UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
September 28, 2011
GEORGIA MIDOUIN, AN INDIVIDUAL, PLAINTIFF,
DOWNEY SAVINGS AND LOAN ASSOCIATION, F.A., U.S. BANK, JOHN & JANE DOES 1-10, DEFENDANTS.
The opinion of the court was delivered by: Matsumoto, United States District Judge:
MEMORANDUM & ORDER
Georgia Midouin ("plaintiff") commenced this action on September 25, 2009 against Downey Savings and Loan Association, F.A. ("Downey"), U.S. Bank National Association ("U.S. Bank"), and John & Jane Does 1-10 (collectively, "defendants"), asserting claims for (1) rescission pursuant to the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA") (Count One); (2) damages pursuant to TILA (Count Two); (3) damages pursuant to the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605 ("RESPA") (Count Three); and (4) damages pursuant to New York General Business Law ("NYGBL") § 349 (Count Four). (See ECF No. 1, Complaint, filed 9/25/2009 ("Compl."), ¶¶ 55-98.) Presently before the court is a motion to dismiss the Complaint for failure to state a claim, pursuant to Federal Rule of Civil Procedure 12(b)(6), filed by U.S. Bank as successor in interest to the Federal Deposit Insurance Corporation ("FDIC"), which was appointed as receiver for Downey. (See ECF No. 19-2, Def. Mem. at 1.)*fn1 For the reasons discussed below, defendants' motion is granted in part and denied in part.
The facts as alleged in the Complaint, which the court accepts as true for purposes of defendants' Rule 12(b)(6) motion, are as follows. This action arises out of a closed-end credit transaction in which Downey provided plaintiff a $325,000 loan to refinance and cash out the value of her home and existing mortgage loan on her primary residence located in Cambria Heights, New York (the "property"). (ECF No. 1, Compl. ¶¶ 5, 14, 35.) In 2006, plaintiff submitted financial information to First Rate Capital Corporation ("First Rate"), to apply for a loan to refinance her mortgage. (Id. ¶¶ 14-15.) Plaintiff alleges that although First Rate did not request any income verification, First Rate assured her that she qualified for mortgage loan approval and promised her that she could obtain a loan at the best possible interest rate despite her fixed income. (Id. ¶¶ 16-17.)
On November 24, 2006, First Rate provided plaintiff with a Good Faith Estimate of Settlement Charges from Downey, which set forth estimated settlement charges totaling $5,989.88, and a Federal Truth-In-Lending Disclosure Statement. (Id. ¶¶ 18-19; see also id. at 19.)*fn2 Plaintiff subsequently accepted the proposed mortgage loan with Downey and plaintiff attended the settlement and closing (the "Closing") on December 11, 2006. (Id. ¶¶ 21-24.)
Plaintiff alleges that at the Closing, Downey provided her with a $325,000 loan and copies of the following documents:
(i) a Good Faith Estimate of Settlement Charges, dated December 11,
2006, (the "Good Faith Estimate"), (id. at 20, 21);*fn3
(ii) a Federal Truth-in-Lending Disclosure Statement, dated
December 11, 2006, (the "TILA Disclosure Statement"), (id. at 22);
(iii) four copies of a Notice of Right to Cancel, dated December 11,
2006, (id. at 23-26); (iv) two copies of a U.S. Department of Housing
and Urban Development Settlement Statement, dated December 11, 2006,
(the "HUD-1 Settlement Statement"), (id. at 27-30); (v) an unsigned
Uniform Residential Loan Application, (id. at 31-34); (vi) the
Lender's Instructions, Itemization of Charges, dated December 11,
2006, (id. at 35); and (vii) a Statement of Mortgage Closing, (id. at
36). (Id. ¶ 24.)
The Good Faith Estimate that plaintiff received at the Closing set forth estimated settlement charges totaling more than $17,000, including $360 in recording fees. (See id. at 20, 21.)
The TILA Disclosure Statement stated that the "annual percentage rate" was 8.005 percent, the "finance charge" was $627,119.76, and the "amount finance[d]" was $321,704.60. (Id. at 22.) Thus, the total amount owed pursuant to the loan was $948,824.36. (Id.) The TILA Disclosure Statement also set forth the loan repayment schedule and indicated that the loan contained a variable interest rate. (See id.)
The HUD-1 Settlement Statement, which plaintiff signed on December 11, 2006, itemized settlement charges that were to be paid from the proceeds of the loan but were not included in the amount disclosed on the TILA Disclosure Statement as "finance charges." (See id. at 30.) These settlement charges totaled $17,843.23, including, but not limited to: (i) $195.00 for recording the deed; (ii) $280.00 for recording the mortgage;
(iii) $80.00 for the release. (Id. at 30.) In addition, the HUD-1 Settlement Statement indicated that plaintiff received a cash payment of $45,109.99. (Id. at 29.)
