United States District Court, E.D. New York
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,
ASTORIA FINANCIAL CORPORATION, ASTORIA FEDERAL SAVINGS AND LOAN ASSOCIATION, ASTORIA FEDERAL MORTGAGE COMPANY, LONG ISLAND BANCORP, INC., and LONG ISLAND SAVINGS BANK, FSB, Defendants.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
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
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
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
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
(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
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. §
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.
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 Disputed Fees as prepayment
penalties. The Court will now address each theory.
B. Finance Charges
As a threshold matter, a claim for undisclosed fees under TILA
may only be sustained if the disputed fees are considered finance
charges under the Act. "In order to be considered a finance
charge, a charge must be incident to, or a condition of, the
extension of credit." Pechinski v. Astoria Federal Savings and
Loan Ass'n, 345 F.3d 78, 80 (2d Cir. 2003). Fees imposed
relating to the extinguishment of debt are generally not
considered incident to the extension of the loan. See
Pechinski v. Astoria Federal Savings and Loan Ass'n, 238 F.
Supp.2d 640, 644 (S.D.N.Y.), aff'd, 345 F.3d 78 (2d Cir. 2003);
Stutman v. Chemical Bank, No. 94-5013, 1996 WL 539845, at *2
(S.D.N.Y. 1996). However, "[t]he determination of whether such
charges are properly includable in the finance charge is
extremely fact-intensive." 1 Fed. Reg. Real Estate & Mortgage
Lending 4th § 10:12. The critical inquiry is whether the creditor
only would have provided the loan with a guarantee that the
mortgagor would pay the fee. Pechinski, 238 F. Supp. 2d at 644;
see also Stutman, 1996 WL 539845, at *2; see also Adamson
v. Alliance Mortg. Co., 861 F.2d 63 (4th Cir. 1988), overruled
on other grounds by Busby v. Crown Supply, Inc., 896 F.2d 833,
58 (4th Cir. 1990).
In Pechinski, Stutman, and Adamson, fees imposed relating
to the extinguishment of debt were held not to be finance charges
by the courts. In Pechinski, the mortgagors sought to refinance
their mortgage loan with another lender. In order to avoid the
mortgage recording tax, the borrowers requested that the creditor
assign their loan, which the creditor agreed to do as long as the
borrower paid a fee. The mortgagors paid the fee and filed suit,
claiming the fee was a finance charge that required disclosure
under TILA. The court held that the fee was not a finance charge,
and thus not required to be disclosed, because it was not imposed
"at the time the loan was initiated" and was not incident to the
extension of credit. Pechinski, 238 F. Supp. 2d at 644. The
Court also noted that fee was imposed because of a specific
request by the plaintiffs that the mortgage be assigned to
another lending institution. "Therefore, the [fee] was incident
not to the extension of the loan, but rather to the
extinguishment of the debt." Id. at 643.
In Stutman, the borrowers of a loan for a cooperative
apartment sought to prepay their loan with the proceeds of
another loan from a different creditor. The subsequent creditor
refused to close on the loan without the security, that is, the
proprietary lease and shares in the cooperative apartment being
held by the creditor. In order to effectuate the closing, the
borrowers were required to pay a fee for the creditor to deliver
the security at the closing. The court held that the fee was not
a condition to the loan and "was not incident to the extension of
the loan, but rather to the extinguishment of the debt. . . ."
Stutman, 1996 WL 539845, at *2-3.
In Adamson, the plaintiffs alleged that they were required to
pay certain fees as a condition of releasing the deeds of trust
after they had completed payments on their mortgages. The fact
that release fees would be charged was not disclosed at the time
the loans were made. The Court of Appeals for the Fourth Circuit
denied the plaintiffs' claims under TILA, reasoning that "[t]he
release fees were not charged during the transaction in which
credit was extended, but as an incident to the formal
extinguishment of the Lenders' liens after the debts had been
repaid." Adamson, 861 F.2d at 63.
