holding that courts have the 27 discretion to require tender before permitting rescission under TILA, and that the same 28 1 “must be determined on a case-by-case basis, in light of the record adduced”
How later courts described this case
- holding that courts have the 27 discretion to require tender before permitting rescission under TILA, and that the same 28 1 “must be determined on a case-by-case basis, in light of the record adduced”
- “[I]t is not a 12 material nondisclosure for Integrity to fail to disclose the identity of each creditor in this 13 transaction.”
- identifying the July 21, 24 2011 transfer date and calculating 18 months out to January 21, 2013
Written by the judges who cited it.
The opinion
1
2
3
4
5
6
7
8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
10
11 Dale Sundby, Trustee, Case No.: 19-CV-00390-GPC-MDD
12 Plaintiff,
ORDER
13 v.
(1) DENYING MARQUEE FUNDING
14 Marquee Funding Group, Inc.; Salomon
GROUP’S MOTION TO DISMISS
Benzimra, Trustee; Stanley Kesselman,
15 [ECF No. 30];
Trustee; Jeffrey Myers; Kathleen Myers;
16 Andres Salsido, Trustee; Benning
(2) DENYING LENDER
Management Group 401(k) Profit Sharing
17 DEFENDANTS’ MOTION TO
Plan; Christopher Myers; Vickie McCarty;
DISMISS [ECF No. 31];
18 Dolores Thompson; Kimberly Gill
Rabinoff; Steven M. Cobin, Trustee;
19
Susan L. Cobin, Trustee; Equity Trust
20 Company, Custodian FBO Steven M.
Cobin Traditional IRA; Todd B. Cobin,
21
Trustee; Barbara A. Cobin, Trustee;
22 Fasack Investments LLC; and Does 1-X,
23 Defendants.
24
25 The matter before the Court arises from two loans that pro se Plaintiff, Dale
26 Sundby, obtained from the above-captioned Defendants, secured by a mortgage on his
27 primary residence. Plaintiff has sued the Defendants for damages pursuant to the Truth
28
1 in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq., and for a declaration clarifying the
2
parties’ rights and obligations with respect to one of the loans.
3
On May 22, 2019, Defendant Marquee Funding Group, Inc. (“Marquee”), filed a
4
motion to dismiss Plaintiff’s First Amended Complaint (hereinafter “FAC”). (ECF No.
5
30.) This motion has been opposed and replied to (ECF Nos. 34, 36); upon request by the
6
Plaintiff, the Court permitted a sur-reply. (ECF No. 39.) On May 28, 2019, the
7
remaining defendants (hereinafter the “Lender Defendants”) filed a motion to dismiss.
8
(ECF No. 31.) This motion has also been fully briefed. (ECF Nos. 34, 35.)
9
Pursuant to Civil Local Rule 7.1(d)(1), the Court finds the matter suitable for
10
adjudication without oral argument. For the reasons explained below, the Court denies
11 both motions.
12 I. Background
13 A. Factual Allegations
14 1. The 2016 Loan
15 In 2016, Plaintiff, acting on behalf of his family trust, arranged with Marquee, a
16 mortgage broker, to obtain refinancing on an existing 2015 mortgage loan secured by
17 Plaintiff’s primary residence at 7740 Eads Avenue, La Jolla, CA 92037 (the “Eads
18 property”). (FAC ¶¶ 27–30, ECF No. 13.)
19 On March 10, 2016, Plaintiff submitted to Marquee a “Uniform Residential Loan
20 Application for a conventional fixed-rate mortgage. (Id.) Plaintiff’s application sought a
21 residential mortgage loan of $2,600,000, secured by his primary residence, and indicated
22 that the purpose of the loan was for refinancing. (FAC ¶¶ 27–31.). Plaintiff stated only
23 the Eads property under “Assets” and listed two loans secured by the Eads property as
24 “Liabilities.” (FAC ¶¶ 32–35.) Plaintiff’s application did not make any statement as to
25 the borrower’s “employer,” nor did it state any “income.” (FAC ¶¶ 32-33.)
26
27
28
1 Pursuant to this application, on March 30, 2016, Plaintiff signed a Note Secured by
2
a Deed of Trust (“2016 Note”), which included a prepayment paragraph.1 The 2016 Note
3
contains a “payments” paragraph prescribing a combined balloon payment and one
4
month of interest. It indicates that the borrower’s “payments are Interest Only.” (FAC ¶¶
5
48–49.) That same day, Plaintiff signed an Amendment to the 2016 Note which stated
6
that “[i]t is hereby agreed that borrower is prepaying 11 months of interest through the
7
loan transaction.” (FAC ¶ 50.)
8
The 2016 Loan was funded on April 6, 2016. The corresponding Deed of Trust
9
was recorded on April 7, 2016. (FAC ¶ 52.) The Escrow Holder’s Final Settlement
10
Statement for this transaction indicated that Marquee was due a $39,000.00 broker’s fee,
11 designated as an “Origination Charge.” (FAC ¶¶ 53–54.) According to Plaintiff,
12 “Defendants did nothing to qualify Plaintiff for the 2016 Loan,” even though his 2016
13 application listed no employer, no income, or non-Property asserts. (FAC ¶ 131(e).)
14 2. 2017 Loan
15 In 2017, Plaintiff arranged with Marquee to obtain a $3,160,000 refinancing for his
16 residential mortgage loan. Plaintiff completed a “Uniform Residential Loan Application”
17 indicating, once again, the refinance purpose and the residential property at issue. (FAC
18 ¶ 55; see also ECF No. 33-1, at 7 (2017 application).) The 2017 application stated no
19 employer. According to Plaintiff, the amount listed as the borrower’s income, minus
20 expenses, was less than 10% of the $25,016.67 monthly interest on the loan. (FAC ¶¶
21 58–59.) The non-property assets on the 2017 application were less than the non-property
22 liabilities. (FAC ¶ 60.) The 2017 application was submitted to Marquee on May 17,
23 2017. According to Plaintiff, despite these red flags, Defendants never qualified him for
24 the 2017 Loan.
25
26
27
1 “In lieu of a Prepayment Penalty Borrower agrees to pay the Lender a Minimum of 90 days
28
1 On June 27, 2017, Marquee emailed a bundle of loan documents to Plaintiff.
2
These documents included a deed of trust, a note secured by a deed of trust (the “Original
3
2017 Note”), a notice of right to cancel, a disclosure statement, a set of escrow
4
instructions, and a set of closing disclosures. (FAC ¶¶ 63–80.) The closing disclosures
5
indicated the loan’s purpose as “refinance.” (Id.) On June 28, 2017, Plaintiff signed all
6
the June 27, 2017 documents and initialed every page of each document not requiring a
7
signature. (FAC ¶ 82.)
8
On June 29, 2017, Marquee emailed Plaintiff a set of updated documents, and
9
requested Plaintiff to “review, print and sign” the updated documents, “confirming
10
acceptance of the vesting change.” (FAC ¶ 86.) These documents included (1) an
11 updated Note Secured by Deed of Trust (“Emailed 2017 Note,” ECF No. 33-1, at 28);
12 and a “Page 1” of an updated Deed of Trust (“Emailed 2017 Deed of Trust Page 1,” ECF
13 No. 33-1, at 26). (FAC ¶¶ 87–88.)
14 Under the Emailed 2017 Note, Plaintiff promised to make payments of the
15 principal, plus interest, to the “Lenders” named in Paragraph 1. Paragraph 5 contains a
16 “Prepayment Penalty,” which advises, “[i]f this loan is paid off or refinanced during the
17 first Six (6) month(s) of the term, a prepayment penalty equal to the difference between
18 Six (6) month(s) of interest and the date of prepayment shall be due tendered.” Paragraph
19 9, titled “Use of Proceeds,” states that “Loan Proceeds are intended to be used primarily
20 for business and commercial purposes and are not intended to be used for personal,
21 family or household purpose or in any manner which may result in the loan Transaction
22 not being exempt from Truth in Lending Act (TILA), 15 U.S.C.A. 1602(h).”
