Mary Ellen Jones

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT. OF PENNSYLVANIA
MARY ELLEN JONES,
ARCIECA SHEPPERD, C-»^ ' "~ -L CIVIL ACTION
Plaintiffs, uKQ 0 & '"U
AAMES FUNDING CORPORATION, et al., : NO. 04-CV-4799
Defendants.
MEMORANDUM OPINION
J. Davis March 7th, 2006
Presently before the Court are Aames Funding Corporation's ("Aames'') motion for
summary judgment (Doc. No. 26), Countrywide Home Loans' ("Countrywidei') and Bankers
Trust Company of California's ("Bankers Trust") memorandum in support of partial summary
judgment (Doc. No. 34), plaintiffs' motion for partial summary judgment (Doc. No. 35), and all
responses and reply briefs thereto.
For the following reasons, this Court grants summary judgment in favor of Aames on all
remaining counts in plaintiffs' complaint, grants summary judgment in favor < f Bankers Trust on
plaintiffs' TILA and HOEPA claims, and denies plaintiffs' motion for partial summary judgment
in its entirety. j
,, -\ :
I. Factual and Procedural History \ |
In September 2001, plaintiff Mary Ellen Jones ("Jones") decided to refinance the
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mortgage on her home in Philadelphia, Pennsylvania (the "property") to securp extra money for
home improvements and to pay off her existing tnortgage. (See Jones Dep., attached as Ex. B to
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Aames Br., at 45). Jones' existing mortgage was held by Centex Home Equity ("Centex"). (See
Centex Payoff Statement, attached as Ex. C to PI. Br.; Jones Dep., at 28-32). Under the terms of
the Centex mortgage, Jones made monthly payments of principal and interest In the amount of
!
$467.21, with an annual interest rate of 10.75%. (gee Centex Payoff Statement; Jones Dep., at
35-37).
Jones was contacted by representatives from Aames Funding Corporation, doing business
as Aames Home Loan (collectively "Aames"), about obtaining a new mortgage loan. (See Jones
Dep., at 57). Jones previously secured a loan through Aames in the late 1990s. (Id., at 27-28).
Jones claims that she requested a loan with a fixed interest rate and monthly piayments in an
amount equal to or lesser than her Centex monthly mortgage payments. (Id., # 58-59). At her
deposition, Jones did not remember the exact amount of the loan request, althpugh she later
suggested that this request was approximately $5,000. (Id., at 58,90). Jones ultimately decided
to use Aames to refinance her mortgage. ;
The mortgage closing was held on September 24,2001. Jones' daughter, plaintiff
Arcieca Shepperd ("Shepperd"), co-signed the loan, (See Shepperd Loan Application, attached
as Ex. E to Aames Br.; Shepperd Dep., attached as Ex. E to PI. Br., at 11-13). The loan
application, completed and signed by Shepperd, stated that Shepperd and her Another
("plaintiffs") owned the property and that Shepperd presently lived there. (Sep Shepperd Loan
Application). Shepperd identified her household income as $554.40 per montjh in social security
income. (Id.). During her deposition, Shepperd testified that she did not live; at the property for
a continuous period of time, but, instead, stayed at the property on an occasional basis to care for
her mother. (See Shepperd Dep., at 5-7,23). Furthermore, Jones testified at her deposition that
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her sole source of income was social security disability in the amount of approximately
$600/month. (See Jones Dep., at 11).
At closing, plaintiffs executed a note, dated September 24,2001, in favor of Aames with
a principal loan amount of $65,450, an annual interest rate of 9.5%, and a mojithly payment of
$550.34. (See Note, attached as Ex. G to PI. Br.). The note was secured by a mortgage on the
property, dated September 24, 2001. (See Mortgage, attached as Ex. G to PI. Br.). In exchange
for executing the note and mortgage, Aames paid off the Centex mortgage and ultimately
distributed a $2,813 check, dated October 8,2001, to Jones. (See Centex Payjoff Statement;
Disbursement Check, attached as Ex. N to PL Br.). Jones incurred a $2,139.3J8 prepayment
penalty for paying off her Centex mortgage. (Id.). I
Plaintiffs received and signed an array of documents at closing, including Lender Closing
Instructions, a Federal Truth in Lending Disclosure Statement, Evidence of Insurance, and a
HUD-1 Settlement Statement (the "HUD-1 form"). (See Lender Closing Instructions, attached as
Ex. H to PI. Br.; HUD-1 Form, attached as Ex. I to PI. Br.; Evidence of Insurance, attached as
Ex. K to PI. Br.; TILA Disclosure Statement, attached as Ex. J to Aames Br.).| The HUD-1 form
disclosed that Ames charged plaintiffs a premium of $774.75 for title insurance, including fees
for three endorsements. (See HUD-1 Form). The HUD-1 form also disclosed^ that plaintiffs were
charged a hazard insurance premium of $772 for a one-year hazard insurance policy with Roth
Diversified. (Id.). The title insurance and hazard insurance charges were not included in the
$4,747.50 prepaid finance charge calculation of the loan. (See Dep. of Anthony Gioia, Ames'
Corporate Designee, attached as Ex. J to PI. Br., at 45-47), Ultimately, Jones obtained her own
policy for homeowners insurance, and $268.83 was refunded to Jones for reiniibursement of a
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portion of the hazard insurance premium. (See United National Group Policy, attached as Ex. L
to PI. Br.; Reimbursement Check, attached as Ex. M to PI. Br.).
Jones did not read all of the documents she signed at closing. (See Jones Dep., at 70-73).
Jones was allegedly unaware at closing of the essential terms of the loan, such as the amount she
was borrowing, the required monthly payment, and the interest rate. (Id., at 7JO-77). Jones also
testified that she never reviewed the documents she signed after closing. (Id..,! at 73). Shepperd,
in contrast, understood that Jones' monthly payment would be in excess of $500. (See Shepperd
Dep., attached as Ex. D to Ames Br., at 27).