With regard to the facsimile fee in this case, the "official
staff commentary" for TILA states that "a fee for courier service
charged by a settlement agent to send a document to the title
company or some other party is not a finance charge, provided
that the creditor has not required the use of a courier or
retained the charge." 60 Fed.Reg. 16771, 16777 (April 3, 1995);
see also Cowen v. Bank United of Texas, FSB, 70 F.3d 937, 943
(7th Cir. 1995) (holding that a courier fee charged at settlement
did not violate TILA). Fees for a courier service must be
disclosed if they are required by the creditor. Rodash v. AIB
Mortg. Co., 16 F.3d 1142 (11th Cir. 1994) abrogated on other
grounds by, Veale v. Citibank, F.S.B., 85 F.3d 577 (11th Cir.
1996) (holding that the defendants violated TILA as a matter of
law by failing to disclose as part of the finance charge the
charge imposed for payment of Federal Express delivery).
Based on the bare allegations in the amended complaint, it is
unclear whether the Defendants required that the payoff statement
be faxed or whether the Plaintiffs, or some third party,
requested that the payoff be faxed. See, e.g., Cappellini v.
Mellon Mortg. Co., 991 F. Supp. 31, 38 (D. Mass. 1997) (stating
that "fax and statement fees are not prepayment charges, but are
rather charges for special services outside of the basic service
agreement provided to the borrower . . . with respect to but
not exclusively related to the prepayment of a loan").
As to the attorney document preparation fee and the recording
fee, the prevailing law states that fees charged for prepayment
are not "incident to, and a condition of, the extension of
credit," where they are imposed after the issuance of the loan
and for a service requested by the borrower. An analysis of the
Plaintiffs' allegations in the amended complaint reveal that
additional discovery is necessary to determine whether the fees
were incident to the extension of credit. More importantly,
discovery is necessary to determine whether the fees were
required for the extinguishment of the loan or whether they were
for a service requested by the borrower.
The Court finds that the allegations in the complaint are
sufficiently distinguishable from the facts that required
dismissal in Pechinski. First, unlike the assignment fee in
Pechinski, the attorney document preparation fees and the
recording fees in this case are generally considered finance
charges when charged at origination. See Inge v. Rock
Financial Corp., 281 F.3d 613, 623 (6th Cir. 2002) (allowing a
claim under TILA for document preparation and recording fees);
Weil v. Long Island Sav. Bank, FSB, 77 F. Supp. 2d 313, 321-22
(E.D.N.Y. 1999) (allowing a claim for legal fees); see also
Brodo v. Bankers Trust Co., 847 F. Supp. 353, 358 (E.D. Pa.
1994) (denying summary judgment on a TILA claim for undisclosed
attorney fees and improper recording fees).
Second, unlike the assignment fee in Pechinski which was not
contemplated in the original agreement, the fees in this case
were listed in the original Rider, which was subsequently voided
by the sale of the mortgage to the secondary mortgage market. The
Court notes that this case is unique from any other cases cited
by either party in that the original creditor sold the mortgage
to a the secondary mortgage market but continued to service the
loan. This arrangement caused certain disclosures in the original
agreement Rider to be null and void. The impact this arrangement
had on the determination of whether the fees were a condition to
the Defendants issuing the mortgage is better decided upon
further factual discovery.
Finally, the Defendants argument that, as a matter of law, the
fees cannot be considered finance charges because they were
charged after the loan was issued misconstrues applicable
regulations and case law. Regulation Z provides that certain fees
charged after loan origination are finance charges, such as
cancellation fees and mortgage insurance. Regulation Z also
provides that satisfaction and recording fees are finance charges
that are allowed to be excluded, but only if those charges are
disclosed and are reasonable. Moreover, Pechinski held that the
fees were not finance charges because they were not required by
the creditor. Here, the bare allegations of the amended
complaint, viewed in light most favorable to the Plaintiffs,
reveals a fee arrangement that may have been required by the
creditor and not at the request of the borrower. Accordingly, the
Court finds that the Plaintiffs have stated a claim in their
amended complaint for a violation of the TILA.
C. Prepayment Penalties
TILA requires the disclosure of prepayment conditions. See
12 U.S.C. § 1638; 12 C.F.R. § 226.18. The statute requires that a
statement be provided detailing "whether or not a penalty will be
imposed" upon the "refinancing or prepayment in full [of the
loan] pursuant to acceleration or otherwise."
