Glucksman v. FIRST FRANKLIN FINANCIAL CORP.

Citations: 601 F. Supp. 2d 511; 2009 WL 603402Docket: 1:08-mj-00178

Court: District Court, E.D. New York; March 6, 2009; Federal District Court

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Abraham and Esther Glucksman filed a lawsuit against First Franklin Financial Corporation and Fairfield Financial Mortgage Group, Inc. under the Truth in Lending Act (TILA) and Regulation Z, following the refinancing of their mortgage on March 8, 2006. This refinancing increased their mortgage from $403,750 to $526,000, leading to a significant rise in monthly payments due to an adjustable rate. After falling behind on payments, the Glucksmans received notice of default and foreclosure initiation from First Franklin’s attorneys on December 19, 2007. On January 14, 2008, they sought a declaratory judgment to rescind the refinancing, alleging under-disclosure of finance charges and failure to provide a Notice of Right to Cancel.

First Franklin's motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) was denied. The court emphasized that its role is limited to assessing whether the plaintiffs are entitled to present evidence supporting their claims, not to determine the likelihood of their success. The Glucksmans argued they were entitled to rescind the transaction due to an alleged understatement of finance charges by at least $685, while First Franklin contended that TILA permits such an understatement. The relevant TILA provisions in dispute are TILA 1605(f)(2) and TILA 1635(i)(2), with the former allowing a significant margin for understatements, while the latter imposes stricter limits post-initiation of foreclosure processes. The court accepted the Glucksmans' allegations as true for the purpose of this procedural motion, allowing their claims to proceed.

The Glucksmans have established a valid claim for relief regarding their rights under the foreclosure process and the failure to provide necessary notices. The Complaint alleges that a judicial foreclosure process was initiated, which affects the rescission threshold. The absence of a filed Summons and Complaint for foreclosure does not negate the existence of a judicial foreclosure process, and factual determinations regarding its commencement will be addressed post-discovery.

In addition, the Glucksmans assert an ongoing right to rescind due to First Franklin's alleged failure to provide two copies of the Notice of Right to Cancel (NRC) at closing, which is required under federal law (15 U.S.C. 1635(a) and 12 C.F.R. 226.23(a)(3)). If the NRC was not delivered, their right to rescind would last for three years from the transaction's consummation. First Franklin's defense claims timely delivery of the NRCs, arguing that rescission rights have lapsed. However, if the Glucksmans' allegations are taken in the most favorable light, First Franklin's failure to deliver the NRCs could justify rescission.

First Franklin contends that the Glucksmans' execution of NRC delivery receipts at closing negates their claim. While such receipts suggest delivery, they create only a rebuttable presumption, which the Glucksmans can challenge with sufficient evidence. The sufficiency of this evidence is not pertinent at the motion to dismiss stage. The Court finds First Franklin's cited cases unconvincing, as they differ in fact or procedural context from the current case.

Ultimately, First Franklin's motion to dismiss is denied, establishing that the Glucksmans' claims for rescission remain viable and warrant further consideration beyond this stage.

Plaintiffs have sued Fairfield Financial for breach of fiduciary duty, but Fairfield does not seek dismissal. First Franklin cannot initiate a nonjudicial foreclosure on the Glucksmans' one-family residential property, as state law only allows nonjudicial foreclosures on commercial properties and residential buildings with six or more units. The Glucksmans have not alleged that First Franklin issued a necessary notice of pendency to begin a nonjudicial foreclosure. The Plaintiffs request the court to enjoin the Defendants from pursuing foreclosure proceedings during the case. The court rejects First Franklin's claim that the Glucksmans conceded there was no judicial foreclosure initiated, noting that the statute allows for either judicial or nonjudicial foreclosure processes to be commenced. First Franklin also challenges the Glucksmans' testimony regarding the delivery of Notices of Right to Cure (NRCs), suggesting a shift in their legal theory from a failure to deliver to claiming the NRCs delivered were legally defective under the Truth in Lending Act (TILA). The court finds both theories sufficient to support a claim for relief, regardless of any alleged shift. Additionally, there is no consensus among courts that summary judgment is appropriate in similar cases, with various examples of courts denying such motions under comparable circumstances.