The opinion of the court was delivered by: Juan R. Sanchez, J.
This case concerns the consequences of a lender's failure to honor a borrower's timely exercise of the right to rescind a mortgage refinancing loan under the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., more than six years ago.
The borrowers, Defendants Sarah and Eric Baker, rescinded the loan in question by sending a rescission notice to the lender, WMC Mortgage Corp. (WMC Corp.), within three business days of the loan closing, as permitted under TILA. WMC Corp. received the rescission notice, but proceeded to fund the loan anyway and then sold it to a third party. For their part, the Bakers made initial efforts to enforce their rescission by communicating with the broker of the loan, but when they began receiving communications about the debt from the loan's new servicer-which made clear the rescission had not been honored-they failed to respond. The Bakers did not seek to enforce their rescission in court pursuant to TILA, although they had a right to do so and to recover damages for the lender's failure to honor the rescission.
When WMC Corp. reacquired the Bakers' loan within the first year after the closing, it also did not seek judicial intervention concerning its rights and obligations with respect to the rescission, but continued to ignore it. Instead, the mortgage securing the loan was assigned to another party for the purpose of pursuing a foreclosure action, which the Bakers defended on the basis that the loan had been rescinded. Only after the foreclosure action was voluntarily discontinued without prejudice (for reasons that remain unknown) did WMC Corp.'s successor, Plaintiff WMC Mortgage LLC (WMC), bring the instant action to recover on the note, almost five years after the loan closing.
WMC sues the Bakers for declaratory relief and damages. WMC seeks a declaration that if the Bakers rescinded the loan, they must return the loan principal to WMC, and if they did not rescind the loan, they are in breach of the note due to their failure to make any payments thereunder. In the event the Bakers did not rescind the loan, WMC seeks damages for breach of the loan or, alternatively, under a theory of unjust enrichment.
The Bakers contend their timely submission of a rescission notice voided the entire loan transaction and WMC's efforts to recover for breach of the loan are time-barred. The Bakers also assert counterclaims against WMC for violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., the Pennsylvania Fair Credit Extension Uniformity Act (FCEUA), 73 P.S. § 2270.1 et seq., TILA, and the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), 73 P.S. § 201-1 et seq., and to quiet title to and discharge all liens on their property at 6370 Del Haven Road, Bangor, Pennsylvania.
After a bench trial, this Court issues the following findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a). Although this Court disagrees with the Bakers that WMC's claims are time-barred, for the reasons set forth below, the Court finds the Bakers rescinded the loan and the rescission should be enforced pursuant to TILA's default procedures. As a result, the Court will order WMC to terminate its security interest in the Bakers' property, following which the Bakers must return to WMC the principal amount of the loan, less any finance or other charges disallowed under TILA. Because this Court concludes WMC violated both TILA and the UTPCPL by failing to honor the Bakers' timely submitted three-day rescission notice, the Court will also award statutory and actual damages to the Bakers. Finally, consistent with the Court's conclusion that WMC must terminate its security interest in the Bakers' property under TILA, the Court will also enter judgment for the Bakers on their quiet title counterclaim.
In June 2005, the Bakers borrowed $155,600.00 from WMC Corp. to
refinance the existing mortgage on their home, which was held by USAA
Federal Savings Bank (USAA). The Bakers arranged the loan via
telephone through a mortgage broker, First Guarantee.*fn1
At the time of the transaction, the Bakers owed $91,947.42 on
their mortgage loan from USAA, and owed $18,919.00 on a home equity
loan from Equity One.
The closing for the WMC Corp. loan was held at the Bakers' home on the evening of June 3, 2005, a Friday. The closing was conducted by Ralph Lewis, whom the Bakers believed was representing First Guarantee, although he was not the person with whom they had arranged the loan. Mrs. Baker signed the loan application at the closing. She also signed an Adjustable Rate Note (the Note) in favor of WMC Corp. secured by a mortgage (the Mortgage) on the Bakers' home. Both Mr. and Mrs. Baker signed the Mortgage securing the loan.*fn2
The Note obligated Mrs. Baker to make monthly payments of principal and interest to WMC Corp. in the initial amount of $995.33. For the first two years of the loan, the interest rate was fixed at 7.25 percent annually; however, beginning in July 2007, the interest rate was subject to change every six months, up to a maximum of 13.75 percent.