Jones alleges that in October 2001, she received a telephone call from! a representative of
Aames, who informed Jones that the documents she signed at the loan closing on September 24,
2001 contained errors. (See Jones Dep., at 75-76). According to Jones' testimony, Aames re-
sent documents containing blank forms to Jones via federal express delivery. (M-» at 76). Jones
signed the forms and returned them to Aames. (Id-)- Jones does not identifyjwhich documents
she allegedly resigned after the loan closing or the difference in terms between the two sets of
documents. Nor has Jones produced copies of these post-closing documents.
In December 2001, Aames assigned the mortgage to Bankers Trust, as trustee for the
certificate holders of the Aames Mortgage Trust 2001-4 Mortgage Pass-Through Certifications,
Series 2001-4. (See Pooling and Serving Agreement ("PSA") between Aamejs, Bankers Trust,
and Countrywide, attached as Ex. F to PI. Br.; Laura Chavarin Aff., attached as Ex. F to Aames
Br., at U 5). Pursuant to the PSA, Countrywide began servicing plaintiffs' mortgage on February
1,2002. (See Chavarin Aff., at 16). On April 2,2002, Countrywide applied Jones' electronic
payment in the amount of $550.34 to the wrong account. (See Diane Deloney Aff, attached as
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Ex. 3 to Countrywide's Br, In Opp'n., at 18). According to Countrywide, this error was
discovered and rectified in May 2002, and no action was taken against plaintiffs' account due to
the error. (Id., atf 15).
Plaintiffs defaulted on their payments from June 1,2003 to October 1,2003. (See Diane
Deloney Aff., at Ifl 17-20). On September 24,2003, Jones' attorneys sent a letter to Aames and
Countrywide asserting violations of the Truth in Lending Act ("TILA"), the Home Ownershipi
and Equity Protection Act ("HOEPA"), and the Pennsylvania Unfair Trade Practice and
Consumer Protection Law ("UTPCPL") in the underlying loan transaction; the September 24,
2003 letter purported to rescind the loan at issue. (See September 24,2003 Rescission Letter,
attached as Ex. S to PI. Br.). On October 8,2003, Bankers Trust filed a complaint in foreclosure,
alleging that plaintiffs owe $72,309.74 pursuant to the terms of the loan. On January 8,2004,
plaintiffs filed an answer and asserted counterclaims for violations of various! federal and state
consumer credit statutes.
On February 27,2004, Jones filed a voluntary petition for relief in the! Eastern District of
Pennsylvania under Title 11, Chapter 13 of the bankruptcy code. On March 3, 2004, Jones filed
an adversary action against Aames, Bankers Trust, Aames Mortgage Trust, Countrywide, and
several John Does ("defendants"). Jones filed an amended complaint on May 18,2004, adding
Shepperd as a plaintiff. (See Amended Compl., attached as Ex. A to PI. Br.). \ The amended
complaint contains the following eight counts: (i) violations of TILA, 15 U.S.C. § 1601 et seq.t
against Aames, Aames Trust, and Bankers Trust; (ii) violations of HEOPA, 15 U.S.C. § 1639(a),
against Aames, Aames Trust, and Bankers Trust; (iii) violations of the Real Estate Settlement
Procedures Act ("RESPA"), 12 U.S.C. § 2601 etseq., against Aames, AamesjTrust, Bankers
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Trust, and Countrywide; (iv) violations of the Equal Credit Opportunity Act ("ECOA"), 15
U.S.C. § 1691 et seq., against Aames, Aames Trust, and Bankers Trust; (v) violations of the
Pennsylvania Fair Credit Extension Uniformity Act ("FCEUA"), 73 Pa. C.S. § 2270.1 et seq.,
against all defendants; (vi) fraud claim against all defendants; (vii) breach of contract claim
against all defendants; and (viii) violations of the UTPCPL, 73 Pa. C.S. § 201-1 etseq., against
all defendants. On September 28,2004, this Court withdrew the reference ofs the adversary
proceeding to the bankruptcy court. On October 22, 2004, Jones filed a noticle converting her
Chapter 13 petition into a Chapter 7 petition. !
On October 21, 2005, Aames filed a summary judgment motion, seeking summary
judgment on all claims in plaintiffs' amended complaint. (Doc. No. 26). Ori November 4,2005,
Bankers Trust and Countrywide filed a memorandum joining Aames' summary judgment motion
as to the TILA, HOEPA, and ECOA claims. (Doc. No. 34). After requesting and receiving an
extension of time, plaintiffs ultimately filed their motion for partial summary judgment on the
TILA, HOEPA, and UTPCPL claims on November 14,2005. (Doc. No. 35)^ On November 23,
2005, plaintiffs stipulated to the dismissal of the RESPA, ECOA, and FCEUA claims against
Aames. (Doc. No. 38). On January 30,2006, plaintiffs stipulated to the dismissal of the ECOA
claim against Bankers Trust. (Doc. No. 44).
II. Discussion
Aames, Bankers Trust, and plaintiffs have filed motions for summary! judgment. In
considering a motion for summary judgment, the court must determine whether "the pleadings,
depositions, answers to interrogatories, and admissions on file, together with i the affidavits, if
any, show that there is no genuine issue of material fact and that the moving party is entitled to
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judgment as a matter of law." Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby. Inc.. 477 U.S.
242,247 (1986); Arnold Pontiac-GMC. Inc. v. General Motors Corp.. 786 F.^d 564, 568 (3d Cir.
1986). Only facts that may affect the outcome of a case are "material." Anderson. 477 U.S. 248.
All reasonable inferences from the record are drawn in favor of the non-movant. Id. at 256.
The movant has the initial burden of demonstrating the absence of genuine issues of
material fact. This "burden... may be discharged by 'showing' that there is an absence of
evidence to support the non-moving party's case." Celotex Corp. v. Catreet. 477 U.S. 317, 323
(1986). Once this burden is discharged, the non-movant must then establish the existence of
each element on which it bears the burden of proof. See, e.g.. J.F. Feeser. Inc. v. Serv-A-Portion.