23 On June 29, 2019 Plaintiff initialed the bottom of the Emailed Deed of Trust Page
24 1, signed the Emailed 2017 Note, and sent back all of the updated documents to Marquee
25 via FedEx. (FAC ¶¶ 93–99.) Plaintiff also sent PDF versions of the updated loan
26 documents to Marquee. (FAC ¶ 100.)
27 3. Forbearance Letter and Subsequent Developments
28
1 On January 24, 2019, Marquee’s attorney emailed Plaintiff to advise him that
2
Marquee was in the process of finalizing a draft forbearance agreement. (FAC ¶ 101.)
3
On January 29, 2019, Plaintiff received the draft agreement, which stated: “Lender and
4
Marquee contend that the Loan Documents are enforceable, and that Lender can pursue
5
foreclosure; Borrower disputes such contentions.” (FAC ¶ 106.)
6
After receipt, Plaintiff noticed that the draft forbearance agreement named different
7
entities as Lenders than was stated on the Emailed 2017 Deed and the Emailed 2017
8
Note. On February 8, 2019, Plaintiff and obtained a certified copy of the deed for the
9
2017 Loan from the San Diego County Recorder (hereinafter the “Recorded 2017
10
Deed”). (FAC ¶¶ 107–108.) That deed was recorded on July 7, 2017 by Marquee, and
11 according to Plaintiff, was not the same as the Emailed 2017 Deed which he had signed
12 and returned to Marquee. (FAC ¶¶ 109.)
13 Plaintiff observes two primary differences between the two deeds. First, Plaintiff’s
14 signature, which he had affixed to the Emailed 2017 Deed of Trust Page 1, was missing
15 from the Recorded 2017 Deed.
16 Second, the Emailed 2017 Deed was made with reference to the entirety of the
17 Eads property, which, according to attachment Exhibit A, encompassed Parcels 1A, 1B,
18 2A, 2B, 3A, and 3B; the Recorded 2017 Deed, on the other hand, narrowed the property
19 conveyed to only “Parcels 1A, 1B and 2B.” (Compare ECF No. 33-1, at 26 (Emailed),
20 with ECF No. 31-3, at 50 (Recorded).)
21 Third, the lenders named in the first paragraph of the deeds were not identical, and
22 further, their stated ownership interest percentages are not the same. For example,
23 whereas in the Emailed 2017 Deed, “Jeffrey Myers and Kathleen Myers, husband and
24 wife as joint tenants,” were to obtain “an undivided 44.147% interest,” in the Recorded
25 2017 Deed, the same were to take “an undivided 44.148% interest.” (Compare ECF No.
26 33-1, at 26 (Emailed), with ECF No. 31-3, at 50 (Recorded).) Similarly, whereas in the
27 Emailed 2017 Deed, “Equity Trust Company Custodian FBO Steven M. Cobin
28 Traditional IRA” was to take “an undivided 15.823% interest,” the Recorded 2017 Deed
1 seems to have bifurcated that interest, providing instead that “Steven M Cobin and Susan
2
L. Cobin, Trustees of the Cobin Family Trust,” would take “an undivided 7.911 interest,”
3
and that the “Equity Trust Company Custodian FBO Steven M. Cobin Traditional IRA,”
4
would take the other undivided 7.911 interest. (Id.)
5
Observing these inconsistencies, Plaintiff asked Marquee to send him copies of the
6
loan documents which Plaintiff signed and returned on June 29, 2017—i.e., the emailed
7
documents. (See FAC ¶¶ 115–117 (asking Marquee to provide “the final 2017 loan
8
documents”).) On February 13, 2019, Marquee used a service called “Dropbox” to send
9
to Plaintiff documents responsive to his request.
10
According to Plaintiff, the deed Marquee sent via Dropbox was the Recorded 2017
11 Deed, not the Emailed 2017 Deed that he recalls signing. Plaintiff also alleges that the
12 escrow instructions received through Dropbox were not the ones he had signed, since the
13 Dropbox version was missing his signature. (FAC ¶ 127.) He further claims that the
14 note received through Dropbox (“Dropbox 2017 Note”) was not the same as the Emailed
15 2017 Note which he approved and signed. (FAC ¶¶ 118–119.)
16 During the course of briefing on the pending motions, the defending parties
17 produced two versions of the 2017 note. Marquee’s copy is introduced as an attachment
18 to the Declaration of Scot Fine (hereinafter the “Fine 2017 Note”). (ECF No. 30-1, at 37
19 (Decl. of Scot Fine, dated May 3, 2019).) Mr. Fine is the Chief Executive Officer of
20 Platinum Loan Servicing, Inc., the mortgage loan servicer to the 2016 and 2017 Loans.
21 (Id. at 8.) He avers that he has produced the note “as maintained within PLS’s loan
22 files.” (Id.) The Lender defendants introduced their copy of the 2017 note as an
23 attachment to the Declaration of Troy H. Slome (hereinafter the “Slome 2017 Note”).
24 (ECF No. 31-3, 61 (Decl. of Troy H. Slome, dated May 28, 2019).)
25 Notably, neither of the Defendants’ note documents are identical to the Emailed
26 2017 Note, and both are different from each other.
27 Plaintiff avers that before the official records search and receipt of the Dropbox
28 loan documents, Plaintiff had not known that the Emailed 2017 Note had been altered,
1 and that the Emailed 2017 Deed had not been recorded. On February 25, 2019, Plaintiff
2
“rescinded” the Emailed 2017 Note and the Emailed 2017 Deed because “they never
3
came into existence.” (FAC ¶ 128.)
4
B. Procedural History and Present Claims
5
Plaintiff filed his original complaint on February 26, 2019 (ECF No. 1), and
6
submitted the operative complaint, i.e., the FAC, on May 8, 2019. (ECF No. 13.) The
7
FAC alleges two causes of action against Marquee, several trustees, and a number of
8 “Lender defendants.”2
9
Plaintiff’s first cause of action articulates several TILA violations with respect to
10
his 2016 and 2017 Loans. As a definitional matter, Plaintiff contends that both loans are
11 “high cost mortgages” because they were secured by his principal dwelling and included
12 “prepayment fees” exceeding “in the aggregate, more than 2 percent of the amount
13 prepaid.” 15 U.S.C. § 1602(bb)(1)(A)(iii); § 1639(c)(1)(B).
14 Plaintiff’s substantive TILA allegations are three-fold. First, Plaintiff alleges that
15 the prepayment fees violated 15 U.S.C. § 1639(c)(1)(A), which forbids high cost
16 mortgages from including “prepayment penalties for paying all or part of the principal
17 before the date on which the principal is due.” 15 U.S.C. § 1639(c)(1)(A). Second,
18 Plaintiff alleges a violation of § 1639c(a), which imposes upon creditors the duty to make
19 a reasonable and good faith determination of the consumer’s ability to repay before
20 making a loan. Third, Plaintiff asserts that Marquee, as the loan originator, violated §
21 1639b(c)(3)(A)(i) by steering Plaintiff to a residential mortgage loan which he lacked a
22 reasonable ability to repay. For these TILA violations, Plaintiff seeks damages in
23 accordance with §§ 1639b and 1640.
24 Plaintiff’s second cause of action is styled as a declaratory judgment claim, but in
25 effect is also a request for rescission. Plaintiff seeks a declaration that the Recorded 2017
26
27
2 The Lender defendants appear to encompass several entities which were named as Lender in the
28
1 Deed and the Dropbox 2017 Note are void and with no effect. He also seeks a Court
2
order to reconvey the Eads property back to the family trust.
3
Marquee filed a motion to dismiss the TILA claims against it. (ECF No. 30.) The
4
Lender defendants filed a motion to dismiss both the TILA and declaratory judgment
5
claims. (ECF No. 31.) The Court will address sufficiency of the TILA claims first, and
6
then turn to the declaratory judgment claim.