15 U.S.C. § 1638(a)(11).
The Second Circuit has held that charges that do not fit in the
definition of "finance charges" under TILA cannot be considered
prepayment penalties. Pechinski, 345 F.3d at 82. Prepayment
penalties encompass "only those charges that are assessed
strictly because of the prepayment in full of a simple-interest
obligation, as an addition to all other amounts." Pechinski,
238 F. Supp. 2d at 644 (quoting Official Staff Interpretations,
12 C.F.R. § 226, Supp. I, ¶ 18(k)). As explained in Pechinski,
[t]he Staff Interpretations offer examples of
prepayment penalties including: "[i]nterest charges
for any period after prepayment in full is made" or
"[a] minimum finance charge in a simple-interest
transaction." Id. TILA and its official
interpretations thereby indicate that the type of
penalty that must be disclosed relates to finance
charges in addition to those otherwise due upon
prepayment of the loan. The given examples all
involve interest payments or other components of the
Pechinski, 345 F. Supp. 2d at 644.
Regulation Z explains that the lender's obligation to disclose
"finance charges" upon prepayment is limited to finance
(1) When an obligation includes a finance charge
computed from time to time by application of a rate
to the unpaid principal balance, a statement
indicating whether or not a penalty may be imposed if
the obligation is prepaid in full.
(2) When an obligation includes a finance charge
other than the finance charge described in paragraph
(k)(1) of this section, a statement indicating
whether or not the consumer is entitled to a rebate
of any finance charge if the obligation is prepaid in
12 CFR § 226.18.
In Pechinski, the Court held that the disputed fees did not
fall within the statute's definition of prepayment penalties
because the fees were not imposed strictly because of the
prepayment in full of the loans and could have been assessed
after the loan had been paid off. Pechinski,
238 F. Supp. 2d at 644. The court also reasoned that fees cannot be considered a
pre payment if they happened to be charged after payment was
made and the loan had matured . Id. at 645.
In this case the fees fall within the statute's definition of
prepayment penalties. As alleged in the complaint:
At the time of satisfaction of the [Plaintiffs]
mortgage loans, Defendants, acting as the "servicer"
and debt collector of mortgage loans that have been
resold by Defendants predominantly to FNMA, GNMA or
FHLMC, present the mortgagors with a statement
containing the amount necessary to pay-off the
mortgage debt and for various fees, charges and debts
imposed and collected by Defendants.
These allegations, read in a light most favorable to the
Plaintiffs, state that the Disputed Fees and charges were
included with the total amount "necessary" to pay-off the
mortgage debt. As such, the fees appear to be a condition to
prepayment in full and charged before the payoff of the loan. The
Court finds that these allegations are sufficient to allege a
claim under TILA for failing to disclose prepayment penalties.
D. Statute of Limitations
The Defendants argue that the McAnaney and Russo Plaintiffs
claims under TILA are untimely. A claim under TILA must be
brought within one year from the date of occurrence of the
alleged violation. See 15 U.S.C. § 1640(e) ("Any action under
this section may be brought in any United States district court,
or in any other court of competent jurisdiction, within one year
from the date of the occurrence of the violation."); see also
Koons Buick Pontiac GMC, Inc. v. Nigh, 125 S. Ct. 460, 475
(2004); Eubanks v. Liberty Mortg. Banking Ltd.,
976 F. Supp. 171, 174 (E.D.N.Y. 1997). Courts have held that equitable tolling
is appropriate under TILA if there are allegations of concealment
and fraud. Weil v. Long Island Savings Bank, FSB,
77 F. Supp. 2d 313, 322 (E.D.N.Y. 1999); see also Ramadan v. Chase Manhattan
Corp., 156 F.3d 499, 505 (3d Cir. 1998); Jones v. TransOhio
Savings Ass'n, 747 F.2d 1037, 1041 (6th Cir. 1984).
The Plaintiffs amended complaint sufficiently alleges that the
Defendants have engaged in fraudulent, misleading, and deceptive
efforts to conceal the true nature of their conduct. In support
of this allegation, the Plaintiffs claim that the Defendants
collect the charges and fees and then return some, but not all,
of the money owed without advising the Plaintiffs that any monies
were charged in error. As a result, the Plaintiffs claim that
they have only recently learned of the existence of claims
against the Defendants. Thus, the Court finds that the
allegations in the complaint are sufficient to allege an
equitable tolling of the statute. Whether the Defendants actually
engaged in any fraudulent activity or concealment is better
raised after discovery has been completed.
