the Note was 16%, it could not represent that the Note was "a daily simple
interest Note," and it had no information about other terms that may or
may not have been included in the Note, including the Debtor's obligation to
pay attorneys' fees and interest after the loan matured. Nevertheless,
Fairbanks, in a shocking display of corporate irresponsibility, repeatedly
fabricated the amount of the Debtor's obligation to it out of thin air. There
is no other explanation for the wildly divergent figures it concocted in
correspondence with the Debtor and her agents and in pleadings and documents
filed with the bankruptcy court. The question now becomes whether the Debtor
has remedies for the actions taken by Fairbanks and, if so, what those remedies
are.
A. The Fair Debt Collection Practices Act
1. Applicable Law
In GMAC Mortgage Corp. v. Hart (In re Hart), 246 B.R. 709 (Bankr.D.Mass.2000), this Court examined whether the FDCPA applied to a mortgagee's
conduct in representing to the debtor that he was required to repay a
"negative suspense account." The Court summarized applicable sections
of the FDCPA as follows:
*14
Liability under the FDCPA, a statute designed to protect consumers from
"abusive, deceptive, and unfair debt collection practices," 15 U.S.C. § 1692(a), is
predicated upon improper conduct on the part of "debt collectors" in
collecting "debts" owed or allegedly owed by "consumers."
It is to be liberally construed to effectuate its purpose. See generally
Daniel A. Edelman, An Overview of the Fair Debt Collection Practices Act, 113 PLI/Corp. 87 (1999).
* * *
The FDCPA contains substantive prohibitions that apply to
"communications" with consumers. A communication is defined to
include "the conveying of information regarding a debt directly or
indirectly to any person through any medium." 15 U.S.C. § 1692a(2).
The FDCPA requires that debt collectors "disclose clearly in all
communications made to collect a debt or to obtain information about a
consumer, that the debt collector is attempting to collect a debt and that any
information obtained will be used for that purpose." 15 U.S.C. § 1692e(11).
The FDCPA specifically proscribes "any conduct the
natural consequence of which is to harass, oppress, or abuse any person in
connection with the collection of a debt." 15 U.S.C. § 1692d. It
also proscribes the use of "any false, deceptive, or misleading
representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e. The
statute provides the following with respect to false or misleading
representations:
Without limiting the general application of the foregoing,
the following conduction is a violation of this section: ...
(2) The false representation of -
(A) the character, amount, or legal status of any debt...
* * *
(5) The threat to take any action that cannot legally be
taken or that is not intended to be taken....
15 U.S.C. §
1692e(2)(A) and (5).
The FDCPA also makes it unlawful to "use unfair or unconscionable means to
collect or attempt to collect any debt," including "[t]he collection
of any amount (including any interest, fee, charge, or expenses incidental to
the principal obligation) unless such amount is expressly authorized by the
agreement creating the debt or permitted by law." 15 U.S.C. § 1692f(1).
In evaluating whether communications or conduct violates
the FDCPA, courts utilize the so-called "least sophisticated debtor"
standard. Taylor v.
Perrin, Landry, de Launay & Durand, 103 F.3d 1232, 1236 (5th Cir.1997); Clomon v. Jackson, 988 F.2d 1314, 1318-19 (2d Cir.1993); Smith v. Transworld Systems, Inc., 953 F.2d 1025, 1028-29 (6th Cir.1992); Graziano v. Harrison, 950 F.2d 107, 111 (3d Cir.1991); Swanson v. Southern Oregon Credit Service, Inc., 869 F.2d 1222, 1225-26 (9th Cir.1988); see also Gammon v. GC Services L.P., 27 F.3d 1254 (7th Cir.1994) ("unsophisticated consumer"
standard). The Seventh Circuit has stated that "[a]nyway it's viewed, the
standard is low," Avila
v.. Rubin, 84 F.3d
222, 226 (7th Cir.1996),
and the phrase unsophisticated or least sophisticated debtor is used "to
describe the hypothetical consumer whose reasonable perceptions will be used to
determine if collection messages are deceptive or misleading." Gammon, 27 F.3d at 1257. The court observed that the standard
protects consumers who are "of below average sophistication or
intelligence" or are "uniformed, naive or trusting" while at the
same time the reasonableness element "shields complying debt collectors
from liability for unrealistic or peculiar interpretations of collection
letters." Id.
*15
Violation of any provision of the FDCPA entitles the consumer to an award of
actual damages, statutory damages up to $1,000,costs and attorney's fees. 15 U.S.C. § 1692k(a).
With respect to actual damages, which may include compensation for emotional
distress, state law requirements that must be proven to establish negligent or
intentional infliction of emotional distress are inapplicable. See Teng v. Metropolitan Retail Recovery Inc., 851 F.Supp. 61, 68-69 (E.D.N.Y.1994); Donahue v. NFS, Inc., 781 F.Supp. 188, 193-94 (W .D.N.Y.1991); Smith v. Law Offices of Mitchell N. Kay, 124 B.R. 182, 185 (D.Del.1991); Crossley v. Lieberman, 90 B.R. 682 (E.D.Pa.1988), aff'd, 868 F.2d 566 (3d Cir.1989).
246 B.R. at 729-30.
2. Positions of the Parties
The Debtor maintains that Fairbanks is a
"debt collector" within the meaning of the FDCPA and that it made
false and misleading representations as to the amount of money she owed, and
that it also violated § 1692(f)(1) of the FDCPA. In its Opposition to the Debtor's Motion for
Partial Summary Judgment Fairbanks represents that "it is not a 'debt
collector' under the meaning of the act [FDCP] because in this case, it is
collecting its own debt, thus falling under the 'in-house' exception."
Opposition at 4. Relying upon the Assignment of Mortgage/Deed of Trust executed
"this day of October, 1999" between Transamerica and Fairbanks, it
adds that while it has admitted that it acts as a debt collector for other
loans, the Debtor "misconstrued this as an admission that it is as a debt
collector in every circumstance." Id. [FN9]
3. Analysis
There is no dispute that the Debtor is a
"consumer" within the meaning of the FDCPA. Indeed, her deposition
testimony reveals that she easily fits the paradigm of the "least
sophisticated debtor."