7
II. Rule 12(b)(6) Standard
8
A Rule 12(b)(6) motion attacks the complaint as not containing sufficient factual
9
allegations to state a claim for relief. “To survive a motion to dismiss [under Rule
10
12(b)(6)], a complaint must contain sufficient factual matter, accepted as true, to ‘state a
11
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)
12
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In this respect,
13
“[d]ismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a
14
cognizable legal theory or sufficient facts to support a cognizable legal theory.”
15
Mendiondo v. Centinela Hosp Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).
16
While “detailed factual allegations” are unnecessary, the complaint must allege
17
more than “[t]hreadbare recitals of the elements of a cause of action, supported by mere
18
conclusory statements.” Iqbal, 556 U.S. at 678. “In sum, for a complaint to survive a
19
motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from
20
that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.”
21
Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009).
22
“Generally, a court may not consider material beyond the complaint in ruling on a
23
Fed. R. Civ. P. 12(b)(6) motion.” Intri-Plex Techs., Inc. v. Crest Grp., Inc., 499 F.3d
24
1048, 1052 (9th Cir. 2007). A court normally must convert a Rule 12(b)(6) motion into a
25
Rule 56 motion for summary judgment if it “considers evidence outside the pleadings . . .
26
A court may, however, consider certain materials—documents attached to the complaint,
27
documents incorporated by reference in the complaint, or matters of judicial notice—
28
1 without converting the motion to dismiss into a motion for summary judgment.” United
2 States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003).
3 All the documents referred to in this case are cognizable by the Court upon a Rule
4 12(b)(6) challenge. The documents attached to Plaintiff’s opposition brief were
5 incorporated by reference in his FAC. The Court may thus consider them. See, e.g.,
6 Mulinix v. Unifund CCR Partners, No. 07-1629DMS, 2008 WL 2001747 (S.D. Cal. May
7 5, 2008) (“A complaint is deemed to include materials incorporated by reference and
8 documents that, although not incorporated by reference, are ‘integral’ to the complaint.”).
9 Defendants’ materials are also appropriately subject to notice. For one, their proffered
10 deeds and notes are incorporated by reference in Plaintiff’s FAC, and are integral to
11 Plaintiff’s claim that they have been improperly altered. Furthermore, they are
12 independently judicially noticeable. See, e.g., Fimbres v. Chapel Mort. Corp., No. 09-
13 CV-0886-IEG (POR), 2009 WL 4163332, at *3 (S.D. Cal. Nov. 20, 2009) (taking judicial
14 notice of deed of trust).
15
III. Statutory Context and Plaintiff’s Claims
16
A. Dodd-Frank amendments to TILA
17
In 2010, Congress enacted the Dodd-Frank Wall Street Reform and Consumer
18
Protection Act (“Dodd-Frank”), Pub. L. No. 111–203, 24 Stat. 1376 (2010), to amend
19 several sections of the Truth in Lending Act, 15 U.S.C. § 1601.3 Dodd-Frank was passed
20
“in response to a ‘financial crisis that nearly crippled the U.S. economy,’” which
21
Congress attributed “the simple failure of federal regulators to stop abusive lending,
22
particularly unsustainable home mortgage lending.’” Lusnak v. Bank of America, N.A.,
23
883 F.3d 1185, 1189 (9th Cir. 2018) (quoting S. Rep. No. 111-176, at 2, 15 (2010)).
24 “Dodd-Frank brought about a ‘sea change’ in the law, affecting nearly every corner of the
25
26
3 See, e.g., Arizmendi v. Wells Fargo Bank, N.A., No. 117CV01485LJOSKO, 2018 WL 3219383,
27
at *4 (E.D. Cal. June 29, 2018).
28
1 nation’s financial markets.’” Id. (quoting Loan Syndications & Trading Ass’n v. S.E.C.,
2
818 F.3d 716, 718 (D.C. Cir. 2016)).
3
As a result, residential mortgage lending practices were placed under increased
4
scrutiny pursuant to Title XIV of Dodd-Frank. These new requirements, now found in
5
relevant part, at 15 U.S.C. §§1639, 1639b and 1939c, provide “for the imposition of
6
additional standards in the mortgage lending industry.” Megino v. Linear Fin., No. 2:09-
7
CV-00370-KJD, 2011 WL 53086, at *8 n.1 (D. Nev. Jan. 6, 2011). Consistent with the
8
teleological thrust of Dodd-Frank, these sections were instituted with the explicit
9
Congressional purpose “to assure that consumers are offered and receive residential
10
mortgage loans on terms that reasonably reflect their ability to repay the loans and are
11 understandable and not unfair, deceptive or abusive.” 15 U.S.C. § 1639b(a)(2)
12 (referencing §§ 1639b, 1639c).
13 B. Plaintiff’s Ability-to-Repay Claims
14 Section 1639c(a)(1) states the general duty invoked by Plaintiff with respect to his
15 ability-to-repay claims:
16 In accordance with regulations prescribed by the Bureau [i.e., the Consumer Finance
Protection Bureau (CFPB)], no creditor may make a residential mortgage loan unless
17
the creditor makes a reasonable and good faith determination based on verified and
18 documented information that, at the time the loan is consummated, the consumer has
a reasonable ability to repay the loan, according to its terms, and all applicable taxes,
19
insurance . . . , and assessments.
20 15 U.S.C. § 1639c(a)(1). Subparagraph (a)(3) further provides that the determination
21 “shall include consideration” of the following factors:
22
[T]he consumer’s credit history, current income, expected income the consumer is
23
reasonably assured of receiving, current obligations, debt-to-income ratio or the
24 residual income the consumer will have after paying non-mortgage debt and
mortgage-related obligations, employment status, and other financial resources other
25
than the consumer’s equity in the dwelling or real property that secures repayment
26 of the loan.
27
15 U.S.C. § 1639c(a)(3).
28
1 Plaintiff asserts that Marquee, as a loan originator pursuant to 15 U.S.C. § 1602(g),
2 and the Lender defendants, as creditors pursuant to 15 U.S.C. § 1602(dd)(2), violated §
3 1639c(a)(1) because they did nothing to qualify him for his 2016 and 2017 loans to
4 ensure that he had an ability to repay. He also pleads that Marquee violated §
5 1639b(c)(3)(A)(i) when it steered him toward residential mortgage loans which he lacked
6 a reasonable ability to repay. See 15 U.S.C. § 1639b(c)(3)(A)(i) (“The Bureau shall
7 prescribe regulations to prohibit . . . mortgage originators from steering any consumer to
8 a residential mortgage loan that . . . the consumer lacks a reasonable ability to repay . . .
9 .”).
10 C. Plaintiff’s Prepayment Penalty Claims
11 Under Dodd-Frank, TILA prohibits a “high-cost mortgage” from “contain[ing]
12 terms which a consumer must pay a prepayment penalty for paying all or part of the
13 principal before the date on which the principal is due.” 15 U.S.C. § 1639(c)(1)(A); see
14 also 12 C.F.R. 1026.34 (CFPB regulations). A “high-cost mortgage” is defined under 15
15 U.S.C. § 1602(bb)(1)(A) as “a consumer credit transaction that is secured by the
16 consumer’s principal dwelling.”