III. The Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) was enacted
to enable consumers to better understand the home purchase and
settlement process and, where possible, to bring about a
reduction in settlement costs. 12 U.S.C. § 2601. RESPA prohibits,
among other things, the charging of unearned fees for settlement
services, the collection of excess escrow monies, and inaccurate
escrow account reporting, and the imposition of fees for
statements required by RESPA and TILA. 28 U.S.C. §§ 2607, 2609,
2610. The Court will address each of the Plaintiffs claims
A. Settlement Fees
Among other things, RESPA eliminates "kickbacks or referral
fees that tend to increase unnecessarily the costs of certain
settlement services." 12 U.S.C. § 2601(b)(2). RESPA provides that
"[n]o person shall give and no person shall accept any portion,
split, or percentage of any charge made or received for the
rendering of a real estate settlement service in connection with
a transaction involving a federally related mortgage loan other
than for services actually performed." Id. § 2607. The
Plaintiffs' complaint alleges that the Defendants charged the
Disputed Fees for settlement services that were not provided. The
Defendants contend that the fees in question were not charged as
"settlement services" as defined under the Act or the
interpreting regulations promulgated by the Federal Housing and
Urban Development Agency ("HUD") to interpret RESPA.
Thus, the Court must determine whether the charges fall within
the term "settlement services" as defined under RESPA. The
statute states that "settlement services" includes:
any service provided in connection with a real estate
settlement including, but not limited to, the
following: title searches, title examinations, the
provision of title certificates, title insurance,
services rendered by an attorney, the preparation of
documents, property surveys, the rendering of credit
reports or appraisals, pest and fungus inspections,
services rendered by a real estate agent or broker,
the origination of a federally related mortgage loan
(including, but not limited to, the taking of loan
applications, loan processing, and the underwriting
and funding of loans), and the handling of the
processing, and closing or settlement.
12 U.S.C.A. § 2602. In addition, the implementing regulations,
which both parties rely on in their argument, states that
"[s]ettlement means the process of executing legally binding
documents regarding a lien on property that is subject to a
federally related mortgage loan." 24 C.F.R. § 3500.2. The
regulation also sets forth a non-exclusive list of fifteen
examples of "settlement services," including:
(1) Origination of a federally related mortgage loan
(including, but not limited to, the taking of loan
applications, loan processing, and the underwriting
and funding of such loans);
(2) Rendering of services by a mortgage broker
(including counseling, taking of applications,
obtaining verifications and appraisals, and other
loan processing and origination services, and
communicating with the borrower and lender);
(3) Provision of any services related to the
origination, processing or funding of a federally
related mortgage loan;
(4) Provision of title services, including title
searches, title examinations, abstract preparation,
insurability determinations, and the issuance of
title commitments and title insurance policies;
(5) Rendering of services by an attorney;
(6) Preparation of documents, including notarization,
delivery, and recordation;
(7) Rendering of credit reports and appraisals;
(8) Rendering of inspections, including inspections
required by applicable law or any inspections
required by the sales contract or mortgage documents
prior to transfer of title;
(9) Conducting of settlement by a settlement agent
and any related services;
(10) Provision of services involving mortgage
(11) Provision of services involving hazard, flood,
or other casualty insurance or homeowner's
(12) Provision of services involving mortgage life,
disability, or similar insurance designed to pay a
mortgage loan upon disability or death of a borrower,
but only if such insurance is required by the lender
as a condition of the loan;
(13) Provision of services involving real property
taxes or any other assessments or charges on the real
(14) Rendering of services by a real estate agent or
real estate broker; and
(15) Provision of any other services for which a
settlement service provider requires a borrower or
seller to pay.
The Defendants contend that none of the examples of settlement
services set forth in Section 3500.2 of Regulation X relate to
services provided when a mortgage loan is discharged, satisfied,
or recorded. On the other hand, the Plaintiffs contend that the
Disputed Fees charged for attorney document preparation,
satisfaction, recording and faxing fall squarely in the examples
provided by the statute and regulation.
The law regarding whether the provisions of RESPA apply beyond
the inception of a mortgage is not settled in the Second Circuit.
