Debtor Remedies For Wrongs

DETROIT CONSUMER BANKRUPTCY CONFERENCE
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Jeffrey S. Sabin | Bi ngham McCutchen LLP
Simon Klevansky | Kl evansky Pi per Van Etten, LLP; Honol ul u
Kurt A. OKeefe | Law Offi ces of Kurt A. OKeefe
Grosse Poi nte, Mi ch.
Jesse R. Sweeney | Sweeney Law Offi ces, PLLC; Southfi el d, Mi ch.
John P. Kapitan, Moderator | Trott & Trott, PC; Farmi ngton Hi l l s, Mi ch.
Debtor Remedies for
Creditor Wrongs:
RESPA/FDCPA/TILA
Concurrent
Ses s i on
599
Ameri can Bankruptcy I nsti tute
DEBTOR REMEDIES FOR CREDITOR WRONGS
TILA/RESPA
KURT OKEEFE
1593 TORTREY ROAD
G. P. WOODS MI 48236
313-962-46340
koklaw@gmail.com
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INTRODUCTION
The purpose of these materials is to provide an outline of consumer claims under the
Federal Truth in Lending (TILA) and Real Estate and Settlement Procedures Act
(RESPA), especially as they relate to mortgages, and consumer bankruptcy cases.
With the crash in home prices, as a practical matter, TILA claims, at least as regards
mortgages, are worthless to most consumers.
Many RESPA cases remain worth pursuing, and sample letters and pleadings are
attached.
I. HOW DID WE GET HERE?
Here being: Most mortgage companies cannot provide a complete accurate
accounting of all the payments into and out of a mortgage account, and hundreds of
thousands of mortgage transactions violated one or more provisions of TILA.
We are in a worldwide economic crisis precipitated by the crash in mortgage backed
securities issued in the United States.
For a graphic presentation of how these securities were set up, see the flow chart on
the next page, used courtesy of consumer attorney Max Gardner of North Carolina.
A. Instead of two parties, mortgagor and mortgagee, multiple parties were involved in
each transaction, allowing for the doctoring of information by one party to be concealed
from the others, e.g. broker, appraiser, title company, all doing work the mortgage
companies used to do.
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INTRODUCTION
The purpose of these materials is to provide an outline of consumer claims under the
Federal Truth in Lending (TILA) and Real Estate and Settlement Procedures Act
(RESPA), especially as they relate to mortgages, and consumer bankruptcy cases.
With the crash in home prices, as a practical matter, TILA claims, at least as regards
mortgages, are worthless to most consumers.
Many RESPA cases remain worth pursuing, and sample letters and pleadings are
attached.
I. HOW DID WE GET HERE?
Here being: Most mortgage companies cannot provide a complete accurate
accounting of all the payments into and out of a mortgage account, and hundreds of
thousands of mortgage transactions violated one or more provisions of TILA.
We are in a worldwide economic crisis precipitated by the crash in mortgage backed
securities issued in the United States.
For a graphic presentation of how these securities were set up, see the flow chart on
the next page, used courtesy of consumer attorney Max Gardner of North Carolina.
A. Instead of two parties, mortgagor and mortgagee, multiple parties were involved in
each transaction, allowing for the doctoring of information by one party to be concealed
from the others, e.g. broker, appraiser, title company, all doing work the mortgage
companies used to do.
B. Mortgage company reliance on mortgage brokers, who walk away from the closing
with a check, retaining no financial interest in whether that mortgage is ever paid.
C. The mortgage servicer compensation structure provides more income to
servicers for loans that are in default.
D. Most mortgages, and/or the servicing rights, were sold multiple times,
complicating record keeping.
E. The agencies that rated the mortgage securities, Moodys, Standard & Poor's,
among other errors, used historical default rates based on a market that had consisted of
mortgages that were 20% down, amortized over 30 years at a fixed rate These agencies
also assumed NO DECLINE IN HOME PRICES.
F. This ennabled these securities to be rated just under U.S. Government grade debt,
which increase the demand for the securites, which encouraged the mortgage industry to
create more debt, which they could immediately flip at a profit.
G. So, new products were invented: 80/20 loans, two mortgages at different rates so
no down payment was needed, 125% loan to value mortgages, interest only, ARMS, no
document liar loans, a/k/a NINJA loans (No Income, No Job, no Assets,) and so on.
H. The bubble burst, prices go down, homeowners cannot refinance, teaser ARM
rates expire, foreclosure and so on.
I. Most people want to keep their home, and when they fall behind on the
payments, many look for irregularities in the mortgage documents. Well,
there are usually plenty of irregularites to be found.

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PRIVATE LABEL SECURITIZATION KEY PARTIES INVOLVED
CONSUMER / HOMEOWNER
Applies for mortgage loan
ORIGINATOR / LENDER
Originate
Sell, Scrutinize or hold in portfolio
WAREHOUSE
LENDER
Provide immediate
and interim funding
for loans
SPONSOR
Securitizes pool of mortgage loans
Structure, market, & sell bonds
DEPOSITOR
Enables transaction to have key elements
that make it a securitization
Sells loans to Trustee and uses proceeds
received from the Trust to pay the Sponsor
for Depositors own purchase of the loans

TRUST / TRUSTEE
Owner of the loans on behalf of the certificate holders
Issues bonds
Reports and remits payments to bond holders
Tax reporting
MASTER SERVICER
Trustees representative for assuring that Servicer(s)
abide by terms of the servicing contracts
PRIMARY SERVICER
Collects payments &
remits to Master Servicer;
FC; file POCs & MFRs in
BK
SECONDARY SERVICER
Collects payments &
remits to Master Servicer;
FC; file POCs & MFRs in
BK
Fees
CREDIT DEFAULT SWAPS &
INTEREST RATE SWAPS
INVESTORS
Purchase bonds
Receive bond P & I
MASTER DOCUMENT
CUSTODIAN
Maintains physical
possession of original
hard-copy Notes,
Mortgages, DOTs and
other key loan docs
P O O L I N S U R E R S &
C R E D I T E N H A N C E M E N T S
F e e s a r e c o l l e c t e d f r o m C o n s u m e r / H o m e o w n e r a n d r e m i t t e d t o M a s t e r S e r v i c e r b y P r i m a r y o r S e c o n d a r y S e r v i c e r
UNDERWRITER /
PLACEMENT AGENTS
Sell or place
Securities
Play principal role in
structuring transaction
LEGAL COUNSEL
Offers materials; Legal
Opinions
RATING AGENCIES
Assists in structuring
transaction
Monitors performance
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JUDICIAL ESTOPPEL
I. If you do not schedule your clients's consumer law claim, you may be
estopped from bringing the claim.
As the Debtor is swearing that he has listed all of his assets, if he fails to
list an FDCPA, RESPA , TILA, or other claim, and Debtor subsequently files suit on said
claim, the defense states: He already swore he did not have a claim, cannot change his
story now, that would be prejudicial to creditors and the bankruptcy trustee!
6
th
Circuit Case
White v. Whyndham Vacation Ownership, et. al. 2009 (6
th
Cir.)
This Debtor had a sexual harassment claim, but did not schedule it.
She filed a state Human Rights Commission complaint November 15, 2006,
She requested EEOC action on May 27, 2008, and action was taken on
July 8, 2008.
Then, in August 8, 2008, she files her Chapter 13 bankruptcy; the harassment
claim is listed neither on Schedule B nor on the Statement of Financial Affairs question
about lawsuits, pending or completed in the last year.
The 341 hearing was held September 11, 2008, and the plan was confirmed
October 1, 2008.
The discrimination lawsuit was not filed until October 2, 2008.
Debtor filed an Application to Employ Counsel for that suit on October 3, 2008.
The Defendants, having checked the records, filed their motion to dismiss, based
on judicial estoppel.
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On November 11, Debtor files some amendments which the 6
th
Circuit called
insufficient.
Her bankruptcy attorney filed an affidavit opposing motion to dismiss the suit,
part of which is reprinted below:
5. Betsy White (Debtor) did inform me of her [harassment
claim] when I met with her. At no time did Ms. White
attempt to conceal, or otherwise, keep that information
secret.
6. When I appeared in Court on Ms. Whites bankruptcy, this
lawsuit was discussed, as well as, any potential claims thereof.
7. I am unsure why documentation filed in her bankruptcy matter did
not list this action, however we have subsequently filed an
Amendment to cure this oversight.
This did not convince the District court of anything, it granted Defendant's
motion, treating it as a motion to dismiss as one for failure to state a claim upon which
relief can be granted, citing Salehpour v. Univ. of Tenn., 159 F.3d 199, 203-204 (6
th
Cir.
2004) and Browning v Levy, 283 F.3d.761 (6
th
Cir. 2002).
judicial estoppel bars a party from (1) asserting a position that is contrary to one
that the party has asserted under oath in a prior proceeding, (2) where the prior court
adopted the contrary position either as a preliminary matter or as part of a final
disposition. (at 775-776) (this was also in a bankruptcy case)
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On November 11, Debtor files some amendments which the 6
th
Circuit called
insufficient.
Her bankruptcy attorney filed an affidavit opposing motion to dismiss the suit,
part of which is reprinted below:
5. Betsy White (Debtor) did inform me of her [harassment
claim] when I met with her. At no time did Ms. White
attempt to conceal, or otherwise, keep that information
secret.
6. When I appeared in Court on Ms. Whites bankruptcy, this
lawsuit was discussed, as well as, any potential claims thereof.
7. I am unsure why documentation filed in her bankruptcy matter did
not list this action, however we have subsequently filed an
Amendment to cure this oversight.
This did not convince the District court of anything, it granted Defendant's
motion, treating it as a motion to dismiss as one for failure to state a claim upon which
relief can be granted, citing Salehpour v. Univ. of Tenn., 159 F.3d 199, 203-204 (6
th
Cir.
2004) and Browning v Levy, 283 F.3d.761 (6
th
Cir. 2002).
judicial estoppel bars a party from (1) asserting a position that is contrary to one
that the party has asserted under oath in a prior proceeding, (2) where the prior court
adopted the contrary position either as a preliminary matter or as part of a final
disposition. (at 775-776) (this was also in a bankruptcy case)
There are exceptions: where the debtor lacks knowldedge of the factual basis of
the undisclosed claims and the debtor has no motive for concealment (Id. At 776)
Another factor that could get the Debtor off the hook: absence of bad faith,
Eubanks v CBSK Financial Group, Inc., 385 F.3
rd
894, (6
th
Cir. 2004)
The White court refers to a bankruptcy court order requiring debtor to make
payments and to attend the 341 hearing .