The Uniform Residential Loan Application that plaintiff received at the Closing, which plaintiff alleges she did not sign, stated that plaintiff's total monthly income was $5,469.00. (Id. at 32.)
Plaintiff also alleges that at the Closing, she did not receive a Variable Rate Promissory Note, an Adjustable Rate Rider, an Equal Credit Opportunity Act Disclosure, a Fair Housing Act Disclosure, a Privacy Disclosure, a Patriot Act Disclosure, or a Consumer Credit Score Disclosure. (Id. ¶ 25.)
At some point after the Closing, plaintiff's monthly payments on her loan began to rise. (Id. ¶ 37.) Plaintiff asserts that after reviewing the loan documents, she noticed for the first time that her monthly income was inflated on the Uniform Residential Loan Application. (Id. ¶ 38.)*fn4 After making this discovery, plaintiff contacted First Rate and demanded that the mortgage broker correct her monthly income and adjust her monthly payment schedule accordingly. (Id. ¶ 39.) However, the mortgage broker refused to change the information or facilitate a work-out agreement with U.S. Bank, which had taken over for Downey as the lender. (Id. ¶ 40; see also ECF No. 19-2, Memorandum of Law In Support of Defendant U.S. Bank's Motion To Dismiss Plaintiff's Complaint ("Def. Mem.") at 4 n.2.) Nonetheless, plaintiff continued making monthly payments on her loan using the cash proceeds that she received at the Closing. (ECF No. 1, Compl. ¶ 41.)
On March 20, 2009, plaintiff's counsel sent Downey a letter seeking rescission of plaintiff's loan pursuant to the Truth in Lending Act, 15 U.S.C. § 1635. (Id. ¶ 43; see also id. at 59-63.) The letter alleged, inter alia, (i) inaccuracies in the HUD-1 Settlement Statement; (ii) a discrepancy between the loan amount stated on the Uniform Residential Loan Application and the amount stated in public records; and (iii) a failure to provide plaintiff with all the required documents at Closing. (See id. ¶¶ 44-46; see also id. at 60-61.) The letter asserted that upon rescission, plaintiff "will tender all sums to which [Downey] is entitled." (Id. at 62.) Finally, the letter demanded certified copies of several documents from plaintiff's loan file. (See id. at 62-63.)
On April 3, 2009, U.S. Bank responded to plaintiff's counsel, stating that the requests made in her March 20, 2009 letter were being reviewed. (Id. ¶ 47; see also id. at 64.) Plaintiff subsequently failed to make her July 1, 2009 and subsequent loan payments, thereby defaulting on her loan. (Id. ¶¶ 41-42; see also id. at 66-67.) On August 5, 2009, U.S. Bank sent plaintiff a Notice of Intent to Foreclose, which informed plaintiff that unless she made her overdue loan payments within 30 days of the notice, U.S. Bank "will have no option but to begin foreclosure proceedings without further notice." (Id. ¶ 48; see also id. at 65.)
Plaintiff filed the instant action on September 25, 2009, alleging violations of the Truth in Lending Act, the Real Estate Settlement Procedures Act, and New York General Business Law. (See generally id.)*fn5 Plaintiff seeks rescission of her loan, statutory and actual damages, and attorney's fees. (See id. at 16-17.) In addition, she seeks to enjoin defendants from "instituting, prosecuting, or maintaining a proceeding" on plaintiff's property or "from otherwise taking any steps to deprive Plaintiff's ownership" of her property. (Id. at 16.)
U.S. Bank served plaintiff with the instant motion to dismiss on December 17, 2010. (See ECF No. 19, Notice of Motion, dated 12/17/2010; ECF No. 19-2, Def. Mem.) Plaintiff opposed the motion on January 11, 2011. (See ECF No. 18, Plaintiff's Motion Opposing Defendants' Motion To Dismiss Complaint, dated 1/11/11; ECF No. 18-3, Plaintiff's Memorandum of Law Opposing Defendants' Motion To Dismiss, dated 1/11/11 ("Pl. Opp.").) U.S. Bank served its reply, and the fully briefed motion was filed, on January 18, 2011. (See ECF No. 21, Reply Memorandum of Law In Further Support of Defendant U.S. Bank's Motion To Dismiss Plaintiff's Complaint, dated 1/18/11 ("Def. Reply").)
A.Motion To Dismiss Pursuant to Rule 12(b)(6)
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that it is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This standard is met "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. A court should not dismiss a complaint for failure to state a claim if the factual allegations sufficiently "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. The court's function "is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir. 1980). "[T]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Todd v. Exxon Corp., 275 F.3d 191, 198 (2d Cir. 2001) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).
A court deciding a motion to dismiss pursuant to Rule 12(b)(6) must accept as true all factual allegations contained in the complaint and draw all inferences in favor of the non-moving party. Global Network Commc'ns, Inc. v. City of New York, 458 F.3d 150, 154 (2d Cir. 2006). Nevertheless, the court "need not accord legal conclusions, deductions or opinions couched as factual allegations . . . a presumption of truthfulness." In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d Cir. 2007) (citation and internal quotation marks omitted). In deciding a motion to dismiss, the court is not limited to the face of the complaint, but may also consider "documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint." DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir. 2010) (citations omitted).