17 Plaintiff contends that both his 2016 and 2017 Loans were high-cost mortgages
18 because in each instance, “the credit transaction documents permit[ted] the creditor to
19 charge or collect prepayment fees or penalties more than 36 months after the transaction
20 closing or such fees or penalties exceed, in the aggregate, more than 2 percent of the
21 amount prepaid.” 15 U.S.C. § 1602(bb)(1)(A)(iii). He further avers that each loan
22 contained prepayment penalties as defined by § 1639(c)(1)(B) (“Construction: . . . any
23 method of computing a refund of unearned scheduled interest is a prepayment penalty if
24 it is less favorable to the consumer than the actuarial method . . . .”).4 Thus, Plaintiff
25
26
4 Plaintiff alleges that the 2016 Note included a prepayment provision in which he “agree[d] to
27 pay a prepenalty computed as follows: In lieu of a Prepayment Penalty Borrower agrees to pay the
Lender a Minimum of 90 days Interest from the day of this loans funding.” (FAC ¶ 47.) The 2017
28
1 argues that defendants are liable for issuing him a high-cost mortgage with a prepayment
2 penalty in contravention of 15 U.S.C. § 1639(c)(1)(A).
3
IV. Cause of Action 1: TILA Claims
4
Both Marquee and the Lender defendants have submitted motions to dismiss
5
Plaintiff’s claims under TILA. While Defendants raise a plethora of arguments, there are
6
certain items which have not been disputed. Marquee does not dispute that it is a “loan
7
originator” as defined by TILA; similarly, the Lender defendants do not deny that they
8
are “creditors.” Further, Defendants do not quarrel with Plaintiff’s assessment that the
9
2016 and 2017 Loans contained prepayment penalties, nor have they challenged
10
Plaintiff’s characterization of the same as “high-cost mortgages.”
11
A. Overview of Arguments for Dismissal
12
Marquee presents three primary defenses in its motion to dismiss. (ECF No. 30.)
13 First, it contends that TILA’s wrongful mortgage lender steering provision, 15 U.S.C. §
14 1639b(c)(3)(A)(i), cannot support a cause of action because the CFPB never issued
15 regulations implementing the statute. Second, even assuming the viability of any such
16 cause of action, Marquee asserts that the 2017 Loan was a commercial business loan,
17 which is not subject to the anti-steering rule for residential mortgages. Third, Marquee
18 argues that Plaintiff failed to plead that his loans did not fall within the temporary or
19 bridge loan exception, 15 U.S.C. § 1639c(a)(8) (providing an exception for “temporary or
20 bridge loan[s] with a term of 12 months or less”).
21 The Lender defendants raise a number of points, two of which merit discussion
22 here.5 (ECF No. 31.) The Lender defendants’ first contention is that Plaintiff’s TILA
23 claims are time-barred and not subject to equitable tolling. Like Marquee, the Lender
24
25
refinanced during the first Six (6) month(s) of the term, a prepayment penalty equal to the difference
26 between Six (6) month(s) of interest and the date of prepayment shall be due tendered.” (FAC ¶ 96.)
27 5 Three of the Lender defendants’ arguments are so sparsely briefed that they may be considered
waived. Out of an abundance of caution, however, the Court will address the balance of those
28
1 defendants also argue that Plaintiff’s loans were exempt from the ability to repay rule
2
because both the 2016 and 2017 loans were temporary or bridge loans.
3
The Court will address the Defendants’ arguments below.
4
A. Statute of Limitations
5
The Lender defendants argue that all of Plaintiff’s TILA allegations are time-
6
barred under 15 U.S.C. § 1640(e). Under their reading of of the statute, § 1640(e)
7
established a one-year limitations period for any action for damages under TILA,
8
commencing from the time the loan documents were signed. (ECF No. 31-2, at 10–11,
9
citing Carillo v. Countrywide Home Loans, No. 09CV2676 DMS (WVG), 2010 WL
10
1904883, *2 (S.D. Cal. 2010).) The Lender defendants contend that because the loan
11 documents at issue were signed in 2016 and 2017, and the action was not filed until
12 February of 2019, Plaintiff’s suit must be barred for untimeliness.
13 Plaintiff objects that the Lender defendants have selectively quoted from § 1640(e)
14 and relied on outdated caselaw to arrive at the one-year limitations period. Plaintiff
15 insists that he is timely under an exception to the one-year limitations period established
16 by Dodd-Frank.
17 Despite the fact that Plaintiff is proceeding without legal counsel, it is Plaintiff
18 who is correct on the law. Section 1640(e) provides as follows:
19
Except as provided in the subsequent sentence, any action under this section may be
20
brought in any United States district court, or in any other court of competent
21 jurisdiction, within one year from the date of the occurrence of the violation. . . .
Any action under this section with respect to any violation of section 1639, 1639b,
22
or 1639c of this title may be brought in any United States district court, or in any
23 other court of competent jurisdiction, before the end of the 3-year period beginning
on the date of the occurrence of the violation.
24
15 U.S.C. § 1640(e) (emphasis added).
25
Because Plaintiff asserts violations of §§ 1639(c), 1639b, and 1639c, his claims fall
26
within the three-year exception stated in the second sentence of the above quoted text.
27
See Carlos v. Beneficial Fin. I Inc., No. 17 C 1341, 2017 WL 5593317, at *4 (N.D. Ill.
28
1 Nov. 21, 2017) (discussing how “most of TILA is governed by a one-year statute of
2
limitations,” with the exception of the Dodd-Frank amendments, which are subject to a
3
three-year limitations period (quoting Prescott v. PHH Mortg. Corp., No. 16 C 288, 2017
4
WL 510449, at *4 (E.D. Va. Feb. 7, 2017)). The Lender defendants, who, over Plaintiff’s
5
vehement protestations, made much ado about caselaw construing a now-defunct version
6
of § 1640(e), are advised to refrain from cherry-picking favorable statutes of limitations
7 from outdated authorities.6
8
Plaintiff’s 2019 suit, alleging violations with respect to loans issued in 2016 and
9
2017, are timely pursuant to the three-year limitations period.
10 B. Bridge Loan Exception to the Ability to Repay Rule
11 Both Marquee and the Lender defendants make arguments predicated on 15 U.S.C.
12 § 1639c(a)(8). Subsection (a)(8) states that:
13 This subsection shall not apply with respect to any reverse mortgage or temporary
or bridge loan with a term of 12 months or less, including to any loan to purchase a
14
new dwelling where the consumer plans to sell a different dwelling within 12
15 months.
16 15 U.S.C. § 1639c(a)(8).
17 1. Marquee
18 Marquee’s argument as to this subsection is easily dismissed. Marquee argues that
19 Plaintiff’s § 1639b claim (for wrongful mortgage originator steering) is subject to the
20 exception under § 1639c(a)(8) because Plaintiff did not allege that the 2016 and 2017
21 Loans were not temporary or bridge loans. (ECF No. 30-1, at 6.) This argument fails on
22 two grounds. First, the Court is not convinced that the temporary and bridge loan
23 exception applies to claims brought pursuant to § 1639b. Indeed, the statutory text
24 instructs that § 1639c(a)(8) applies to “[t]his subsection,” i.e., § 1639c(a). Second, even
25 assuming arguendo that the exception applies to a different section of the statute, i.e., §
26
27 6 The Lender defendants’ support for a 1 year limitations period, i.e., Carillo, 2010 WL 1904883,
and Skrabe v. U.S. Bank, N.A., No. C10-03230 HRL, 2012 WL 6019586, *3 (N.D. Cal. 2012), both
28
1 1639b, Marquee’s argument belies a fundamental misunderstanding of what is required to
2
survive a motion to dismiss. Rule 12(b)(6) does not impose upon plaintiffs an obligation
3
to aver in the negative as to every exception to a statutory cause of action.
4
2. The Lender defendants
5
The Lender defendants’ arguments are slightly more compelling. They argue that
6 judicially-noticeable documents prove that the 2017 Loan7 was a “temporary or bridge
7
loan with a term of 12 months or less,” and that Plaintiff’s § 1639c(a) claims are legally
8
untenable as a result. (ECF No. 31-2, at 19.) Specifically, the Lender defendants contend
9
that the 2017 Note provides irrefutable evidence of a 12 month loan term. For this
10
proposition, they direct the Court to their version of the 2017 Note, i.e., the Slome 2017
11 Note. (ECF No. 31-3, 61.) The Lender defendants do not explain how they derive a 12
12 month loan term from the Slome 2017 Note, explaining only through Mr. Slome’s
13 declaration that their version of the note has “a one year term maturing on July 8, 2018.”