At this point, the bankruptcy court adopted her position: (W)hen a bankruptcy
court which must protect the interests of all creditors - approves a payment from the
bankruptcy estate on the basis of a party's assertion of a given position, that, in our view,
is sufficient judicial acceptance to estop the party from later advancing an inconsistent
position. Lewis v Weyerhaeuser Co., 141 F. App'x 420, (6
th
Cir. July 6, 2005)
The White court, referencing the Application to Employ Counsel, and the Affidavit of
the bankruptcy attorney, stated these were limited and ineffective attempts to correct her
initial misfiling . ( Id. At page 11)
The Statement of Financial Affairs was amended, but not until after the motion to
dismiss the discrimination suit was filed, so the Court dismissed that entirely.
Making things worse for our Debtor, the claim was allegedly worth $1.25 million.
she had listed another claim on her Schedule B, and no one gave the court a transcript
showing that the Debtor counsel mentioned the claim at any bankruptcy court hearing.
Debtor lost, in spite of language in the Order Confirming Plan as follows:
Any and all net proceeds from debor(s) pending sexual harassment lawsuit claim to be
paid into the plan as additonal payments, except for Court approved legal fees and
expenses.
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So, the moral of the story is, do not get into litigation about good faith, or amendments
were timely filed, or if the claim was mentioned to someone at a hearing, so everybody
knew about it.
Just list potential FDCPA claim, or RESPA claim, or even potential claims for
consumer law violations, and exempt them.
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So, the moral of the story is, do not get into litigation about good faith, or amendments
were timely filed, or if the claim was mentioned to someone at a hearing, so everybody
knew about it.
Just list potential FDCPA claim, or RESPA claim, or even potential claims for
consumer law violations, and exempt them.
TRUTH IN LENDING
15 USC 1601 was passed in 1968 and has been amended numerous times since.
The goal was to force creditors to disclose the true cost to consumers of credit cards,
other covered transactions and personal property leases.
This is a highly technical statute, with some strict liability provisions. (Semar v.
Platte Valley Federal Savings & Loan Assn, 791 F. 2d 699 (9
th
Cir. 1986), and Ohio
Builders and Remodelers, Inc., 212 F. Supp. 752, S.D. Ohio (2002), which cites Weeden
v Auto Workers Credit Union, Inc., No. 97-3073, 1999WL 191430 (6
th
Cir. March 19,
1999)
As is the habit of Congress, as with having the IRS determine income and expense
figures for the means test, much of the legislation is effectively punted, in this case, to the
Federal Reserve Board, which was given the power to enforce much of TILA, and to
issue regulations under it.
The holding stands for the proposition that, a high degree of deference to
administrative interpretation is warranted, credit transactions defy exhaustive regulation
by a single statute, and Congress therefore delegated expansive authority to the Federal
Reserve Board to elaborate and expand the legal framework governing commerce in
credit, . . . . . opinions construing the Act or Regulation Z should be dispositive unless
they are demonstrably irrational. (National Consumer Law Center, Truth in Lending, 5
th
edition, section 1.4.3.2, page 13)
This outline is just of part of the Act, primarily, most of the sections that are related to
mortgages.
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A. EXCLUSIONS
TILA is not meant to apply to transactions between businesses, loans over a certain
amount, transactions covered by the SEC, student loans, and some other transactions.
(see 15 USC 1603)
TILA does not apply to mortgage brokers or servicers, but to companies or
individuals who regularly extended or offer to extend consumer credit for which a finance
charge is or may be imposed or which, by written agreement, is payable in more than four
installments.
B. FINANCE CHARGE
Under TILA, the amount of credit extended is the amount financed, everything
else is a finance charge.
The TILA definition of finance charge is:
. Any charge
. Payable directly or indirectly by the consumer
. Imposed directly or indirectly by the creditor
. As an incident to or a condition of the extension of
credit.
Any charge which meets this definition is a finance charge unless it is specifically
excluded elsewhere in the TILA statue or Regulation. Moreover these exclusions must be
narrowly construed. (footnote omitted) National Consumer Law Center, Truth in
Lending, 5
th
edition, section 3.5, page 61.
And that is the tricky part, which finance charges are legitimate, most are not;
they are just ways to hide a higher than disclosed interest rate.
If there are $10,000 of finance charges on a mortgage, and $8,000 of them do not
belong there, that extra $8,000 is interest under TILA, and must be included in the
calculation of the interest rate on the mortgage. (see example on next page)
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A. EXCLUSIONS
TILA is not meant to apply to transactions between businesses, loans over a certain
amount, transactions covered by the SEC, student loans, and some other transactions.
(see 15 USC 1603)
TILA does not apply to mortgage brokers or servicers, but to companies or
individuals who regularly extended or offer to extend consumer credit for which a finance
charge is or may be imposed or which, by written agreement, is payable in more than four
installments.
B. FINANCE CHARGE
Under TILA, the amount of credit extended is the amount financed, everything
else is a finance charge.
The TILA definition of finance charge is:
. Any charge
. Payable directly or indirectly by the consumer
. Imposed directly or indirectly by the creditor
. As an incident to or a condition of the extension of
credit.
Any charge which meets this definition is a finance charge unless it is specifically
excluded elsewhere in the TILA statue or Regulation. Moreover these exclusions must be
narrowly construed. (footnote omitted) National Consumer Law Center, Truth in
Lending, 5
th
edition, section 3.5, page 61.
And that is the tricky part, which finance charges are legitimate, most are not;
they are just ways to hide a higher than disclosed interest rate.
If there are $10,000 of finance charges on a mortgage, and $8,000 of them do not
belong there, that extra $8,000 is interest under TILA, and must be included in the
calculation of the interest rate on the mortgage. (see example on next page)
Yes, they are hard to read.
On thing to look for is junk fees.
Such as, on the previous page:
Processing Fee Pamela Allen $350
Broker Administrtive Liberty Lending 495.00
Underwriting Fee America's Wholesale Lender 895.00
Premium Paid By Lender Liberty Lending 2,728.00
Document Signing Fee Countrywide Home Loans 250.00
The TILA issue is: are these charges that should be included, as interest, in the
cost of the loan?
If yes, and they were not, the disclosed interest rate will be wrong, and, depending on
the amount of the discrepancy, will constitute a TILA violation.
Unfortunately, cases interpret this in widely different ways.
I refer you to the NCLC manual for more.
C. NOTICE OF RIGHT TO RESCIND
c) Rebuttable presumption of delivery of required disclosures
Many cases state that it is a question of fact whether the notice was received, even
if there is a signed receipt, once the Plaintiff disputes receiving copies of the notice.
(Moore v Mortgagestar, Inc., 2002 U.S. Dist. LEXIS 27457 (W.D. Va. Dec. 18, 2002),
Rowland v Novus Fin. Corp., 949 F.Supp. 1447, 1458 (D. Haw. 1996), Jaaskelainen v.
Wells Fargo Bank, N.A. 391 B.R. 627, cases collected in footnote 108 (Bankr. D. Mass.
2008))
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The three day right to rescind does not begin to run until the consumer receives
all the material disclosures, correctly made. (15 USC section 1635 (a): Reg. Z sections
226.15(a)(3). See, Smith v Wells Fargo Credit Corp, 713 F. Supp. 354, 355 (D. Ariz.
1989)
D. RIGHT TO RESCIND
Rescission is cancelling the transaction, applicable only when the principal residence
is the collateral. The statuorily required right to rescind form states that the borrower has
been advised there are three days in which there is an absolute right to undo the
transaction, just because you changed your mind, or, for no reason at all.
Rescission rights apply to transactions that open a credit line or increase the limit on a
pre-existing loan.
It means, unringing the bell, putting the parties where they were before the
transaction. Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874, 877 (6th Cir. 2006)
All finance charges must be refunded (226.223(d)(2) and any security interest
cancelled (226.23(d)(1).
The kicker is, the rest of the money the creditor spent, usually the lion's share of which
went to pay off a prior mortgage, has to be tendered back to the creditor by the borrower.
(226.23(d)(3).
Rescission is available as a remedy for loans secured by a principal residence, that
were not used to buy or build the residence. 16 USC 1635 and Regulation Z section
226.23 (12 C.F.R. Section 226.23)
"This provision was enacted to give the consumer the opportunity to reconsider
any transaction which would have the serious consequence of encumbering the title to his
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The three day right to rescind does not begin to run until the consumer receives
all the material disclosures, correctly made. (15 USC section 1635 (a): Reg. Z sections
226.15(a)(3). See, Smith v Wells Fargo Credit Corp, 713 F. Supp. 354, 355 (D. Ariz.
1989)
D. RIGHT TO RESCIND
Rescission is cancelling the transaction, applicable only when the principal residence
is the collateral. The statuorily required right to rescind form states that the borrower has
been advised there are three days in which there is an absolute right to undo the
transaction, just because you changed your mind, or, for no reason at all.
Rescission rights apply to transactions that open a credit line or increase the limit on a
pre-existing loan.
It means, unringing the bell, putting the parties where they were before the
transaction. Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874, 877 (6th Cir. 2006)
All finance charges must be refunded (226.223(d)(2) and any security interest
cancelled (226.23(d)(1).
The kicker is, the rest of the money the creditor spent, usually the lion's share of which
went to pay off a prior mortgage, has to be tendered back to the creditor by the borrower.
(226.23(d)(3).
Rescission is available as a remedy for loans secured by a principal residence, that
were not used to buy or build the residence. 16 USC 1635 and Regulation Z section
226.23 (12 C.F.R. Section 226.23)
"This provision was enacted to give the consumer the opportunity to reconsider
any transaction which would have the serious consequence of encumbering the title to his
home." (U. S. Rep. No. 368, 96
th
Cong., 2d Sess. 28, reprinted in 1980 U.S.C.C.A.N.
236, 264. See Rodash v AIB Mortgage Co., 16 F3d 1142 (11
th
Cir. 1994)
The sequence of procedures under 226.23(d)(2) and (3), or a courts
modification of those procedures under 226.23(d)(4), does not affect a consumers
substantive right to rescind and to have the loan amount adjusted accordingly. Where the
consumers right to rescind is contested by the creditor, a court would normally determine
whether the consumer has a right to rescind and determine the amounts owed before
establishing the procedures for the parties to tender any money or property.
Offl Staff Comm. to Reg. Z, 12 C.F.R. Pt. 226, Supp. I at 23(d)(4)-1.
A consumer facing foreclosure, where the foreclosure process has actually
commenced, has greater rescission rights, as any understatement of the finance charges
by $35.00 or more triggers the right to rescind. 15 USC1635(I)(2); Reg. Z section
226.23(h)(2)(i); Bynum v. Equitable Mortgage Group, 2005 WL 818619 (D.D.C. Apr. 7,
2005); Riopta v Amresco Residential Mortgage Corp., 101 F. Suppp. 2D 1326, (D.Haw.
1999) See NCLC Truth In Lending, section 4.6.3.2.3.
This is as opposed to the general rule of $100 or of 1% of the total amount of credit
extended. Reg. Z section 226.23(g)(1)(ii).
The basic statute of limitations for TILA actions is one year. 15 USC 1640(e).
However, there is an extended right to rescind, up to three years. 15 USC 1635(f).