A.Claims Under the Truth in Lending Act
1.The Truth in Lending Act
The Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), was enacted by Congress "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and 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(a); see Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998). In enacting TILA, Congress delegated authority to the Federal Reserve Board of Governors to promulgate implementing regulations and interpretations, known as Regulation Z. See 15 U.S.C. § 1604(a); see also 12 C.F.R. § 226 et seq.
In general, TILA requires creditors to provide borrowers clear, conspicuous, and accurate disclosures of the loan terms and other material information. See 15 U.S.C. § 1632. The required material disclosures include, but are not limited to, the amount financed, the annual percentage rate, the finance charge, the total of payments, and the payment schedule. See 12 C.F.R. § 226.18; see also id. §§ 226.23(a)(3) n.48, 226.32(c)-(d); 15 U.S.C. § 1602(u). The "finance charge" is defined as the "cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to the extension of credit." 12 C.F.R. § 226.4(a); see also 15 U.S.C. § 1605(a). Regulation Z lists several examples of finance charges, including interest, points, loan fees, appraisal fees, credit report fees, mortgage insurance premiums, and debt cancellation fees. See 12 C.F.R. § 226.4(b). In addition, Regulation Z expressly permits creditors to exclude certain fees from the finance charge, including 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," provided that such fees are itemized and disclosed. Id. § 226.4(e); see also 15 U.S.C. § 1605(d) (exempting from computation of finance charge "fees and charges prescribed by law which actually are or will be paid to public officials for determining the existence of or for perfecting or releasing or satisfying any security related to the credit transaction"); McAnaney v. Astoria Fin. Corp., 357 F. Supp. 2d 578, 586 (E.D.N.Y. 2005) ("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.").
A creditor's failure to comply with TILA's requirements can subject the creditor to statutory and actual damages and may entitle the borrower to rescission. See 15 U.S.C. §§ 1635, 1640.
2.Rescission Under the Truth in Lending Act
a.Understatement of Finance Charges
TILA provides that a borrower whose loan is secured by her "principal dwelling" and who has not been provided the required disclosures has the right to rescind her loan. See 15 U.S.C. § 1635(a). The right to rescind extends until midnight of the third business day after the latest of (i) consummation of the transaction, (ii) delivery of a notice of the right to rescind, and (iii) delivery of all the required material disclosures. 12 C.F.R. § 226.23(a)(3); see also 15 U.S.C. § 1635(a). If the creditor fails entirely to deliver the required notice of the right to rescind or to provide the required material disclosures, the borrower's right to rescind the transaction expires three years after the earlier of (i) the date of consummation of the transaction and (ii) the date the property is sold. 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3).
Plaintiff asserts that she is entitled to rescind her loan pursuant to TILA "[a]s a result of Defendants['] failure to provide accurate material disclosures . . . ." (ECF No. 1, Compl. ¶ 56.) Defendants move to dismiss plaintiff's request for rescission, arguing that because plaintiff received all of the notice and disclosures required by law, she may not benefit from an extended three-year rescission right and her action is therefore time barred. (ECF No. 19-2, Def. Mem. at 6-7.)
The Complaint specifically alleges that the amounts listed on Line 1201 of the HUD-1 Settlement Statement for recording fees and filing fees were "not bona fide and reasonable." (ECF No. 1, Compl. ¶ 29.) Those amounts indicate that defendants charged plaintiff a total of $555 in recording fees, including $195 for recording the deed, $280.00 for recording the mortgage, and $80.00 for the release. (Id. at 30.) Plaintiff alleges that "the actual cost of Recording Fees and filing fees for this Transaction [was]: Mortgage $187.00; Deed $52.00 Filing Fee $75.00, and Satisfaction of Mortgage $42.00," for a total of only $356. (Id. ¶ 28; see also id. at 55-58; ECF No. 18-3, Pl. Opp. at 10.) Plaintiff further alleges, "[t]he inaccuracy of the TILA Disclosure Statement, Finance Charges varies by more than $100.00 and is understated." (ECF No. 1, Compl. ¶ 45.) Drawing all reasonable inferences in plaintiff's favor, as the court must, she appears to be alleging that defendants charged her $199 more to record the transaction than they actually paid to public officials to do so.