14 (ECF No. 31-3, at 2.)
15 Plaintiff disagrees that the 2017 Loan had a 12 month loan term. Although
16 Plaintiff does not concede its authenticity, Plaintiff urges that the plain terms of the
17 Slome 2017 Note belies the Lender defendants’ assertion of a 12 month loan term.
18 According to Plaintiff, the operative dates are June 27, 2017 (the date listed at the top of
19 the Slome 2017 Note) and July 8, 2018 (the date listed as the Payment Due Date), making
20 the loan term greater than 12 months. (ECF No. 34, at 6.)
21 At this juncture, the Court is not prepared to find that the Lender defendants have
22 demonstrated through judicially-noticeable documents the loan term for the 2017 Loan.
23 First, Lender defendants have not explained what about their note evinces a loan term of
24 12 months or less, or why Plaintiff’s proffered term, running from June 27, 2017 to July
25 8, 2018, is not the correct loan term. Indeed, they do not address Plaintiff’s contentions
26
27
7 The Lender defendants do not argue in their motion to dismiss that the 2016 Loan fell within the
28
1 in their reply brief.8 To be sure, elements of the Slome 2017 Note are suggestive of a 12
2
month loan term: Paragraph 2, “Interest,” states that interest commences on July 7, 2017,
3
and Paragraph 3, “Payments” states that July 8, 2018 is both the “Payment Start Date[]”
4
and the “Due Date” for the Note. (ECF No. 31-3, at 61.) But, without any explanation
5
from Lender defendants as to whether and how the length of a loan term can be discerned
6
from this information, the Court will not grant dismissal under § 1639c(a)(8).
7
Second, the Court is not prepared to credit any loan term dates calculated on the
8
basis of the Slome 2017 Note. Plaintiff contends that the instruments produced by the
9
Defendants in this case are inconsistent with, or altered versions of, the loan documents
10
he signed and approved in July of 2017. Plaintiff has pleaded that the Slome 2017 Note
11 is a void, illegitimate, and altered copy of the Emailed 2017 Note. Indeed, the two
12 versions of the Notes bear dissimilarities: as Plaintiff notes, there are different entities
13 specified as the “Lender,” those entities take interests in different percentages, and,
14 critically, the interest commencement and payment due dates are different. (Compare
15 ECF No. 33-1, at 20 (Plaintiff’s Emailed 2017 Note, interest commencing on July 5,
16 2017, due date July 6, 2018), with ECF No. 31-3, at 61 (Slome 2017 Note, interest
17 commencing on July 7, 2017, due date July 8, 2018).) And, even more disturbingly, the
18 Slome 2017 Note is also inconsistent with the version of the note produced by Marquee
19 in support of its motion to dismiss. (ECF No. 30-1, at 8, 37 (Fine 2017 Note).)
20 In light of the above, the Court will not dismiss Plaintiff’s § 1639c claims. Neither
21 motion to dismiss convinces the Court that Plaintiff’s claims should be barred as a
22 temporary or bridge loan pursuant to § 1639c(a)(8).
23 C. Lack of CFPB Regulations Construing § 1639b(c)(3)(A)(i)
24
25
26
27 8 To be precise, Lender defendants allude in their introductory paragraphs about a later argument
as to the length of the loan term, but never briefed the issue in the body of their reply brief. (ECF No. 35,
28
1 The Court next turns to Marquee’s defense to Plaintiff’s wrongful mortgage
2
originator steering claim pursuant to 15 U.S.C. § 1639b(c)(3)(A)(i). (ECF No. 30-1, at
3
4–6.) That provision states:
4
5 (3) Regulations
6
The Bureau shall prescribe regulations to prohibit—
7
(A) Mortgage originators from steering any consumer to a residential
8
mortgage loan that—
9
(i) The consumer lacks a reasonable ability to repay . . . .
10
15 U.S.C. § 1639b(c)(3)(A)(i).
11
Marquee contends that Plaintiff has no cause of action because CFPB, i.e., the
12
“Bureau” charged with implementing the Dodd-Frank amendments to TILA, has not
13
promulgated any regulations to prohibit the conduct prescribed by § 1639b(c)(3)(A)(i).
14
Plaintiff counters that he has a right to sue under TILA directly, with or without
15
additional implementing regulations. To the extent that CFPB regulations are a necessary
16
predicate to suit, Plaintiff argues in the alternative that CFPB has exceeded its authority
17
by failing to implement § 1639b(c)(3)(A)(i) before the deadline specified by Dodd-Frank.
18
Because the parties’ contentions revolve around the relationship between TILA,
19
Dodd-Frank, and the CFPB, the Court provides a brief overview of the regulatory
20
background.
21
1. Regulatory Background
22
“Historically, Regulation Z of the Board of Governors of the Federal Reserve
23
System (Board), 12 CFR part 226, has implemented TILA.” Fowler v. U.S. Bank, Nat.
24
Ass’n, 2 F. Supp. 3d 965, 976 (S.D. Tex. 2014) (quoting Truth in Lending (Regulation Z),
25
76 Fed. Reg. 79768, 79768 (Dec. 22, 2011)). “[T]he Dodd-Frank Act transferred rule
26
making authority for TILA to the CFPB, effective July 21, 2011.” Id. at 977 (quotation
27
28
1 marks, citation, and alterations in the original omitted) (citing Designated Transfer Date,
2
75 Fed. Reg. 57252 (Sept. 20, 2010)).
3
In 2012, the CFPB proposed rules to implement § 1639b. After a notice and
4
comment period, the CFPB promulgated its final rules on January 20, 2013. The final
5
rules codified the regulations at 12 C.F.R. § 1026 et seq. and prescribed an effective date
6
of January 10, 2014. Id. To provide guidance, the CFPB issued “Official
7
Interpretations” alongside its final rules. See Loan Originator Compensation
8
Requirements Under the Truth in Lending Act (Regulation Z) (hereinafter “Official
9
Interpretation”), 78 Fed. Reg. 11280 (Feb. 15, 2013). Unlike the regulations, the CFPB
10
Official Interpretations were not subject to notice and comment. Miller v. Interstate Auto
11 Grp., Inc., No. 14-CV-116-SLC, 2015 WL 1806815, at *5 (W.D. Wis. Apr. 21, 2015)
12 (noting that CFPB’s commentary was not published to the federal register pursuant to
13 notice and comment).
14 2. No Regulation Implementing § 1639b(c)(3)(A)(i)
15 The parties agree that CFPB’s final rule construing § 1639b does not include any
16 regulations prohibiting mortgage originators from steering residential mortgagors without
17 regard to their ability to repay. Indeed, neither of the two most eligible candidates, i.e.,
18 12 C.F.R. § 1026.34 (“Prohibited acts or practices in connection with high-cost
19 mortgages”), nor 12 C.F.R. § 1026.36 (“Prohibited acts or practices and certain
20 requirements for credit secured by a dwelling”), contain any such prohibition. As further
21 discussed infra, the CFPB’s decision not to issue regulations implementing §
22 1639b(c)(3)(A)(i) was deliberate.
23 3. Whether Plaintiff may sue directly under TILA, as
24 amended by Dodd-Frank, even if the CFPB did not issue
25 final rules
26 Plaintiff contends that he may sue directly under 15 U.S.C § 1639b(c)(3)(A)(i)
27 notwithstanding the absence of any implementing regulations. He also argues that Dodd-
28 Frank constrains the CFPB to effectuate the wrongful mortgage origination steering
1 provisions, and that the CFPB has exceeded its authority by failing to issue regulations by
2
the statutory deadline.
3
Marquee disagrees, insisting that no cause of action may lie against it until the
4
CFPB issues final rules. For this proposition, Marquee relies exclusively on the CFPB’s
5
Official Interpretation, 78 Fed. Reg. 11280.