E. DAMAGES
The law does not provide for punitive damages.
Actual damages are recoverable, including emotional distress, but are not required.
Of course, you have to prove those.
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However, you can bring an action just for statutory damages, for violation of the
statute, without any actual damages.
This is a fee shifting statute, so you get costs and actual attorney fees. 15 USC 1640
(a)(3)
Statutory damages are available for specified portions of the statute. Baker v Sunny
Chevrolet, Inc., 349 F.3d 862 (6
th
Cir. 2003)
For a credit transaction not under an open end credit plan that is secured by real
property or a dwelling, not less than $200 or greater than $2,000. 15 USC 1640 (a)(2)
(A)
Of course, in a rescission case, you unwind the transaction, so there are additional
damages avialable.
F. RECENT STATUTORY CHANGES
Every crisis creates a call for more government regulation, at least in some
quarters.
The latest is the new Consumer Protection Agency, authorized by the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
There are new yield spread premium (YSP) rules, which expand coverage to include
mortgage orinators. (15 USC 1641(a), (d).
If either signer or co-signer has been convicted of fruad, no relief under TILA. (15
USC 1640 (1).
Big change: YSPs based on anything other than the amount of the loan are
prohibited.
Previously, mortgage companies paid more for higher interest loans.
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However, you can bring an action just for statutory damages, for violation of the
statute, without any actual damages.
This is a fee shifting statute, so you get costs and actual attorney fees. 15 USC 1640
(a)(3)
Statutory damages are available for specified portions of the statute. Baker v Sunny
Chevrolet, Inc., 349 F.3d 862 (6
th
Cir. 2003)
For a credit transaction not under an open end credit plan that is secured by real
property or a dwelling, not less than $200 or greater than $2,000. 15 USC 1640 (a)(2)
(A)
Of course, in a rescission case, you unwind the transaction, so there are additional
damages avialable.
F. RECENT STATUTORY CHANGES
Every crisis creates a call for more government regulation, at least in some
quarters.
The latest is the new Consumer Protection Agency, authorized by the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
There are new yield spread premium (YSP) rules, which expand coverage to include
mortgage orinators. (15 USC 1641(a), (d).
If either signer or co-signer has been convicted of fruad, no relief under TILA. (15
USC 1640 (1).
Big change: YSPs based on anything other than the amount of the loan are
prohibited.
Previously, mortgage companies paid more for higher interest loans.
Mortgage brokers frequently put people into loans with a higher interest rate than the
interest rate for which they were qualified.
Also gone form mortgages: mandatory arbitration and single premium creit insurance.
(15 USC 1639(c)).
Pre-payment penalties are prohibited in large categories of loans. (15 USC 1639(c)).
Restrictions on appraisals are included, but leave a big exception. (15 USC 1639(e)).
Something affecting our clients, periodic statements must be provided, (15 USC
1638(f)), and, payoff balances MUST be provided within 7 days of a written request, (15
USC 1639(g)).
G. STRATEGY
Under 15 USC 1640 (e), you can bring a TILA case in any U. S. district court, or in
any other court of competent jurisdiction.
This includes bankruptcy court.
You can join state law claims, if you have any, you can wait for the proof of claim to
be filed by the mortgage company, and object to that as one count of your complaint.
That will help keep it from being removed to Federal District Court.
So, you file a Chapter 13 case to stop a foreclosure, and file your TILA adversay
proceeding for rescission.
This will hold up confirmation, until it is determined if the claim is secured, or
rescinded, and unsecured.
If you win, and it is unsecured, that will change your liquidation analysis.
The home is now unencumbered, or less encumbered, so can you include that entire
balance left due on the former mortgage as an unsecured debt, and pay it less than 100%?
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Some courts have said yes.
Bankruptcy, however, relieves the debtor from his obligation to pay the creditor upon
rescission. Conditioning rescission upon the debtor's payment therefore imposes an
obligation from which the debtor has been legally freed. Unlike the situation absent
bankruptcy, there is a legitimate, legal impediment to the debtor's reciprocal performance.
It would be palpably unfair to deny the relief to which a consumer is entitled under TILA
because that consumer has also availed himself of bankruptcy relief. To do so would
require that the consumer choose between bankruptcy and TILA, something
neither form of statutory relief contemplates.
119
119. Myers, 175 B.R. at 128-129 (quoting In Re Piercy, 18 B.R, 1004, (Bankr. W.D. Ky. 1982).
(Jaasekelainen at p. 645-646)
However, I have not had success with this argument in the Eastern District of
Michigan.
H. ISSUES
Most of the bad mortgage loans were written during the peak of the bubble, 2005-
2007, so the statute of limitations has run out on most of the claims, even if there were
issues with disclosure.
It is nearly impossible to get new financing for our clients, in order to make a tender in
a rescission case.
With the crash in home prices, it can be a Pyrhic victory to prevail on a TILA claim.
If the Debtor owes $300,000, and you can get rid of $100,000 with a successful TILA
case, but the home is still worth only $150,000, or $100,000, what is the point?
615
Some courts have said yes.
Bankruptcy, however, relieves the debtor from his obligation to pay the creditor upon
rescission. Conditioning rescission upon the debtor's payment therefore imposes an
obligation from which the debtor has been legally freed. Unlike the situation absent
bankruptcy, there is a legitimate, legal impediment to the debtor's reciprocal performance.
It would be palpably unfair to deny the relief to which a consumer is entitled under TILA
because that consumer has also availed himself of bankruptcy relief. To do so would
require that the consumer choose between bankruptcy and TILA, something
neither form of statutory relief contemplates.
119
119. Myers, 175 B.R. at 128-129 (quoting In Re Piercy, 18 B.R, 1004, (Bankr. W.D. Ky. 1982).
(Jaasekelainen at p. 645-646)
However, I have not had success with this argument in the Eastern District of
Michigan.
H. ISSUES
Most of the bad mortgage loans were written during the peak of the bubble, 2005-
2007, so the statute of limitations has run out on most of the claims, even if there were
issues with disclosure.
It is nearly impossible to get new financing for our clients, in order to make a tender in
a rescission case.
With the crash in home prices, it can be a Pyrhic victory to prevail on a TILA claim.
If the Debtor owes $300,000, and you can get rid of $100,000 with a successful TILA
case, but the home is still worth only $150,000, or $100,000, what is the point?
It would still be a bad deal for the homeowner, who is not in your office because she
could afford the payments.
TILA issues could be raised in objections to mortgage company proofs of claim, and
may be useful as leverage in getting a loan modification.
Some loan modifications and forbearance agreements had provisions waiving any and
all claims against the mortgage company, so beware.
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RESPA
A. WHAT IS RESPA?
The Real Estate Settlement and Procedures Act, 12 USC 2601 et seq.
Passed in 1974, amended in 1990 and, most recently, in the Dodd-Frank legislation, it
was a response to complicated record keeping and mortgagors difficulty in figuring out
the status of their loans in the era of mortgage servicing and more complex real estate
closings.
The 1990 amendments dealt with requirements on the transfer of servicing rights,
another new phenomenon, and for the handling of escrow accounts.
It applies to big lenders. 12 USC 2602.
This section focuses on the provisions that: deal with mortgage servicer wrongdoing,
and, provide for a private right of action.
These actions can be brought in state or federal court. 12 USC 2614.

B. WHAT DOES RESPA HAVE TO DO WITH CONSUMER BANKRUPTCY
CASES?
(thanks to attorney O. Max Gardner of North Carolina for permission to use some of
the material in this sub-section)
If you practice Chapter 13 consumer bankruptcy law, you should know what the
letters QWR (Qualified Written Request) mean.
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RESPA
A. WHAT IS RESPA?
The Real Estate Settlement and Procedures Act, 12 USC 2601 et seq.
Passed in 1974, amended in 1990 and, most recently, in the Dodd-Frank legislation, it
was a response to complicated record keeping and mortgagors difficulty in figuring out
the status of their loans in the era of mortgage servicing and more complex real estate
closings.
The 1990 amendments dealt with requirements on the transfer of servicing rights,
another new phenomenon, and for the handling of escrow accounts.
It applies to big lenders. 12 USC 2602.
This section focuses on the provisions that: deal with mortgage servicer wrongdoing,
and, provide for a private right of action.
These actions can be brought in state or federal court. 12 USC 2614.

B. WHAT DOES RESPA HAVE TO DO WITH CONSUMER BANKRUPTCY
CASES?
(thanks to attorney O. Max Gardner of North Carolina for permission to use some of
the material in this sub-section)
If you practice Chapter 13 consumer bankruptcy law, you should know what the
letters QWR (Qualified Written Request) mean.
This is a great source for obtaining information on our client'(s) mortgages, and
available without an adversay proceeding or contested matter.
It can be used to find out how the servicer for the securitized trust is applying the
debtor's money and the disbursements on the arrearage claim from the Chapter 13
Trustee. It can also be used to identify all of the ancillary fees and collateral charges
that mortgage servicers throw onto our clients' accounts, without notice or explanation.
12 USC 2605 oand 2609, known as the Servicer Act, require servicers to
respond to borrower requests for information, and correction of account errors. The
Servicer Act provisions contain the authority for the QWR.
It gives borrowers, our clients, the right to sue for violations of these provisions, 12
USC 2605(f).
The law provides that you can secure records on the mortgage note, on any alleged
default on the contract, or, dispute the status of what happened to your mortgage
payments, were they all credited? How?
Do not abuse this provision.
A simple sample letter is attached.
There are cases of lawyers drafting QWRs with over 150 questions.
This is past what the statute, or any other Federal or Bankruptcy discovery process,
allows.
The standard letter in a Chapter 13 context should include requests for:
A complete life of loan transactional history
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The Transaction Codes for the software platform of the Servicer
The Key Loan Transaction history, bankruptcy work sheet, or any summary of all
of the accounts in an XL spreadsheet format
The MERS Milestone Reports and the Edgar website address for the Pooling and
Servicing Agreement, Prospectus and Prospectus Supplement;
The name, address, name of a contact person and telephone number of the current
holder and owner of the mortgage note
Copies of all collection notes and communications files
An itemized statement of the amount needed to fully reinstate the loan
All communications with any non-lawyer third-party providers
All Form P-309 screen shots of all system accounts
C. DOES RESPA CONFLICT WITH BANKRUPTCY LAW?
Some mortgage servicers argued that Bankruptcy law pre-empted RESPA, so
debtors were limited to bankruptcy court rules as to what information servicers would be
required to disclose.
