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Hinchliffe v. Option One Mortgage Corp.

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA


June 16, 2009

JAMES HINCHLIFFE, ET AL.
v.
OPTION ONE MORTGAGE CORPORATION, ET AL.

MEMORANDUM OPINION

Savage, J.

In this action seeking relief for alleged violations of the Truth in Lending Act ("TILA"),*fn1 the Real Estate Settlement Procedures Act ("RESPA"),*fn2 Pennsylvania's Fair Credit Extension Uniformity Act ("FCEUA"),*fn3 and Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL"),*fn4 the defendant Option One Mortgage Corporation ("Option One") has moved for summary judgment, arguing that these statutes do not apply because the plaintiffs, James and Yong Sun Hinchliffe,*fn5 refinanced their residence primarily for business purposes. The parties do not dispute that these statutes cover only personal consumer credit transactions and not commercial ones. Although Hinchliffe asserts that the loan at issue was for personal use, the undisputed facts demonstrate that the loan proceeds were to finance his real estate investments. Therefore, because the statutes relied upon by the Hinchliffes do not apply to the transaction at issue, Option One is entitled to judgment as a matter of law and its motion for summary judgment will be granted.

Factual Background

On September 15, 2006, Hinchliffe borrowed $283,500 from H&R Block Mortgage Corporation.*fn6 The loan was secured by property owned only by him and consisting of four apartments located at 107 National Avenue, Linwood, Pennsylvania (the "Property").*fn7 H&R Block assigned the loan to Option One that same day.*fn8

Prior to signing the loan documents, Hinchliffe knew that the adjustable interest rate was 10.925%. Deposition of James Hinchliffe ("Hinchliffe Depo.") at Tr. 45:17-46:8. Even though he "expected" a 6.75% and "hoped" for a 5.5% rate, he still closed on the loan at the 10.925% interest rate. Id. at 48:2-11. When questioned why he still proceeded and did not decline to sign the loan upon learning that the adjustable interest rate was 10.925%, Hinchliffe testified that he had "already committed [himself] to other obligations," which he later defined as maintaining "[his] other properties and the taxes and holding onto them." Id. at 77:13-14, 23-24.*fn9 After satisfaction of a pre-existing mortgage held by Option One and payment of closing costs, Hinchliffe received $75,940.82 at closing, most of which he spent "paying taxes and maintenance" on another property in the Borough of Trainer. Id. at 79:3-15, 80:6-18.

Procedural History

Almost two years after the closing date of September 15, 2006, the Hinchliffes filed a complaint asserting seventeen (17) causes of action against Option One and unidentified "John Does" in May 2008. After Option One moved to dismiss the Complaint, the Hinchliffes filed a First Amended Complaint followed by an Amended First Amended Complaint ("Amended Complaint"), which reduced the number of the original claims. The remaining four counts assert federal causes of action under TILA and RESPA and state causes of action under Pennsylvania law, the FCEUA and the UTPCPL.

After Option One answered the amended complaint and asserted several affirmative defenses, it moved for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c),*fn10 which the Hinchliffes opposed. While that motion was pending and after discovery was completed, Option One filed its motion for summary judgment, asserting that none of the statutes relied upon by the Hinchliffes apply because the loan was primarily a business transaction. Alternatively, Option One argues that the Hinchliffes' claims are barred by the applicable statute of limitations or must fail because there are no facts of record to support them. Id.*fn11

The Hinchliffes filed an untimely response to Option One's motion for summary judgment.*fn12 First, they argue that Option One's "claims" in its motion "are barred . . . to the extent not raised in its Motion to Dismiss (No. 6) or via its Affirmative Defenses (No. 19)."*fn13

Second, they argue that the loan was primarily consumer in nature because it was secured by the Hinchliffes' residence and because they were provided with a "Truth-in-Lending disclosure and TILA Notice of Right of [sic] Rescind." Id. at 5. Third, they contend that the applicable statute of limitations does not bar claims for recoupment.*fn14 Finally, the Hinchliffes make allegations that do not appear in the Amended Complaint.*fn15

The day after the Hinchliffes filed their untimely opposition, Option One responded in further support of their motion for summary judgment. It noted that the Hinchliffes failed to cite to facts in the record to support their arguments, thus failing to show that there are any material facts in dispute that would preclude summary judgment. Additionally, it pointed out that the fact that the loan was secured by the Hinchliffes' residence does not trump the fact that both Hinchliffes testified that the Property was refinanced to secure funds for Hinchliffe's development properties. Consequently, they argue TILA, RESPA, the FCEUA and the UTPCPL do not apply. Option One further contends that the record is devoid of facts to support the Hinchliffes' claims and that the statute of limitation bars certain of their claims, none of which are for recoupment.

The day after Option One filed its reply memorandum, the Hincliffes filed the transcripts of their deposition testimonies, which apparently are intended as exhibits to their untimely opposition filed two days earlier. Despite plaintiffs' disregard of the requirements for responding to a motion for summary judgment,*fn16 the entire record is considered in deciding Option One's motion for summary judgment.

Summary Judgment Standard

Summary judgment is appropriate if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In examining Option One's motion, we must view the facts in the light most favorable to Hinchliffe, the nonmoving party, and draw all reason-able inferences in his favor. Intervest, Inc. v. Bloomberg, L.P., 340 F.3d 144, 159-60 (3d Cir. 2003).