The Court rejects Fairbanks's assertion that
it is not a "debt collector." Its argument is frivolous and
unsupported by the record, i.e., its Contact History Report, its representation
that it was subject to the FDCPA in its demand letters to the Debtor, Brando's
testimony, and the assignment from Transamerica to Fairbanks, dated October 1999.
Even if Fairbanks obtained ownership of the Debtor's Mortgage in October of
1999 and ceased to be a debt collector at that time, [FN10] it sent at least three communications to the Debtor or her
agent prior to that time in which demanded sums from the Debtor that it admits
she did not owe. Specifically, on April 23, 1998 and July 13, 1999, Fairbanks
sent demand letters to the Debtor in which it represented to her that it was
acting as a debt collector under the FDCPA. Thus, Fairbanks's argument that it
is not a debt collector is contradicted by the record in this case.
Having found that Fairbanks is a debt
collector, at least with respect to three communications with the Debtor or her
authorized agent, McKee, the Court must determine whether Fairbanks violated
the FDCPA. By its own admission it has violated §
1692e(2)(A)
because it demanded amounts of money from the Debtor that she did not owe.
Moreover, the Court finds that Fairbanks violated §
1692f(1) of the
FDCPA by demanding post-maturity interest on the 1991 loan. Because Fairbanks
did not have possession of the Note, it could not ascertain whether it was
entitled to demand such interest. Accordingly, it attempted to collect interest
without the express authorization of the agreement creating the debt in
violation of 12 U.S.C. § 1692f(1).
*16 Fairbanks argues that even if this
Court determines that it is a debt collector it is not liable to the Debtor due
to the bona fide error exception. That exception is set forth in §
1692k(c) of the
FDCPA and provides the following:
A debt collector may not be liable in any action brought
under this subchapter if the debt collector shows by a preponderance of
evidence that the violation was not intentional and resulted from a bona fide
error notwithstanding the maintenance of procedures reasonably adapted to
avoid any such errors.
15 U.S.C. § 1692k(c)(emphasis supplied). "[T]he bona fide
error defense applies only to clerical errors." Smith v. Transworld Systems, Inc., 953 F.2d 1025, 1034 (6th Cir.1992); Baker v. G.C. Services Corp., 677 F.2d 775, 779 (9th Cir.1982).
In support of its position that it is
immunized from liability under the FDCPA, Fairbanks makes the following
argument:
Defendant has relied on the information in its possession
in collecting on the note. The Defendant has never intentionally made false
representations as to the amount due and owing. In fact, in every instance
where Defendant noticed a discrepancy, Defendant, on its own initiative, immediately
admitted its error and set forth new information. Therefore, since Defendants
[sic] misrepresentations were unintentional, and since Defendant relied upon
the information in its possession, Defendant is not liable under the FDCPA due
to the bona-fide error exception. Therefore, since Plaintiff fails to meet the
elements necessary for proving Defendant violated FDCPA, summary judgment is
warranted against the Plaintiff and in favor of the Defendant on this issue.
Defendant's Opposition at 5.
Fairbanks's argument is wholly unsupported by
the record and devoid of merit. Fairbanks submitted no evidence, in the
form of affidavits or otherwise, to support its bona-fide error defense. It
submitted no evidence that it noticed discrepancies and on its own initiative
immediately admitted errors and set forth new information. Much more
importantly, it submitted no evidence that it had and maintained
procedures for servicing loans, let alone procedures that were reasonably
adapted to avoid errors of the kind found in this case. Indeed, Brando
testified that Fairbanks's personnel relied exclusively upon the information in
the company's computer system to make decisions. ("I go off of whatever
that computer has for me ... because that's all the information that we would
have. No one would have any more or less than that."). In view of the
evidence that Fairbanks did not have the Debtor's payment history and did not
have the Note executed by the Debtor, its utilization of wholly unsupported
figures in the demand letters sent to the Debtor cannot be viewed as
unintentional. There can be no suggestion of any computational or clerical
errors because Fairbanks lacked sufficient information to make any computation
at all as to the amount of the Debtor's obligation to it. Indeed, Fairbanks's
employees strained to acquire information about the Note, going so far as to
quiz McKee about its lien status and to ask her to get a copy of the Note from
the Debtor. Its conduct was not the result of a bona fide error. Its conduct
violated the FDCPA and was egregious and inexcusable. Where Fairbanks failed to
present any evidence to support its bona fide error defense, and its Contact
History Report repeatedly refers to the absence of information about the
Debtor's loan, the Court finds that it is not entitled to the defense, a
defense which, in any event, it failed to raise as an affirmative defense in
its Answer.
*17 With respect to the Debtor's
remedy for Fairbanks's violation of the FDCPA, the statute of limitations set
forth in the FDCPA, 15 U.S
.C. § 1692k(d), has been determined to be procedural and
not jurisdictional, see Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 327 (7th Cir.1999); Clark v. Bonded Adjustment Co., Inc.,
176 F.Supp. 1062, 1068 (E.D.Wash.2001); but see Mattson v. U.S. West Communications, Inc., 967 F.2d 259, 263 (8th Cir.1992)(one-year in the FDCPA is jurisdictional,
not procedural). Thus, the Debtor is entitled to reduce or satisfy any claims
Fairbanks may have against her from the damages to which she is entitled due to
Fairbanks's violation of the FDCPA, which include statutory damages in the sum
of $1,000, actual damages, costs, and attorney's fees. Accordingly, the Court
shall enter summary judgment in favor of the Debtor and against Fairbanks on
the issue of liability under the FDCPA.
B. Real Estate Settlement Procedures Act
1. Applicable Law
Congress enacted RESPA in response to its
finding "that significant reforms in the real estate settlement process
are needed to insure that consumers throughout the Nation are provided with
greater and more timely information on the nature and costs of the settlement
process and are protected from unnecessarily high settlement charges caused by
certain abusive practices that have developed in some areas of the
country." 12 U.S.C.
§ 2601(a). Section 2605
of RESPA, which applies to servicers of mortgage loans and which Fairbanks
referenced in its January 30, 1998 hello letter to the Debtor, provides in
relevant part the following:
(c) Duty of loan servicer to respond to
borrower inquiries
(1) Notice of receipt of inquiry
(A) In general
If any servicer of a federally related mortgage loan
receives a qualified written request from the borrower (or an agent of the
borrower) for information relating to the servicing of such loan, the servicer
shall provide a written response acknowledging receipt of the correspondence
within 20 days (excluding legal public holidays, Saturdays, and Sundays) unless
the action requested is taken within such period.