In McAnaney v. Astoria Financial Corp., 665 F. Supp. 2d 132, 148 n.16 (E.D.N.Y. 2009), the district court noted that a recording fee was "properly excluded from the finance charge to the extent that it comes under the exception for '[f]ees and charges prescribed by law which actually are or will be paid to public officials'" under 15 U.S.C. § 1605(d(1), but found that where the creditor collected $36.50 from the borrower for recording and the county filing fee was only $34.00, "the overpayment of $2.50 should have been included in the finance charge." Thus, because plaintiff has asserted that the amount of recording and filing fees disclosed at Closing in the HUD-1 Settlement Statement exceeded the amount actually paid to a public official, she alleges an understatement in the disclosed finance charge.*fn6
Defendants insist that even if the finance charge is understated, dismissal is nonetheless warranted because any alleged inaccuracy in the finance charge falls within the tolerances for accuracy provision under TILA and Regulation Z. (ECF No. 19-2, Def. Mem. at 10-13; ECF No. 21, Def. Reply at 2-5.) See 15 U.S.C. § 1605(f); 12 C.F.R. § 226.23(g).
Pursuant to TILA and Regulation Z, a finance charge "shall be considered accurate" if the amount disclosed "(i) is understated by no more than 1/2 of 1 percent of the face amount of the note or $100, whichever is greater; or (ii) is greater than the amount required to be disclosed." 12 C.F.R. § 226.23(g)(1); see also 15 U.S.C. § 1605(f)(2)(A). In this case, if applicable, this provision would permit an understatement of up to $1,625 on plaintiff's $325,000 mortgage before plaintiff may rescind on this basis.
Plaintiff argues that she is exempted from the tolerance for accuracy provision by 15 U.S.C. § 1635(i)(2), which governs "rescission rights in foreclosure" and provides that "after initiation of any judicial or non-judicial foreclosure process," a finance charge shall be considered accurate if it is understated by no more than $35. (ECF No. 1, Compl. ¶ 50; ECF No. 18-3, Pl. Opp. at 11-14.) See also 12 C.F.R. § 226.23(h)(2).*fn7 Plaintiff asserts that "the foreclosure process [was] initiated" on August 5, 2009, when U.S. Bank sent her a Notice of Intent to Foreclose. (ECF No. 18-3, Pl. Opp. at 14; see also ECF No. 1, Compl. ¶ 48; id. at 65.) Defendants, on the other hand, contend that foreclosure proceedings did not commence until June 23, 2010, when U.S. Bank filed a foreclosure action in New York State court.*fn8 (ECF No. 19-2, Def. Mem. at 10 n.4; ECF No. 21, Def. Reply at 3-4.)
For the purpose of determining the applicable tolerance for disclosures in a rescission action, "[t]he question is not whether . . . a judicial foreclosure action was commenced but whether a judicial foreclosure process was." Glucksman v. First Franklin Fin. Corp., 601 F. Supp. 2d 511, 513 (E.D.N.Y. 2009). In this case, although U.S. Bank did not file a foreclosure action until June 23, 2010, see U.S. Bank v. Midouin, No. 9952/2010 (N.Y. Sup. Ct.), it sent plaintiff a Notice of Intent to Foreclose on August 5, 2009, (see ECF No. 1, Compl. at 65).
"The fact that [defendant] did not file a Summons and Complaint for foreclosure [until June 23, 2010] is not dispositive. . . . The court need not determine here whether and when the foreclosure process actually began; these are questions of fact better left to examination after discovery." Glucksman, 601 F. Supp. 2d at 513. Thus, viewing the allegations in the light most favorable to plaintiff, as it must, the court finds it plausible that a judicial foreclosure process had been initiated against the property by the time plaintiff commenced the instant action seeking rescission, and therefore the applicable tolerance for accuracy is $35. (See ECF No. 1, Compl. ¶ 50.) Accordingly, because plaintiff has alleged that defendants understated the finance charge "by more than $100.00," (id. ¶ 45), and she filed her claim within three years of the December 11, 2006 Closing date, she has presented a plausible claim to relief.
b.Plaintiff's Willingness and Ability to Tender the Loan Proceeds
Finally, defendants argue that even if the finance charge was not fully disclosed, plaintiff's failure to assert that she is willing and able to tender the loan proceeds requires dismissal of her rescission claim. (ECF No. 19-2, Def. Mem. at 14-15; ECF No. 21, Def. Reply at 5-7.)
Title 15 U.S.C. Section 1635(b) sets forth the sequence of events that
must be followed when a borrower seeks
rescission of her loan. Within twenty days of the borrower's
notification that she is exercising her right of rescission, the
creditor must return any money or property given as earnest money,
downpayment, or otherwise, and reflect the termination of its security
interest that was created by the transaction. After the creditor has
satisfied these obligations, the borrower must tender the property or
its reasonable monetary value. 15 U.S.C. § 1635(b).*fn9
The statute does not require the debtor to tender the loan
proceeds prior to rescission. Rather, it is apparent from the plain
language of the statute that the
borrower's obligation to tender the property arises only "[u]pon the
performance of the creditor's obligations." Id.