Inc.. 909 F.2d 1524,1531 (3d Cir. 1990). A non-moving party with the burden of proof cannot
avert summary judgment with speculation or by resting on the allegations in her pleadings, but
rather must present competent evidence from which a jury could reasonably find in her favor.
See, e.g.. Anderson. 477 U.S. at 248; Rideewood Bd. of Educ. v. N.E. for M.g.. 172 F.3d 238,
252 (3d Cir. 1999); Williams v. Borough of West Chester. 891 F.2d 458,460|(3d Cir. 1989);
Woods v. Bentsen. 889 F. Supp. 179,184 (E.D. Pa. 1995).
A. Aames' Motion for Summary Judgment
Aames moves for summary judgment on all remaining claims in plaintiffs' complaint,
including plaintiffs' TILA claim, HOPEA claim, breach of contract claim, UTPCPL claim, and
fraud claim.
1. TILA
Aames moves for summary judgment on the damages and rescission cpmponents of
plaintiffs' TILA claim. Aames argues that plaintiffs' TILA claim fails as a matter of law because
i.
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Aames provided all material disclosures and because these disclosures, including the finance
charge calculation, were accurate. (See Aames Br., at 12-16). In response, plaintiffs argue that
Aames improperly excluded the hazard insurance premium and title insurance premium from the
finance charge, thereby violating TILA. (SegPl. Br. InOpp'n, at 10-19).
a. Hazard Insurance
Under TILA, the premium for insurance "against loss of or damage to property," such as
hazard insurance, may be excluded from the finance charge upon the satisfaction of three
conditions. See 15 U.S.C. § 1605(c); 12 C.F.R. § 226.4(d)(2). First, the lender must disclose to
the borrower that she may obtain hazard insurance from the company of her choice. Id. §
226.4(d)(2)(i). Second, "if the coverage is obtained from or through the creditor," the lender
must disclose the premium for the initial term of insurance coverage. Id. § 226.4(d)(2)(ii).
Third, if the term of the insurance is less than the term of the transaction, the lender must disclose
the term of the insurance coverage. Id.
Aames admits that the hazard insurance premium charged to plaintiffs j was excluded from
the finance charge, but argues that it satisfied the three conditions for exclusion. (See Aames Br.
In Opp'n, at 6-9). Plaintiffs concede that Aames notified them of their optionito purchase hazard
insurance through an insurer of their choice. (See PI. Br., at 15).1 Plaintiffs a|so concede that the
'The TILA disclosure form specifically states that "[y]ou may obtain property insurance
from an insurer of your choice that is acceptable to this institution." (See TILA Disclosure
Statement, attached as Ex. X to PL Mot.); Stump. 2005 WL 645238, at *6 (disclosure telling
borrower that she "may obtain obtain the [property] insurance from anyone that is acceptable to
the creditor" satisfies § 226.4(d)(2)(i) requirement). In addition, Aames' closing instructions
notified borrowers that Aames "encourages me to provide Aames with my owb fire and extended
hazard insurance policy as soon as possible." (See Aames Closing Instructions, attached as Ex.
H to PL Mot.). Illustrating in part the effectiveness of the notification, plaintiffs ultimately
obtained hazard insurance from a separate insurer after closing, and received a partial refund of
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HUD-1 form lists the premium for hazard insurance. (See PI. Br. In Opp'n,,>at 13). However,
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plaintiffs claim that the hazard insurance policy was secured through Aames ^t closing and that
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Aames failed to provide plaintiffs with documentation indicating that the insijrance was subject
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to a one-year term. (Id., at 13-14). |
Assuming arguendo that the hazard insurance policy was "obtained from or through"
Aames within the meaning of § 1605(c), this Court finds that Aames is entitled to summary
judgment on this theory of TILA liability. The one-year term of the hazard insurance policy is
clearly displayed on the HUD-1 form, on the very same line as the premium amount. (See HUD-
1, attached as Ex. B to, at line 903). Accordingly, because Aames disclosed to plaintiffs their
right to obtain hazard insurance from an insurer of their choice, the premium 6f the hazard
insurance policy, and the term of this policy, Aames properly excluded the amount of the
premium from the finance charge calculation pursuant to § 1605(c) of TILA.
b. Title Insurance
A premium for title insurance may be properly excluded from the finance charge
calculation. See 15 U.S.C. § 1605(e). This exclusion only applies if the title insurance premium
is both "bona fide and reasonable." 12 C.F.R. § 226.4(c)(7). The parties concede that the title
insurance premium was excluded from the finance charge calculation, but disagree as to whether
the amount charged to plaintiffs was reasonable. |
Courts generally assess the reasonableness of a title insurance premiurji "through
comparison of the disputed charges with the prevailing rates of the industry in the locality."
the hazard insurance premium charged at closing. (See Homeowner's Policy,! attached as Ex. L
to PI. Mot.; Reimbursement Check, attached as Ex. M to PI. Br.).
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Johnson v. The Know Financial Group. 2004 WL 1179335. at *6 n.5 (E.D. Pa. 2004). Courts
often use the Manual of the Title Insurance Rating Bureau of Pennsylvania (the "Manual") as the
gauge for determining the reasonableness of title insurance rates in Pennsylvania. Id; see also
Oscar v. Bank One. 2006 WL 401853, at *6 (E.D. Pa. Feb. 17,2006) (using Manual to determine
reasonableness of title insurance charge); Stump v. WMC Mortgage Corp.. 2005 WL 645238, at
*5 (E.D. Pa. March 16,2005) ("any fee charged for title insurance which exceeds the fee
authorized by the Manual... is unreasonable and must be disclosed as a finance charge").