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The Transaction Codes for the software platform of the Servicer
The Key Loan Transaction history, bankruptcy work sheet, or any summary of all
of the accounts in an XL spreadsheet format
The MERS Milestone Reports and the Edgar website address for the Pooling and
Servicing Agreement, Prospectus and Prospectus Supplement;
The name, address, name of a contact person and telephone number of the current
holder and owner of the mortgage note
Copies of all collection notes and communications files
An itemized statement of the amount needed to fully reinstate the loan
All communications with any non-lawyer third-party providers
All Form P-309 screen shots of all system accounts
C. DOES RESPA CONFLICT WITH BANKRUPTCY LAW?
Some mortgage servicers argued that Bankruptcy law pre-empted RESPA, so
debtors were limited to bankruptcy court rules as to what information servicers would be
required to disclose.
Federal law pre-empts state law, not other federal laws.
One court in our state re-phrased the issue as: Does RESPA conflict with bankruptcy
law, and found it does not, which is the majority rule.
See Conley v Central Morgtgage Co., 08-CV-13432, (E.D. MI. 2009), 2009 WL
2498022.
What if you object to a proof of claim, and join a RESPA violation claim to that?
Can you stay in bankruptcy court, or does the reference have to be withdrawn, and the
case heard in District Court?
No, you can stay in bankruptcy court. Alfonseca-Baez v Doral Financial Corp., 376
BR 70, (D.P.R., 2007)
C. WHAT YOU DO WITH QWR

I always have the client send it.
I do not want to be involved as a witness, or litigate side issues about whether the
letter qualifies as a QWR, thus triggering the provisions of RESPA.
Send it to the right address.
I send a question out on the consumer attorney listservs to which I belong, and usually
get a response.
If not, google for RESPA address.
Do not send a QWR to the address for payments, which will be a lockbox operation,
where no one reads what is in the envelope, they just throw the payment in one box and
toss everything else.
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Send it to the right address, or you may have no case. Bally v Homeside Lending, Inc.,
2005 WL2250856 (N.D. Ill. Sept. 8, 2005)
The burden is on the servicer to show that the mortgagor was provided with the
correct address. McLean v GMAC Mortgage, Inc., 2008 WL 2741159 (N.D.Ill. July 8,
2008)
Do not send a QWR just to the servicer's attorney, even if they filed an appearance in
the Chapter 13 case. Griffin v Citifinancial Mortgage Co. Inc., 2006 WL 266106 (M.D.
Pa. Feb. 1, 2006)
The statue requires the QWR to be in writing, name and account number, or, sufficient
informaiton for the servicer to identify the account. 12 USC 26059e)(1)(B)(i) and Reg.
X, 24 C.F.R 3500.21(e)(2).
Include the address of the property on which the mortgage is a lien, even though that
is not specifically required by the statute.
This is not a game where you want to make them work to find the records. You want
the records.
A QWR is not a QWR if it is delivered to a servicer more than 1 year after either the
date of transfer of servicing or the date that the mortgage servicing loan amount was paid
in full, whichever date is applicable. Reg. X, 24 D.F.R. 3500.21(e)(2)(ii).
Servicers tried to argue that, if they acquired the transfer rights more than one year
ago, the QWRs they got were not valid QWRs.
Courts have correctly held that the meaning of the regulation is that the servicer who
transferred the rights, does not have to respond if it gets a QWR more than one year after
623
Send it to the right address, or you may have no case. Bally v Homeside Lending, Inc.,
2005 WL2250856 (N.D. Ill. Sept. 8, 2005)
The burden is on the servicer to show that the mortgagor was provided with the
correct address. McLean v GMAC Mortgage, Inc., 2008 WL 2741159 (N.D.Ill. July 8,
2008)
Do not send a QWR just to the servicer's attorney, even if they filed an appearance in
the Chapter 13 case. Griffin v Citifinancial Mortgage Co. Inc., 2006 WL 266106 (M.D.
Pa. Feb. 1, 2006)
The statue requires the QWR to be in writing, name and account number, or, sufficient
informaiton for the servicer to identify the account. 12 USC 26059e)(1)(B)(i) and Reg.
X, 24 C.F.R 3500.21(e)(2).
Include the address of the property on which the mortgage is a lien, even though that
is not specifically required by the statute.
This is not a game where you want to make them work to find the records. You want
the records.
A QWR is not a QWR if it is delivered to a servicer more than 1 year after either the
date of transfer of servicing or the date that the mortgage servicing loan amount was paid
in full, whichever date is applicable. Reg. X, 24 D.F.R. 3500.21(e)(2)(ii).
Servicers tried to argue that, if they acquired the transfer rights more than one year
ago, the QWRs they got were not valid QWRs.
Courts have correctly held that the meaning of the regulation is that the servicer who
transferred the rights, does not have to respond if it gets a QWR more than one year after
it handed off the rights to the loan in question. See Davidson v. Countrywide Home
Loans, Inc., 2010 WL 962712 (S.D.Cal. Mar 16, 2010).
D. WHAT THE MORTGAGE SERVICER DOES WITH A QWR
Receipt of a QWR must be acknowledge within 20 days, changed to five days by
Dodd-Frank, effective date not set yet.
These are business days, not calendar days.
That is, they must tell the borrower; Hey, we got your letter, we are working on it.
They have 60 business days to actually send the information, changing to 30, with a
provision that can extend it to 45, under the new law, effective date not set yet.
The new law also bans charging the borrower for producing or copying records, an
issue on which the courts had been split.
The servicer is not just supposed to regurgitate the informaiton, they are supposed to
correct errors.

E. DAMAGES
ACTUAL DAMAGES
Some courts say you have to have actual damages, to have a claim. Hutchinson v.
Del. Sav. Bank F.S.B., 410 F.Supp. 2D 374 (D.N.J. 2006) .
Actual damages can include:
cost of the paper and postage to send the QWR, In re Tomasevic, 273 B.R. 682
(Bankr. M.D.Fl. 2002).
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transportation costs, time spent away from work in getting compliance,
inconvenience, Rawlings v Dovenmuehle Mortgage, 64 F.Supp. 2D, 1156 (M.D. Ala.
1999).
Money paid to old servicer, after effective date of transfer to new servicer, Wanger v
EMC Mortg. Corp., 103 Cal.App 4
th
1125, 127 Cal. Rptr. 2D 685 (2002).
damage to credit report Johnstone v Bank of Am., 173 F.Supp. 2D 809 (N.D. Ill. 2001).
emotional distress, some courts, may be established by lay testimony, McLean v
GMAC Mortgage Corp., 595 F. Supp. 2D 1360 (S.D. Fla. 2009).
Any damages you can prove were caused by a RESPA violation would be actual
damages.
STATUTORY DAMAGES
If the evidence shows a pattern or practice of noncompliance you can get statutory
damages of $1,000, raised to $2,000 by Dodd-Frank. 12 USC 2605(f)(1)(B); Reg x, 24
C.F.R. 3500.21(f)(1)(i).
At least one court has held that this requirement can be satisfied from just your client's
case, Ploog v. Homeside Lending, Inc., 209 F.Supp. 2D 863 (N.D. Ill 20021), but
normally will require discovery and proving that this servicer does this all the time.
There is no treble damage provision; there is no mention of punitive damages, but they
are not specifically allowed.
FEE SHIFTING STATUTE
12 USC 2605(f)(3) Costs
In addition to the amounts under paragraph (1) or (2), in the case of any successful
action under ths section, the costs of the action, together with any attorneys fees incurred
625
transportation costs, time spent away from work in getting compliance,
inconvenience, Rawlings v Dovenmuehle Mortgage, 64 F.Supp. 2D, 1156 (M.D. Ala.
1999).
Money paid to old servicer, after effective date of transfer to new servicer, Wanger v
EMC Mortg. Corp., 103 Cal.App 4
th
1125, 127 Cal. Rptr. 2D 685 (2002).
damage to credit report Johnstone v Bank of Am., 173 F.Supp. 2D 809 (N.D. Ill. 2001).
emotional distress, some courts, may be established by lay testimony, McLean v
GMAC Mortgage Corp., 595 F. Supp. 2D 1360 (S.D. Fla. 2009).
Any damages you can prove were caused by a RESPA violation would be actual
damages.
STATUTORY DAMAGES
If the evidence shows a pattern or practice of noncompliance you can get statutory
damages of $1,000, raised to $2,000 by Dodd-Frank. 12 USC 2605(f)(1)(B); Reg x, 24
C.F.R. 3500.21(f)(1)(i).
At least one court has held that this requirement can be satisfied from just your client's
case, Ploog v. Homeside Lending, Inc., 209 F.Supp. 2D 863 (N.D. Ill 20021), but
normally will require discovery and proving that this servicer does this all the time.
There is no treble damage provision; there is no mention of punitive damages, but they
are not specifically allowed.
FEE SHIFTING STATUTE
12 USC 2605(f)(3) Costs
In addition to the amounts under paragraph (1) or (2), in the case of any successful
action under ths section, the costs of the action, together with any attorneys fees incurred
in connection with such action as the court may determine to be reasonable under the
circumstances.
F. STATUTE OF LIMITATIONS
12 USC 2614, has a three year statute of limitations, but, can a RESPA violation be
pleaded after that as a setoff in an objection to a bankruptcy proof of claim. In re
Thompson, 350 B.R. (Bankr. E.D. Wis 2006)

627
(Certified mail)
TO: (designated qualified written request address)
Re: (address and mortgage loan #)
Dear Sir/Madam,
Please treat this letter as a qualified written request under the Real
Estate Settlement Procedures Act, codified as Section 2605(e) of Title
12 of the United States Code.
This request is made to get information about the fees, expenses,
costs, accounting, escrow procedures, and the application of payments
in connection with this loan.
Specifically, the following:
A complete life of loan transactional history;
The Transaction Codes for the software platform of the Servicer;
The Code definitions in plain English;
The Key Loan Transaction history, bankruptcy work sheet, or any
summary of all of the accounts in an XL spreadsheet format;
The MERS Milestone Reports and the Edgar website address for the
Pooling and Servicing Agreement, Prospectus and Prospectus
Supplement;
The name, address, name of a contact person and telephone number
of the current holder and owner of the mortgage note;
Copies of all collection notes and communications files;
An itemized statement of the amount needed to fully reinstate the
loan;
All communications with any non-lawyer third-party providers; and
All Form P-309 screen shots of all system accounts.
All records of any suspense or other accounts connected with this
mortgage
Date:
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08-04916-pjs Doc 1-4 Filed 08/12/08 Entered 08/12/08 14:34:49 Page 1 of 1
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633
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF MICHIGAN
IN RE: JOHN H. and CARALEE VAN LOON
CHAPTER 13
Debtors HON. PHILLLIP J. SHEFFERLY
CASE NO. 05-49934
____________________/
JOHN VAN LOON
Plaintiffs
ADV. NO. 08-
v
TOWNE MORTGAGE COMPANY
Defendant________________________________/
COMPLAINT FOR DAMAGES FOR VIOLATION OF THE REAL ESTATE
SETTLEMENT AND PROCEDURES ACT AND FOR TRIAL BY JURY
1. Defendant is a foreign corporation that services Plaintiffs' federally
related mortgage loan, as defined in 12 USC section 2602, as it is secured
by a lien on residential real property designed principally for the
occupancy of from one to four families, and made by creditors which
make or invest in residential real estate loans aggregating more than
$1,000,000 per year, and is a servicer within the meaning of the RESPA
statutes.