The statute further provides, however, that a district court may alter this sequence of rescission and tender. See 15 U.S.C. § 1635(b) ("The procedures prescribed by this subsection shall apply except when otherwise ordered by a court."). Numerous courts have exercised their equitable discretion under TILA to condition rescission of a loan on the borrower's return of the loan proceeds to the creditor.*fn10 Whether the court, in its equitable discretion, should require plaintiff to tender the loan proceeds prior to rescission "will depend on the equities present in a particular case." Palmer v. Wilson, 502 F.2d 860, 862 (9th Cir. 1974). See, e.g., Moazed v. First Union Mortg. Corp., 319 F. Supp. 2d 268, 272 (D. Conn. 2004) (granting creditor's motion for summary judgment and refusing to enforce borrower's attempted rescission where "it [was] undisputed that the principal balance cannot be returned" and rescission would create a windfall for borrower).
Here, the court finds that plaintiff has sufficiently alleged her willingness and ability to return the loan proceeds to defendants. Although the Complaint itself does not expressly tender the loan, the court may also consider the exhibits attached to the Complaint and any documents incorporated by reference in the Complaint. See, e.g., Ogbon v. Beneficial Credit Servs., No. 10-CV-03760, 2011 U.S. Dist. LEXIS 11615, at *7 (S.D.N.Y. Feb. 1, 2011) (looking to police report incorporated by reference into the complaint to determine when credit card account was opened). The March 20, 2009 letter from plaintiff's counsel to Downey seeking rescission of plaintiff's loan, which plaintiff attached to the Complaint, expressly stated that plaintiff "would like to discuss tender arrangements for the amount due" and represented that upon rescission of her loan, plaintiff "will tender all sums to which [Downey] is entitled." (ECF No. 1, Compl. at 62.) To that end, counsel requested "an itemized loan disbursement statement, the loan charges, the current principal balance, and all payments received from [plaintiff], so that [plaintiff] may determine the exact amount needed for tender." (Id. at 61.)
Defendants have not cited any binding authority that requires plaintiff to allege with specificity her ability to tender in order to state a claim for rescission under TILA, particularly where the instant plaintiff advised defendants that she would tender sums due to defendants. Moreover, the court at this time lacks sufficient evidence to assess the equities and exercise its discretion to condition rescission on plaintiff's tender of the loan. Rather, these are issues of fact more appropriately resolved at a later stage in the litigation. See, e.g., Palmer, 502 F.2d at 862-63 (remanding so district court could request additional affidavits or hold an evidentiary hearing concerning whether it should condition the grant of rescission on repayment by the borrower); Johnson v. Chase Manhattan Bank USA, N.A., No. 07-CV-526, 2007 U.S. Dist. LEXIS 50569, at *15 (E.D. Pa. July 11, 2007) (denying as premature a motion to dismiss for failure to tender loan proceeds where "[t]here is not yet any record . . . of the plaintiffs' inability to return the proceeds of the loan or any of the other circumstances this court would be obliged to consider if making a decision on equitable grounds"). Accordingly, defendants' motion to dismiss plaintiff's claim for rescission is denied.
3.Damages Under the Truth in Lending Act
Plaintiff further claims that she is entitled to damages pursuant to 15 U.S.C. § 1640. Specifically, in Count Two of the Complaint, plaintiff alleges that defendants (i) failed to provide accurate required disclosures prior to consummation of the transaction, in violation of 15 U.S.C. § 1638(b) and 12 C.F.R. § 226.17(b); (ii) failed to make the required disclosures "clearly and conspicuously" in writing, in violation of 15 U.S.C. § 1632(a) and 12 C.F.R. § 226.17(a)(1); (iii) understated the finance charge, in violation of 15 U.S.C. § 1605 and 12 C.F.R. § 226.4; and (iv) failed to provide an accurate TILA Disclosure Statement, in violation of 15 U.S.C. § 1602(u) and 12 C.F.R. § 226.23(a)(3). (ECF No. 1, Compl. ¶ 65.) In addition, in Count One of the Complaint, which is incorporated in full into Count Two, plaintiff asserts that defendants' "failure to lawfully respond [to plaintiff's rescission notice] gives rise to statutory and actual damages under 15 U.S.C. § 1640." (Id. ¶ 60; see also id. ¶ 63.)*fn11
a.Alleged Failure to Provide Required Disclosures
Defendants assert that plaintiff's claims for damages under TILA are time barred. (See ECF No. 19-2, Def. Mem. at 15-17.) Pursuant to 15 U.S.C. § 1640(e), a borrower seeking damages under TILA must file an action "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). Even after the one-year period has expired, however, a borrower may nonetheless assert the right to damages "in an action to collect the debt . . . as a matter of defense by recoupment or set-off in such action." Id. It is well-settled law that where a claim for damages under TILA is premised on the failure to provide material disclosures, "the 'date of the occurrence of the violation' is no later than the date the plaintiff enters the loan agreement or, possibly, when defendant performs by transmitting the funds to plaintiffs." Cardiello v. Money Store, Inc., No. 00-CV-7332, 2001 U.S. Dist. LEXIS 7107, at *19 (S.D.N.Y. June 1, 2001), aff'd, 29 F. App'x 780 (2d Cir. 2002); see also Johnson v. Scala, No. 05-CV-5529, 2007 U.S. Dist. LEXIS 73442, at *10 (S.D.N.Y. Oct. 1, 2007) ("Case law supports the notion that the statute of limitations for TILA claims does not start running upon the discovery of the non-disclosure, but, rather, upon the funding of the loan.").