(B) Qualified written request
For purposes of this subsection, a qualified written
request shall be a written correspondence, other than notice on a payment
coupon or other payment medium supplied by the servicer, that-
(i) includes, or otherwise enables the servicer to
identify, the name and account of the borrower; and
(ii) includes a statement of the reasons for the belief of
the borrower, to the extent applicable, that the account is in error or
provides sufficient detail to the servicer regarding other information sought
by the borrower.
(2) Action with respect to inquiry
Not later than 60 days (excluding legal public holidays,
Saturdays, and Sundays) after the receipt from any borrower of any qualified
written request under paragraph (1) and, if applicable, before taking any
action with respect to the inquiry of the borrower, the servicer shall-
*18
(A) make appropriate corrections in the account of the borrower, including the
crediting of any late charges or penalties, and transmit to the borrower a
written notification of such correction (which shall include the name and
telephone number of a representative of the servicer who can provide assistance
to the borrower);
(B) after conducting an investigation, provide the borrower
with a written explanation or clarification that includes--
(i) to the extent applicable, a statement of the reasons
for which the servicer believes the account of the borrower is correct as
determined by the servicer; and
(ii) the name and telephone number of an individual
employed by, or the office or department of, the servicer who can provide
assistance to the borrower; or
(C) after conducting an investigation, provide the borrower
with a written explanation or clarification that includes--
(i) information requested by the borrower or an explanation
of why the information requested is unavailable or cannot be obtained by the
servicer; and
(ii) the name and telephone number of an individual
employed by, or the office or department of, the servicer who can provide
assistance to the borrower.
* * *
(f) Damages and costs
Whoever fails to comply with any provision of this section
shall be liable to the borrower for each such failure in the following amounts:
(1) Individuals
In the case of any action by an individual, an amount equal
to the sum of--
(A) any actual damages to the borrower as a result of the
failure; and
(B) any additional damages, as the court may allow, in the
case of a pattern or practice of noncompliance with the requirements of this
section, in an amount not to exceed $1,000.
* * *
(3) Costs
In addition to the amounts under paragraph (1) or (2), in
the case of any successful action under this section, the costs of the action,
together with any attorneys fees incurred in connection with such action as the
court may determine to be reasonable under the circumstances.
12 U.S.C. § 2605(e), (f). [FN11]
2. Positions of the Parties
The Debtor argues that both she and McKee
made qualified written requests to Fairbanks for information about her loan and
that Fairbanks failed to respond to the letters. Fairbanks argues that the
April 14, 1998 letter was not a qualified written request because it was sent
by McKee and the letter did not indicate that she was an agent for the Debtor.
Fairbanks also argues that because someone other than the Debtor drafted her
letter of April 24, 1998 and because the Debtor did not understand its
contents, the letter does not constitute a qualified written request. It
states: "[s]ince the debtor has no knowledge of the letter, there can be
no qualified written request."
3. Analysis
The Court finds that McKee and the Debtor
made qualified written requests for information to Fairbanks and that Fairbanks
failed to respond in writing to the letters. For a written request to fit
within the requirements of the statute, it must include the name and account of
the borrower and include a statement for the belief, "to the extent
applicable, that the account is in error" or provide sufficient
detail about "other information sought by the borrower." See 12 U.S.C. § 2605(c)(1)(B).
Both McKee and the Debtor included the Debtor's name, the loan number and the
address of the Debtor's property in their letters. McKee requested an "itemized
pay-off figure" for the loan, including arrearages. The Debtor requested
documents, including the HUD Settlement Sheet, the TILA Disclosure Statement,
the Note and the Notice of Right of Rescission. Fairbanks admitted that it did
not respond to the two letters. Fairbanks thus violated the provisions of
RESPA.
*19 With respect to Fairbanks's
contention that McKee's letter was unqualified, the Court finds it to be
specious argument. Its Contact History Report indicates that on April 7, 1998
it was in receipt of an authorization to release information to McKee.
Moreover, RESPA specifically contemplates qualifiedwritten requests from agents
of borrowers. See 12
U.S.C. § 2605(c)(1)(A). Thus, McKee's letter of April 14, 1998
was a qualified written request for information to which Fairbanks failed to
respond.
With respect to Fairbanks's argument that the
Debtor's letter was unqualified because she did not actually write it or
understand its contents and purpose, the Court finds this argument to be not
only shameless, but unsupported by the statute, case law, and common sense. The
statute contains no condition pertaining to the intellectual capacity of
borrowers such that a written request would be rendered unqualified if the
borrower did not understand its contents. On the contrary, RESPA was crafted by
Congress to assist consumers in understanding and exercising their rights with
respect to transactions which they might not be qualified to fully comprehend
and which might affect retention of their homes. It would be contrary to the spirit,
purpose, and express language of the statute to graft a comprehension
requirement onto § 2605(e)(1)(B).
Fairbanks also argues that two instances of
failing to respond to a qualified written request do not qualify as a pattern
and practice on noncompliance.
The term "pattern or practice" in a federal
statute is not a term of art but rather is defined according to the usual
meaning of the words. See Sperling v. Hoffman-LaRoch, Inc., 924 F.Supp. 1346, 1357 (D.N.J.1996) (discussing use of term in the ADEA). The
term suggests a standard or routine way of operating. See Newton v.. United Cos. Fin. Corp., 24 F.Supp.2d 444, 456 (E.D.Pa.1998) (term as used in TILA refers to
"wide-ranging and institutionalized practices"). See also First Nat'l Bank v. Office of Comp'r Of
Currency, 956 F.2d
1456, 1461-62n (8th Cir.1992) (failure to make interest rate disclosure required by TILA to 691
borrowers over two years constitutes pattern or practice).
Cortez v. Keystone Bank, Inc., No. 98-2457, 2000 WL 536666 at *10
(E.D.Pa. May 2, 2000). In Ploog v. Homeside Lending, Inc., No. 00 C 6391, 2002 WL 433139 (N.D.Ill.