As the party moving for summary judgment, Option One bears the initial burden of demonstrating that there are no genuine issues of material fact. Fed. R. Civ. P. 56(c). If it has successfully demonstrated this, Hinchliffe cannot rest on the pleadings. To defeat summary judgment, he must come forward with probative evidence establishing the prima facie elements of his claim. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986); Podobnik v. U.S. Postal Serv., 409 F.3d 584, 594 (3d Cir.2005). He must show more than the "mere existence of a scintilla of evidence" for elements on which he bears the burden of production. Andersonv. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). An inference based upon speculation or conjecture does not create a material fact. Robertson v. Allied Signal, Inc., 914 F.2d 360, 382 n. 12 (3d Cir. 1990). Thus, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted).

Discussion

Hinchliffe relies on two federal statutes, TILA and RESPA, and two Pennsylvania statutes, the UTPCPL and the FCEUA. Each of these statutes applies only to consumer credit transactions and not to loans for commercial purposes. In other words, TILA, RESPA, FCEUA, and UTPCPL do not apply to business transactions, such as the extension of credit to develop investment property. 15 U.S.C.A. § 1602(h) (TILA only applies to transactions "primarily [intended] for personal, family, or household purposes"); 15 U.S.C.A. § 1603(1) (TILA does not apply to "credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes"); 12 U.S.C. § 2606(a)(1) (RESPA "does not apply to credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes"); 73 P.S. § 2270.3 (the FCEUA applies only to loans "obtained primarily for personal, family or household purposes"); 73 P.S. § 201-9.2(a) (the UTPCPL applies only to transactions "primarily for personal, family or household purposes").

In order to determine whether the loan was primarily personal or commercial in nature, we must look at the entire transaction and determine the borrower's primary motive for seeking the loan. Gombosi v. Carteret Mortgage Corp., 894 F. Supp. 176, 180 (E.D. Pa. 1995). Hinchliffe has the burden of evidencing his intent and showing that the loan was entered into primarily for personal purposes, as opposed to financing his businesses. Katz v. Carte Blanche Corp., 496 F.2d 747, 751 (3d Cir. 1974); Gombosi, 894 F. Supp. at 180. As Option One points out, he has not done so. The facts in the record - most notably the Hinchliffes' own deposition testimonies - viewed in the light most favorable to Hinchliffe demonstrate that the primary purpose of the loan was business. Specifically, the record shows that the purpose of the loan was to obtain cash to maintain and improve Hinchliffe's development properties.

Hinchliffe does not dispute the record evidence. Rather, he argues that "[n]otwithstanding any other proofs [sic], this loan, on its face, was to be and is a consumer loan intended to be [sic] and was secured by [the Hinchliffe's] principal and, in fact, only residence." Plfs.' Opp. at 5. Hinchliffe's bald contention is contradicted by the undisputed facts. The mortgagor's residing in a part of a predominantly commercial property does not make the mortgage loan a personal loan. In any event, the parties contest whether the Hinchliffes reside in the entire quadplex or just one of the four apartments. Resolution of this dispute is not necessary. For purposes of deciding this motion, we assume the Property is the Hinchliffes' primary residence and no one else lives there.

The facts must be examined to determine if the loan was primarily commercial or personal. See, e.g., Gombosi, 894 F. Supp. at 180 ("Where credit is extended for both personal and business reasons, the mere fact that the transaction has some personal purpose does not automatically render it subject to the provisions of TILA."). Here, the fact that the loan refinanced the property in which the Hinchliffes reside does not itself establish that the primary purpose of the loan was personal rather than business. See Sherlock v. Herdelin, 2008 WL 732146, at *3 (E.D. Pa. Mar. 17, 2008) (Joyner, J.) (courts "have been virtually unanimous in finding that the mere fact that the loan was secured by the family home does not itself" show that the loan was primarily personal).*fn17 In short, in determining whether the loan qualifies for TILA, RESPA , UTPCPL or FCEUA protection, the focus is not on the nature of the property securing the loan, but on the use of the loan proceeds.

Hinchliffe's wife testified that her husband refinanced the Property so that "he can operate his business." Deposition of Yong Sun Hinchliffe ("Y.S. Hinchliffe Depo.") at Tr. 11:2-11. When asked what he did for a living, Hinchliffe discussed his ownership interests in the Borough of Trainer property and other investment properties, which he is developing or in the process of developing. Id. at 19:8-20:1. He was not otherwise employed. Id. at 79:20-21.

Hinchliffe has failed to proffer any evidence, direct or indirect, that the loan was personal rather than commercial.*fn18 See Ocasio v. Ocwen Loan Servicing, LLC, 2009 WL 650244, at *4 (E.D. Pa. Mar. 13, 2009) (Bartle, C.J.) (granting summary judgment because plaintiffs failed to show that the loan was personal in nature). On the contrary, by their own words, they have presented undisputed evidence that the loan was primarily for Hinchliffe's business purposes. Because each of the statutes relied upon by the Hinchliffes apply only to loans intended for personal and not commercial use, Option One is entitled to summary judgment on all claims.*fn19

Conclusion

There is no genuine issue of material fact to be determined by a jury. By his own admission, Hinchliffe refinanced his primary residence to obtain cash to support his investment properties. Therefore, because the loan was intended primarily for commercial purposes, Option One is entitled to judgment as matter of law.


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