Plaintiff argues that the one-year statute of limitations does not apply here because her claims for damages in effect constitute a recoupment defense to the foreclosure sale initiated by defendants. (ECF No. 18-3, Pl. Opp. at 17-19.) Plaintiff's argument is unavailing. In contrast to the language in 15 U.S.C. § 1635(i)(2), which reduces the tolerance for accuracy applicable for rescission "after initiation of any judicial or non-judicial foreclosure process," the language in 15 U.S.C. § 1640(e) refers only to an "action to collect the debt . . . ." (emphasis added). In order to bring a claim for damages after the one-year limitations period has expired, plaintiff must assert her claims as a defense by recoupment "in a collection action brought by the lender." Beach, 523 U.S. at 412. "[B]ecause here plaintiff asserts [her] TILA claim affirmatively, in an action for damages that [she herself] commenced, and not as a defense 'in an action to collect the debt,'" her claim cannot constitute a recoupment defense. Van Pier v. Long Island Sav. Bank, FSB, 20 F. Supp. 2d 535, 536 (S.D.N.Y. 1998). See also Woods v. Greenpoint Mortg. Funding, Inc., No. 2:09-1810, 2010 U.S. Dist. LEXIS 41492, at *9 (E.D. Ca. Apr. 27, 2010) ("[W]hen a debtor files suit against her creditor, the claim by the debtor is affirmative rather than defensive." (citation and internal quotation marks omitted)). Accordingly, because plaintiff did not file her claims within one year of the December 11, 2006 Closing date, plaintiff's claims for damages based on defendants' alleged non-disclosures under TILA are dismissed as time barred.*fn12
b.Alleged Failure to Honor Rescission Notice Nonetheless, plaintiff's claim for damages under TILA based on defendants' alleged failure to honor plaintiff's rescission notice survives the instant motion to dismiss. (See ECF No. 1, Compl. ¶¶ 58-60.)*fn13 The failure to respond to a valid notice of rescission within twenty days of receipt is a separate violation of TILA. See 15 U.S.C. § 1635(b).*fn14 If a creditor does not respond within the statutorily-mandated period, TILA permits a borrower to bring an action for damages against the creditor. See id. § 1640(a). A claim for damages for failure to honor a rescission request is unquestionably subject to the statute of limitations, which requires an action for damages to be brought "within one year from the date of the occurrence of the violation." Id. § 1640(e). Numerous courts, however, have held that where an action for damages is premised on a failure to honor a rescission notice, the violation is deemed to have occurred on "the earlier of when the creditor refuses to effectuate rescission, or twenty days after it receives the notice of rescission."*fn15 Here, plaintiff's counsel sent Downey a request for rescission on March 20, 2009.
Because it does not appear that Downey refused to effectuate rescission within 20 days after plaintiff's request, the one-year statute of limitations began to run on April 9, 2009, 20 days after plaintiff's notice of rescission. Plaintiff filed her Complaint on September 25, 2009, less than one year after April 9, 2009. Thus, insofar as defendants move to dismiss as untimely plaintiff's claim for damages based on defendants' failure to honor plaintiff's request to rescind the transaction, defendants' motion is denied.
B.Damages Under the Real Estate Settlement Procedures Act
Plaintiff's next cause of action seeks damages pursuant to the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. ("RESPA"). The principal purpose of RESPA is 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 . . . ." 12 U.S.C. § 2601(a). Under RESPA, the servicer of a "federally related mortgage loan," which includes a loan "secured by a first or subordinate lien on residential real property," is required to provide a written response within 20 days of receiving a "qualified written request" for information about the servicing of such a loan unless the action requested is taken within that period. Id.
§ 2605(e)(1); see also id. § 2602(1)(A). RESPA also requires the servicer, within 60 days of receiving the request, to "make appropriate corrections" or to "conduct an investigation [and] provide the borrower with a written explanation" of the reasons for any action taken. Id. § 2605(e)(2). Further, "[d]uring the 60-day period beginning on the date of the servicer's receipt from any borrower of a qualified written request . . . a servicer may not provide information regarding any overdue payment . . . to any consumer reporting agency." Id. § 2605(e)(3). A servicer who fails to comply with any of these requirements is subject to actual and statutory damages. Id. § 2605(f).*fn16
Plaintiff alleges that defendants violated RESPA by (i) "failing to make any appropriate corrections to the Plaintiff's account in response to [her March 20, 2009 qualified written request]," in violation of 12 U.S.C. § 2605(e)(2)(A); (ii) "refusing to cease its collection efforts of the rescinded transaction," in violation of 12 U.S.C. § 2605(e)(2); and (iii) "providing information to consumer reporting agencies regarding overdue payments allegedly owed by Plaintiff," in violation of 12 U.S.C. § 2605(e)(3). (ECF No. 1, Compl. ¶¶ 71-73.) For these alleged violations, plaintiff seeks statutory and actual damages. (Id. ¶ 75.)