2. Plaintiff is a natural person who resides in St. Clair Shores, Michigan.
3. This Court has jurisdiction per 11 USC 2614, and 28 USC 1331, and
supplemental jurisdiction of the state law claims regarding the same
transaction and events under 28 USC section 1367.
4. Plaintiff entered into the mortgage serviced by Defendant on June 26,
2001.
5. Plaintiff properly sent a letter requesting an accounting under RESPA,
certified, attached as Exhibit A.
08-04916-pjs Doc 1 Filed 08/12/08 Entered 08/12/08 14:34:49 Page 1 of 3
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634
6. The letter was received by Defendant, per attached certified mail receipt,
Exhibit B.
7. Plaintiff received the attached letter, Exhibit C, refusing to respond.
8. Plaintiff complied with the request in that refusal letter, Exhibit C.
9. Defendant 's failure to take corrective action with respect to the servicing
of the account violates 12 USC 2605 (e)(2).
10.These actions by the Defendant caused actual damages to Plaintiff,
including mental distress and damage to her credit reports. Plaintiff
made repeated requests by telephone and correspondence, were forced to
hire counsel, and still received inconsistent and irreconcilable no records
from Defendant explaining why Defendant shows Plaintiff one month
behind on the account.
11.These actions by Defendant are part of a pattern and practice of
noncompliance with the requirements of the RESPA statutes, compelling
the award of additional damages against Defendant.
12.Defendant negligently serviced the loan, in breach of its duty to Mr. Van
Loon to maintain proper and accurate loan records and to discharge and
fulfill the other incidents attendant to the maintenance, accounting and
servicing of loan records in a non-negligent manner.
13.These actions by Defendant justify an award of punitive damages and
actual attorney fees and costs.
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635
WHEREFORE, Plaintiff prays that this Honorable Court enter Judgment
for them, against Defendant, for statutory, actual and punitive damages and
actual costs and attorney fees.
JURY DEMAND
Plaintiffs hereby demand trial by jury.
August 12, 2008
/s/KURT OKEEFE
Kurt O'Keefe P30718
Attorney for Plaintiff
3156 Penobscot Building
Detroit MI 48226-4105
313-962-4630
koklaw@gmail.com
3
637
In re:
John H. Van Loon
Caralee Van Loon
Debtors.
Bankruptcy Case No. 05-
49934
Hon. Phillip J. Shefferly
Chapter 13
John Van Loon
Plaintiff,
v Adv. Pro. No. 08-04916
Towne Mortgage Company
Defendant.
_____________________________________/
PLAINTIF'S MOTION FOR, AND BRIEF IN SUPPORT OF, SUMMARY JUDGMENT
Plaintiff, through his attorney, submits the following pursuant to Bankruptcy
Rule 7056:
1. That there is no issue of material fact, and Plaintiff is entitled to Summary
Judgment as a matter of law.
WHEREFORE, Plaintiff prays that this Honorable Court enter Judgment for
him, against Defendant, in the amount of $5,000.0 actual damages,
$10,000 punitive damages, and actual attorney fees as determined by the
Court.
BRIEF IN SUPPORT OF MOTION
Plaintiff filed his complaint for violations of the Real Estate Settlement
and Procedures Act, (hereinafter, RESPA), 12 USC 2602, on August 12,
2008.
Plaintiff's Request for Admissions were served on counsel for
Defendant on November 24, 2008. No response has been received, and
the 30 day time allowed for response under Bankruptcy Rule 7036 has
expired.
Therefore, the following facts, and application of the law to the facts,
have been conclusively established:
1. Defendant is a servicer within the meaning of the RESPA statutes.
2. This court has jurisdiction over this case.
3. Plaintiff properly sent a letter requesting an accounting under RESPA.
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638
4. Defendant did not comply with the request in the letter it received,
attached as Exhibit A.
5. Defendant's failure to take corrective action, (4) above, violates RESPA,
12 USC 2605(e)(2).
6. These actions by Defendant, (4) and (5) above, caused actual damages to
Plaintiff, including A. mental distress and B. damage to credit reports and
C. numerous calls, letters, and having to hire counsel and file this lawsuit
to resolve the issues.
7. These actions by Defendant are part of a pattern and practice of
noncompliance with the requirements of the RESPA statues.
8. Defendant negligently serviced the loan, in breach of its duty to Plaintiff to
maintain proper and accurate loan records and to discharge and fulfill the
other incidents attendant to the maintenance, accounting and servicing of
loan records in a non-negligent manner.
9. At the time the complaint was filed in this case, Defendant's records
showed Plaintiff one month behind on his mortgage payment.
10.After the suit was filed, without any extra payments being paid,
Defendant's records showed Plaintiff one month ahead on his mortgage
payment.
11.Defendants wrongdoing allows this Court to award punitive damages
under the RESPA statutes.
12.Plaintiff has suffered damages of $5,000.
13. Punitive damages of $10,000 are appropriate in this case.
Defendant 's failure to take corrective action with respect to the servicing
CONCLUSION
Plaintiff is entitled, as a matter of law, to a Judgment against Defendant
for $15,000, plus actual attorney fees.
January 4, 2009
/s/KURT OKEEFE
Kurt O'Keefe P30718
639
4. Defendant did not comply with the request in the letter it received,
attached as Exhibit A.
5. Defendant's failure to take corrective action, (4) above, violates RESPA,
12 USC 2605(e)(2).
6. These actions by Defendant, (4) and (5) above, caused actual damages to
Plaintiff, including A. mental distress and B. damage to credit reports and
C. numerous calls, letters, and having to hire counsel and file this lawsuit
to resolve the issues.
7. These actions by Defendant are part of a pattern and practice of
noncompliance with the requirements of the RESPA statues.
8. Defendant negligently serviced the loan, in breach of its duty to Plaintiff to
maintain proper and accurate loan records and to discharge and fulfill the
other incidents attendant to the maintenance, accounting and servicing of
loan records in a non-negligent manner.
9. At the time the complaint was filed in this case, Defendant's records
showed Plaintiff one month behind on his mortgage payment.
10.After the suit was filed, without any extra payments being paid,
Defendant's records showed Plaintiff one month ahead on his mortgage
payment.
11.Defendants wrongdoing allows this Court to award punitive damages
under the RESPA statutes.
12.Plaintiff has suffered damages of $5,000.
13. Punitive damages of $10,000 are appropriate in this case.
Defendant 's failure to take corrective action with respect to the servicing
CONCLUSION
Plaintiff is entitled, as a matter of law, to a Judgment against Defendant
for $15,000, plus actual attorney fees.
January 4, 2009
/s/KURT OKEEFE
Kurt O'Keefe P30718
Attorney for Plaintiff
3156 Penobscot Building
Detroit MI 48226-4105
313-962-4630
koklaw@gmail.com
641
SOUTHERN DIVISION
IN RE:
John and Caralee Van Loon, Case No. 05-49934
Chapter 13
Debtor. Hon. Phillip J. Shefferly
/
John Van Loon,
Plaintiff,
vs. Adv. Proc. No. 08-4916
Towne Mortgage Company,
Defendant.
_______________________________________/
DEFAULT JUDGMENT
On August 12, 2008, Plaintiff filed this adversary proceeding against Defendant alleging that
Defendant violated 2605(e)(2) of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C.
2605. On February 13, 2009, the Court entered the default (docket entry #28) of the Defendant
for failure to comply with a prior order of this Court. Pursuant to the Courts entry of default, and
in accordance with L.B.R. 7055-1, the Plaintiff filed an application for entry of default judgment on
February 16, 2009 (docket entry #29). The application requests entry of a default judgment in the
amount of $15,000, consisting of $5,000 actual damages and $10,000 punitive damages, plus an
award of actual attorney fees as determined by the Court. In support of his application for a default
judgment, the Plaintiff also directs the Courts attention to the Plaintiffs pending motion for
summary judgment and brief filed in support (docket entry #22) for authority for the requested relief.
For the following reasons, the Court finds that the Plaintiff is entitled to a default judgment for
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actual damages and an award of attorney fees, but is not entitled to a default judgment for punitive
damages.
First, as explained in the order of default entered by the Court on February 13, 2009 (docket
entry #28), the Plaintiff is entitled to a default judgment against the Defendant because of the
Defendants violation of the January 12, 2009 order (docket entry #25) that required, among other
things, that Defendant obtain counsel to represent it in this adversary proceeding in compliance with
L.B.R. 9010-1(a)(1) no later than January 30, 2009. Second, consistent with the Defendants failure
to comply with the January 12, 2009 order, it appears from a review of the Court file that the
Defendant has also failed to respond to a request for admissions filed and served by the Plaintiff
upon the Defendant. The Court file reflects that on November 24, 2008, the Plaintiff filed and
served a request for admissions (docket entry #20) upon the Defendant. According to the motion
for summary judgment filed by the Plaintiff on January 5, 2009 (docket entry #22), the Defendant
did not respond to the request for admissions and, therefore, the matters set forth in such request are
deemed admitted and conclusively established under Fed. R. Civ. P. 36(a)(3) and (6) (incorporated
by Fed. R. Bankr. P. 7036). Among the facts conclusively established by the Defendants failure
to respond to the request for admissions are that the Defendant violated 2605(e) of RESPA
(request for admission #5), that the Defendants violation of RESPA caused actual damages to the
Plaintiff (request for admission #6), and that Defendants actions are part of a pattern or practice of
non-compliance with RESPA (request for admission #7). Third, 2605(f) of RESPA provides that
a loan servicer that fails to comply with 2605 shall be liable to the borrower for any actual
damages caused, and additional damages in the case of a pattern or practice of non-compliance in
an amount not to exceed $1,000, together with attorney fees incurred in connection with such action
643
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actual damages and an award of attorney fees, but is not entitled to a default judgment for punitive
damages.