The Manual identifies the maximum allowable rate of insurance in 2001 on a $65,450
loan as $624.75. (See Manual, attached as Ex. Y to PI. Mot.).2 The Manual identifies the
"reissue" rate of title insurance on such a loan as $562.28. (Id.). Moreover, the Manual indicates
that a party may receive a refinance rate, which is a reduced version of the reissue rate, "when a
refinance or substitution loan is made within 3 years from the date of closing t>f a previously
insured mortgage or fee interest and the premises to be insured are identical to or part of the real
property previously insured and there has been no change in the fee simple ownership." (Id., at §
5.6).
This Court finds that plaintiffs have failed to raise a genuine issue of material fact as to
the unreasonableness of the title insurance premium. First, Aames presents evidence to indicate
that plaintiff was charged the maximum allowable rate of $624.75 for title insurance, as
prescribed by the Manual. The HUD-1 form states that plaintiffs were charged $774.75 for title
2This Court finds that plaintiffs' excerpts of the Manual are admissibly. As a document
issued by a public authority, the Title Insurance Rating Bureau of Pennsylvania, the Manual is
self-authenticating. See Fed. R. Evid. 902(5) (publication issued by public authority is self-
authenticating).
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insurance, an amount which also included the costs of Endorsements PA 100J, 300, and 900. (See
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HUD-1 Form, at Line 1108). Aames provides affidavit testimony from Sean Bello, general
counsel for Advantage Equity Services ("Advantage"), the title company thatj serviced plaintiffs'
i
loan transaction, that plaintiffs were not charged the entirety of the $774.75 fee for the title
insurance premium, but, instead, were charged $624.75 for the premium, plui $150 for the three
endorsements. (See Bello Aff., attached as Ex. C to Def. Br. In Opp'n, at 1ft 1-10). Bello's
affidavit further indicates that Advantage's practice is to combine the charges for endorsements
with the title insurance premium. (Id., at f 11). Plaintiffs fail to present any evidence to discredit
or cast doubt on this affidavit testimony. Nor do plaintiffs argue, let alone present evidence to
establish, that endorsement charges and title insurance premium costs may not be combined in
mortgage disclosure forms, that the endorsement fees incurred by plaintiffs were unreasonable,
and/or that endorsement fees must be included in the finance charge calculation. See 15 U.S.C. §
1605(e)(l) ("fees or premiums" for title insurance may be excluded from finafnce charge
computation); Stump. 2005 WL 645238, at *5 (no TILA violation when lender excludes from
finance charge title insurance premium and endorsement fee of $200 for fourjendorsements to
title insurance, including $50/endorsement charge for Endorsements PA 100,|300, and 900).
Second, plaintiffs fail to present evidence to indicate that they were entitled to the reissue
rate. Neither plaintiffs nor plaintiffs' expert, Margot Saunders ("Saunders"), ian attorney for the
National Consumer Law Center, provide the eligibility criteria for the reissueirate. (See PI.
Expert Report, attached as Ex. W to PI. Br., at 12-14).3 Nor do they suggest how the facts of this
3Aames challenges the admissibility of plaintiffs' expert report, arguing that Saunders has
not been qualified as an expert and that her report will not assist the trier of fact in accordance
with Rule 702 of the Federal Rules of Evidence. (See Aames Br., at 5-6). This Court need not
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litigation qualify plaintiffs for the reissue rate under the standards promulgated in the Manual.
Furthermore, to the extent the reissue rate is contingent upon proof of an earlier title insurance
policy, no evidence exists to suggest that plaintiffs provided Aames with a copy of this policy.
See, e.g.. Ricciardi v. Ameriauest Mortgage Co.. 2005 WL 61416, at *3 (E.U Pa. Jan. 10,2005)
(finding that plaintiff did not establish unreasonableness of lender's charge of basic rate for title
insurance because plaintiff failed to produce evidence of earlier policy necess|ary to qualify for
reissue rate). !
Third, plaintiffs fail to present evidence showing their eligibility for the refinance rate, as
outlined in § 5.6 of the Manual. Although Jones asserts that her prior mortgage was previously
insured, plaintiffs provide no evidence, such as a copy of a previously issued title insurance
policy, to verify this statement. See, e.g.. Stump. 20005 WL 645238, at *5 (granting summary
judgment to lender on borrowers' TILA claim when plaintiff offers no evidence to suggest
entitlement to refinance rate under § 5.6 of Manual, such as copy of earlier title insurance policy).
i
Nor did plaintiffs provide this proof at closing. (See Bello Aff., at 113) ("Thp borrowers did not
provide proof at closing that the refinance on September 24,2001 was closing within three years
of the closing of a previously insured mortgage"); Ricciardi. 2005 WL 61416^ at *3 (plaintiff not
entitled to refinance rate because plaintiff provided no evidence of prior title policy to lender).
Furthermore, Ames presents a copy of a September 24,2001 Indenture transferring ownership of
the property from Jones to Jones and Shepperd, thereby indicating a change u> fee simple
resolve this issue, as the Court finds that Aames is entitled to summary judgment on the
remaining counts in plaintiffs' amended complaint notwithstanding the content of plaintiffs'
expert report. Accordingly, the Court assumes the admissibility of Saunders' report for purposes
of resolving the instant summary judgment motions.
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ownership within three years from the previous loan closing (i.e., the Contex mortgage) in May
2000. (See September 24,2001 Indenture, attached as Ex. D to Aames Br In Opp'n; Records of
Centex Mortgage, attached as Ex. Z to PI. Br.); In re Strong. 2005 WL 1463245, at *5 (E.D. Pa.
i
June 20,2005) (borrower not entitled to refinance rate for title insurance because property was
transferred from single to joint ownership within three years from closing date of previously
insured mortgage, even though lender required transfer as precondition for loan).