1.Alleged Reporting to Consumer Reporting Agencies (12 U.S.C. § 2605(e)(3))
To allege a violation of 12 U.S.C. § 2605(e)(3), plaintiff must assert (i) that she sent defendants a qualified written request; (ii) that defendants submitted information regarding plaintiff's overdue payments to a credit reporting agency; and (iii) that defendants submitted such information within 60 days after defendants received plaintiff's qualified written request.*fn17 See Gorham-DiMaggio v. Countrywide Home Loans, No. 08-CV-019, 2009 U.S. Dist. LEXIS 52078, at *26-27 (N.D.N.Y. June 19, 2009); Ploog v. HomeSide Lending, Inc., 209 F. Supp. 2d 863, 868 (N.D. Ill. 2002).
Here, defendants do not dispute that plaintiff's March 20, 2009 letter was a qualified written request.*fn18 (See ECF No. 19-2, Def. Mem. at 19; ECF No. 21, Def. Reply at 9.) Further, the Complaint alleges that "[u]pon information and belief," defendants provided information regarding plaintiff's overdue payments to consumer reporting agencies. (ECF No. 1, Compl. ¶ 73.) However, plaintiff fails to allege when such information was provided. Without more, plaintiff's claim is insufficient to state a violation of 12 U.S.C. § 2605(e)(3), and is dismissed without prejudice.*fn19 Nevertheless, because leave to amend a complaint should be freely given, the court will permit plaintiff to amend her Complaint to cure this deficiency. See Fed. R. Civ. P. 15(a)(2).
2.Actual Damages Pursuant to RESPA
Defendants argue that plaintiff's remaining claims under RESPA also must be dismissed for failure to allege actual damages. (See ECF No. 19-2, Def. Mem. at 18; ECF No. 21, Def. Reply at 8-9.) Notably, "[t]o have a viable cause of action under RESPA . . . individuals must show not only the failure to comply with the provisions of Section 2605, but also actual damages to the borrower as a result of the failure, as set forth in 2605(f)(1)(A), as well as any additional damages that the court may allow in the case of a pattern or practice of noncompliance with the requirements of Section 2605, in an amount not to exceed 1,000 dollars." In re Griffin, No. 10-22431, 2010 Bankr. LEXIS 3555, at *9-10 (Bankr. S.D.N.Y. Aug. 31, 2010). Accordingly, dismissal of a claim under 12 U.S.C. § 2605 is appropriate where the complaint "merely prays for relief without specifying the injury [plaintiff] suffered." Gorham v. Bank of Am., N.A., No. 09-CV-1150, 2010 U.S. Dist. LEXIS 41797, at *10-11 (N.D.N.Y. Apr. 28, 2010).
Here, the Complaint alleges that "[a]s a result of the acts specifically alleged above, Plaintiff has suffered loss of retirement savings, loss of income, nausea, emesis, constant headaches, insomnia, embarrassment, and incurred an ascertainable loss." (ECF No. 1, Compl. ¶ 54.)*fn20 Further, Count Three of the Complaint states that plaintiff is "entitled to recoup the actual and statutory civil penalty provided by RESPA." (Id. ¶ 75.) The court finds that plaintiff has sufficiently alleged that she suffered damages, including but not limited to a loss of savings and income, caused by RESPA violations.*fn21 Accordingly, defendants' purported plaintiff's remaining claims for actual damages pursuant to 12 U.S.C. § 2605(f)(1)(A) survive defendants' motion to dismiss.*fn22
C.Damages Under New York General Business Law Section 349
Finally, invoking the court's supplemental jurisdiction pursuant to 28 U.S.C. § 1367, plaintiff seeks damages and an injunction pursuant to New York General Business Law ("NYGBL") § 349. The court understands plaintiff's allegations in Count Four of the Complaint to assert that defendants violated NYGBL § 349 by (1) misstating plaintiff's monthly income on her loan application, (ECF No. 1, Compl. ¶¶ 30, 82, 86); (2) failing to require plaintiff to verify her income or employment, (id. ¶¶ 17, 31, 86); and (3) giving plaintiff the loan, (id. ¶¶ 31, 86). Defendants seek to dismiss these claims, arguing that they are preempted by the Home Owners' Loan Act, 12 U.S.C. § 1461 et seq. ("HOLA") and its implementing regulations, 12 C.F.R. § 560.1 et seq.*fn23 For the reasons set forth below, the court agrees that plaintiffs' claims under NYGBL § 349 are preempted by HOLA.
