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Macheda v. Household Finance Realty Corp. of New York

June 26, 2008


The opinion of the court was delivered by: Hon. Norman A. Mordue, Chief U.S. District Judge



In this action by homeowners against a lender with which they entered into a mortgage loan, defendant moves (Dkt. No. 45) for summary judgment dismissing the action. Plaintiffs move (Dkt. No. 48) for partial summary judgment. Defendant is entitled to partial summary judgment establishing that plaintiffs cannot rescind so much of the loan as refinanced plaintiffs' previous loan with defendant; its motion is otherwise denied. Plaintiffs' motion is denied.


In their amended complaint (Dkt. No. 8), plaintiffs seek rescission of their mortgage and monetary and other relief under the Truth in Lending Act, ("TILA"), 15 U.S.C. § 1601 et seq.; the Home Ownership Equity Protection Act of 1994 ("HOEPA"), 15 U.S.C. §§ 1602(aa),1639; and New York General Business Law § 349. Insofar as is relevant to the present motions, plaintiffs' amended complaint alleges the following:

The Plaintiffs purchased 44 Lincklaen Street in 1993 as their principal dwelling and have lived there together ever since. The Plaintiffs obtained an initial mortgage through the seller of the property, Robert Riedl.

On May 25, 1995 the Plaintiffs obtained a loan and second mortgage through the Defendant in the amount of $45,000.00. This second mortgage was a revolving loan agreement, with an interest rate of 13.5 % and approximate monthly payments of $560.00.

On or about January 1, 2001 the Plaintiffs contacted the Defendant to inquire about having the interest rate lowered on the second mortgage. The Plaintiffs spoke with the Defendant's account executive Veronica Bailey. The account executive advised the Plaintiffs that the Note and Mortgage they obtained in 1995 was a revolving loan similar to a credit card, and, therefore, in time the loan would come due in full and if the Plaintiffs did not pay the Note in full the Defendant would foreclose on their home.

The account executive advised that the Plaintiffs should obtain another mortgage on their home to pay off the existing mortgages.

The account executive took information from the Plaintiffs and arranged to meet them at their home to execute the necessary papers on March 27, 2001. The account executive went to the Plaintiffs home on March 27, 2001 to execute the necessary documents.

When the Plaintiffs expressed concern about the interest rate, the account executive advised the Plaintiffs that since they operated a childcare facility in their home nobody else would give them a loan.

Household required Plaintiffs to consolidate the two existing mortgages, ie $62,829.00 to Robert Riedl and $49,310.47 to the Defendant, persuaded them to borrow an additional $2,227.39 in cash, and imposed approximately $10,123.80 in additional points, fees and settlement charges. As a result, the principal amount of the new loan was $139,538.04 and the payments were $1,226.16 per month for 360 months, with a disclosed annual percentage rate of 10.926 %. *** The account executive told the Plaintiffs that the points and fees were necessary to obtain the loan and mortgage. The Plaintiffs were not advised of the relationships between points paid and the initial rate of the loan.

On March 27, 2001, the date of settlement, Plaintiffs entered into a consumer credit transaction with Household in which Household extended consumer credit, which was subject to a finance charge, was initially payable to Household and was made for personal, household, or family purposes.

As part of this consumer credit transaction, Household acquired a security interest, namely a mortgage, in 44 Lincklaen, Cazenovia, New York, which is used as the principal dwelling of the Plaintiffs.

In conjunction with the closing of this loan, the Plaintiffs were instructed to sign an acknowledgment of receipt of a document entitled "Notice of Right to Cancel" which was not dated. This Notice was addressed to the Plaintiffs and purported to advise them of their right to cancel the transaction within three business days of the loan date, which was identified as March 27, 2001. The cancellation date listed on the notice was March 30, 2001.

The Plaintiffs were not provided copies of any documents they signed on March 27, 2001. All copies of the documents signed by the Plaintiffs on March 27, 2001 were taken by the account executive when she left their home. The Plaintiffs did not receive copies of any documents until after the expiration of the cancellation period. *** Because the transaction described herein met the HOEPA definition of a high rate mortgage, the transaction was subject to additional disclosure requirements that must be provided three days in advance of the consummation of the transaction. 15 U.S.C. § 1639(b).

Household did not furnish the required HOEPA disclosures to Plaintiffs three days prior to their settlement.

Household did not provide the required Truth In Lending disclosures before consummation in a form the Plaintiffs could keep.

Household did not accurately disclose the "amount financed, finance charge, and annual percentage rate (APR)" on the TILA disclosure because it failed to include the credit insurance premiums in the finance charge. Household required the Plaintiffs to purchase the credit insurance products. This failure to properly disclose resulted in underdisclosing the finance charge and APR and overdisclosing the amount financed, beyond the tolerances permitted by TILA. *** Because of the violations of HOEPA and TILA listed above, Plaintiffs retained the right to rescind the transaction up to three years after its consummation.

On March 5, 2004 and March 11, 2004, Plaintiffs rescinded the transaction by sending a notice of rescission by U.S. Mail, postage prepaid, certified mail, return receipt requested, which by reference are incorporated herein. Household received Plaintiffs' notices of rescission on March 9, 2004 and March 12, 2004.

Household has twenty days from receipt of the notice of rescission to take any action necessary or appropriate to reflect the termination of any security interest created under the transaction and to return to the Plaintiffs any money or property given by the Plaintiffs to anyone, including Household, as required by 15 U.S.C. § 1635(b) and Regulation Z, § 226.23(d)(2). If Household fails to ...

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