Under facts similar to this case, the Ninth Circuit Court of
Appeals affirmed the dismissal of a complaint that alleged a
RESPA violation for fees that were assessed at the time repayment
of the loan was complete. Bloom v. Martin, 77 F.3d 318, 320
(9th Cir. 1996); see also Greenwald v. First Fed. Sav. & Loan
Ass'n, 446 F. Supp. 620, 625 (D. Mass. 1978), aff'd,
591 F.2d 417 (1st Cir. 1979) (holding that interest payments on escrow
accounts are not a settlement practice under RESPA because they
"can continue long after the closing of the mortgage transaction
and which can continue to occur during the entire life of the
This bright-line rule, limiting the scope of RESPA to practices
at or before settlement, has recently been adopted by a court in
this circuit. See Flagg v. Yonkers Sav. and Loan Ass'n, FA,
307 F. Supp. 2d 565, 580 (S.D.N.Y. 2004). In Flagg, the court
concluded that obligations such as the payment of interest during
the term of the mortgage "falls outside the scope of RESPA and
into the deregulated ambit of the mortgage agreement's terms."
Flagg, 307 F. Supp. 2d at 581. However, the Flagg court
recognized that other courts have cast doubt on the continuing
viability of this temporal analysis. See MorEquity, Inc. v.
Naeem, 118 F. Supp. 2d 885, 900 (N.D. Ill. 2000); Cortez v.
Keystone Bank, 2000 WL 536666, at *10 (E.D. Pa. 2000). Indeed,
other courts have allowed claims under RESPA for release,
discharge, and facsimile fees without analyzing or applying the
temporal restriction. See Weizeorick v. ABN AMRO Mortg. Group,
Inc., 337 F.3d 827 (7th Cir. 2003); Haehl v. Washington Mut.
Bank, F.A., 277 F. Supp. 2d 933, 937 (S.D. Ind 2003); DeLeon v.
Beneficial Const. Co., 55 F. Supp. 2d 819 (N.D. Ill. 1999).
The Court agrees with the temporal analysis followed in Bloom
and Flagg. Given the vagueness of the word settlement in the
statute, the Court affords deference to HUD's regulation stating
that "settlement services" is the "process of executing legally
binding documents regarding a lien on property." Blacks law
dictionary defines a "closing," also known as "settlement," as
"[t]he final meeting between the parties to a transaction, at
which the transaction is consummated; esp., in real estate, the
final transaction between the buyer and seller, whereby the
conveyancing documents are concluded and the money and property
transferred." Black's Law Dictionary (8th ed. 2004). In addition,
RESPA was enacted to protect consumers from unnecessary fees
while purchasing a home. Further, nothing in the relevant portion
of RESPA, its implementing regulations, or the plain meaning of
the statute indicate a reason to extend the coverage of
"settlement services" to the satisfaction, prepayment, or release
of a mortgage.
The Disputed Fees alleged here in the complaint all relate to
actions that occurred well after the property transfer between
the buyer and the seller. As stated in Flagg, the obligations
complained of have fallen "outside the scope of RESPA and into
the deregulated ambit of the mortgage agreement's terms."
Flagg, 307 F. Supp. 2d at 581. Therefore, the Court finds that
the facts in the complaint cannot, as a matter of law, state a
claim for relief under the provisions of RESPA regarding
B. Escrow Services
Congress included a provision in RESPA limiting both the amount
that a lender could require to be deposited in escrow at the time
of settlement and the amount of subsequent monthly deposits.
RESPA § 10(a). In general, RESPA states that a lender may not
require the borrower
to deposit in any escrow account which may be
established in connection with such loan for the
purpose of assuring payment of taxes, insurance
premiums, or other charges with respect to the
property, in connection with the settlement, an
aggregate sum (for such purpose) in excess of a sum
that will be sufficient to pay such taxes, insurance
premiums and other charges. . . .
12 U.S.C.A. § 2609(a).
The Plaintiffs allege in the amended complaint that the
Disputed Fees were collected and deposited in the escrow accounts
and were not for the purpose of assuring the payment of taxes or
insurance premiums. The Defendants contend that the majority of
courts, including the Fourth, Fifth, and Seventh Circuits, have
found that there is no private right of action under § 2609(a).