The Home Owners' Loan Act provides that the Office of Thrift Supervision ("OTS") is responsible for regulating federally chartered savings associations ("FSAs") such as Downey. See 12 U.S.C. §§ 1463(a), 1464(a). (See also ECF No. 19-2, Def. Mem. at 24 (asserting that Downey Savings and Loan Association, F.A. is a savings and loan association).) Pursuant to the OTS's implementing regulations, "OTS . . . occupies the entire field of lending regulation for federal savings associations." 12 C.F.R. § 560.2(a). Further, in 12 C.F.R. § 560.2(b), the OTS provides illustrative examples of the types of state laws preempted by OTS regulation, including but not limited to state laws purporting to impose requirements regarding "[d]isclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms" (§ 560.2(b)(9)) and "[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages" (§ 560.2(b)(10)). Subsection (c) identifies certain types of state laws, such as state contract, commercial, real property, and tort law, that "are not preempted to the extent that they only incidentally affect the lending operations of [FSAs] . . . ." 12 C.F.R. § 560.2(c). According to the OTS, the preemption analysis under Section 560.2 proceeds as follows:
[T]he first step will be to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption.
Cedeno v. IndyMac Bancorp, Inc., No. 06-CV-6438, 2008 U.S. Dist. LEXIS 65337, at *19-20 (S.D.N.Y. Aug. 25, 2008) (quoting 61 Fed. Reg. 50951, 50966-67 (Sept. 30, 1996)).
NYGBL § 349 declares unlawful "deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state." N.Y. Gen. Bus. Law § 349(a). "[A]s a general matter, claims brought under broad consumer deceptive practices such as [NYGBL] § 349 are not preempted because they simply seek to enforce truthfulness in commercial transactions, which is expected of federal thrift institutions as a baseline matter." McAnaney, 665 F. Supp. 2d at 167; see also Binetti v. Wash. Mut. Bank, 446 F. Supp. 2d 217, 220 (S.D.N.Y. 2006) (holding that NYGBL § 349 is "a commercial statute of general applicability which, while having an incidental impact on lending relationships, is excepted from OTS preemption under [12 C.F.R.] § 560.2(c)"). Nevertheless, "OTS field preemption applies to state laws of general applicability insofar as such laws are invoked to restrict areas, such as loan-related fees, that are field-preempted under 12 C.F.R. § 560.2(b)." Tombers v. Fed. Deposit Ins. Corp., No. 08-CV-5068, 2009 U.S. Dist. LEXIS 91208, at *17 (S.D.N.Y. Sept. 30, 2009); see also Cedeno, 2008 U.S. Dist. LEXIS 65337, at *28 (finding NYGBL § 560.2(b) preempted by HOLA where "the plaintiff's claims [arose] out of conduct directly regulated by the OTS: the processing and origination of mortgages, a loan-related fee, and the accompanying disclosure"). Thus, a "limited exception" to the general rule that HOLA does not preempt claims under NYGBL § 349 exists where a party brings "claims which attempt to establish extra-contractual substantive requirements upon federal savings associations which more than incidentally affect lending operations." McAnaney, 665 F. Supp. 2d at 167.
Here, the crux of plaintiff's allegations under NYGBL § 349 is that the loan application Downey prepared should have disclosed more clearly plaintiff's income and employment information. Further, plaintiff appears to assert that Downey had a duty to verify her monthly income and employment status, and not process her loan if Downey found she could not afford to repay it. Insofar as plaintiff is invoking NYGBL § 349 to regulate Downey's conduct, her claims are aimed at conduct directly regulated by the OTS: the disclosures included in her credit application form and the processing of her loan. See 12 C.F.R. § 560.2(b)(9), (10). Because plaintiff's claims do not arise from a breach of contract, but rather attempt to "establish extra-contractual substantive requirements" for savings associations such as Downey, her claims seek an application of state law that would more than incidentally affect federal lending practices. Accordingly, plaintiff's claims under NYGBL § 349 are preempted by HOLA.*fn24
For the reasons set forth above, (i) defendants' motion to dismiss plaintiff's claim for rescission pursuant to 15 U.S.C. § 1635 is denied; (ii) defendants' motion to dismiss plaintiff's claim for damages pursuant to 15 U.S.C. § 1640 for failure to honor plaintiff's request for rescission is denied; (iii) defendants' motion to dismiss plaintiff's additional claims for damages pursuant to 15 U.S.C. § 1640 is granted; (iv) defendants' motion to dismiss plaintiff's claims for damages pursuant to 12 U.S.C. §§ 2605(e)(2) and (e)(2)(A) is denied; (iv) defendants' motion to dismiss plaintiff's claim for damages pursuant to 12 U.S.C. § 2605(e)(3) is granted, with leave for plaintiff to amend within 30 days of this Order; and (v) defendants' motion to dismiss plaintiff's claim for damages pursuant to New York General Business Law § 349 is granted.
KIYO A. MATSUMOTO United States District Judge Eastern District of New York