First, as explained in the order of default entered by the Court on February 13, 2009 (docket
entry #28), the Plaintiff is entitled to a default judgment against the Defendant because of the
Defendants violation of the January 12, 2009 order (docket entry #25) that required, among other
things, that Defendant obtain counsel to represent it in this adversary proceeding in compliance with
L.B.R. 9010-1(a)(1) no later than January 30, 2009. Second, consistent with the Defendants failure
to comply with the January 12, 2009 order, it appears from a review of the Court file that the
Defendant has also failed to respond to a request for admissions filed and served by the Plaintiff
upon the Defendant. The Court file reflects that on November 24, 2008, the Plaintiff filed and
served a request for admissions (docket entry #20) upon the Defendant. According to the motion
for summary judgment filed by the Plaintiff on January 5, 2009 (docket entry #22), the Defendant
did not respond to the request for admissions and, therefore, the matters set forth in such request are
deemed admitted and conclusively established under Fed. R. Civ. P. 36(a)(3) and (6) (incorporated
by Fed. R. Bankr. P. 7036). Among the facts conclusively established by the Defendants failure
to respond to the request for admissions are that the Defendant violated 2605(e) of RESPA
(request for admission #5), that the Defendants violation of RESPA caused actual damages to the
Plaintiff (request for admission #6), and that Defendants actions are part of a pattern or practice of
non-compliance with RESPA (request for admission #7). Third, 2605(f) of RESPA provides that
a loan servicer that fails to comply with 2605 shall be liable to the borrower for any actual
damages caused, and additional damages in the case of a pattern or practice of non-compliance in
an amount not to exceed $1,000, together with attorney fees incurred in connection with such action
-3-
as the Court may determine to be reasonable under the circumstances. Although the Plaintiffs
complaint also requests an award of punitive damages, there is no statutory authority in 2605 of
RESPA to award punitive damages in these circumstances.
Having reviewed the entire court file, including the complaint, the application for default
judgment, the motion for summary judgment and the provisions of RESPA, the Court concludes that
the Plaintiff is entitled to a default judgment in the amount of $6,000 together with reasonable
attorney fees incurred in connection with this action. Accordingly,
IT IS HEREBY ORDERED that a default judgment is entered in favor of the Plaintiff, John
Van Loon, and against the Defendant, Towne Mortgage Company, in the amount of $6,000 together
with attorney fees incurred by the Plaintiff in connection with this action to be determined by the
Court upon submission of an affidavit by the Plaintiff to be filed within ten days from the date of
this judgment.
.
Signed on February 18, 2009
/s/ Phillip J. Shefferly
Phillip J. Shefferly
United States Bankruptcy Judge
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THERE'S GOLD IN THEM BILLS!
ETHICAL AND MALPRACTICE CONSIDERATIONS FOR THE FDCPA CASE
by Jesse R. Sweeney, Esq.
There are many potential pitfalls and traps which lie in wait for the unsuspecting Debtor or
Creditor attorney when dealing with the Fair Debt Collection Practices Act. This article will
provide a useful way of navigating them and saving yourself and your client time and money.
- FAILING TO LOCATE A FAIR DEBT CASE
The initial consultation is a time where you're collecting information on assets, liabilities, income
and expenses, but what about potential claims that arise prior to the case? While it is standard to
request information on existing andpotential lawsuits prior tothe filing of a case, anunsophisticated
Debtor may be unable to identify the potential FDCPA case without a substantial amount of
investigation. Every bankruptcy attorney owes his/her client a duty to adequately inspect thecase
prior to filing to determine whether or not there is a fair debt case. In order to do this adequately,
one must ensure they ask not the right questions.
Here are some common statements by Debtors which would indicate a potential FDCPA case:
"They have been calling my house nonstop, at all hours of the night."
"They are calling my neighbors, my relatives, and my place of employment. They threatened t o
throw me in jail, or that I could not file bankruptcy on this debt."
"They egged my car."
Of course, you mayhave to investigate further to determine whether this was a collection agency or
the original creditor owed the debt, but assuming it's the former, you may have yourself a case.
- FAILINGTO LIST AFAIR DEBT CASE INTHE SCHEDULES, AND EXEMPT THE SAME
If you believe you have a pre-petition Fair Debt Collections Case, do not forget to list the same in
Schedule B, andexempt the same in Schedule C. If you're not sure, you may want to put the Trustee
on notice of such a claim anyway, but specify to the best of your ability the maximum amount of
monetary damages to which you believe your client may be entitled. Particular concern must be
appliedin a Chapter 13 case where you over-estimate damages insuch a case tothe detriment of the
Debtor, forcing the Debtor into a highplan payment amount due to high amounts on the liquidation
analysis.
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- OFFER OF JUDGMENT
Rule 68 of the Federal Rules of Civil Procedure provides that either party may submit an offer of
judgment - essentially an offer to settle the case at a proscribed amount. In many cases where the
damagesare specious at best, youmay be wise toaccept theoffer froma creditor where thejudgment
that the offeree finallyobtains is not more favorable than the unaccepted offer, the offeree must pay
the costs incurred after the offer was made.
- IDENTIFYING ADDITIONAL CLAIMS
There areadditional, parallel claims involved in an FDCPAclaim, such as State law violations and,
morespecific tobankruptcy, violations of the automatic stay(for post-petition claims). When filing
your adversary proceeding, do not forget to mention stay violation issues.
- STATUTE OF LIMITATIONS
You/your client only have one year to file a FDCPA claim from the date of the actual alleged
violation, so if you're aDebtor attorney, or filing pre-bankruptcy, make sure you do so right away.
Although the 9th Circuit has held that the time period doesn't begin to run until after the claimant
learns or should have learned of the violation (The Discovery Rule), make sure you do your best to
findout about anypotential claims by askingas many questions as possible. Theearlier you file your
case, the better because you can be sure to exempt the claiminSchedule C for bankruptcy purposes.
- DISCHARGE AND THE AUTOMATIC STAY
Remember that a discharge violation is ALSO a violation of the FDCPAif it's committed by a debt
collector. Why? Because any communication int ended to collect a discharged debt where the
collector knew the Debtor had a discharge is also a misleading or false collections notice. Further,
a violation of the automatic stay can also be a misleading or false collections practice, where the
collectionagencyknows theDebtor is ina bankruptcy, andhas no right tocollect, but falselyimplies
that it has the ability to collect on behalf of a creditor.
- FOR CREDITOR ATTORNEYS
The easiest way to avoid getting ensnared by FDCPA violations is to do the collecting yourselves.
But chances are, you may have been hired to collect, and you are therefore a collection agency/debt
collector covered by the Act. Be diligent to include your standard FDCPA language that you are a
debt collector attemptingto collect a debt. Keep it simple and straightforward. Identify who you are,
on who's behalf you are collecting, howmuch debt is owed and, even if it is not a first attempt, that
theyhave a right torequest validation of the debt. Avoid phone calls altogether, but if you must call,
do it in the middle of the day, and not often. Be friendly and courteous, don't threaten, coerce, and
if they ask you tostop calling, simple stop calling. If you'rea lawyer, simply proceed tothe next step
and file a collections lawsuit. And most importantly, always run the social security number and/or
nameon yourdue dillegence software todetermine if theyhave filed for bankruptcy protection. The
best letter is simple. It identifies you, your firm name, a debt is owed, and how much you should
pay. I have attached a sample letter below.
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- OFFER OF JUDGMENT
Rule 68 of the Federal Rules of Civil Procedure provides that either party may submit an offer of
judgment - essentially an offer to settle the case at a proscribed amount. In many cases where the
damagesare specious at best, youmay be wise toaccept theoffer froma creditor where thejudgment
that the offeree finallyobtains is not more favorable than the unaccepted offer, the offeree must pay
the costs incurred after the offer was made.
- IDENTIFYING ADDITIONAL CLAIMS
There areadditional, parallel claims involved in an FDCPAclaim, such as State law violations and,
morespecific tobankruptcy, violations of the automatic stay(for post-petition claims). When filing
your adversary proceeding, do not forget to mention stay violation issues.
- STATUTE OF LIMITATIONS
You/your client only have one year to file a FDCPA claim from the date of the actual alleged
violation, so if you're aDebtor attorney, or filing pre-bankruptcy, make sure you do so right away.
Although the 9th Circuit has held that the time period doesn't begin to run until after the claimant
learns or should have learned of the violation (The Discovery Rule), make sure you do your best to
findout about anypotential claims by askingas many questions as possible. Theearlier you file your
case, the better because you can be sure to exempt the claiminSchedule C for bankruptcy purposes.
- DISCHARGE AND THE AUTOMATIC STAY
Remember that a discharge violation is ALSO a violation of the FDCPAif it's committed by a debt
collector. Why? Because any communication int ended to collect a discharged debt where the
collector knew the Debtor had a discharge is also a misleading or false collections notice. Further,
a violation of the automatic stay can also be a misleading or false collections practice, where the
collectionagencyknows theDebtor is ina bankruptcy, andhas no right tocollect, but falselyimplies
that it has the ability to collect on behalf of a creditor.
- FOR CREDITOR ATTORNEYS
The easiest way to avoid getting ensnared by FDCPA violations is to do the collecting yourselves.
But chances are, you may have been hired to collect, and you are therefore a collection agency/debt
collector covered by the Act. Be diligent to include your standard FDCPA language that you are a
debt collector attemptingto collect a debt. Keep it simple and straightforward. Identify who you are,
on who's behalf you are collecting, howmuch debt is owed and, even if it is not a first attempt, that
theyhave a right torequest validation of the debt. Avoid phone calls altogether, but if you must call,
do it in the middle of the day, and not often. Be friendly and courteous, don't threaten, coerce, and
if they ask you tostop calling, simple stop calling. If you'rea lawyer, simply proceed tothe next step
and file a collections lawsuit. And most importantly, always run the social security number and/or
nameon yourdue dillegence software todetermine if theyhave filed for bankruptcy protection. The
best letter is simple. It identifies you, your firm name, a debt is owed, and how much you should
pay. I have attached a sample letter below.
Language for a correct Dunning Letter - this is assuming it is a first contact, or within 5 days of a
telephone call that is a first contact with a consumer. That being said, an over-cautious debt
collection agency might wish to put this language on every letter.
This is an attempt to collect a debt and any information obtained will be used for that purpose.
Dear Debtor,
You owe $5000.00 to our firm, Creditor and Owed, PC. Please make payment to the below listed
address. Unless you contact our firm in writing within 30 days after receipt of this notice, the debt
will be assumed to be valid. If you notify us in writing within the thirty-day period that the debt, or
any portion thereof, is disputed, we will obtain verification of the debt or a copy of a judgment
against you (if any) and we will mail to you a copy of such verification or judgment. Upon your
request within the thirty-day period, we will provide you with the name and address of the original
creditor, if different from the current creditor.
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SELECTED DEFENSES TO CLAIMS BASED UPON FDCPA, RESPA, TILA
AND COMMON LAW CLAIMS
John P. Kapitan
Trott & Trott, P.C.
FDCPA LITIGATION - DEFENSES
A. Claims
Actions taken by a debt collector that are prohibited under the FDCPA.
B. Damages
Actual, punitive (up to $1,000 in an individual action), and costs such as
reasonable attorneys fees.
C. Statute of Limitations
One year from the date the violation occurred. "'An action to enforce any
liability created by [the FDCPA] may be brought . . . within one year from the
date on which the violation occurs.'" Johnson v. Riddle, 305 F.3d 1107, 1113
(10th Cir. 2002) (quoting 15 U.S.C. 1692k(d)).