See State of La. v. Litton Mortgage Co., 50 F.3d 1298, 1301
(5th Cir. 1995); Allison v. Liberty Sav., 695 F.2d 1086, 1091
(7th Cir. 1982); Clayton v. Raleigh Fed. Sav. Bank,
107 F.3d 865 (4th Cir. 1996).
In their determination of whether a private cause of action
exists, courts have applied the factors stated in Cort v. Ash,
422 U.S. 66, 78, 95 S. Ct. 2080, 2087, 45 L. Ed. 2d 26 (1975).
These factors are (1) whether the plaintiff is a member of the
class for whose special benefit the statute was enacted; (2)
whether there is an indication of legislative intent to create or
deny an implied remedy; (3) whether a private cause of action is
consistent with the underlying purposes of the legislative
scheme; and (4) whether the cause of action is one traditionally
relegated to state law. Most important among these factors has
been the second prong, that is, the intent of Congress.
Courts have concluded that no private right of action exists
under § 2609 because that section, unlike other sections of
RESPA, is silent regarding private remedies and such silence
indicates that Congress did not intend to provide a private
remedy. See Litton Mortgage Co., 50 F.3d at 1301. Most
notably, the Litton court found that Congress amended the
escrow section of RESPA after the circuit courts had decided that
no private right of action existed and only provided for an
administrative remedy under § 2609(c). Id.
The Second Circuit has not decided whether a private right of
action exists under § 2609(a). However, a court in this circuit
found that a private right of action does exist. See Heller v.
First Town Mortg. Corp., 1998 WL 614197, at *2 (S.D.N.Y. 1998).
The Heller court rejected the reasoning of the previous
decisions that found that no private right of action existed.
First, the court rejected the reasoning in Litton that the
addition of the administrative penalty provision under § 2609(c)
implied that a private cause of action did not exist. Second, the
court rejected the notion that a no private right of action
exists due to the fact that such a right was expressly provided
in one section but not in another. The court explained that such
references to private remedies were intended to provide only for
extraordinary remedies, costs, and attorney's fees to the
prevailing party, rather than to create specific private causes
of action. In sum, the Heller court primarily relied on
language in § 2607 in finding that RESPA as a whole provided a
private cause of action.
The Court agrees with the reasoning in Litton and Allison.
In addition to the well-reasoned opinions of the Fifth and
Seventh Circuits in Litton and Allison, RESPA is clear on its
face when it comes to private remedies. RESPA specifically
provides for a three year statute of limitations in any action
brought in federal court for a violation of §§ 2605, 2607, and
2608. 12 U.S.C. § 2614. Had Congress intended to create a private
right of action under § 2609, that section also would have been
included in the statute of limitations section. Moreover, § 2607
and § 2608 of RESPA provides for treble damages and attorneys
fees, whereas § 2609 has no such provision with regard to
damages. Only administrative enforcement by HUD is contemplated
under § 2609. As such, the Court finds that no private right of
action exists under the escrow limitation provisions in § 2609(a)
C. Fees for Statements Required by RESPA and TILA
The Plaintiffs also claim that the Defendants violated § 2610
of RESPA by charging fees for the preparation of certain payoff
statements required under TILA and RESPA. Such practice is
prohibited under § 2610, which states:
No fee shall be imposed or charge made upon any other
person (as a part of settlement costs or otherwise)
by a lender in connection with a federally related
mortgage loan made by it (or a loan for the purchase
of a mobile home), or by a servicer (as the term is
defined under section 2605(i) of this title), for or
on account of the preparation and submission by such
lender or servicer of the statement or statements
required (in connection with such loan) by sections
2603 and 2609(c) of this title or by the Truth in
12 U.S.C. § 2610.
For the same reasons as stated above, the Court finds that
there is no private right of action under § 2610. See Bloom,
865 F. Supp. 1377, 1385 (N.D. Cal. 1994), aff'd, 77 F.3d 318,
320 (9th Cir. 1996). Therefore, the Plaintiffs claim under § 2610
fails as a matter of law.
IV. The Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act ("FDCPA") was enacted in
1977 to "eliminate abusive debt collection practices by debt
collectors, [and] to insure that those debt collectors who
refrain from using abusive debt collection practices are not
competitively disadvantaged. . . ." 15 U.S.C. § 1692(e). Under
FDCPA, a debt collector may not use any "false, deceptive, or
misleading representation" or "unfair or unconscionable" means in
connection with the collection of any debt. Id.