March 19, 2002), the
court determined that five failures to respond to qualified written requests
constituted a "pattern or practice." In In re Tomasevic, 273 B.R. 682 (Bankr.M.D.Fla.2002), the court determined that a servicer's
failure to respond to one qualified written request did not amount to a
"pattern or practice." In view of the testimony that Fairbanks
services a large number of loans in most, if not all, of the 50 states, the
Court is unpersuaded that the Debtor has established a "pattern or
practice" for purposes of RESPA's statutory damage provision by showing
just two violations.
*20 Because the Court has found that
Fairbanks violated § 2605 of RESPA by failing to respond to her qualified written requests,
the Court shall enter summary judgment in favor of the Debtor and against
Fairbanks on Count C. Fairbanks shall be liable for the Debtor's actual
damages, attorney's fees, and costs.
C. Violation of the Massachusetts Consumer
Credit Cost Disclosure Act
1. Applicable Law
As the bankruptcy court recognized in Fidler v. Central Cooperative Bank (In re Fidler), 226 B.R. 734 (Bankr.D.Mass.1998), the purpose of the MCCCDA and TILA is
" '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, and to protect the consumer against inaccurate
and unfair credit billing and credit card practices." ' Id. at 736 (quoting § 1601(a) of TILA upon which the MCCCDA is
modeled). Section 1 of the MCCCDA defines "material
disclosure" as "the disclosure, as required by this chapter, of the
annual percentage rate, the method of determining the finance charge and the
balance upon which a finance charge will be imposed, the amount of the finance
charge, the amount to be financed, the total of payments, the number and amount
of payments and the due dates or periods of payments scheduled to repay the
indebtedness." Mass.
Gen. Laws Ann. Ch. 140D, § 1. See also MCCCDA § § 4, 5, and 12. In addition, the MCCCDA
requires that an obligor be given a notice of their right to rescind the loan:
Except as otherwise provided in this section, in the case
of any consumer credit transaction ... in which a security interest ... is or
will be retained or acquired in any property which is used as a principal
dwelling of the person to whom credit is extended, the obligor shall have the
right to rescind the transaction until midnight of the third business day
following the consummation of the transaction or the delivery of the
information and rescission forms required by this chapter, whichever is later,
by notifying the creditor ... or his intention to do so. The creditor shall
clearly and conspicuously disclose in accordance with regulations of the
commissioner, to any obligor in a transaction subject to this section the
rights of the obligor under this section. The creditor shall also provide, in
accordance with regulations of the commissioner, appropriate forms for the
obligor to exercise his right to rescind any transaction subject to this
section. No finance or other charge shall begin to accrue on any such
transaction until the termination of the rescission period provided for in this
section.
Id. at § 10(a). If a lender fails to make the required disclosure and
fails to provide notice of the right to rescind, the consumer may exercise his
or her right to rescind. Although an obligor's right to rescind "shall
expire four years after the date of consummation of the transaction or upon the
sale of the property, whichever occurs first, notwithstanding that the
information and forms required under this section or any other disclosures
required under this chapter have not been delivered to the obligor," id.
at § 10(f), the rescission right may be
asserted by way of recoupment under Mass. Gen. Laws Ann. Ch. 140D, §
10(i)(3). See Fidler, 226 B.R. at 737. In Fidler, the court unequivocally
stated: "[b]y inserting this provision, the Massachusetts Legislature has
essentially ended any debate over the meaning of the limitations period in ch. 140D, § 10(f).
However else it may be construed, one thing is for certain: ch. 140D, § 10(f) does
not affect the [Debtor's] right of recoupment." Id. The court in Fidler
explained that "[t]o demonstrate that a claim is being asserted in
recoupment, the following elements must be satisfied: (1) the TILA [or CCCDA]
violation and the creditor's debt arose from the same transaction, (2) [The
claimant] is asserting her claim as a defense, and (3) the 'main action' is
timely." Id. (quoting Smith v. American Financial Systems, Inc. (In re Smith), 737 F.2d 1549, 1553 (11th Cir.1984)); see also Coxson v. Commonwealth Mortgage Co. of
America (Matter of Coxson), 43 F.3d 189, 193 (5th Cir.1995).
*21 This Court agrees with Judge
Hillman's analysis in Fidler. The Debtor's rescission claim is not
barred by the expiration of the four year statute of limitations set forth in
the MCCCDA. If the Debtor establishes a violation of CCCDA and satisfies the
three-part test demonstrating that her claim is one for recoupment she may
assert her right to rescind the contract.
2. Positions of the Parties
a. The Debtor
The Debtor asserts that neither she nor
Ranger was provided with any of the required disclosures at the time they
entered into the 1991 transaction. She adds that Fairbanks has known since it
began servicing the Debtor's loan that it lacked the required disclosures. The
Debtor relies upon Frascatore v. Sec. of Housing and Urban Dev. (In re Frascatore), 98 B.R. 710 (Bankr.E.D.Pa.1989), in which the court stated:
The instant Debtors, like the respective Herbert and
Pinder debtors, claim that they were never given any TILA disclosures
statement at all. Lomas denies this, but having searched its files, has been
unable to locate the disclosure statement, as was true of the mortgagees in Herbert
and Pinder. Given the burden upon a creditor to prove compliance with
the TILA, we believe that this status of the record, as in Herbert and Pinder,
mandates the entry of judgment in favor of the Debtors on this claim.
Id. at 723. In Pinder v. Lomas & Nettleton Co. (In re
Pinder), 83 B.R.
905 (Bankr.E.D.Pa.1988),
the court determined that because the mortgagee produced no evidence that the
Debtor received a TILA disclosure statement "to offset the Debtor's
inconclusive but definite statements that she did not receive such a
statement," id. at 907, no such statement was received by the debtor. In Herbert v. Fed. Nat'l Mortgage Assoc. (In
re Herbert), 86
B.R. 433 (Bankr.E.D.Pa.1988), the court reiterated what it determined in Pinder,
stating the following:
The Debtor here, somewhat more candidly than the Pinder
Debtor, expressed lack of knowledge of the documents given to her. Like the Pinder
Debtor, she could not locate a TILA disclosure statement in the midst of the
"stack of papers" she received at settlement. Moreover, here, in more
convincing fashion than in Pinder, where we had only the Debtor's
assertions of same, the Debtor actually produced the entire "stack of
papers," and the TILA disclosure statement was not among them. The
testimony of both the Debtor her [sic] and in Pinder is and was exactly
what we would expect from an "average consumer." Like the Pinder
mortgagee, FNMA presented not a speck of evidence that the Debtor in fact did
receive a TILA disclosure statement. As we stated in Pinder, we believe
that the much more knowledgeable creditor must be charged with the burden of
producing a disclosure statement, if asked to do so prior to trial. And, if it
is unable to do so, and the consumer presents some evidence supporting a
contention that one was never received, we must assume that none exists.
