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Bowmer v. Novastar Mortgage Funding Trust

May 5, 2010

JANELLE BOWMER
v.
NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-1; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; AND JPMORGAN CHASE BANK, N.A. (AS TRUSTEE FOR NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2006-1)



The opinion of the court was delivered by: O'neill, J.

MEMORANDUM

Plaintiff filed her first amended complaint on March 10, 2009 seeking rescission of her home mortgage refinancing transaction with NovaStar Home Mortgage, Inc. pursuant to the Truth in Lending Act, 15 U.S.C. § 1601, et seq.*fn1 The remaining defendants have moved to dismiss plaintiff's first amended complaint and I also have before me plaintiff's response and defendants' reply. I will deny defendants' motion.

BACKGROUND

Plaintiff owns a home on Farrington Road in Philadelphia, Pennsylvania. In late 2005, she received a letter from NovaStar Home Mortgage containing an offer to refinance her house and obtain some cash. She contacted NovaStar Home Mortgage and was sent a Truth in Lending Disclosure Statement*fn2 dated November 16, 2005, which said the estimated annual percentage rate on her home loan would be 9.656% and the estimated total finance charge would be $198,018.88. A second TILDS dated January 5, 2006 stated that the estimated APR for the loan was 10.819% and that the estimated total finance charge was $255,409.28. A third TILDS dated January 9, 2006 stated that the APR for the loan was 10.736% and the total finance charge was $254,037.54. The amounts on the third TILDS did not indicate they were estimates.

Plaintiff also was given a Pennsylvania Application Disclosure dated January 9, 2006, that listed various non-refundable application costs such as a $350.00 appraisal fee, a $33.90 credit report fee and a $1,183.75 "Other Third Party Fee."

In January 2006, plaintiff received a loan of $111,600 from NovaStar Home Mortgage. NovaStar Home Mortgage then transferred plaintiff's mortgage to defendant Mortgage Electronic Registration Systems, Inc. In or about April 2006, the mortgage was assigned to NovaStar Mortgage Funding Trust, Series 2006-1 and JP Morgan Chase acted as trustee for the Trust.*fn3

Plaintiff paid off the mortgage in or about February 2008. In or about October and November 2008, plaintiff sent letters to defendants rescinding her mortgage transaction. When the transaction was not rescinded, plaintiff filed this action.

STANDARD OF REVIEW

Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Typically, "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations," though plaintiff's obligation to state the grounds of entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). The complaint must state "'enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary element." Wilkerson v. New Media Tech. Charter School Inc., 522 F.3d 315, 321 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). The Court of Appeals has recently made clear that after Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1955, 173 L.Ed. 2d 868 (2009), "conclusory or 'bare-bones' allegations will no longer survive a motion to dismiss: 'threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.' To prevent dismissal, all civil complaints must now set out 'sufficient factual matter' to show that the claim is facially plausible." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (quoting Iqbal, 129 S.Ct. at 1949). The Court also set forth a two part-analysis for reviewing motions to dismiss in light of Twombly and Iqbal: "First, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a 'plausible claim for relief.'" Id. at 210-11 (quoting Iqbal, 129 S.Ct. at 1950). The Court explained, "a complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to 'show' such an entitlement with its facts." Id. (citing Phillips v. County of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008)). "Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not 'show[n]'--'that the pleader is entitled to relief.'" Iqbal, 129 S.Ct. at 1949.

ANALYSIS

TILA is intended to "assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601(a). Further, "[b]ecause the TILA is a remedial consumer protection statute, . . . it should be construed liberally in favor of the consumer." Rossman, 280 F.3d at 390 (internal quotations omitted). The statute "requires creditors to provide borrowers with clear and accurate disclosures of terms," Beach v. Ocwen Federal Bank, 523 U.S. 410, 412, 118 S.Ct. 1408, 140 L.Ed. 2d 566 (1998), and imposes strict liability on creditors who do not, see 15 U.S.C. § 1640(a) ("[A]ny creditor who fails to comply with any requirement imposed under this part . . . with respect to any person is liable to such person.").

TILA and its implementing regulations, known collectively as Regulation Z, require lenders to make a series of "material disclosures"*fn4 to borrowers for transactions such as plaintiff's consumer credit transaction.*fn5 See 15 U.S.C. § 1638 (listing required disclosures); 12 C.F.R. §§ 226.17, 226.18 (requiring disclosures). Specifically, the lender is required to disclose the finance charge, the amount financed and the annual percentage rate. 15 U.S.C. § 1638(a); 12 C.F.R. § 226.18. Furthermore, "[b]ecause the purpose of the TILA is to assure meaningful disclosures, 'the issuer must not only disclose the required terms, it must do so accurately.'" Roberts v. Fleet Bank (R.I.), 342 F.3d 260, 266 (3d Cir. 2003) (quoting Rossman, 280 F.3d at 390-91); Smith v. Chapman, 614 F.2d 968, 977 (5th Cir. 1980) ("A misleading disclosure is as much a violation of TILA as a failure to disclose at all.").

One of TILA's protections affords an obligor the right to rescind any consumer credit transaction . . . in which a security interest . . . is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended . . . until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.

15 U.S.C. § 1635(a); see also 12 C.F.R. § 226.23(a)(3). Thus, failure to disclose or inaccurate disclosure of the proper finance charge, amount financed, APR, total payments or payment schedule constitutes a material violation which entitles the borrower to rescind the loan. Id.; see Seldon v. Home Loan Services, Inc., 647 F. Supp. 2d 451, 460 (E.D. Pa. 2009) ("[A]n inaccurate disclosure, like no disclosure at all, gives rise to a right to rescind."); Brodo v. Bankers Trust Co., 847 F. Supp. 353, 356 (E.D. Pa. 1994). The right to rescind for failure to deliver the rescission information and/or material disclosures expires three years "after the date of consummation of the transaction or upon the sale of the property, whichever occurs first . . . ." 15 U.S.C. § 1635(f); see also 12 C.F.R. § 226.23(a)(3). The consumer may exercise the three-year rescission right against any assignee of the obligation. 15 U.S.C. § 1641(c).

Plaintiff's complaint seeks rescission of the mortgage loan based on three alleged violations of TILA related to defective disclosures. First, she alleges that the Truth in Lending Disclosure Statements she received contained "false, inconsistent, unclear information as to the cost of credit, expressed as an annual percentage rate." Second, she alleges that the TILDS contained "false, inconsistent, unclear information as to the total finance charge." Third, plaintiff argues that the PAD she was given which identified certain non-refundable fees misrepresented her rescission rights. I will address plaintiff's first and second claims in part A and her third claim in part B below.

A. APR and Total Finance Charges

The first TILDS dated November 16, 2005 was signed by plaintiff on December 15, 2005 and discloses:

ANNUAL PERCENTAGE FINANCE CHARGE RATE

The cost of your credit as a ...


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