Generally, creditors are not considered "debt collectors" under
the FDCPA. 15 U.S.C. § 1692a(6)(F). A "debt collector," as
defined by the statute means "any person who uses any
instrumentality of interstate commerce or the mails in any
business the principal purpose of which is the collection of any
debts, or who regularly collects or attempts to collect, directly
or indirectly, debts owed or due or asserted to be owed or due
another." Id. § 1692a(6). In particular, FDCPA excludes
originators of credit from the definition of "debt collector"
under certain conditions:
[A]ny person collecting or attempting to collect any
debt owed or due or asserted to be owed or due
another to the extent such activity (i) is incidental
to a bona fide fiduciary obligation or a bona fide
escrow arrangement; (ii) concerns a debt which was
originated by such person; (iii) concerns a debt
which was not in default at the time it was obtained
by such person; or (iv) concerns a debt obtained by
such person as a secured party in a commercial credit
transaction involving the creditor.
Id. § 1692a(6)(F).
In enacting the FDCPA, Congress targeted situations where
natural constraints would fail to inhibit debt collection
Unlike creditors, who generally are restrained by the
desire to protect their good will when collecting
past due accounts, independent collectors are likely
to have no future contact with the consumer and often
are unconcerned with the consumer's opinion of them.
S. Rpt. No. 95-382, 95th Cong., 1st Sess., reprinted in 1977
U.S. Code Cong. & Admin. News 1695, 1696. Therefore, generally,
the FDCPA does not apply to creditors. See Maguire v. Citicorp
Retail Svcs., Inc., 147 F.3d 232
, 236 (2d Cir. 1998);
Krutchkoff v. Fleet Bank, N.A., 960 F. Supp. 541, 548 (D. Conn.
1996); Teng v. Metro. Retail Recovery, Inc., 851 F. Supp. 61,
66 (E.D.N.Y. 1994).
The Defendants contend that they fall squarely within the
exclusion because all of the debts were originated by the
Defendants before being transferred to the secondary mortgage
market. The Plaintiffs argue that the Defendants are liable under
the FDCPA for two reasons. First, the exclusion only applies to
"debts" owed or due to another and the Disputed Fees were never
"bona fide debts" because they were not authorized under the
mortgage agreement. Second, the Defendants did not "originate"
the debt because Long Island Savings originated the loans of the
McAnaney's and Russo's.
Both of the Plaintiffs arguments are without merit. First, the
Plaintiffs' allegation that the Defendant did not "originate" the
debt because it was not in the mortgage agreement is wholly
inapplicable. The FDCPA states that a creditor is not a debt
collector if it is collecting a debt that is "owed or due or
asserted to be owed or due. . . ." 15 U.S.C. § 1692a(6)(F). As
such, whether the debt is bona fide or in the mortgage agreement
is not pertinent to the issue of whether the Defendants are debt
collectors under the FDCPA.
Second, the loans fit the exception even though Long Island
Savings originated the loans because they were transferred to
Astoria Federal when Long Island Savings merged into Astoria
Federal in 1998. At the time, the loans were not in default, and
therefore, the exclusion in § 1692a(6)(F) applies. Id. (stating
that a creditor is not a debt collector when it obtains a debt
that was "not in default").
Accordingly, the Defendants cannot be liable under the FDCPA
because they are excluded from the definition of "debt
collectors" due to the fact that they originated the Plaintiffs'
loans. Therefore, the Plaintiffs claims under FDCPA are
V. State Law Claims
Having found that the complaint asserts a federal claim against
the Defendants under the TILA, the Court will exercise
supplemental jurisdiction over the Plaintiffs state law claims
pursuant to 28 U.S.C. § 1367(a).
For all the foregoing reasons, it is hereby
ORDERED, that the Defendants motion to dismiss the complaint
pursuant to Rule 12(b)(6) is hereby DENIED as to the Plaintiffs
claims under the Truth in Lending Act; and it is further;
ORDERED, that the Defendant's motion to dismiss is GRANTED
as to the Plaintiffs claims under the Real Estate Settlement
Procedures Act and the Fair Debt Collection Practices Act; and it
ORDERED, that the parties are directed to contact United
States Magistrate Judge William D. Wall forthwith to schedule the
completion of discovery.
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