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February 17, 2005.

DAVID McANANEY, CAROLYN McANANEY, individually and on behalf of all others similarly situated, CYNTHIA RUSSO, PHILLIP RUSSO, CONSTANCE REILLY, and JOHN REILLY, Plaintiffs,

The opinion of the court was delivered by: ARTHUR SPATT, District Judge


The plaintiffs filed this class action complaint alleging that the defendants violated the Truth in Lending Act, the Real Estate Settlement Procedures Act, and the Fair Debt Collection Practices Act by collecting three types of fees in connection with the prepayment and satisfaction of mortgages and home equity loans. The plaintiffs also assert various causes of action under New York State common law for breach of contract, unjust enrichment, and fraud, and under section 349 of the New York General Business Law and section 1921 of the New York Real Property Actions and Proceedings Law.

Presently before the Court is a motion by Astoria Financial Corporation, Astoria Federal Savings and Loan Association, Astoria Federal Mortgage Company, Long Island Bancorp, Inc., and Long Island Savings Bank, FSB, (collectively, the "Defendants") to dismiss the Federal claims for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure and for the Court to decline to retain supplemental jurisdiction over the state law claims.


  The following facts and allegations set forth below are taken from the Plaintiffs' amended complaint and will be viewed in the light most favorable to the plaintiffs, which the Court accepts only for purposes of this motion.

  The plaintiffs David Mcananey, Carolyn Mcananey, Cynthia Russo, Phillip Russo, Constance Reilly, and John Reilly (collectively, the "Plaintiffs") were all mortgagors of Long Island Savings Bank, FSB ("Long Island Savings"). Long Island Savings was a thrift institution and a wholly-owned savings bank subsidiary of Long Island Bancorp, Inc., which closed on September 30, 1998, and merged into the defendant Astoria Federal Savings and Loan Association ("Astoria Federal"). Astoria Federal provides retail banking, mortgage, small business, and consumer loan services to Nassau, Suffolk, Queens, Kings, and Westchester Counties in New York and is a wholly-owned and controlled subsidiary of Astoria Financial Corporation ("Astoria Financial").

  According to Astoria Financial's Form 10-K, filed with the Securities and Exchange Commission for the year ending on December 31, 2002, Astoria Financial states that they "generally sell [their] fifteen year and thirty year fixed rate loan production into the secondary mortgage market. . . ." The secondary mortgage market in the United States consists of buyers of mortgages such as the Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage Association ("GNMA"), and the Federal National Mortgage Association ("FNMA").

  When applying for their mortgages from the Defendants, all of the Plaintiffs received a standard form mortgage contract. In the contract, the Defendants state the mortgagor "will not be required to pay lender for the discharge." The contract states further that the mortgagor "will pay the cost of recording the discharge in the proper official records." Attached to the contract also was a standard Rider form, which states that the mortgagor will have to pay all reasonable fees relating to the mortgage including, but not limited to, satisfaction of the mortgage. At the bottom of the Rider is a bold-faced heading that reads: "RIDER VOID IF SECURITY INSTRUMENT SOLD TO FNMA, GNMA, OR FHLMC."

  The complaint alleges that the Defendants routinely charge consumers fees and charges not permitted by the mortgage contracts for loans resold to FNMA, GNMA and FHLMC. The complaint further alleges that such fees constitute finance charges, prepayment penalties, refinancing penalties, and payoff fees that are charged to consumers that pay-off mortgages prior to maturity.

  The Plaintiffs were all at one time mortgagors of the Defendants. Some time after the loan origination, the Defendants sold the Plaintiffs' mortgages to the secondary mortgage market. Subsequent to the sale, Long Island Savings and Astoria Federal acted as the servicer of the mortgage, collecting debts for the mortgage owned by FNMA, FHLMC, or GNMA. When the Plaintiffs wished to prepay the loan, they received a letter from Astoria Federal listing the amount necessary to satisfy the mortgage that also contained certain other charges. Included among those charges were an "Atty Doc Prep Fee" of $125, a "Facsimile Fee" of $25 and a "Recording Fee" of $64 (collectively, the "Disputed Fees"). In the case of the Reilly Plaintiffs, the facsimile fee was $50. In the case of the Russo Plaintiffs, who also were obligors of another loan originated by the Defendants that was secured by the Russo residence, they were charged an additional "Satisfaction Fee" of $125.00 and a "County Clerk Fee" of $64.50 to pay off the loan. All of the Plaintiffs paid the Disputed Fees in order to satisfy their mortgage loans.

  The Plaintiffs contend that the Disputed Fees each constitute undisclosed finance charges, prepayment penalties, refinancing penalties and payoff fees that would not have been imposed on, or payable by the Plaintiffs had the mortgages or loans been paid off at maturity rather than at an earlier date. In addition, the Plaintiffs contend that, although New York law requires that a mortgage satisfaction be recorded withing 45 days from the last payment of principle and interest owed on the mortgage, the McAnaney's mortgage was not filed for more than a year. The Plaintiffs also contend that no Satisfaction of Mortgage has been filed for the Russo mortgage.


