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Sherk v. Countrywide Home Loans

August 5, 2009


The opinion of the court was delivered by: Savage, J.


In this action arising out of a mortgage transaction in connection with the purchase of a new home and a subsequent refinancing, the plaintiffs primarily allege that they were induced to enter the transaction by false promises and that the terms of the loans were different than promised. In their second amended complaint naming eight defendants, they assert a federal cause of action against two defendants and two claims under Pennsylvania law.*fn1 The defendants have moved, under Fed. R. Civ. P. 12(b)(6), to dismiss the second amended complaint for failure to state a claim.

After realizing that their federal statutory claims under the Truth in Lending Act, as amended by the Home Ownership and Equity Protection Act, ("TILA")*fn2 and the Real Estate Settlement Procedures Act ("RESPA")*fn3 were barred by the statute of limitations, the plaintiffs attempt to salvage their federal action by continuing to assert a claim under the Federal Debt Collection Practices Act ("FDCPA")*fn4 against the assignees of the mortgage. They seek to create a federal hook to keep this action asserting state causes of action in this court. Their attempt fails as a matter of law and the federal claim must be dismissed. Rather than decline supplemental jurisdiction over the state law claims, we shall consider and dismiss them also because they cannot withstand the defendants' Rule 12(b)(6) challenges. Therefore, the motions to dismiss will be granted and this action will be dismissed.

Factual Background*fn5 and Procedural History

On December 15, 2005, the plaintiffs, Stewart and Stacy Sherk ("Sherks"), entered into a loan transaction ("2005 loan") with Countrywide Home Loans, Inc. ("Countrywide") to finance the purchase of a new home from Gambone Construction Company ("Gambone"). In connection with the loan, they executed a mortgage and note. The Sherks refinanced this loan on June 1, 2006 ("2006 loan").*fn6

Countrywide sold the 2006 mortgage to HSBC Bank USA, N.A. ("HSBC") and Alt-A Securities Mortgage Loan Trust ("Alt-A"). Id. ¶¶ 76, 79, 80.*fn7 After the Sherks defaulted on the loan, HSBC and Alt-A initiated a mortgage foreclosure action in state court on February 19, 2008. After default judgment was entered, the property was sold at a foreclosure sale on June 25, 2008. The Sherks then filed this action.

The plaintiffs assert four causes of action arising out of the financing of the purchase of a new home and the later refinancing of that loan. The only federal cause of action is brought under the FDCPA against HSBC and Alt-A, who foreclosed on the mortgage. The remaining claims are brought under Pennsylvania state law. The Sherks seek: (1) the "[r]eturn of any money given by [the Sherks] to anyone, including Defendants, in connection with the transaction";*fn8 (2) "forfeiture and return of loan proceeds"; (3) statutory, actual, compensatory, treble, and punitive damages; and (4) attorneys fees and expenses.*fn9

The first cause of action, which is against all defendants, is brought under Pennsylvania's Unfair Trade Practices and Consumer Protection Law ("UTPCPL").*fn10 After listing prohibited practices recited in the statute without any factual content, the Sherks allege as "additional violations" of the UTPCPL violations of TILA and RESPA. These claims had previously been stated as independent causes of action in the original and the first amended complaint.*fn11

The second and third causes of action are against HSBC and Alt-A, as the "foreclosing entity" and the "additional foreclosing entity," respectively. The second count, brought under the FDCPA, is the only federal cause of action asserted in this action. The third count is brought under Pennsylvania's Fair Credit Extension Uniformity Act ("FCEUA").*fn12 The fourth cause of action is against Gambone only for fraud and fraudulent misrepresentation.*fn13

The complaint named "John Does 1-10" as defendants. Other than in the section identifying the parties, the John Does are not referenced in the complaint. They are not mentioned in any of the factual allegations or the various counts. Nor are they connected to any named party. In short, there are no acts or omissions attributed to the "John Does."

In an incoherent and sometimes incomprehensible second amended complaint containing innumerable grammatical errors and misspellings, the Sherks make contradictory and confusing allegations. The following summarizes the crux of their allegations.

The Sherks allege that they were promised certain loan terms to purchase a new home constructed by Gambone. When the original property was no longer available,*fn14 the

Sherks "were forced" to purchase a more expensive lot, because they "could not afford to lose their down payment" of "approximately $15,000 - $20,000." 2d Am. Compl. ¶¶ 29-30, 35-37. Then, the "Mortgage Brokers*fn15 advised [them] that the terms of their loan would be different than originally promised." Id. ¶¶ 38-40.*fn16 Rather than $2,300 per month, the Sherks learned that their monthly payments would be $3,400, "containing payments toward interest only." Id. ¶ 40. Contrary to their allegation that they could not afford to lose their down payment, the Sherks aver that they advised the mortgage brokers that they "would be canceling the loan as the newly proposed loan was long-term unaffordable and of no benefit as interest only." Id. ¶ 41.

According to the Sherks,"Mortgage Brokers promised to refinance [the Sherks] out of the loan about one (1) month later (in January 2006) into a lower monthly payment, similar to what was originally promised." Id. ¶ 42. The Sherks relied on this "verbal agreement,"*fn17 and committed themselves to the 2005 loan. Id. ¶¶ 43-44, 47, 57. They contend that Countrywide and the mortgage broker defendants were "plac[ing] [them] in a loan that could ultimately be repaid." Id. at 44.

In June 2006, the Sherks refinanced the December 2005 loan. The new mortgage reduced the monthly payments to $2,700. Id. ¶ 52. The Sherks complain that the new monthly payments were "higher than the [$2,300] monthly payments [the Sherks] had been promised and still interest only despite Mortgage Broker's promise." Id. The Sherks reiterate that both Countrywide and the mortgage broker defendants "knew or should have known that the [sic] both the purchase and refinance loans were unaffordable to the [Sherks]." Id. ¶ 56; see also id. ¶ 59 (alleging that it "was represented" to the Sherks by an unspecified party that "the loan was to be affordable to [them]").

The Sherks also allege that they were forced to pay taxes that should have been included in the mortgage payments. They became aware of this when they "were personally served by Sheriff [sic] with notice of a real estate tax deficiency," which occurred "[i]n or around January 2007." Id. ¶¶ 53, 74. They do not state the amount of this deficiency, nor do they clarify whether the unpaid taxes cover the periods of both the 2005 and 2006 loans. According to the Sherks, they "were required to use their 401k [sic] and pensions to attempt to keep up with all property related payments," presumably including the deficient taxes. Id. ¶ 54.

Initially, the Sherks claim that, "[d]espite Mortgage Broker promising that every loan*fn18 would include [the Sherks'] real estate taxes," Countrywide advised them after they were served with the notice of deficiency that "Mortgage Broker had erred in failing to include taxes in the mortgage." Id. ¶ 53. The Sherks do not allege when or how such a promise was made. Indeed, it is not clear whether the mortgage included a provision for the payment of taxes, as the Sherks later allege that "[a]s part of [their] mortgage, an escrow account was created to pay [the Sherks'] taxes," but Countrywide "failed to pay [these] taxes as the terms of the mortgage required." Id. ¶¶ 73, 75.

Finally, with respect to the mortgage, the Sherks allege that a number of fees, including a "Yield Spread Premium," were not properly disclosed to them. See id. ¶¶ 66- 68. Despite asserting that they entered into the loan transaction to purchase a more expensive property to avoid losing their down payment, the Sherks contend that if all information had been properly disclosed and explained to them, "the loans would not have closed, or, if they did, they would have closed upon more beneficial terms." Id. ¶ 62; see also id. ¶ ...

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