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Cedeno v. Indymac Bancorp

August 25, 2008


The opinion of the court was delivered by: John G. Koeltl, District Judge


This is a purported class action on behalf of the plaintiff, Virgen Cedeno, and a similarly situated class of residential home mortgage borrowers against defendant IndyMac Bancorp, Inc. and the Federal Deposit Insurance Corporation, as Receiver for IndyMac Bank, F.S.B. ("IndyMac"),*fn1 for alleged violations of two federal statutes, namely the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., and the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. The plaintiff also alleges four state law claims, namely alleged violations of the California Business & Professions Code § 17200 et seq., and the New York General Business Law § 349; and claims for breach of contract and unjust enrichment.*fn2 The Amended Complaint alleges that IndyMac failed to disclose to the plaintiff that it selected appraisers, appraisal companies and/or appraisal management firms who performed faulty and defective appraisal services which inflated the value of residential properties in order to allow the defendant to complete more real estate transactions and obtain greater profits.*fn3 The inflated appraisals allegedly misled the plaintiff as to the true equity in her home. IndyMac moves to dismiss all claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.


In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Twombly v. Bell Atlantic Corp., 127 S.Ct. 1955, 1974 (2007); see also Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007). The Court may also rely upon documents on which the plaintiff relied in drafting the complaint. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).


The following facts alleged in the Amended Complaint are accepted as true for the purpose of deciding this motion to dismiss. IndyMac Bancorp is the holding company for IndyMac Bank, F.S.B., a federally chartered savings bank. (Am. Compl. ¶¶ 17, 18.)

The named plaintiff is a resident of Brooklyn, New York, who obtained an $80,000 line of credit from IndyMac Bank secured by her property located in Brooklyn. (Am. Compl. ¶ 16; Def.'s Ex. A.) In connection with the loan, the plaintiff was charged a $500.00 appraisal fee. The appraisal services on the plaintiff's property were provided by an appraisal company known as Supreme Appraisals. (Am Compl. ¶ 26.) The purported class includes "all persons in the United States who, at any time from January 1, 2004 to the present, have financed or refinanced their mortgages and obtained an appraisal through IndyMac." (Am. Compl. ¶ 50.)

The plaintiff alleges that IndyMac failed to provide the necessary insulation and separation between its own internal production or sales personnel responsible for providing the mortgage services ("Production Personnel") and the credit or valuation personnel who were responsible for overseeing and verifying the accuracy of the appraisal services ("Credit/Valuation Personnel"). (Am. Compl. ¶¶ 2-4.) This lack of insulation allowed the Production Personnel to pressure the Credit/Valuation Personnel to approve inflated appraisals so that loans and profits could be increased. IndyMac allegedly failed to ensure that the appraisals were accurate and allowed its own quality control staff to approve inflated and defective appraisals. (Am. Compl. ¶ 11.)

The Amended Complaint alleges that IndyMac communicated that there was a certain "target value" or "qualifying value" necessary to close the loan. The appraisers understood that if they met the targeted value, they would be selected for future referral of business from IndyMac. Through direct and indirect communication, IndyMac informed the appraisers that the certain "target values" were desirable, and "low values" would impede the ability to close the loan. (Am. Compl. ¶ 43.) IndyMac hired appraisal management firms or appraisers whose prior performance repeatedly returned the values needed to match the qualifying loan values. (Am. Compl. ¶ 45.) Allegedly, according to a confidential witness, IndyMac refused to do further business with a certain appraisal management firm because that firm was not providing the needed value in appraisals to meet the targeted amount. (Am. Compl. ¶ 49.)

The Amended Complaint alleges that when consumers overpay for a home, or are induced to borrow excessively on the supposed equity of their homes, the results are inflated closing costs, higher interest, and in many cases the necessity of private mortgage insurance. (Am. Compl. ¶ 9.) Thus, the Amended Complaint alleges that the inflated appraisals which resulted from IndyMac's improper practices led the plaintiff and members of the purported class to pay higher closing costs and higher financing costs than they would have otherwise paid, and to pay more for their homes than warranted by the actual value of their homes. (Am. Compl. ¶¶ 5, 8-9.)


Count Two of the Amended Complaint alleges a violation of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. ("RESPA"). Count Three of the Amended Complaint alleges a violation of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA").*fn4


Congress enacted RESPA "to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country." 12 U.S.C. § 2601(a). Congress also provided that a purpose of RESPA was "to effect certain changes in the settlement process for residential real estate that will result -- . . . (2) in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services . . . ." 12 U.S.C. § 2601(b).

The plaintiff asserts a claim under 12 U.S.C. § 2607(a), RESPA's "anti-kickback" provision, which prohibits a person from giving or accepting "any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person." 12 U.S.C. § 2607(a). The term "thing of value" is broadly defined under the statute to include "any payment, advance, funds, loan, service, or other consideration."

12 U.S.C. § 2602(2). The statute also includes a "safe harbor" provision which provides: "Nothing in this section shall be construed as prohibiting . . . the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed." 12 U.S.C. § 2607(c).

The plaintiff alleges that IndyMac's manipulation of appraisers enabled it to receive higher appraisals, in return for which the appraisers received the opportunity to do further appraisals for IndyMac and for business referrals from IndyMac. Thus, the plaintiff alleges that the "thing of value" IndyMac received for referring business to appraisers was the inflated appraisals themselves, which allowed IndyMac to increase profits as a result of the mortgage loans. (Am. Compl. ¶¶ 70-71.) In return, IndyMac allegedly referred business to the appraisers. (Am. Compl. ¶¶ 70, 72.)

The defendant argues that the plaintiff fails to identify a "thing of value" that the defendant received under RESPA, and that in any event, the "safe harbor" provision of Section 2607(c)(2) precludes the plaintiff's claim, because Supreme performed an appraisal for which it was paid, and RESPA is not intended to serve as a price or quality control statute.

The plaintiff has failed to state a claim under RESPA. Even assuming that IndyMac received a "thing of value" in the form of inflated appraisals,*fn5 and that IndyMac promised and provided business in return,*fn6 the plaintiff has not stated a claim ...

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