In summary, this Court finds that plaintiffs have failed to present any evidence that they
were charged an unreasonable amount for title insurance at closing. Specifically, plaintiffs have
failed to raise a genuine issue of material fact that they were charged more than the maximum
charge for title insurance under the Manual or that they were eligible for the reissue or refinance
rate. Accordingly, because no evidence exists to suggest that the $624.75 charge for title
insurance, plus the $150 charge for three endorsements, was unreasonable, Aames properly
excluded the title insurance premium from the finance charge calculation andjis therefore entitled
to summary judgment on this theory of TEA liability. I
c. Conclusion
This Court grants summary judgment to Aames on plaintiffs' TILA cl^im, finding as a
matter of law that plaintiffs are not entitled to damages or rescission for Aam^s' alleged
violations of TILA. As such, the Court need not address Aames additional argument that the
damages component of plaintiffs' TILA claim for disclosure violations is time-barred. (See
Aames Br,, at 7-9).
2. HOEPA
Aames argues that the loan transaction was not subject to HOEPA an4 its disclosure
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requirements. (See Def. Br., at 16). Plaintiffs, in turn, claim that once the tit e insurance and
homeowners insurance premiums are properly added to the finance charge, tli e loan transaction
triggers the protections of HOEPA. (See PI. Br. InOpp'n, at 19). j
A lender must provide a consumer with HOEPA disclosures when the; loan qualifies as a
"high-cost loan." A "high-cost loan" is a loan where the "points and fees" payable by the
consumer at or before closing exceed 8% of the total loan amount. 15 U.S.C. § 1602(aa)(l)(B);
12 C.F.R. § 226.32(a). Therefore, a determination of whether a loan falls witjiin the scope of
HOEPA and its mandatory disclosure obligations requires a two-prong analysis: (i) determining
the amount of "points and fees;" and (ii) determining whether these "points and fees" exceed 8%
of the "total loan amount." See, e.g.. Johnson. 2004 WL 1179335, at *5. I
Regulation Z defines "points and fees" and the "total loan amount." First, "points and
fees" include: (i) all items included in the finance charges, except interest or the time-price
differential; (ii) all compensation paid to mortgage brokers; (iii) all items listed in § 226.4(c)(7)
unless the charge is reasonable, the creditor receives no direct or indirect compensation in
connection with the charge, and the charge is not paid to an affiliate of the creditor; and (iv)
premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-
cancellation coverage. 12 C.F.R. § 226.32(b)(l)(i)-(iv); see also 15 U.S.C. § 1602(aa)(4)(C).
Second, the "total loan amount" is defined as the amount financed4 minus settlement charges
both included in "points and fees" pursuant to § 226.32(b)(l)(iii) or § 226.32(j?)(l)(iv) and
financed by the creditor. See Official Staff Commentary to 12 C.F.R. § 226.3:2(a)(l)(ii) ("For
4The "amount financed" is defined according to the following equation: the principal
loan amount + any amounts financed not included in the finance charge - the prepaid finance
charge. See 12 C.F.R. § 226.18. l
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purposes of the 'points and fees' test, the total loan amount is calculated by taking the amount
financed, as determined according to § 226.18(b), and deducting any cost listed in §
226.32(b)(l)(iii) and § 226.32(b)(l)(iv) that is both included as points and fe<fcs under § 226,32(b)
and financed by the creditor"). :
This Court finds that the fees for hazard insurance and title insurance pre properly
excluded from the "points and fees" calculation pursuant to § 226.32(b)(l)(iii): these fees were
reasonable; Aames did not receive direct or indirect compensation in connection with the fees;
and the fees were not paid to an affiliate of Aames.5 Without the inclusion of the hazard
insurance and title insurance premiums, the "points and fees" in plaintiffs' loan ($4,747.50) (i.e.,
the prepaid finance charge)6 is less than 8% of the entire loan amount ($60,702.50) (i.e., the
principal amount minus the points and fees). To be specific, the "points and fees" reach 7.8% of
the entire loan amount. Indeed, plaintiffs' argument implicitly concedes that if the hazard
insurance and title insurance fees were properly excluded from the finance charge calculation, the
"points and fees" fail to meet the 8% threshold for triggering HOEPA disclosures. Consequently,
this Court grants summary judgment to Aames on plaintiffs' HOEPA claim.
3. Breach of Contract
Aames argues that plaintiffs lack evidence to support their breach of contract claim. (See
5An affiliate is defined as "any company that controls, is controlled byj or is under
common control with another company, as set forth in the Bank Holding Company Act of 1956."
See 12 C.F.R. § 226.32(b)(2).
Plaintiffs' expert calculates the "points and fees" at $4,247.50. (See Saunders Report, at
14). However, because Aames' calculation is higher ($4,747.50), and includes the $400
settlement fee paid to Maureen Gavek and the $100 disbursement fee paid to Advantage, the
Court uses the more pro-plaintiff figure advanced by Aames. (See Aames Br. In Opp'n, at 16).
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Aames Br., at 21-23). In response, plaintiffs argue that the parties clearly entjered into a mortgage
contract on September 24,2001 and that Aames breached this contract by failing to comply with
TILA and HOEPA, as required by the terms of the note and mortgage, by failing to disclose
plaintiffs' prepayment penalty of $2,139.18 to her existing mortgage company, and by conflating
the income of Jones and Shepperd to enable plaintiffs to qualify for the loan. (See PI. Br., at 22-
26).
Under Pennsylvania law, a plaintiff seeking summary judgment on a breach of contract
action must demonstrate as a matter of law that a valid contract exists, including its essential
terms, that defendants breached a duty imposed under the contract, and that damages resulted.
See, e.g.. Omicron Systems v. Weiner. 860 A.2d 554, 564 (Pa. Super. Ct. 20Q4).