*22 Id. at 438.
b. Fairbanks
While admitting that it "has not been
able to find certain documents with regard to this loan, including a disclosure
statement," Fairbanks asserts that "other evidence suggests
that TILA disclosures were provided." Opposition at 8 (emphasis supplied).
It points to the Mortgage and a TILA disclosure statement dated November 17,
1995 with respect to a loan modification in which the amount financed was
$180,412.93 and the total of payment was $542,859.00. Fairbanks also states
that its admissions and Brando's deposition testimony that he was not aware of
any disclosures is "not conclusive evidence that Plaintiff did not receive
disclosures ." Id. Rather, Fairbanks argues that its admissions and
Brando's testimony are only evidence that it has not been able to find certain
documents.
Fairbanks makes other arguments in an attempt
to shield itself from liability. It argues that because the Debtor is
"unable to remember or to understand numerous documents that she
signed" her assertion that she did not receive the documents is not
credible. Id. Moreover, it argues that because the Debtor "never
attempted to compare the terms of the note at issue with any other loan or
note.... even if it is found that Defendant violated TILA, there are no damages
to Ms. Maxwell since she did not take advantage or her right to compare various
credit terms, nor did she understand any credit terms." Id. at 9.
3. Analysis
Fairbanks can produce no evidence to
contradict Ranger's statement that she and the Debtor did not receive "any
documents related to the loan." Although Fairbanks attempts to distinguish
the Pennsylvania bankruptcy cases cited above, its attempts are futile as the
bankruptcy court's holding, with which this Court agrees, is that upon the
submission of evidence that disclosures were not made, the burden shifts to the
lender to produce evidence that it or its predecessor provided the requisite
disclosures.
Although Maxwell may have been confused about
the 1991 loan transaction, her granddaughter was not. Fairbanks produced no
evidence to rebut Ranger's affidavit in which she stated unequivocally that
neither she nor her grandmother received the disclosures to which they were
entitled.
The Court finds that Fairbanks's position
that a 1995 disclosure statement and the Mortgage are probative of the Debtor's
receipt of material disclosures and a notice of a right of rescission for the
1991 transaction fails to create a genuine issue of material fact and, indeed,
is preposterous. One document prepared four years after the transaction at
issue and the Mortgage itself are insufficient to create a genuine issue of
material fact about what transpired in 1991. Fairbanks produced no evidence
that the disclosures were made, and it can not now produce such evidence
because discovery has closed. [FN12]
Accordingly, its attempts to distinguish the cases relied upon by the Debtor is
unavailing. It failed to meet its burden, and the Debtor is entitled to rescind
the loan under the MCCCDA.
*23 Fairbanks's alternative arguments
are easily dismissed. At best novel and at worse callous and appalling, the
Court shall not consider the Debtor's lack of mental capacity or ability to
shop for better credit terms a bar to summary judgment. Not surprisingly,
Fairbanks did not and cannot cite any decisions which hold that the MCCCDA and
its remedies do no apply to individuals who are old or uneducated.
Turning to the elements of a recoupment claim
articulated by the court in Fidler, 226 B.R. at 737, the Court finds that the Debtor
established a violation of the MCCCDA by ITT; that she is asserting her claim
as a defense to Fairbanks's Motion for Relief from the Automatic Stay and that
the "main action," namely the Motion for Relief from the Automatic
Stay, is timely. Accordingly, the Court finds that the Debtor, by way of
recoupment, may rescind the 1991 transaction.
D. Unconscionability
1. Applicable Law
In Waters v. Min Ltd., 412 Mass. 64 (1992), the Supreme Judicial Court described the doctrine as follows:
[It] ... has long been recognized by common law courts in
this country and in England. "Historically, a [contract] was considered
unconscionable if it was 'such as no man in his senses and not under delusion
would make on the one hand, and as no honest and fair man would accept on the
other.' Later, a contract was determined unenforceable because unconscionable
when 'the sum total of its provisions drives too hard a bargain for a court of
conscience to assist.'
Id. at 66 (citations omitted). The
court added:
The defendants assumed no risk and the plaintiff gained no
advantage. Gross disparity in the values exchanged is an important factor to be
considered in determining whether a contract is unconscionable. "[C]ourts
[may] avoid enforcement of a bargain that is shown to be unconscionable by reason
of gross inadequacy of consideration accompanied by other relevant
factors." ... We are satisfied that the disparity of interests in this
contract is "so gross that the court cannot resist the inference that it
was improperly obtained and is unconscionable."
Id. at 69.
In United Companies Lending Corp. v. Sargeant, 20 F.Supp.2d 192 (D.Mass.1998),
the court considered the doctrine of unconscionability in a relationship
between Daisy Sargeant ("Sargeant"), the owner of a triple-decker
dwelling in Dorchester, Massachusetts, who, wishing to make improvements to her
home, responded to an advertisement in the Boston Herald about the
availability of loans, and United Companies Lending Corp. ("United"),
an entity that made, sold, and serviced loans used for refinancing, and made
first lien residential mortgage loans used primarily for debt consolidation,
home improvements or major household purchases. Id. at 196. United specialized in subprime loans to consumers with
higher credit risks than borrowers in the prime market. Id.
Sargeant contacted a toll free number and
received a mortgage application from a California-based mortgage broker, who
referred her to a United mortgage loan originator located in Rhode Island.
Sargeant completed a loan application sent to her by United's agent and
obtained an adjustable rate loan in the amount of $134,700 with an initial
annual percentage rate of 13.556%. Id. Sargeant's total closing costs
and fees constituted approximately 17% of the total loan amount; $13,461.40 was
paid to United as an origination fee or "points." Approximately 12%
of the loan proceeds or $15,681 was disbursed for home improvements and 3.6% or
$4,910 was used to pay down credit card debt. The balance of the loans proceeds
was used to satisfy two prior mortgages. Id. at 196-97.