D. Key Issues to Defeat Claims
1. Is Defendant a debt collector?
Any person who uses any instrumentality of interstate commerce or the mails
in any business the principal purpose of which is the collection of any debts,
or who regularly collects or attempts to collect, directly or indirectly, debts
owed or due or asserted to be owed or due another. 15 U.S.C. 1692a(6)
Not a Debt Collector
a. Lender
Foreclosing on real property.
Collecting its debts using it own name. (Ex. Mortgage
company is not a debt collector as its primary purpose
was to make and service consumer loans, and further,
because it did not collect debts for any entity other
than itself. Oldroyd v. Assoc. Cons. Disc. Co., 863 F.
Supp. 237 (E.D. Pa. 1994); Russell v. Standard
Fed.Bank, 2000 U.S. Dist LEXIS 19149 (E.D. Mich.
Nov 27, 2000))
b. Servicer
An entity collecting debts it originates, sells, and
continues to service (like mortgages). 15 U.S.C.
1692a(6)(F)(iii).
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Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th
Cir. 1985) ("The legislative history of section
1692a(6) indicates conclusively that a debt collector
does not include the consumer's creditors, a mortgage
servicing company, or an assignee of a debt, as long
as the debt was not in default at the time it was
assigned."). 15 U.S.C. 1692a(6)(F)(iii).
2. Is the action a collection of a debt? Does not apply to commercial
debts.
any obligation or alleged obligation of a consumer to pay money arising
out of a transaction in which the money, property, insurance, or services
which are the subject of the transaction are primarily for personal, family,
or household purposes, whether or not such obligation has been reduced to
judgment. 15 U.S.C.A. 1692a(5)
3. Bona Fide Error Defense under 1692(k)(c)?
Only available for technical and clerical mistakes.
4. Good Faith Defense under 1692(k)?
Debt collector may not be held liable for any act done or omitted in good
faith in conformity with an advisory opinion of the Commission,
notwithstanding that after such act or omission has occurred, such opinion
is amended, rescinded, or determined by judicial or other authority to be
invalid for any reason.
E. FDCPA claims cannot be premised upon proofs of claims or requests for
relief from the automatic stay filed in a bankruptcy proceeding
Baldwin v. McCalla, Raymer, Padrick, Cobb, Nichols & Clark, L.L.C., 1999 U.S.
Dist. LEXIS 6933, No. 98 C 4280, 1999 WL 284788 (N.D. Ill. Apr. 26, 1999), is an oft
cited case that addresses the issue of whether FDCPA claims are actionable when based
upon an alleged violation of a bankruptcy matter. These courts hold that it is not
available. (See, e.g., Rice Etherly v. Bank One (In re Rice Etherly), 336 B.R. 308 (Bankr.
E.D. Mich. 2006); Walls v. Wells Fargo Bank, N.A., 255 B.R. 38, 2000 U.S. Dist. LEXIS
15381 (E.D. Cal. 2000) (affirmed by Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th
Cir. 2001)) (finding preclusion); Wehrheim v. Secrest, 2002 U.S. Dist. LEXIS 19020,
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Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th
Cir. 1985) ("The legislative history of section
1692a(6) indicates conclusively that a debt collector
does not include the consumer's creditors, a mortgage
servicing company, or an assignee of a debt, as long
as the debt was not in default at the time it was
assigned."). 15 U.S.C. 1692a(6)(F)(iii).
2. Is the action a collection of a debt? Does not apply to commercial
debts.
any obligation or alleged obligation of a consumer to pay money arising
out of a transaction in which the money, property, insurance, or services
which are the subject of the transaction are primarily for personal, family,
or household purposes, whether or not such obligation has been reduced to
judgment. 15 U.S.C.A. 1692a(5)
3. Bona Fide Error Defense under 1692(k)(c)?
Only available for technical and clerical mistakes.
4. Good Faith Defense under 1692(k)?
Debt collector may not be held liable for any act done or omitted in good
faith in conformity with an advisory opinion of the Commission,
notwithstanding that after such act or omission has occurred, such opinion
is amended, rescinded, or determined by judicial or other authority to be
invalid for any reason.
E. FDCPA claims cannot be premised upon proofs of claims or requests for
relief from the automatic stay filed in a bankruptcy proceeding
Baldwin v. McCalla, Raymer, Padrick, Cobb, Nichols & Clark, L.L.C., 1999 U.S.
Dist. LEXIS 6933, No. 98 C 4280, 1999 WL 284788 (N.D. Ill. Apr. 26, 1999), is an oft
cited case that addresses the issue of whether FDCPA claims are actionable when based
upon an alleged violation of a bankruptcy matter. These courts hold that it is not
available. (See, e.g., Rice Etherly v. Bank One (In re Rice Etherly), 336 B.R. 308 (Bankr.
E.D. Mich. 2006); Walls v. Wells Fargo Bank, N.A., 255 B.R. 38, 2000 U.S. Dist. LEXIS
15381 (E.D. Cal. 2000) (affirmed by Walls v. Wells Fargo Bank, N.A., 276 F.3d 502 (9th
Cir. 2001)) (finding preclusion); Wehrheim v. Secrest, 2002 U.S. Dist. LEXIS 19020,
2002 WL 31242783, (S.D.Ind. Aug. 16, 2002) (same); Degrosiellier v. Solomon &
Solomon, P.C., 2001 U.S. Dist. LEXIS 15254, 2001 WL 1217181 (N.D.N.Y. Sept. 27,
2001) (same); Diamante v. Solomon & Solomon, P.C., 2001 U.S. Dist. LEXIS 14818,
2001 WL 1217226 (N.D.N.Y. Sept. 18, 2001) (same); Gray-Mapp v. Sherman, 100 F.
Supp. 2d 810 (N.D.Ill. 1999) (same)). This is the majority view.
In cases such as Baldwin, Walls, and Diamante, courts find support for their
holdings in the decision of the United States Supreme Court in Kokoszka v. Belford, 417
U.S. 642, 41 L. Ed. 2d 374, 94 S. Ct. 2431 (1974). In Kokoszka, the Supreme Court was
called upon to make a decision between conflicting principals of the Consumer Credit
Protection Act (the "CCPA"), the predecessor statute to the FDCPA, and bankruptcy law.
The Supreme Court held that the garnishment limiting provisions of the CCPA could not
be relied upon to upset the bankruptcy trustee's decision to treat an income tax refund as
property of the estate. In support of its holding, the Supreme Court noted that while the
CCPA sought to prevent consumers from entering bankruptcy, if bankruptcy did occur,
the debtor's protections and remedies lied exclusively within the bankruptcy act, (the
predecessor to the bankruptcy code). Kokoszka, 417 U.S. at 650; Diamante, 2001 U.S.
Dist. LEXIS 14818, 2001 WL 1217226 at *4 (citing Kibler v. WFS Fin., Inc., 2000 U.S.
Dist. LEXIS 19131, 2000 WL 1470655 (C.D. Cal. Sept 13, 2000) at *9). Accordingly,
the Court refused to allow plaintiff to rely on the CCPA to set aside a decision made by
the trustee.
The FDCPA is the successor statute to the CCPA. Both statutes share the purpose
of protecting consumers form unfair practices. However, as held in Kokoszka, those who
have entered bankruptcy proceedings must find all protections and remedies within the
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confines of bankruptcy law. When dismissing FDCPA claims in reliance on Kokoszka, it
is reasoned that if The Congress did not intend that the CCPA interfere with the
bankruptcy scheme, it similarly did not intend any interference by way of the FDCPA.
Logically then, Kokoszka provides analogous Supreme Court precedent for holding that
an FDCPA claim based upon a bankruptcy matter is barred on the ground that the
consumer's remedies in such situations lie exclusively within the Bankruptcy Code.
FRAUD LITIGATION - DEFENSES
A. Plaintiff has not sufficiently stated a claim for fraud under Fed. R. Civ. P.
9(b).
"The Sixth Circuit reads this rule liberally, however, requiring a plaintiff, at a
minimum to 'allege the time, place, and content of the alleged misrepresentation on
which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants;
and the injury resulting from the fraud.'" Coffey v. Foamex L.P., 2 F.3d 157, 161-162
(6th Cir. 1993). Rule 9 is also balanced against Rule 8, which requires pleadings to be
"simple, concise and direct." With both rules in mind, the Sixth Circuit has noted that,
"allegations of fraudulent misrepresentation[s] must be made with a sufficient
particularity and a sufficient factual basis to support an inference that they were
knowingly made." Advocacy Organization for Patients and Providers v. Auto Club Ins.
Ass'n, 176 F.3d 315, 322 (6th Cir. 1999).
B. Has plaintiff plead the required elements?
Under Michigan law, the claim of fraudulent misrepresentation requires the Plaintiff to
show that:
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confines of bankruptcy law. When dismissing FDCPA claims in reliance on Kokoszka, it
is reasoned that if The Congress did not intend that the CCPA interfere with the
bankruptcy scheme, it similarly did not intend any interference by way of the FDCPA.
Logically then, Kokoszka provides analogous Supreme Court precedent for holding that
an FDCPA claim based upon a bankruptcy matter is barred on the ground that the
consumer's remedies in such situations lie exclusively within the Bankruptcy Code.
FRAUD LITIGATION - DEFENSES
A. Plaintiff has not sufficiently stated a claim for fraud under Fed. R. Civ. P.
9(b).
"The Sixth Circuit reads this rule liberally, however, requiring a plaintiff, at a
minimum to 'allege the time, place, and content of the alleged misrepresentation on
which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants;
and the injury resulting from the fraud.'" Coffey v. Foamex L.P., 2 F.3d 157, 161-162
(6th Cir. 1993). Rule 9 is also balanced against Rule 8, which requires pleadings to be
"simple, concise and direct." With both rules in mind, the Sixth Circuit has noted that,
"allegations of fraudulent misrepresentation[s] must be made with a sufficient
particularity and a sufficient factual basis to support an inference that they were
knowingly made." Advocacy Organization for Patients and Providers v. Auto Club Ins.
Ass'n, 176 F.3d 315, 322 (6th Cir. 1999).
B. Has plaintiff plead the required elements?
Under Michigan law, the claim of fraudulent misrepresentation requires the Plaintiff to
show that:
i. the defendant made a material representation (Statements of opinion or
intention or statements relating to future performance or prediction of
future events usually are not actionable);
ii. the representation was false;
iii. the defendant knew it was false when it was made or made it recklessly,
without knowledge of its truth as a positive assertion;
iv. the representation was made with the intention to induce reliance by the
Plaintiff;
v. the Plaintiff acted in reliance upon it; and
vi. the Plaintiff suffered injury.
Kassab v. Michigan Basic Prop Ins Assn, 441 Mich 433, 442 (1992)
C. Reliance
i. Actual reliance? (Ex. Brown v. Interbay Funding, LLC, 417 F. Supp. 2d
573 (D.Del. 2006) borrower did not rely on appraisal.)
ii. Reasonable or Justified reliance?No reliance if contradicts loan
documents. (Davis v. G.N. Mortage Corp., 396 F.3d 869 (7
th
Cir. 2005)
borrowers could not rely on oral promise regarding prepayment penalty
when loan documents were contrary.; see also, Trade Fin. Ptnrs, LLC v.