This Court grants summary judgment in favor of Aames on plaintiffs' breach of contract
claim. Although this Court finds that a valid mortgage contract existed between Aames and
plaintiffs on September 24,2001, plaintiffs have failed to present any evidence of a breach of this
contract. Indeed, this Court rejects each of plaintiffs' alleged breaches as a matter of law. First,
this Court has already found that Aames did not violate TILA and HEOPA. Second, plaintiffs
fail to identify any express or implied provision in the mortgage contract that prohibited Aames,
I
in its mortgage eligibility analysis, from conflating the social security income! of Jones and
Shepperd and then from adjusting this income upward according to the favorable tax
consequences of this form of income.7 Indeed, even if this technique of conflating and adjusting
7According to plaintiffs' expert, this process is known as "grossing up" income. (See
Saunders Report, attached as Ex. W to PI. Br., at 5). The practice of "grossing up" accounts for
"the tax benefit to recipients of Social Security or SSI income who do not have to pay taxes on
their income." (Id., at 5).
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plaintiffs' income violated industry standards, this behavior occurred during the loan approval
process, prior to the formation of the mortgage contract on September 24,20J01, rather than in the
execution and performance of the note and mortgage. Third, plaintiffs fail taj provide any
evidence to indicate both that Aames was contractually obligated, by virtue of an express
provision in the note and mortgage or by application of some other law, to disclose a pre-
payment penalty to Jones' then existing mortgage company and that Aames foiled to disclose this
penalty.
Because plaintiffs have failed to identify the provisions of the September 24,2001 note
and mortgage that Aames allegedly breached, and because plaintiffs have failed to present
evidence to support any alleged breaches of the September 24,2001 note and! mortgage,
plaintiffs' breach of contract claim against Aames fails as a matter of law.
4. UTPCPL |
Aames argues that plaintiffs lack any evidence of UTPCPL violations Ion the part of
Aames. (See AAames Br., at 23-28). In response, plaintiffs argue that Aames' violations of
TILA and HOEPA, Aames' failure to disclose the applicability of the prepayment penalty, and
Aames' failure to perform an appropriate income qualification analysis constitute "deceptive"
trade practices in violation of the "catch-all provision" of the UTPCPL. (See PI. Br. In Opp'n, at
29-32).
The UTPCPL prohibits "unfair methods of competition or unfair or deceptive acts or
practices in the conduct of any trade or commerce." 73 P.S. § 201-1. The statute prohibits
twenty specific forms of "unfair or deceptive acts or practices." Id,. § 201-2(4)(i)-(xx). In
addition, the statute contains a "catch-all" provision, which prohibits all "fraudulent or deceptive
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conduct which creates a likelihood of confusion or misunderstanding," M- § |201~2(4)(xxi).
Plaintiffs rely upon the "catch-all" provision as the basis for the UTPCPL claim against
I
Aames. (See PI. Br. In Opp'n, at 30-32). Courts are divided as to the governing standard for a
claim under the catch-all provision of the UTPCPL. Some courts require a plaintiff asserting a
claim under § 201-2(4)(xxi) to meet the elements of common law fraud. See, &&,, Rocky.
Voshell. 397 F. Supp. 2d 616, 622 (E.D. Pa. 2005) ("While there is some uncertainty as to the
requirements in proving a UTPCPL case under the catch all provision, Pennsylvania courts have
recently held that all of the fraud elements are still required, even with the addition of the
'deceptive' language"); Cheatle v. Katz. 2003 WL 21250583, at *8 (E.D. Pa. j April 1,2003)
(same); Skumowicz v. Lucci. 798 A.2d 788, 794 (Pa. Super. Ct. 2002) (plaintiff must prove all
the elements of common law fraud to establish violation of § 201-2(4)(xxi)). Other courts read
the inclusion of the term "deceptive" in § 201-2(4)(xxi) as creating an alternative, less rigorous
level of proof that falls short of actual fraud. See Christopher v. First Mutual iCoro.. 2006 WL
166566, at *3 (E.D. Pa. Jan. 20,2006) (holding that it is "no longer necessary for a plaintiff to
plead all of the elements of common law fraud to recover under the UTPCPL icatchall
provision"); In re Patterson. 623 B.R. 82,92 (Bankr. E.D. Pa. 2001) (holding piat Pennsylvania
legislature expanded scope of catch-all provision beyond fraudulent conduct). These courts
require a plaintiff to prove that a defendant's conduct intentionally gave a falsie impression, that
plaintiff relied on some level upon this deceptive act, and that the use of this deceptive act
j
resulted in damages. See, e.g.. In re Fisher. 320 B.R. 52, 71 (Bankr. E.D. Pa. 2005) (to prevail
under UTPCPL deception standard, plaintiff must establish that defendant made a false
representation that deceived or had a tendency to deceive and that the representation was likely to
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affect plaintiff's decision to enter the mortgage). !
This Court need not conclusively determine whether a claim under the catch-all provision
of the UTPCPL requires proof of common law fraud, as compared to a less stringent standard of
proof.8 Instead, assuming arguendo that a claim under § 201-2(4)(xxi) need jonly satisfy the
elements of the less stringent standard applicable to "deceptive" (as opposed to fraudulent)
conduct, this Court still finds that plaintiffs have failed to meet this standard.
This Court rejects each of plaintiffs' theories of UTPCPL liability. First, as previously
discussed in this opinion, plaintiffs fail to present any evidence that Aames violated TILA and
HEOPA. Second, plaintiffs fail to present any evidence outside of the pleadings to support their
contentions that Aames failed to disclose the prepayment penalty of $2,139.18 to plaintiffs.9 See
Fed. R. Civ. P. 56(e) (adverse party may not rely upon allegations or denials iti pleadings to raise
genuine issue of material fact). Nor have plaintiffs offered evidence, such as affidavit or
deposition testimony, to suggest that the non-disclosure of the alleged pre-payment penalty
impacted plaintiffs' decision to enter into the mortgage transaction. See In re fisher. 320 B.R. at
8The Court expresses grave doubt as to the validity of the non-fraud "deception" standard
under § 201-2(4)(xxi) after the Third Circuit's decision in Tran v, MetropQlitajn Life Ins. Co.. 408
F.3d 130 (3d Cir. 2004). Although Third Circuit in Tran never expressly determined whether a
plaintiff must prove common law fraud under the catch-all provision, the Third Circuit
nonetheless rejected plaintiffs position that he was "not required to prove the elements of
common law fraud with regard to certain sections of the UTPCPL" and held that a plaintiff who
brings claims under § 201-2(4)(v), (vii), (ix), (xiv), and (xv) of the UTPCPL must prove
justifiable reliance, an element of common law fraud. Id. at 140. The Third Circuit surveyed
applicable precedent from the Pennsylvania state courts, and endorsed the Pennsylvania Superior
Court's rejection of the distinction between fraud and non-fraud claims under the UTPCPL. Id.