*24 Sargeant fell behind on her
payments, and United commenced foreclosure proceedings. Sargeant then filed a
complaint with the Consumer Protection and Antitrust Division of the
Massachusetts Attorney General's Office. Id. at 197. The Attorney
General, in response to Sargeant's consumer complaint, filed an action against
United in the Massachusetts Superior Court to enjoin United from, among other
things, making any mortgage loans in violation of Mass. Gen. Laws Ch. 184, § 17D and 940 C.M.R. § 8.00 et
seq. Id. United then commenced a defendant class action suit against
Sargeant seeking a declaratory judgment that the regulation that the Attorney
General sought to enforce was void and unenforceable and that its loan
origination fee or points charged to Sargeant were proper. Id . Sargeant
counterclaimed, "asking for a declaration that the mortgage transaction
was an unfair or deceptive act because it was unconscionable pursuant to 940 C.M.R. § 8.06(6),"
[FN13] and
that rescission of the mortgage loan was the appropriate remedy. Id.
Both United and Sargeant moved for summary
judgment. Before addressing Sargeant's counterclaim, however, the district
court considered whether the regulation at issue was consistent with the
decisions of the Federal Trade Commission and federal courts interpreting 11
U.S.C. § 45(a)(1) and, if so, whether
the regulation was arbitrary, capricious, or manifestly contrary to the state
statute. Id. at 198. In determining that the regulation was consistent
with legislative intent and applicable federal law, the court reviewed the
economic circumstances surrounding the enactment of the regulation, including
"the abandonment of the inner-city neighborhoods by mainstream lending
institutions during the 1970s and 1980s, the deregulation of the banking
industry ... [and]... the appreciation of real estate values in Massachusetts,
and the rise of secondary mortgage market," which laid the groundwork for
"the lending practices that fueled the home improvement and second
mortgage lending scams of the 1980s and early 1990s." Id. at 202. [FN14]
Sargeant, in support of her position, argued
that the origination fee was above the industry standard, the fees paid at the
closing were grossly disproportionate to the value received, the loan violated
the lender debt-to- income parameters for a "C" borrower, as her debt
to income ratio was 51%, the lender's method of determining compensation for
its loan originators encouraged the originator to act in an unconscionable
manner and the lender's disclosures in the mortgage transaction did not comply
with its policy and state disclosure requirements. Id. at 205. In
addressing, Sargeant's unconscionability argument, the district court stated
the following:
Unconscionability is a question of law to be assessed at
the time the contract was executed by the parties. See Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 291, 408 N.E.2d 1370 (1980). It is a case-specific assessment.
"Because there is no clear, all-purpose definition of 'unconscionable,'
nor could there be, unconscionability must be determined on a case by case
basis, giving particular attention to whether, at the time of the execution of
the agreement, the contract provision could result in unfair surprise and was
oppressive to the allegedly disadvantaged party." Id. 381 Mass. at 292-93, 408 N.E.2d 1370 (internal citations omitted)....
*25
The principle of unconscionability is addressed in the Uniform Commercial Code,
see U.C.C. § 2-302, and the Supreme Judicial Court has applied the principles of
unconscionability articulated there to "situations outside the ambit of
the code." Waters
v. Min Ltd., 412
Mass. 64, 67, 587 N.E.2d 231 (1992). Under Massachusetts law, the doctrine of unconscionability
recognizes procedural and substantive unconscionability. See Zapatha, 381 Mass. at 292-93, 294 n. 13, 408 N.E.2d
1370. Procedural
unconscionability evaluates the circumstances under which the contract was
executed to determine if it is the product of unfair surprise. Substantive
unconscionability evaluates the actual terms of the contract to determine if
they are substantively unfair. "If the sum total of the provisions of a
contract drive too hard a bargain, a court of conscience will not assist its
enforcement." Waters, 412 Mass. at 68, 587 N.E.2d 231 (citing Campbell Soup Co. v. Wentz, 172 F.2d 80, 84 [3d Cir.1948] )....
* * *
The fact that this conduct constitutes an unfair or
deceptive practice, however, does not mean that this conduct was
unconscionable.
20 F.Supp.2d at 206-07.
The district court reviewed both substantive
and procedural unconscionability. With respect to substantive
unconscionability, the court focused on the disparity between the fees and the
value Sargeant obtained as well as the violation of debt-to-income parameters.
With respect to procedural unconscionability, it focused on the compensation
method of the loan originators and the failure to follow disclosure
requirements. While awarding the Debtor actual damages of $13,461.40, plus
interest, for improper origination fees or points, as well as $4,150, plus
interest for improper brokerage fees, and attorney's fees, the court struggled
with the issue of unconscionability, refraining from expressing an opinion.
Nevertheless, it stated "[a] court sitting in equity ... is empowered to
do complete justice as between the parties." Id. at 210. Thus, it granted Sargeant "an opportunity to tender
to United within six months the outstanding principal (not interest) due on her
loan as of the date of the court's order plus interest at the contract rate
from the date of the order, in which case the mortgage would be discharged and
the mortgage note satisfied." Id .
2. Positions of the Parties
a. The Debtor
The Debtor argues that "the disparity of
interests and oppressive terms of the agreement preclude any suggestion that
Defendant Fairbanks, the loan originator, or, indeed, anyone could think that
the terms of this transaction were acceptable to an 'honest fair man." '
She points out that she was approached by a door-to-door salesman, that
$12,659.40 of the $137,611.01 was for fees and prepaid interest, and that the
15-year loan was "flipped" to a five year loan in less than three
years. Moreover, the Debtor states that she received nothing of value in the
refinancing, but her principal increased to $149,150.50, that the monthly payment
of $2,005.71, which constituted 98.5% of her income and that of Ranger, was
insufficient to amortize the loan, and that a balloon payment was required at
the expiration of the term of the loan. In addition, Ranger, in her affidavit,
indicated that she and the Debtor were not provided with TILA disclosures.
b. Fairbanks
*26 Fairbanks agues that,
"although an interest rate of 16% may have been above the market rate,
such a rate is not in the least bit unusual." Opposition at 9. It adds
that the Debtor "did not shop for a loan, and never even attempted to
secure a lower interest rate ." Id. Fairbanks also argues that the
Debtor "seems to have been in need of a way of consolidating her loans,
and greatly benefitted from the funds she obtained via the loan." Id.
at 10. Finally, Fairbanks asserts that even though the Debtor's monthly
payments constituted the majority of her income the loan was not
unconscionable. It concludes that the Debtor "was not coerced, she entered
into the loan to pay off other loans, she was assisted by her granddaughter,
she was aware of the terms of the note, and she did not shop for any other
loans. As such, the loan was not unconscionable." Id. at 11.