At the closing, Lewis provided the Bakers with numerous documents, including a pre-printed "Notice of Right to Cancel," which advised the Bakers of their right under federal law to cancel the transaction within three business days from the date of the transaction and further advised:
If you cancel the transaction, the mortgage/lien/security interest is also cancelled. Within 20 CALENDAR DAYS after we receive your notice, we must take the steps necessary to reflect the fact that the mortgage/lien/security interest on your home has been cancelled, and we must return to you any money or property you have given us or to anyone else in connection with this transaction.
You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property.
If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address below. If we do not take possession of the money or property within 20 CALENDAR DAYS of your offer, you may keep it without further obligation.
Ex. D-1. The Bakers reviewed the loan documents during the weekend following the closing and decided they did not want to go through with the loan because of the variable interest rate after the first two years. On Tuesday, June 7, 2005, Mrs. Baker signed and dated the Notice of Right to Cancel under the words "I WISH TO CANCEL." Id. She mailed the Notice of Right to Cancel to WMC Corp. at the Burbank, California, address provided on the form the same day. Id.
Although WMC Corp. received the signed Notice of Right to Cancel, it did not cancel the transaction but instead proceeded to fund the loan. On June 15, 2005, after receiving the Notice of Right to Cancel, WMC Corp. wired $155,484.78 to its settlement agent, Industry Partners Title, LLC (Industry Partners), for disbursement. Tr. vol. 1, 90-91; Ex. P-16A.
At trial, Diane Taylor testified she thought WMC Corp. had reason to believe the Bakers wanted to proceed with the loan at the time WMC Corp. funded it, notwithstanding their cancellation notice, but there is no evidence the Bakers ever communicated such a desire to anyone. Taylor explained WMC's practice upon receiving a cancellation notice was to contact the broker, who typically had the relationship with the borrower, so the broker could clarify whether the borrower wanted to move forward with the loan. Tr. vol. 1, 97-99, 130. However, Taylor conceded she does not have personal knowledge of any communications between WMC Corp. and First Guarantee about the Bakers' loan, id. at 148, 152, and no evidence of such communications was admitted at trial.*fn3 Moreover, Mrs. Baker denied ever telling anyone at First Guarantee or WMC Corp. she wanted to "undo" her cancellation of the loan transaction. Tr. vol. 2, 160, Feb. 9, 2011. The Court finds Mrs. Baker's testimony on this issue credible. Thus, the Court finds WMC Corp. did not have reason to believe the Bakers wanted to proceed with the loan at the time it funded the loan.
About two weeks after the June 3 closing, the Bakers received a Federal Express package containing six checks from Industry Partners dated June 15, 2005. The checks sent directly to the Bakers accounted for about $28,000 of the loan proceeds. Four of the checks were made out to creditors of the Bakers, one check was made out to the Bangor Area School District, and one check was made out to Mrs. Baker personally.*fn4 The Bakers did not cash or send on to their creditors any of the checks they received from Industry Partners in June 2005.*fn5
Industry Partners disbursed the balance of the loan proceeds directly to the Bakers' remaining creditors. Industry Partners sent checks in the amounts of $91,947.42 and $18,919.00, both dated June 15, 2005, to USAA and Equity One, respectively. See Tr. vol. 2, 218; Defs.' Notice of Lodging of Originals of Trial Ex. P-8C (ECF No. 61) (June 8, 2005, cover letter from Industry Partners enclosing checks indicating "[t]he checks for any mortgages you are paying off have been sent directly to your mortgage company(s)"); Ex. P-8D. About two weeks later, on June 30, 2005, Industry Partners issued two checks to the County of Northampton, one in the amount of $791.97 and the other in the amount of $4,327.81. Ex. P-8D. It appears Industry Partners sent these checks directly to the County, as Mrs. Baker testified she did not receive the checks or send them to the County, but saw them for the first time when they were produced to her lawyer in 2009 in connection with the foreclosure proceedings in state court. Tr. vol. 2, 207-08.