  I. Motion to Dismiss Standard

  In ruling on a motion to dismiss, pursuant to Rule 12(b)(6), the court must accept as true all the factual allegations and construe the complaint liberally. Scutti Enterprises v. Park Place Entertainment Corp., 322 F.3d 211, 214 (2d Cir. 2003); Bolt Elec. v. City of New York, 53 F.3d 465, 469 (2d Cir. 1995). The court also must draw all reasonable inferences in the plaintiff's favor, but need not accept "mere conclusions of law or unwarranted deductions." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L.Ed. 2d 90, 94 S. Ct. 1683 (1974)). Dismissal is only appropriate when "it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief." Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir. 2000).

  In support of their motion to dismiss, the Defendants have submitted a number of materials outside the pleadings, including an affidavit and numerous exhibits. Federal Rule of Civil Procedure 12(b)(6) provides that
[i]f, on a motion . . . to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
Fed.R.Civ.P. 12(b)(6). However, the court has discretion to "exclude the additional material and decide the motion on the complaint alone. . . ." Kopec v. Coughlin, 922 F.2d 152, 154 (2d Cir. 1991) (internal quotations omitted); Moses v. Citicorp Mortg., Inc., 982 F. Supp. 897, 901-02 (E.D.N.Y. 1997). The Court declines to consider the materials the parties have submitted outside the pleadings. Further, without the parties having a full opportunity for discovery in this case, the Court declines to convert the Defendants' motion to one for summary judgment.

  In addition, in its review, the Court is mindful that under the modern rules of pleading, a plaintiff need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief," and that "[a]ll pleadings shall be so construed as to do substantial justice." Fed.R.Civ.P. 8(f). Recovery may appear remote and unlikely on the face of the pleading, but that is not the test for dismissal. Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995).

  II. The Truth in Lending Act

  A. Statutory Framework

  The Truth-in-Lending Act ("TILA") was enacted to assure meaningful disclosure of credit terms, avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices. 15 U.S.C. §§ 1601-65(b) (2004); see also Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559, 100 S. Ct. 790, 63 L. Ed.2d 22 (1980) (stating that TILA's purpose is to assure "meaningful disclosure of credit terms to consumers"); Stein v. JP Morgan Chase Bank, 279 F. Supp. 2d 286, 291 (S.D.N.Y. 2003). Failure to make a required disclosure and satisfy the Act may subject a lender to statutory and actual damages that are traceable to the lender's failure. Beach v. Ocwen Federal Bank, 523 U.S. 410, 412, 118 S. Ct. 1408, 1410, 140 L. Ed. 2d 566 (1998).

  In enacting TILA, Congress delegated authority to the Federal Reserve Board of Governors to promulgate implementing regulations and interpretations known as Regulation Z. 15 U.S.C. § 1604(a). These regulations, which are located at 12 C.F.R. Part 226 may be relied upon by creditors for protection from any civil or criminal liability. See Household Credit Services, Inc. v. Pfennig, 541 U.S. 232, 124 S. Ct. 1741, 1746 (2004). According to Regulation Z, the provisions of TILA apply to creditors that regularly offer or extend credit for personal, family, or household purposes, and that is payable by agreement in more than four installments, or subject to a finance charge. 12 C.F.R. § 226.1 (2004). As such, TILA is applicable to loans that are secured by real property or a dwelling such as residential mortgage transactions and home equity loans. See id. § 226.3(b). "Any person who originates 2 or more mortgages . . . in any 12-month period or any person who originates 1 or more such mortgages through a mortgage broker shall be considered to be a creditor for purposes of [TILA]." 15 U.S.C. § 1602.

  In general, TILA requires creditors to disclose, among other things, all finance charges and prepayment provisions. 12 C.F.R. § 226.18. The "finance charge" is defined as "the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit." 15 U.S.C. § 1605(a) (emphasis added). Regulation Z further explains that the finance charge is "the cost of consumer credit as a dollar amount." 12 C.F.R. § 226.4(a). Examples of finance charges in residential mortgage transactions include interest, points, loan fees, appraisal fees, credit report fees, mortgage insurance premiums, and debt cancellation fees. Id. § 226(b). Regulation Z expressly exempts from disclosure certain charges, such as credit application fees charged to all applicants, unanticipated charges for late payment or default, fees charged for participation in a credit plan, and the seller's points. Id. § 226(c).

  In addition, the following fees related to residential mortgage transactions need not be disclosed if they are bona fide and reasonable: (1) fees for title examination, abstract of title, title insurance, property survey, and similar purposes; (2) fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents; (3) notary and credit report fees; (4) property appraisal or inspection fees performed prior to closing; (5) amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge. Id. Regulation Z also allows a creditor to exclude taxes and fees "that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest." Id. § 226.4(e)(1).

  The Plaintiffs advance two theories for recovery under TILA. First, that the Disputed Fees were finance charges that the Defendants either failed to disclose or improperly excluded because they were not bona fide or reasonable. Second, that the Defendants failed to disclose the ...

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