3. Analysis
The Court finds that the analysis employed by
the district court in Sargeant
is appropriate in this case. Thus, the first question that must be addressed is
any disparity in the value received bythe Debtor from ITT compared to the
consideration given by the Debtor. With respect to the 1988 loan, although the
annual percentage rate was 16.78% and the regular monthly payments were $1,908,
the bulk of the loan proceeds, $101,280.73, was used to pay preexisting
mortgages and other debt, and $22,602.08 was used to pay Vinyl Distributors.
Thus, the Debtor arguably received a benefit from those payments. With respect
to the 1991 transaction, however, the Debtor did not receive any additional
value. The term of the loan, however, was significantly reduced and the monthly
payment increased by almost $100. Despite the increased monthly payment, which
consumed virtually all of the Debtor's and Ranger's income, the monthly payment
did not amortize the loan, leaving the Debtor responsible for a balloon payment
at the expiration of the term of the loan in an amount greater than the original
principal balance.
In 1988, the Itemization of the Amount
Financed shows that the Debtor had two mortgages on the property; one in the
sum of $76,596.86 and the other in the sum of $24,683.87. That secured debt in
the total sum of $101,280.73 was replaced by a mortgage in the sum of
$137,611.01 in 1988 and by a mortgage in the sum $149,150.50 in 1991. Thus,
whatever equity the Debtor may have had in her home was significantly reduced.
With respect to the debt-to-income ratio,
although the Court has no evidence of what ITT's parameters were, the Court
finds that the ratio present in this case was extraordinary. In its Opposition
to the Debtor's Motion for Partial Summary Judgment, Fairbanks stated that the
Debtor and "her daughter [sic] were not the only ones making payments on
the note, nor were they the only individuals residing at the property secured
by the note. Thus, the family had additional funds which are undisclosed."
Opposition at 10. Fairbanks referred to (Exhibit "XXX") in support of
its factual assertion. As no Exhibit labeled XXX is attached to the Opposition,
the Court finds that Fairbanks's assertion is wholly unsupported by the record.
Moreover, even if other family members voluntarily contributed money, they
would not be legally responsible for the loan payments. Accordingly, there are
no issues of fact about the amount of monthly payments, the balloon and
negative amortization features of the loan, and the ratio of the monthly
payment amount to the combined monthly incomes of the Debtor and Ranger as the
sole source of funds to satisfy the ITT loan. Considering the loan terms, the
question is, as the district court in Sargeant rhetorically stated,
"Do these terms 'drive too hard a bargain?" ' 20 F.Supp.2d at 207.
*27 With respect to the procedural
unconscionability inquiry, the Court has no evidence that ITT satisfied the
disclosure requirements for the 1991 transaction, including providing the
Debtor with a notice of her right to rescind the transaction. In the absence of
such evidence, the Court finds that the Debtor has satisfied the procedural
unconscionability prong of the inquiry.
In sum, the Court finds that the 1991
transaction was unconscionable and takes judicial notice that it and the 1988
transaction satisfy, in all material respects, the paradigm of predatory
lending. [FN15] In answer to the question, "Do the
terms of the 1991 transaction drive too hard a bargain?" the answer is
unequivocally, "yes."
In Waters v. Min Ltd., the court
framed the question as whether the contract "was such as no man in his
senses and not under delusion would make on the one hand, and as no honest and
fair man would accept on the other." 412 Mass. at 66. Again, this Court concludes that the answer is "yes,"
and that the Debtor would not have entered into the 1991 transaction had she
been fully cognizant of its ramifications. More importantly, no fair lender
would have accepted a loan requiring virtually 100% of the incomes of the
co-obligors to satisfy the monthly payments. Additionally, in this case, there
was no allocation of risk based on "superior bargaining power." Id. at 68. The Debtor appears to have been powerless and assumed all
the risk; ITT assumed no risk. If the Debtor made her monthly payments and the
balloon payment, it would greatly benefit from the high interest rate it
charged. If the Debtor defaulted, it could foreclose on her home and recoup its
money that way--a business outlook Fairbanks appears to share as evidenced by
its Contact History Report.
For all the foregoing reasons, the Court
finds that the 1991 transaction was unconscionable. The Debtor is entitled to
rescind the loan by way of recoupment.
V. CONCLUSION
In view of the foregoing, the Court shall
enter an order granting the Debtor's Motion for Partial Summary Judgment,
overruling Fairbanks's Opposition and denying Fairbanks's Cross-Motion for
Summary Judgment.
FN1. Section 36 provides in pertinent part the following:
The provisions of law relative to limitations of actions
shall apply to a counterclaim by the defendant. The time of such limitation
shall be computed as if an action had been commenced therefor at the time the
plaintiff's action was commenced.
Notwithstanding the provisions of the first paragraph of
this section, a counterclaim arising out of the same transaction or occurrence
that is the subject matter of the plaintiff's claim, to the extent of the
plaintiff's claim, may be asserted without regard to the provisions of law
relative to limitations of actions.
Mass. Gen. Laws Ann. Ch. 260, § 36 (West
1992).
FN2.
The Debtor, in the record attached to her Statement of Undisputed Facts, did
not identify the witness that her counsel deposed. Fairbanks referred to the
deposition testimony of Brando. Accordingly, the Court shall assume that the
deposition testimony made part of the Debtor's Statement of Undisputed Facts
was Brando's.
FN3.
The witness reiterated this point later in the deposition as follows:
Q. Do you know if the prior note holder in this case
provided you with the principle [sic] amount? Do you know?
A. Me personally? No. From speaking with Arron [sic], I was
told that no, we didn't have a prior payment history....
*
* *
Q. Is there--and there is no payment history to support
this principle [sic] amount that you have seen, correct?