6
a. The CFPB asserts that regulations are a predicate to
7
suit under TILA
8
In its Official Interpretation, the CFPB explained that it was deliberately omitting
9
from its final rule any regulation which would bear on the conduct described in “new
10
TILA section 129B(c)(3),” which includes 15 U.S.C. § 1639b(c)(3)(A):
11
12 Section 1403 of the Dodd-Frank Act also added new TILA section 129B(c)(3),
which requires the Bureau to prescribe regulations to prohibit certain kinds of
13
steering, abusive or unfair lending practices, mischaracterization of credit histories
14 or appraisals, and discouraging consumers from shopping with other mortgage
originators. 15 U.S.C. 1639b(c)(3). This final rule does not address those provisions.
15
16 Official Interpretation, 78 Fed. Reg. 11292 n.55.
17 The CFPB further stated its opinion that liability under § 1639b(c)(3) would not
18 trigger until the agency issued additional regulations. In other words, § 1639b(c)(3) was
19 not self-executing:
20
Because they are structured as a requirement that the Bureau prescribe regulations
21
establishing the substantive prohibitions, notwithstanding Dodd-Frank Act section
22 1400(c)(3), 15 U.S.C. 1601 note, the Bureau believes that the substantive
prohibitions cannot take effect until the regulations establishing them have been
23
prescribed and taken effect. The Bureau intends to prescribe such regulations in a
24 future rulemaking. Until such time, no obligations are imposed on mortgage
originators or other persons under TILA section 129B(c)(3).
25
Id. (emphasis added). Thus, if the Official Interpretation is binding, then the apparent
26
absence of any future rulemaking and resulting regulation would doom Plaintiff’s claim.
27
28
1 b. The CFPB’s interpretation is subject to Skidmore
2
deference
3
Plaintiff disputes that the CFPB’s Official Interpretations should bear on the instant
4
dispute. Plaintiff offers two reasons for rejecting the agency’s commentary: first, the
5
Official Interpretation was not issued pursuant to notice and comment, and in any event,
6
it stands in direct defiance of the timeline set by Dodd-Frank for issuing required
7
regulations. The Court agrees with Plaintiff.
8
As an initial matter, the Court agrees with Plaintiff that it need not grant especial
9
deference to the CFPB’s Official Interpretations. Unlike its regulations, the CFPB’s
10
Official Interpretations are not made pursuant to notice and comment rulemaking. This
11 renders them ineligible for Chevron deference. See Christensen v. Harris Cty., 529 U.S.
12 576, 586–87 (2000) (agency interpretations which are not arrived at after formal
13 adjudication or notice-and-comment rulemaking “lack the force of law” and do not
14 warrant Chevron deference). Instead, the CFPB’s interpretations are “entitled to respect”
15 under Skidmore, “but only to the extent that those interpretations have the power to
16 persuade.” Id. at 587 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)). In
17 accordance with the distinction drawn by the Supreme Court in Christensen, courts have
18 consistently recognized that “the CFPB’s commentary is not binding authority.” Nash v.
19 PNC Bank, N.A., No. CV TDC-16-2910, 2017 WL 1424317, at *4 (D. Md. Apr. 20,
20 2017); Barron v. EverBank, No. 1:16-CV-04595-AT-CCB, 2019 WL 1495305, at *10
21 (N.D. Ga. Feb. 7, 2019).
22 c. The CFPB’s interpretation is foreclosed by Dodd-
23 Frank
24 In footnote 55, the CFPB takes the following positions: (1) the Dodd-Frank
25 amendments at § 1639b(c)(3) have no effect unless they are promulgated as regulations,
26 and (2) the CFPB may decide when, and if at all, such regulations should issue. See
27 CFPB Official Interpretation, 78 Fed. Reg. 11292 n.55. For the following reasons, the
28 Court finds that both of these interpretations are squarely foreclosed by Dodd-Frank.
1 Recall that § 1639b originates from Title XIV of Dodd-Frank. Dodd-Frank “sets
2 outs a timetable for its effective date.” Krinsk v. SunTrust Bank, No. 8:09-CV-909-T-
3 27EAJ, 2012 WL 12906338, at *5 (M.D. Fla. Feb. 1, 2012). It specifically provides that
4 Title XIV takes effect as follows:
5 (c) REGULATIONS; EFFECTIVE DATE.—
6 (1) REGULATIONS.—The regulations required to be prescribed under this
title or the amendments made by this title shall—
7
(A) be prescribed in final form before the end of the 18–month period
8 beginning on the designated transfer date; and
(B) take effect not later than 12 months after the date of issuance of
9
the regulations in final form.
10
(2) EFFECTIVE DATE ESTABLISHED BY RULE.––Except as provided
11
in paragraph (3), a section, or provision thereof, of this title shall take effect
12 on the date on which the final regulations implementing such section, or
provision, take effect.
13
14 (3) EFFECTIVE DATE.—A section of this title for which regulations have
not been issued on the date that is 18 months after the designated transfer
15
date shall take effect on such date.
16
17
Pub. L. 111-203 § 1400(c), 124 Stat. 1376, 2136, 15 U.S.C. § 1601 Note.
18
According to § 1400(c)(1)(A) of Dodd-Frank, the CFPB was obligated to prescribe
19
regulations implementing § 1639b(c)(3) “before the end of the 18-month period
20
beginning on the designated transfer date.” Pub. L. 111-203 § 1400(c)(1)(A). Because
21
the Secretary of Treasury designated July 21, 2011 as the transfer date, this meant that the
22
CFPB was required to issue its regulations no later than January 21, 2013. See Berneike
23
v. CitiMortgage, Inc., 708 F.3d 1141, 1146 (10th Cir. 2013) (identifying the July 21,
24 2011 transfer date and calculating 18 months out to January 21, 2013).9
25
26
9 The designated transfer date is defined in Section 1062 of Dodd-Frank, and the Secretary of the
27 Treasury established July 21, 2011 as the designated transfer date pursuant to Section 1062. See
Designated Transfer Date, 75 Fed. Reg. 57252-02 (Sept. 20, 2010); see also Patton v. Ocwen Loan
28
1 As noted supra, the CFPB did not implement § 1639b(c)(3) by January 21, 2013.
2
Purusant to § 1400(c)(3), the CFPB’s failure to act made the statute itself effective
3
without the aid of legislation. Section 1400(c)(3) commands that “[a] section of this title
4
[i.e., Dodd-Frank] for which regulations have not been issued on the date that is 18
5
months after the designated transfer date shall take effect on such date.” Pub. L. 111-203
6
§ 1400(c)(3). The meaning of this provision is not subject to debate: “it is clear that
7
under Section 1400, the issuance of final regulations (or the passage of 18 months)
8
triggers the effective date of the statute.” Krinsk, 2012 WL 12906338, at *6.
9
Thus, pursuant to § 1400(c)(3), the CFPB’s failure to promulgate final regulations
10
by January 21, 2013 meant that 15 U.S.C § 1639b(c)(3) “automatically t[ook] effect” on
11 that date. Duncan v. LNV Corp., No. CV H-11-3797, 2012 WL 13041999, at *3 n.2
12 (S.D. Tex. July 20, 2012) (“The Bureau has not yet promulgated final regulations. It has
13 until January 21, 2013 to do so before the Dodd-Frank Act’s RESPA amendments
14 become automatically effective.”).
15 Because Dodd-Frank commands this conclusion, CFPB’s contrary interpretation of
16 the statute does not persuade. Although in issuing its Official Interpretation the CFPB
17 made a passing reference to the effective dates prescribed at § 1400(c), it decided,
18 without explanation, that “the substantive prohibitions” of Dodd-Frank “cannot take
19 effect until the regulations establishing them have been prescribed and taken effect,” and
20 that the CFPB might return to “prescribe such regulations in a future rulemaking.” CFPB
21 Official Interpretation, 78 Fed. Reg. 11292 n.55. Yet, by the time that the CFPB
22 published this commentary on February 15, 2013, the statutory deadline for final rules
23 had already elapsed, and the statute became “automatically effective” on the 18-month
24 deadline in the absence of any final regulation. Duncan, 2012 WL 13041999, at *3 n.2.