AAR Corp, 573 F.3d 401
D. Borrower is expected to read the loan documents.
Courts examine the extent of the confidence.
E. Promise to do something in the future
As a rule, promises to do something in the future do not constitute fraudulent
misrepresentations. It is also a general rule that statements promissory in their character
that one will do a particular thing in the future are not misrepresentations, but are
contractual in their nature, and do not constitute fraud. Reasons given for this rule are
that a mere promise to perform an act in the future is not, in a legal sense, a
representation, and a failure to perform it does not change its character. Moreover, a
representation that something will be done in the future, or a promise to do it, from its
nature cannot be true or false at the time when it is made. The failure to make it good is
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merely a breach of contract, which must be enforced by an action on the contract, if at
all Kirk v. Vaccaro, 344 Mich 226, 232 (1955)
RESPA DEFENSES TO COMMON CLAIMS
A. Improper Disclosures
Claim: Failure to provide or improper disclosure on Good Faith Estimate (GFE)
and HUD-1 (YSP [yield spread premium] improperly disclosed).
A defense to this claim is that there is no private right of action [N]o private
right of action exists for violations of 2604(c) Johnson v. Equity Title & Escrow Co.,
476 F.Supp. 2d 873 (W.D. Tenn. 2002); see also, Marshall-Ford v. Wells Fargo
Mortgage, 2009 U.S. Dist. LEXIS 77795 (E.D. Mich. August 31, 2009).
B. Qualified Written Request (QWR)
The most common claim in respect to a QWR, is that the servicer failed to
respond to the inquiry. 12 U.S.C. 2605(e). Many inquiries, however, are not qualified
written requests because they do not conform to the requirements found under the statute.
Some considerations when defending a QWR claim is:
1. Whether the borrower made a proper QWR. See, Holland v. GMAC
Mortgage Corp., 2006 U.S. Dist LEXIS 25723 (D.Kan. Apr. 26, 2006)
(alleged QWR did not meet definition under statute because insufficient
detail why plaintiff believed account was in error). RESPA defines a
QWR as including a statement of the reasons for the borrowers belief that
the account is in error. Allowing borrowers to allege error without
justification would encourage frivolous requests for documents at great
expense. Pettie v. Saxon Mortgage, 2009 U.S. Dist. LEXIS 41496 (W.D.
Wash. 2009).
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merely a breach of contract, which must be enforced by an action on the contract, if at
all Kirk v. Vaccaro, 344 Mich 226, 232 (1955)
RESPA DEFENSES TO COMMON CLAIMS
A. Improper Disclosures
Claim: Failure to provide or improper disclosure on Good Faith Estimate (GFE)
and HUD-1 (YSP [yield spread premium] improperly disclosed).
A defense to this claim is that there is no private right of action [N]o private
right of action exists for violations of 2604(c) Johnson v. Equity Title & Escrow Co.,
476 F.Supp. 2d 873 (W.D. Tenn. 2002); see also, Marshall-Ford v. Wells Fargo
Mortgage, 2009 U.S. Dist. LEXIS 77795 (E.D. Mich. August 31, 2009).
B. Qualified Written Request (QWR)
The most common claim in respect to a QWR, is that the servicer failed to
respond to the inquiry. 12 U.S.C. 2605(e). Many inquiries, however, are not qualified
written requests because they do not conform to the requirements found under the statute.
Some considerations when defending a QWR claim is:
1. Whether the borrower made a proper QWR. See, Holland v. GMAC
Mortgage Corp., 2006 U.S. Dist LEXIS 25723 (D.Kan. Apr. 26, 2006)
(alleged QWR did not meet definition under statute because insufficient
detail why plaintiff believed account was in error). RESPA defines a
QWR as including a statement of the reasons for the borrowers belief that
the account is in error. Allowing borrowers to allege error without
justification would encourage frivolous requests for documents at great
expense. Pettie v. Saxon Mortgage, 2009 U.S. Dist. LEXIS 41496 (W.D.
Wash. 2009).
2. Whether the servicer of the mortgage received the QWR. See, Griffin v.
Citifinancial Mortage Co., 2006 U.S. Dist LEXIS 6709 (M.D. Pa. Feb 1,
2006) (servicer had no responsibility to respond to alleged QWR
because request for information sent to attorney hired by the servicer to
represent its interests in plaintiffs bankruptcy case)
3. Whether the servicer complied with provisions.
4. Whether plaintiff waited 60 days after the QWR to file suit.
5. Whether plaintiff properly plead that she suffered damages. (Whether the
plaintiff can prove that she was damaged as a result of the servicers
failure to comply with RESPA.)
6. Whether plaintiff is barred from pursuing the claim. There is a 3 year
statute of limitations period. 12 U.S.C. 2614.
TRUTH IN LENDING ACT (TILA) common claims
A. Generally - TILA grants a right of rescission on certain mortgage loan
transactions in which an obligor offers his or her principle dwelling as security. 15 U.S.C.
1635(a); 12 CFR 226.23(a).
The consumer may exercise the right to rescind until midnight
of the third business day following consummation, delivery of
the notice required by paragraph (b) of this section [notice of
right to cancel], or delivery of all material disclosures, whichever
occurs last. 12 CFR 226.23(a)(3); see also, 15 U.S.C. 1635(f).
The term material disclosures means the required disclosures of the annual percentage
rate, the finance charge, the amount financed, the total of payments, the payment
schedule, and the disclosures and limitations referred to in 226.32(c) and (d). 12 CFR
223.23, FN 48 (2007 edition). Written acknowledgment of receipt of the disclosures
creates a rebuttable presumption that such disclosures were, in fact, delivered. 15 U.S.C.
1635(c).
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B. Statute of limitations - Actions for violation of the TILA must be brought within
one year from the date of the occurrence of the violation. 15 U.S.C. 1640(e) (Any
action under this section may be brought * * * within one year from the date of the
occurrence of the violation). See, Rudisell v. Fifth Third Bank, 622 F.2d 243,246 (6
th
Cir. 1980); Walker v. Michael W. Colton Trust, 33 F.Supp.2d 585 at 590 (E.D. Mich.
1999). The right to rescind provides a longer limitations period. Generally, TILA
provides that borrowers have three business days following the consummation of a loan
transaction to rescind the transaction. 15 U.S.C. 1635. This right of rescission is
extended to three years after consummation of the loan if the lender (1) fails to provide
notice of the right to rescind, or (2) fails to make a material disclosure. 12 C.F.R.
226.23(a)(3).
C. Status Quo Ante - Rescission aims to return parties to the status quo. See
Decision One Mortgage Co., LLC v Fraley, 2000 U.S. App. LEXIS 33881 (6th Cir. Dec.
19, 2000) (explaining that rescission aims to restore parties to the position they held prior
to entering the transaction and that without requiring the tender of the loan proceeds, the
defendants would "receive a windfall and be placed in a far better position than they held
prior to entering the transaction"); Rudisell v. Fifth Third Bank, 622 F.2d 243, 254 (6th
Cir. 1980) (explaining that since rescission is an equitable remedy, the court may require
a debtor to tender first).
NEGLIGENCE AND BREACH OF FIDUCIARY DUTY
A. Common Claims
1. Mortgage lender should not have made loan to the borrower since they cannot
afford it.
2. The lender should have known that stated income on a stated income loan is
false.
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B. Statute of limitations - Actions for violation of the TILA must be brought within
one year from the date of the occurrence of the violation. 15 U.S.C. 1640(e) (Any
action under this section may be brought * * * within one year from the date of the
occurrence of the violation). See, Rudisell v. Fifth Third Bank, 622 F.2d 243,246 (6
th
Cir. 1980); Walker v. Michael W. Colton Trust, 33 F.Supp.2d 585 at 590 (E.D. Mich.
1999). The right to rescind provides a longer limitations period. Generally, TILA
provides that borrowers have three business days following the consummation of a loan
transaction to rescind the transaction. 15 U.S.C. 1635. This right of rescission is
extended to three years after consummation of the loan if the lender (1) fails to provide
notice of the right to rescind, or (2) fails to make a material disclosure. 12 C.F.R.
226.23(a)(3).
C. Status Quo Ante - Rescission aims to return parties to the status quo. See
Decision One Mortgage Co., LLC v Fraley, 2000 U.S. App. LEXIS 33881 (6th Cir. Dec.
19, 2000) (explaining that rescission aims to restore parties to the position they held prior
to entering the transaction and that without requiring the tender of the loan proceeds, the
defendants would "receive a windfall and be placed in a far better position than they held
prior to entering the transaction"); Rudisell v. Fifth Third Bank, 622 F.2d 243, 254 (6th
Cir. 1980) (explaining that since rescission is an equitable remedy, the court may require
a debtor to tender first).
NEGLIGENCE AND BREACH OF FIDUCIARY DUTY
A. Common Claims
1. Mortgage lender should not have made loan to the borrower since they cannot
afford it.
2. The lender should have known that stated income on a stated income loan is
false.
3. The lender should have known that property value was inflated.
4. The lender should have placed borrowers best interests first.
B. Defenses
1. Lenders are not required to watch out for the best interests of the borrower.
The relationship between a lending institution and its borrower-client is not
fiduciary in nature. A commercial lender is entitled to pursue its own
economic interests in a loan transaction. This right is inconsistent with the
obligations of a fiduciary which require that the fiduciary knowingly agree to
subordinate its interests to act on behalf of and for the benefit of another.
Nymark v. Heart Federal Savings & Loan Assn. 231 Cal.App.3d 1089, 1093,
fn.1. (1991)
2. Borrower has choice to take the loan; borrower also has duty not to submit
false information (e.g., income) to lender on a 1003
3. An agreement to repay what is already owed is not consideration
4. An oral agreement cannot trump a written agreement
5. An implied agreement cannot contradict a written agreement
6. Loan documents are also helpful to defend these types of claims and are found
in standard mortgage clauses such as the following:
Borrower Not Released; Forbearance By Lender Not a Waiver.
Extension of the time for payment or modification of amortization of the
sums secured by this Security Instrument granted by Lender to Borrower
or any Successor in Interest of Borrower shall not operate to release the
liability of Borrower or any Successors in Interest of Borrower. Lender
shall not be required to commence proceedings against any Successor in
Interest of Borrower of to refuse to extend time for payment of otherwise
modify amortization of the sums secured by this Security Instrument by
reason of any demand made by the original Borrower or any Successors in
Interest of Borrower. Any forbearance by lender in exercising any right or
remedy including, without limitation, Lenders acceptance of payments
from third persons, entities or Successors in Interest of Borrower or in
amounts less than the amount then due, shall not be a waiver of or
preclude the exercise of any right or remedy.
[found generally in paragraph 12 of a standard mortgage]

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