A. Correct.
Deposition Transcript at 87-88.
FN4.
The letter contained the following:
During the 60-day period following the effective date of
the transfer of the loan servicing, a loan payment received by your old
servicer before its due date may not be treated by the new loans servicer as
late, and a late fee may not be imposed on you.
Section 6 of RESPA (12 U.S.C. 2605)
give you certain consumer rights. If you send a "qualified written
request" to your loan servicer concerning the servicing of your loan, your
servicer must provide you with a written acknowledgment within 20 Business Days
of receive [sic] of your request. A "qualified written request" is a
written correspondence, other than notice on a payment coupon or other payment
medium supplied by the servicer, which includes your name and account numbers,
and your reasons for the request. Not later than 60 Business Days after
receiving your request, your servicer must make any appropriate corrections to
your account, and must provide you with a written clarification regarding any
dispute. During this 60-Business Day period, your servicer may not provide
information to a consumer reporting agency concerning any overdue payment
related to such period or qualified written request. However, this does not
prevent the servicer from initiating foreclosure if proper grounds exist under
the mortgage documents.
*
* *
Section 6 of RESPA also provides for damages and costs for
individuals or classes of individuals in circumstances where servicers are
shown to have violated the requirements of that Section. You should seek legal
advice if you believe your rights have been violated.
FN5.
The only evidence in the record as to when Fairbanks acquired the Note and
Mortgage is the Non-Performing Loan Sale Agreement between FC Capital Corp. and
Fairbanks dated September 10, 1999 and the October 1999 assignment from
Transamerica to Fairbanks, discussed infra.
FN6.
The proof of claim form used by Fairbanks contains the following warning at the
bottom: "Penalty for presenting fraudulent claim: Fine of up to $500,000
or imprisonment for up to 5 years, or both. 18 U.S.C. § 152 and 3571."
FN7.
Fairbanks claimed, not the amount due at the time the Debtor filed her
petition, but an amount due at the end of the plan. See Ex. A attached
to this decision.
FN8. The proof of claim contained two figures: $309,463.68
as the secured claim and $430,707.28 as the "Amount of arrearage and other
charges at time case filed included in secured claim above if any."
FN9.
Although it only pointed to the two assignments, it stated "Defendant owns
the note at issue. Defendant has established this by producing a chain of title
with properly recorded assignments and providing notifications of the assign to
debtor." There was no evidence that Fairbanks notified the Debtor of the
October 1999 assignment.
FN10.
Because Fairbanks filed a Notice of Appearance on January 19, 2000, in the Debtor's
prior Chapter 13 case in which it represented that it was acting "as agent
for Opportunity Funding I LLC," the Court finds that there are genuine
issues of material fact as to when Fairbanks obtained servicing rights versus
ownership of the Note and Mortgage.
FN11.
RESPA also has a provision for class actions as follows:
2) Class actions
In the case of a class action, an amount equal to the sum
of-- (A) any actual damages to each of the borrowers in the class as a result
of the failure; and
(B) any additional damages, as the court may allow, in the
case of a pattern or practice of noncompliance with the requirements of this
section, in an amount not greater than $1,000 for each member of the class,
except that the total amount of damages under this subparagraph in any class
action may not exceed the lesser of--
(i) $500,000; or
(ii) 1 percent of the net worth of the servicer.
12 U.S.C. 2605(f)(2).
FN12.
The deadline for completion of discovery was March 29, 2002.
FN13.
The regulation provides the following:
It is an unfair or deceptive practice for a mortgage broker
or lender to procure or negotiate for a borrower a mortgage loan with rates or
terms which significantly deviate from industry-wide standards or which
are otherwise unconscionable.
20 F.Supp.2d at 198 (quoting 940
C.M.R. § 8.06(6))(emphasis added).
FN14.
The court described the "unscrupulous behavior of unregulated mortgage
brokers and lenders who engaged in predatory lending practices that included
offering high-rate and high-fee loans to borrowers who lacked access to
mainstream banks because of redlining practices, had marginal credit histories,
and had limited financial sophistication." Id. It stated the
following:
The targets of predatory lenders are usually people who
have substantial equity in their homes due to rising real estate values or due
to the reduction of purchase money debt, but who are short on cash because of
their low or fixed incomes. They may need money to make home repairs or
improvements, to pay for necessities such as medical care, or to consolidate
household debts. These homeowners generally do not obtain home equity loans
primarily for their tax advantages but because borrowing against their homes is
the only way that they can obtain the credit they need to make home repairs or
to survive periods of economic distress. Those most often affected are
minorities, the elderly, and the inner-city and rural poor.
Id.
at 202 (citing Julia Patterson Forrester, Mortgaging the American Dream: A Critical Evaluation of the
Federal Government's Promotion of Home Equity Financing, 69 Tul. L.Rev. 373, 387-89 (1994).
FN15.
The Court notes that the Code of Massachusetts Regulations now proscribes the
types of lending practices evidenced in the Debtor's transactions with ITT.
Applicable to high cost home loans, 209 CMR 32.32,
effective March 22, 2001, requires explicit notices warning a mortgagor that he
or she may, among other things, lose their home. Moreover, it provides that a
mortgage subject to 209 CMR
32.32 may not provide for
balloon payments if the loan is for a term of less than seven years or for
negative amortization. It also identifies certain prohibited acts and practices
including making a high cost home loan, "unless the creditor reasonably
believes at the time the loan is consummated that the obligor or the obligors
... will be able to make the scheduled payments to repay the obligation based
upon a consideration if their current and expected income, current obligations,
employment status, and other financial resources...." 209 C.M.R. 32.32(5)(a). The regulation also prohibits the
payment of a contractor under a home-improvement contract from the proceeds of
the mortgage other than by an instrument payable to the consumer or jointly to
the consumer and the contractor or through a third party escrow agent.
The regulation also defines certain unfair acts or
practices for a creditor engaged in transactions subject to its terms,
including financing points, fees or charges and "[c]harging a borrower
points and fees in connection with a high cost home loan if the proceeds of the
high cost home loan are used to refinance an existing high cost home loan and
the last financing was within two years of the current refinancing." Id.
(6)(b).
2002 WL 1586325 (Bankr.D.Mass.)
END OF
DOCUMENT