25
26
27
(noting that the “the designated transfer date” in § 1400(c) referred to the date set by the Secretary of
28
1 The CFPB was mistaken that there would be “no obligation” for mortgage
2
originators to comply with § 1639b(c)(3)(A)(i) until further rulemaking. The Court finds
3
the CFPB Official Interpretation totally deficient of any “power to persuade,” and
4
therefore “not entitled to respect.” Skidmore, 323 U.S. at 140.
5
4. Conclusion: Plaintiff may sue directly under the Dodd-
6
Frank amendments to TILA
7
Because § 1639b(c)(3)(A)(i) went into effect on January 21, 2013, the CFPB’s
8
failure to issue final regulations does not preclude Plaintiff’s claim. The Court will not
9
grant dismissal on this ground.
10 D. Residential Mortgage Loan Requirement
11 Marquee’s next argument fares no better. It posits that Plaintiff’s wrongful
12 mortgage originator steering claim fails because § 1639b(c)(3)(A) only applies to
13 “residential mortgage loan[s].” TILA defines a “residential mortgage loan” as a
14 “consumer credit transaction” secured by a “dwelling” which is “primarily for personal,
15 family, or household purposes.” 15 U.S.C. §§ 1602(dd)(5); (i).
16 According to Marquee, Plaintiff’s 2017 Loan was not a residential mortgage loan
17 because Paragraph 9 of the 2017 Note includes a statement that the loan proceeds were
18 intended primarily for business and commercial purpose, and not for personal, family, or
19 household use. (ECF No. 30-1, at 5–6.)
20 The Court does not agree. Plaintiff has alleged that the 2017 Loan was obtained
21 expressly for the purpose of refinancing the Eads property, i.e., Plaintiff’s “primary
22 residence.” (FAC ¶ 55–56.) To initiate the mortgage process, Plaintiff submitted a
23 “Uniform Residential Loan Application” to Marquee which advised that “all statements
24 made in this application are made for the purpose of obtaining a residential mortgage
25 loan.” (FAC ¶ 55; ECF No. 33, at 5.) Upon receipt of the 2017 application, Marquee
26 sent Plaintiff a bundle of loan documents, including a closing disclosure which indicated
27 that the 2017 Loan’s purpose was “refinance.” (FAC ¶ 77.)
28
1 Contrary to Marquee’s contentions, Paragraph 9 cannot stipulate away Plaintiff’s
2
well-documented assertion that his was a residential mortgage loan. As Plaintiff
3
explains, Paragraph 9 was inserted on June 29, 2017 at the insistence of a Marquee
4
representative; the Original 2017 Note which Plaintiff received on June 27, 2019 did not
5
contain this language. (ECF No. 33, at 6.) Plaintiff agreed to its addition only after the
6
Marquee representative assured him that the new verbiage was “just something
7
underwriting required at the last minute,” which would have no bearing on Plaintiff’s
8
intentions to use 96% of the loan proceeds to cover the loan’s closing costs. (Id.)
9
Moreover, Plaintiff declares under penalty of perjury that none of the 2017 Loan
10
proceeds were used for any business and commercial purpose. (Id. at 7; ECF No. 33-1, at
11 4.)
12 At the motion to dismiss stage, the Court takes Plaintiff’s well-pleaded allegations
13 as true. Marquee’s argument that Plaintiff’s 2017 Loan was not a residential mortgage
14 loan fails.
15 E. Remaining TILA arguments from the Lender defendants
16 The Lender defendants have a raised a handful of trifling points which the Court
17 will now address. Because of the perfunctory nature of Defendants’ arguments, the
18 Court’s discussion will be similarly curtailed.
19 1. Invocation of the Prepayment Penalty Provision
20 The Lender defendants assert, without authority, that the prepayment penalty
21 claims against them should be dismissed because they have never moved to enforce the
22 prepayment penalty provisions against Plaintiff. (ECF No. 31-2, at 19.) But, Plaintiff
23 correctly points out that TILA does not require the payment of prepayment penalties; it is
24 enough if the mortgage “contains terms under which a consumer must pay a prepayment
25 penalty.” 15 U.S.C. § 1639(c)(1)(A).
26 2. Bona Fide Error
27 The Lender defendants also argue that they may find safe harbor in 15 U.S.C. §
28 1640(e). However, their attempted reliance on 15 U.S.C. § 1640(e) veers sharply toward
1 frivolousness. (ECF No. 31-2, at 19.) Section 1640(e) provides safe harbor to creditors
2
for “[u]nintentional violations and bona fide errors”, such as “clerical, calculation,
3
computer malfunctioning and programing, and printing errors.” There is no ejusdem
4
generis canon capacious enough to shoehorn prepayment penalties, or the failure to
5
ascertain a reasonable ability to prepay, into the bona fide error exception.
6
3. Material Disclosures
7
Finally, the Lender defendants argue that none of the alterations to Plaintiff’s 2017
8
Loan documents were the kinds of “material disclosures” protected by TILA. (ECF No.
9
31-2, at 17.) Specifically, the Lender defendants cite King v. State of California, for the
10
proposition that it is not a material nondisclosure to withhold the identity of any given
11 creditor in a multiple creditor loan. 784 F.3d 910, 913 (9th Cir. 1986) (“[I]t is not a
12 material nondisclosure for Integrity to fail to disclose the identity of each creditor in this
13 transaction.”).
14 This argument is as misguided as the last. First, Plaintiff does not ground any of
15 his TILA claims on the alterations of the 2017 Loan documents; his TILA claims are
16 premised on the prepayment penalty provisions and the failure of the defendants to make
17 a reasonable inquiry into his ability to repay. Second, none of the TILA sections cited by
18 Plaintiff require him to plead material disclosure. While other sections of the statute do
19 have such a requirement, see, e.g., 15 U.S.C. § 1602(v) (defining “material disclosures”);
20 § 1639(a) (“Disclosures”), Plaintiff has not sought to invoke any of them.
21 F. Conclusion: TILA claims
22 Although the defendants raised many objections to Plaintiff’s TILA claims, none
23 of them were availing. Accordingly, the Court will not grant dismissal with respect to
24 Plaintiff’s first cause of action.
25 V. Cause of Action 2: Declaratory Judgment
26 Plaintiff’s second cause of action is styled as a request for declaratory relief.
27 Plaintiff seeks a determination that the alterations to the true 2017 Loan documents
28 rendered the Dropbox 2017 Note and Recorded 2017 Deed “void ab initio” and without
1 legal effect. (ECF No. 13, at 20.) He also requests “[t]he Court order full reconveyance
2
of the Property to the Family Trust.” (Id.)
3
A. The Parties’ contentions
4
The Lender defendants construe Plaintiff’s request for reconveyance as a claim for
5
rescission under TILA. (ECF No. 31-2, at 20.) They argue that TILA requires Plaintiff
6
to “allege [the] ability to tender the amount owed on the loan as a prerequisite to
7
rescission,” Lal v. American Home Servicing, 680 F. Supp. 2d 1218, 1222 (E.D. Cal.
8
2010), and that Plaintiff’s claim fails because he has not alleged any ability to tender the
9
payment due.
10
Plaintiff counters that his claim for reconveyance is not brought pursuant to TILA,
11
but rather, the common law rule voiding improperly altered deeds stated in cases like Lin
12
v. Coronado, 232 Cal. App. 4th 696 (2014). In response, the Lender defendants argue
13
that Plaintiff finds no refuge in Lin because its rule applies only where there are
14
“material” alterations.