'The Court notes both that this prepayment penalty was identified in the Centex Payoff
Statement and that plaintiffs fail to argue that they never received this Statement. (See Centex
Payoff Statement, attached as Ex. C to PI. Br.).
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71 (requiring some causation element under UTPCPL deception standard). Third, although
plaintiffs' expert concludes that Aames violated industry standards by considering the social
security income of Jones and Shepperd in the income qualification analysis, despite Shepperd's
lack of residence at the property, it is clear both that Shepperd represented to Aames through the
loan application process that she did reside at the property and that Shepperd never rectified this
alleged misrepresentation. Thus, Aames' use of Shepperd's social security income did not
deceive plaintiffs, as it was based upon their own representations. (See Loan Application, at 1).
5. Fraud
Aames argues that because Jones did not file the instant action until Inarch 3,2004 and
because Shepperd did not join in the action until May 18,2004, plaintiffs' coijnmon law fraud
claim is barred by the applicable two-year statute of limitations, (gee PI. Br., ;at 12). In response,
plaintiffs concede that their claim is time-barred if the two-year limitation period runs from the
time of the closing of the transaction; however, plaintiffs contend that the docjtrine of fraudulent
concealment tolls this limitation period. (See PI. Br., at 26-27).
Pennsylvania's statute of limitation for fraud claims is two years. See 42 Pa. Cons. Stat.
Ann. § 5524. However, Pennsylvania's discovery rule '"delays the running of the statute until
the plaintiff knew, or through the exercise of reasonable diligence should hav? known, of the
injury and its cause.'" Beauty Time. Inc. v. VU Skin Systems. Inc.. 118 F.3d 140,144 (3d Cir.
1997) (internal citations omitted).
This Court concludes that Pennsylvania's two-year limitation period started to run either
on September 24,2001, on the date of the consummation of the transaction, ojr in October 2001,
when Jones received her loan check from Ames. For instance, once Aames' alleged TILA and
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HOEPA violations are properly disregarded, plaintiffs' theory of fraudulent concealment is
i
predicated upon fraud in the loan origination process, alleging that the terms of the loan, while
accurate, differed from previous, pre-transaction representations. (See PI. Br|, at 27) ("The
fraudulent concealment caused Plaintiffs to obtain a mortgage with a higher monthly payments
than was originally promised to them by Aames"). Because plaintiffs, even as elderly, low-
income borrowers, had a duty to read their mortgage contract and the documents they signed at
closing, including the loan application, the HUD-1 form, and the TILA Disclosure Statement,
plaintiffs should have known of their injury on the date of the closing by comparing the terms of
the signed documents with the terms plaintiffs expected. See In re Fisher. 320 B.R. at 71 (noting
plaintiffs obligation to read the loan documentation and understand the significance of the
i
documents she signed); 17A Am. Jur. 2d Contracts § 210 (2004) ("a party who could have
discovered the fraud by reading the contract, and in fact had an opportunity toj do so, cannot later
be heard to complaint that the contractual terms are binding"). In fact, plaintiff Jones admits that
she did not read all the documents she signed at closing, and, in fact, never reviewed the note and
mortgage after closing to discover the exact terms of the loan. (See Jones Dep>, at 70-77); Jure
Roberson. 262 B.R. 312, 322 (Bankr. E.D. Pa. 2001) (doctrine of fraudulent concealment does
not toll limitation period when plaintiff should have read mortgage contract and discovered facts
giving rise to claim). At the very least, plaintiffs should have discovered the Alleged fraud in
October 2001, when Jones received the $2,813 check, dated October 8,2001, ihat was
significantly less than the $5,000 loan Jones allegedly requested from Aames for home
improvements (See Jones Dep., at 90). Finally, the Court notes that plaintiffs have not argued
that deceit by defendants after the September 24,2001 closing or after the receipt of the $2,813
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check in October 2001 caused plaintiffs to relax their vigilance in discovering defendants'
alleged misrepresentations. See, e.g.. Foster v. Equicredit Corp.. 2001 WL 1177188, at *1, 3
(E.D. Pa. Jan. 26,2001) (denying summary judgment to lenders on statute of limitations defense
when "due diligence would not have yielded the discovery of the alleged fraud at the closing
date" because defendants allegedly misrepresented the nature of certain fees "both at the closing"
and during plaintiffs' interactions with defendants "for an undetermined period of time following
the closing date").10
Plaintiffs do not argue at the summary judgment stage that defendants continued to make
misrepresentations after Jones' receipt of the $2,813 check in October 2001. Nor do plaintiffs
i
justify their failure to read and to familiarize themselves with the content of the documents they
signed at closing. Thus, plaintiffs, through reasonable diligence, should have discovered
defendants' alleged fraud, and recognized the ramifications of signing a note and security
agreement with terms in alleged conflict with plaintiffs' pre-transaction expectations and
defendants' pre-transaction representations, at closing or shortly thereafter. Because the
limitation period for plaintiffs' fraud claim started to run, at the latest, in October 2001, and
because Jones did not file the instant action until March 3,2004, plaintiffs' fijaud claim is
therefore time-barred.