In late-June, having received the checks from Industry Partners, and having heard nothing from WMC Corp. in response to her cancellation notice, Mrs. Baker called First Guarantee and spoke with either Stacy or Clarissa about the rescission, asking whether the Bakers should return the checks. Mrs. Baker made additional calls to First Guarantee about the rescission and faxed the Notice of Right to Cancel to First Guarantee, which was unaware of the Notice.*fn6 She did not contact WMC Corp. about the rescission after mailing the Notice of Right to Cancel. Tr. vol. 1, 210-11.
On July 29, 2005, WMC Corp. sold the Bakers' loan to Goldman Sachs for $159,999.47. Tr. vol. 1, 106-07; Ex. P-16B. In September 2005, Litton Loan Servicing (Litton) began servicing the loan, which was already past due. Tr. vol. 1, 48. Litton thereafter attempted to contact Mrs. Baker about the loan by mail and by phone.
On September 26, 2005, Litton sent Mrs. Baker a "Validation of Debt Notice," notifying her that Litton was collecting a $158,343.76 debt she owed to Goldman Sachs Whole Loans, and advising that Litton would assume the debt to be valid unless she disputed its validity within 30 days. Ex. P-14A. Mrs. Baker did not respond to the notice. Tr. vol. 1, 35, 211.
Also in September 2005, Litton began calling the Bakers regarding the loan at their home. Between September 2005 and June 2007, Litton placed more than 100 calls to the Bakers' home, but never spoke with anyone.*fn7
In October 2005, Litton sent Mrs. Baker a "Notice of Default and Intent to Accelerate" and the "Act 91 Notice" required under Pennsylvania law. The Notice of Default stated Mrs. Baker's mortgage loan was in default and advised that, to cure the default, she would have to pay the $3,085.53 then due and owing on her note and mortgage. Ex. P-14B. The letter also advised Mrs. Baker that failure to cure the default within 45 days would result in acceleration of the maturity date of the note and referral of the property for foreclosure. Id. The Act 91 Notice advised Mrs. Baker of the default, how to cure it, and the consequences should she fail to cure it, and provided information regarding the Homeowner's Emergency Mortgage Assistance Program. Ex. P-14C. In addition, Litton sent Mrs. Baker other communications regarding the loan, including billing statements and letters regarding a possible foreclosure in November and December 2006 and January 2006. Exs. P-14D to P-14H; Tr. vol. 1, 39-43.
Although Mrs. Baker did not recall receiving any particular notice from Litton, Mr. Baker acknowledged he and his wife received letters from Litton claiming they owed a debt on their home. The Bakers kept the letters in a file, recognizing they might be important, but did not respond to any of them, as they had sent their rescission notice to WMC and had communicated about the matter with the broker, and they did not believe they had any business with Litton. Tr. vol. 1, 211, 214-16, 252-54, Tr. vol. 2, 3-4.
In March 2006, Industry Partners issued a series of new checks to four of the Bakers' creditors. Ex. P-8D. These new checks were written to the same creditors, in the same amounts, as the checks Industry Partners had previously issued on June 15, 2005. Id. Unlike the June 2005 checks, which were sent to the Bakers, who kept them, the March 2006 replacement checks were sent to the creditors, who cashed them.*fn8
In April 2006, Mr. Baker spoke with Clarissa from First Guarantee, who threatened to put a "lockbox" on the Bakers' house. Tr. vol. 2, 4, 177, 180. Thereafter, on April 19, 2006, Mrs. Baker faxed a copy of the Notice of Right to Cancel she had signed on June 7, 2005, to Dave Skinner, Vice President, Credit and Operations, at First Guarantee. Tr. vol. 2, 177, 180-81; Ex. D-5. The fax referenced the "difficult time" the Bakers had experienced in working with First Guarantee and expressed Mrs. Baker's hope that communication with Skinner would "continue until things are resolved." It does not appear, however, that the Bakers had any further interactions with Skinner.*fn9
On April 22, 2006, WMC Corp. repurchased the Bakers' loan from Goldman Sachs for $164,985.57. Tr. vol. 1, 107, 109; Ex. P-16C. Taylor testified WMC Corp. was required to buy the loan back for "early payment default" ...