15
B. Plaintiff’s second cause of action rests on California law, not TILA
16
17 As a preliminary matter, the Court finds that Plaintiff’s second cause of action is
18 not premised on any of the TILA violations described in his first cause of action. Instead,
19 the Court agrees with Plaintiff that his second cause of action derives from his allegations
20 that his 2017 Loan documents were altered after he signed and returned to Marquee the
21 Emailed 2017 Note and the Emailed 2017 Deed.
22 Because Plaintiff seeks rescission under the alteration theory in Lin, and not based
23 on TILA violations, Lender defendants’ argument that tender is mandatory under TILA is
24 misplaced. In any event, and as Lender defendants’ own cited authority confirms,
25 rescission under TILA does not categorically demand tender. See Yamamoto v. Bank of
26 New York, 329 F.3d 1167, 1172–73 (9th Cir. 2003) (holding that courts have the
27 discretion to require tender before permitting rescission under TILA, and that the same
28
1 “must be determined on a case-by-case basis, in light of the record adduced”). Thus, the
2 Lender defendants’ argument as to TILA tender fails.
3
C. Plaintiff need not allege tender because the deed is void
4
At same time, this determination as to TILA does not completely resolve the issue,
5
since rescission under California law also requires tender. See CAL. CIV. CODE § 1691
6
(rescission requires the moving party to “[r]estore to the other party everything of value
7
which he has receive from him under the contract or offer to restore the same upon
8
condition that the other party do otherwise”).
9
However, the duty to tender is somewhat flexible,10 and courts have recognized
10
that tender is excused when the underlying contract is void. See, e.g., Page v. Preuss,
11
226 Cal. App. 2d 494 (1964) (buyer under invalid conditional sale contract for sale of
12
truck and trailer may recover without offering to restore benefits received); Martinez v.
13
America’s Wholesale Lender, 446 F. App’x 940, 943 (9th Cir. 2011) (unpublished)
14
(holding that “the tender rule does not apply to a void, as opposed to a voidable,
15
foreclosure sale”). As relevant here, “[c]ourts have found that tender is not required
16
where the borrower attacks the validity of the underlying debt,” and where the “deed is
17
void on its face.” Kalnoki v. First Am. Tr. Servicing Sols., LLC, 8 Cal. App. 5th 23, 47
18
(2017) (citing first Stockton v. Newman, 148 Cal. App. 2d 558, 564 (1957), and then
19
Dimock v. Emerald Props., 81 Cal. App. 4th 868, 878–88 (2000)).
20
Plaintiff urges that the 2017 Loan documents are void pursuant to Lin. In Lin, the
21
California Court of Appeals examined the long-established common law rule that “when
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a deed is altered or changed by someone other than the grantor before it is delivered or
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recorded, and the alteration is without the grantor’s knowledge or consent, the deed is
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26 10 CAL. CIV. CODE § 1693 (“A party who has received benefits by reason of a contract that is
subject to rescission and who in an action or proceeding seeks relief based upon rescission shall not
27 denied relief because of a delay in restoring or in tendering restoration of such benefits before judgment
unless such delay has been substantially prejudicial to the other party; but the court may make a tender
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1 void and no title vests in the grantee or subsequent purchasers.” 232 Cal. App. 4th at 703
2 (citing 3 Miller & Starr, Cal. Real Estate (3d ed. 2011) § 8:53, p. 8–145). To invoke the
3 rule, the alteration must be sufficiently material: “the only alterations which will affect
4 the validity of an instrument are those which are material; that is, alterations which
5 change the legal effect of the document.” Id. (quoting 3 American Law of Property (2nd
6 printing 1974) § 1285, p. 365). “The test for determining the materiality of an alteration
7 is not whether the liability of the either of the parties is increased or reduced as a result
8 but whether the instrument has the same legal effect after the alteration as it had before.”
9 Id. at 704 (quoting 30 Williston on Contracts (4th ed. 2004) § 75:12 p. 83).
10 Applying Lin, the Court concludes that Plaintiff has sufficiently alleged that the
11 Recorded 2017 Deed is void. Plaintiff alleges that several alterations were made to the
12 Emailed 2017 Deed after he signed the document, but before delivery to the grantors and
13 recordation by Marquee. Moreover, the alterations were not of a de minimis nature. The
14 Recorded 2017 Deed includes names of beneficiaries not named in the Emailed 2017
15 Deed, assigns them different ownership and interest percentages, and purports to be made
16 with respect to a different description of the Eads property.11 Each one of these
17 alterations is material on their own, since all three alterations change “the legal effect of
18 the document.” Id.
19 The Lender defendants argue that the alterations alleged by Plaintiff are
20 comparable to the ones found immaterial by the court in Lin. (ECF No. 35, at 11.)
21 However, the Court does not think any factual analogy to Lin is appropriate.
22 In Lin, the court was faced with a situation where the original deed specified a 75%
23 interest to one entity (River Forest) and 25% to another (Elevation), but also named Lin,
24 the plaintiff, “as a grantee without any stated percentage interest in the property.” Id. at
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11 Recall that the Emailed 2017 Deed of Trust was made with reference to the entirety of the Eads
27 property, which, according to attachment Exhibit A thereto, encompassed Parcels 1A, 1B, 2A, 2B, 3A,
and 3B; the Recorded Deed of Trust narrowed the property conveyed to only “Parcels 1A, 1B and 2B.”
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1 675. Lin sued for reformation after discovering that the recorded deed only listed the two
2 other parties with the 75% and 25% interests as owners. In that context, the court
3 declined to find a material change because Lin never took any ownership interest under
4 the original deed. Differently put, since the original deed granted Lin 0% ownership
5 interest, her exclusion from the recorded deed affected no change in position; as a result,
6 “the alleged alteration of the deed was, as a matter of law, not material.” Id. at 703.
7 Unlike Lin, the liabilities of the parties are not static under the original and altered
8 instruments. As discussed supra, there are significant legal differences between the terms
9 of the original Emailed 2017 Deed and the altered Recorded 2017 Deed. At the risk of
10 stating the obvious, an altered deed, which names different beneficiaries, who take
11 interests differently, as to a different parcel of land, does not have “the same legal effect
12 after the alteration as it had before.” Id. Indeed, as evidenced by an unpublished
13 opinion12 by the Court of Appeals in Yanez v. Kler, alterations which modify the property
14 conveyed are material, and void the deed. No. E067499, 2018 WL 41409947, at *4–*5
15 (Cal. Ct. App. Aug. 30, 2018) (upholding under Lin the trial court’s ruling that a deed
16 was void because “Exhibit A to the grant deed,” which purported to convey a “Parcel 2,”
17 “was added to the grant deed after Yanez and his wife signed the grant deed” as to Parcel
18 1). This conclusion obtains even in this case, where the altered instrument theoretically
19 limits Plaintiff’s liability (the signed deed implicates the entirety of the Eads property but
20 the allegedly-altered deed pertains only to several of its parcels). This is because “the test
21 for determining the materiality of an alteration is not whether the liability of the either of
22 the parties is increased or reduced as a result.” Lin, 232 Cal. App. 4th at 703.
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27 12 Federal courts “may consider unpublished state decisions, even though such opinions have no
precedential value.” Employers Ins. of Wausau v. Granite State Ins. Co., 330 F.3d 1214, 1220 (9th Cir.
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1 Plaintiff has sufficiently alleged that the Recorded 2017 Deed is void, and as a
2 ||result, his rescission claim is not defeated by a failure to allege tender. The Lender
3 defendants’ motion to dismiss Plaintiff's second cause of action is accordingly denied.
+ CONCLUSION
° No argument presented in either Marquee’s or the Lender defendants’ motions
° convince the Court that dismissal of Plaintiffs first amended complaint is warranted.
’ Both motions are hereby DENIED. [ECF Nos. 30, 31.]
IT IS SO ORDERED.
1 || Dated: August 20. 2019 Casto 0h
Hon. Gonzalo P. Curiel
United States District Judge
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