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August 14, 2000


The opinion of the court was delivered by: Diamond, District Judge.


Presently before the court is a motion to dismiss plaintiffs' amended class action complaint*fn1 pursuant to Fed.R.Civ.P. 12(b)(6) filed by defendant Federal Home Loan Mortgage Corp. ("Freddie Mac" or "FHLMC"). For the following reasons, the motion will be granted, and all claims against Freddie Mac will be dismissed.

Standard of Review

Under Fed.R.Civ.P. 12(b)(6), a plaintiff's complaint must be dismissed for failure to state a claim if a defendant demonstrates "beyond a doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In ruling on a 12(b)(6) motion, the court is required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, and to view them in the light most favorable to the non-moving party. See Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994). Moreover, in assessing motions to dismiss, courts must be cautious, "particularly where granting such a motion would terminate the litigation before the parties have had their day in court." Kiser v. General Electric Corp., 831 F.2d 423, 427 (3d Cir. 1987), cert. denied, 485 U.S. 906, 108 S.Ct. 1078, 99 L.Ed.2d 238 (1988).

Factual Background

On March 22, 1974, plaintiffs, Walter Paslowski and his wife Janice Paslowski (the "Paslowskis"), entered into a mortgage agreement with South View Savings & Loan Association ("South View") obligating them to repay $26,000.00 for a loan at an interest rate of 8.5% ver annum. Complaint ¶ 10. Contemporaneously, the Paslowskis executed a bond with South View. Id. The mortgage agreement and bond required the Paslowskis to repay their mortgage debt in 300 monthly payments of $210.00 for principal and interest. over the course of 25 years. Id. at ¶ 11. In addition to the monthly payment for interest or principal, the Paslowskis were required under the mortgage and bond to pay South View monthly installments equal to one-twelfth of the annual real estate taxes levied on the property. Id. at ¶ 12.*fn2

In late 1983, Community Savings Association ("Community") acquired the Paslowskis' mortgage and other South View mortgages when it consolidated with South View. Id. at ¶ 17. On April 1, 1987, Freddie Mac*fn3 purchased the Paslowskis' mortgage and other Community mortgages. Id. at ¶. 19. Although Freddie Mac purchased the mortgage loan, Community, pursuant to a "seller/servicer" agreement with Freddie Mac, continued to control all aspects of the mortgage servicing operations of the Paslowskis' mortgage until November 16, 1994, when Freddie Mac entered into a seller/servicer agreement with Standard Mortgage Corporation of Georgia ("Standard"), to service the Paslowskis' mortgage.*fn4

On September 8, 1998, the Paslowskis fully prepaid their mortgage which was satisfied on November 10, 1998. Id. at ¶ 22.

Plaintiffs' amended complaint challenges numerous aspects of the mortgagees' administration of the mortgage loan agreement First, the complaint alleges that South View breached its contractual obligations contained in the loan documents by ceasing to capitalize its mortgagors' bill payments and instead establishing tax and insurance "escrow" accounts into which it placed monthly bill payments belonging to the Paslowskis and other mortgagors, which it later removed to pay bills when they became due. Id. at ¶ 26. The complaint alleges that Community continued this improper practice of placing bill payments in escrow rather than capitalizing them, and that, in 1984, Community began paying mortgagors interest at the rate of 1 1/2% on money held in escrow, a rate significantly lower than the effective rate of interest under capitalization. Id. at ¶ 28. The complaint alleges that these practices continued after Freddie Mac purchased the loan in 1987. Id. at ¶ 29.

Second, the complaint alleges that, on numerous occasions, South View and its successors underestimated the total annual costs of the Paslowskis' tax bill, so that their payments were insufficient. To cover the shortfalls in the tax payments, the complaint alleges that South View and its successors loaned money to the Paslowskis and added the loans to their mortgage debt, without giving them any notice as required under the loan documents or an opportunity to cover the shortfalls. Id. at ¶¶ 31-36.

Third, the complaint alleges that South View, Community, and Freddie Mac charged the plaintiffs interest on loan advances for time periods that predated the date of distribution. Id. at ¶¶ 37-39.

Fourth, the complaint alleges that after Standard began servicing Freddie Mac mortgages in 1994, it failed to pay Community mortgagors interest until March of 1996 for interest that had accrued during 1995 on money held in escrow, in violation of Community's 1984 agreement to pay escrow interest to its mortgagora "at year end, and on a yearly basis thereafter." Id. at ¶ 41.

Finally, the complaint alleges that the defendants concealed from plaintiffs the fact that Freddie Mac acquired their mortgage in 1987. Id. at ¶ 43.

Based on the foregoing allegations, the complaint asserts eight causes of action, six of which name Freddie Mac as defendant.*fn5 Count I asserts a claim for breach of contract based on the failure to "capitalize" mortgagor's tax and insurance payments, by over billing mortgagors to maintain the tax and insurance escrow accounts, and by paying lower interest on the escrowed bill payments. Count II asserts a breach of contract claim for adding loan advances to unpaid mortgage balances without notice, for charging interest for loan advances predating the date of disbursement, and for untimely payment of interest accruing in 1995 on money held in escrow. Count III asserts a claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. ยงยง 201-1 et seq. (the "CPL"), based on false representations that the mortgage contracts authorized the placement in escrow of bill payments made by mortgagors and that the mortgagors could be charged for the maintenance of those escrow accounts. Count IV also asserts a claim under the CPL based on the mortgagees' concealment of the fact that they added loan advances to plaintiffs unpaid mortgage balances without notice, and that they charged plaintiffs interest for loan advances that predated the dates in which the loan advances were disbursed. Count V alleges a violation of the CPL based on concealment of the fact that Freddie Mac was the ...

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