B. Bankers Trust's Motion for Summary Judgment
On November 4,2005, Bankers Trust filed a memorandum of law in response to Aames'
'"Plaintiffs' brief in opposition to Aames' summary judgment motion does not argue that
post-closing interactions between plaintiffs and Aames concealed the fraud. (See PI. Br. In
Opp'n, at 26-28). Furthermore, the Court notes that plaintiffs present no evidence in support of
plaintiffs' allegations that additional documents were signed after closing.
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motion for summary judgment. The memorandum joins Aames' motion for jsummary judgment
on plaintiffs' TILA, HOEPA, and ECOA claims. (See Bankers Trust's Menji., at 2). On January
j
30, 2006, plaintiffs stipulated to the dismissal of their ECOA claim against Bjankers Trust. (See
Doc. No. 44). Accordingly, this Court need only address the validity of plaintiffs' TILA and
HOEPA claims against Bankers Trust.
Bankers Trust, trustee of the trust to which the loan was assigned, correctly points out that
its potential liability as an assignee under TILA and HOEPA hinges upon a finding of liability as
to Aames, the original lender. See 15 U.S.C. § 1641(a) (assignee liable under, TILA for
violations by original creditor when violation is "apparent on the fact of the disclosure
statement"); 15 U.S.C. § 1641(d) (assignee liable under HOEPA for violations by original
j
creditor unless assignee could not determine, through due diligence of the available
documentation, that loan was subject to HEOPA). Because this Court has granted summary
judgment to Aames on plaintiffs' TILA and HEOPA claims, this Court also grants summary
judgment to Countrywide and Bankers Trust on these claims.
C. Plaintiffs' Motion for Summary Judgment
Plaintiffs move for partial summary judgment on their TILA, HOEPA,iand UTPCPL
!
claims. Based upon this Court's previous findings, plaintiffs' motion for partial summary
judgment is denied as to the TILA, HOEPA, and UTPCPL claims against Aames and Bankers
Trust.11 However, plaintiffs also seek summary judgment against Countrywide on their
UTPCPL claim under a theory of liability distinct from that asserted against Aames and Bankers
11 Although Bankers Trust has not moved for summary judgment on plaintiffs' UTPCPL
claim, plaintiffs seek to hold Bankers Trust liable under UTPCPL for the same violations alleged
against Aames. (See PI. Br., at 24-25). \
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Trust. The UTPCPL claim against Countrywide thus requires an independent analysis.
Plaintiffs claim that Countrywide improperly serviced plaintiffs' mortgage account in
violation of the catch-all provision of the UTPCPL. (See PL Br., at 25-27). ! Specifically,
plaintiffs contend that Countrywide applied Jones' mortgage payment to another account on one
occasion and that Countrywide was unable to provide proof that this error was rectified, (Id.).
This Court finds that, although Countrywide applied Jones' April 2,2}002 electronic
payment to the wrong loan, Countrywide has raised a genuine issue of material fact as to whether
this incident, standing alone, constitutes "deception" within the meaning of the UTPCPL.
Indeed, Countrywide provides affidavit testimony indicating that the misapplication of Jones'
!
April 2,2002 payment was an innocent, one-time mistake, due in part to Jonas' misidentification
of her loan number on her electronic payment submission. (See Deloney Affj, attached as Ex. 3
to Countrywide's Br. In Opp'n, at ffl[ 8-10,15). This testimony, if believed, suggests
unintentional error, rather than fraudulent conduct or an intentionally misleading act of
deception. See, e.g.. Christopher. 2006 WL 166566, at *3 (adopting Black's Law Dictionary's
definition of deception as "intentionally misleading by falsehood spoken or acted").
This Court also finds that a genuine issue of material fact exists as to whether plaintiffs
suffered any adverse consequences from Countrywide's misapplication of thi$ payment.
Countrywide's Assistant Manager of the Foreclosure and Bankruptcy Real Estate Management
Department, Diane Deloney, provides an affidavit stating that the error was detected in May
2002, that Jones' monthly payment was reapplied to plaintiffs' account, and that plaintiffs were
not charged any late fees. (See Deloney Aff, attached as Ex. 3 to Countrywide's Br. In Opp'n, at
tTf 12-15). This testimony was also echoed in part at her deposition, in whichishe stated that
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plaintiffs' loan history indicated a correction of the misapplied payment. (See Deloney Dep.,
attached as Ex. 2 to Countrywide's Br. In Opp'n, at 68-72). Furthermore, Deloney's affidavit
iterates that the misapplication of the April 2002 payment had no influence oft the subsequent
foreclosure proceedings, which originated after a series of missed payments in June through
October 2003. (See Deloney Aff., at Iff 17, 21).
D. Conclusions
For the following reasons, this Court grants Aames' motion for summary judgment in its
entirety, grants summary judgment to Bankers Trust on plaintiffs' TULA and AOEPA claims, and
denies plaintiffs' motion for summary judgment. An appropriate Order follows.
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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
MARY ELLEN JONES,
ARCffiCA SHEPPERD,
Plaintiffs,
v.
AAMES FUNDING CORPORATION, et al.,
Defendants.
CIVIL ACTION;
NO. 04-CV-4799
ORDER
AND NOW, this 7th day of March 2006, upon consideration of the pending summary
•: .' j1' : '.' \
judgment motions (Doc. No. 26, 34, 35), and all^rdsponses and replies thereto^ it is hereby
Loan's (collectively "Aames") motion
. / /' '
ORDERED as follows:
1. Aames Funding Corporation's an
for summary judgment (Doc. No.
2. Summary judgment is entered in favor of Aames and against plaintiffslon all remaining
counts against Aames in plaintiffs' amended complaint. ^
3. Bankers Trust Company of California's ("Bankers Trust") motion for partial summary
judgment (Doc. No. 34) is GRANTED.
4. Summary judgment is entered in favor of Bankers Trust and against plaintiffs on
plaintiffs' TILA and HOEPA claims against Bankers Trust.
5. Plaintiffs' motion for partial summary judgment (Doc. No. 35) is DENJED in its entirety.
BYTHCOURT:
Legrome D. Davisi J.
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