Court: District Court, D. Maryland; June 27, 2018; Federal District Court
Donna Kemp, a putative class plaintiff, has initiated a lawsuit against Seterus, Inc. (the servicer of her home mortgage) and the Federal National Mortgage Association (Fannie Mae, the loan owner), alleging violations of Maryland state lender laws and the federal Truth in Lending Act (TILA). The defendants filed a Motion to Dismiss the Second Amended Complaint, which was granted, leading to the case being remanded to state court.
The background of the case involves Kemp's mortgage loan, originally obtained from Countrywide Home Loans in April 2007, secured by a deed of trust on property in Glen Burnie, Maryland. After falling behind on payments in 2017, Seterus declared the loan in default and warned Kemp about potential acceleration of the loan and sale of the property.
Kemp communicated with Seterus regarding her loan status and noted a lack of monthly statements. In response to her inquiries, Seterus revealed that it had charged property inspection fees from August 2016 through July 2017, totaling $180.00, which Kemp contends violated Maryland law prohibiting lenders from imposing such fees.
Additionally, Kemp alleges that Seterus offered her a "Trial Period Plan" (TPP) for a loan modification, which required three trial payments by specific deadlines. Kemp claims she accepted the TPP and fulfilled the payment requirements.
On November 8, 2017, Seterus, representing Fannie Mae, presented Kemp with a Final Loan Modification Agreement that included the capitalization of unpaid interest, taxes, insurance premiums, and specific assessments into Kemp's mortgage balance. Kemp accepted this agreement, asserting it also capitalized property inspection fees claimed by Seterus. She has continued to make modified mortgage payments since the modification took effect. However, neither Seterus nor Fannie Mae provided new Truth in Lending Act (TILA) disclosures to Kemp.
Kemp initiated litigation, asserting six causes of action on her behalf and for three proposed classes, all related to the alleged improper property inspection fees. The claims include: 1) declaratory and injunctive relief for Kemp and the State Law Class against both Defendants; 2) unjust enrichment against Seterus for Kemp and the State Law Class; 3) violations of the Maryland Consumer Debt Collection Practices Act (MCDCA) and Maryland Consumer Protection Act (MCPA) against Seterus for Kemp and the State Law Class; 4) a claim under Md. Com. Law 12-121(a)(1)(ii) for Kemp and Usury Class members against both Defendants; 5) a Maryland Mortgage Fraud Protection Act (MMFPA) claim against Seterus for Kemp and State Law Class members; and 6) TILA violations, the sole federal claim, against all Defendants or alternatively only against Fannie Mae.
Kemp filed the lawsuit in Montgomery County Circuit Court on December 19, 2017, and amended her complaint on January 26, 2018. The Defendants removed the case to federal court on February 15, 2018, citing federal question jurisdiction, and filed a Motion to Dismiss the First Amended Complaint. Kemp responded and filed a Second Amended Complaint on March 15, 2018, without seeking court permission. The court denied the Defendants' Motion to Strike and accepted the Second Amended Complaint.
The legal standard for pleading under Federal Rule of Civil Procedure 8(a) requires a "short and plain statement" showing entitlement to relief, while Rule 12(b)(6) necessitates that a plaintiff must present sufficient factual allegations to establish a plausible claim for relief. The court does not accept mere legal conclusions or conclusory statements as adequate for a claim. Given that the only claim under the court's original jurisdiction is the TILA claim, the court focuses on the Motion to Dismiss that claim.
Count VI of the Second Amended Complaint alleges three violations of the Truth in Lending Act (TILA) by Kemp. The first violation pertains to 15 U.S.C. § 1639g, claiming that Seterus provided an inaccurate payoff statement in September 2017 by including unlawful property inspection charges. The second violation is based on 12 C.F.R. § 1026.36(c), which implements the aforementioned statute and also references the same payoff statement. The third violation involves 12 C.F.R. § 226.18, asserting that the Defendants failed to issue new TILA disclosures after adding property inspection fees to her loan's principal balance.
TILA mandates that a creditor must provide an accurate payoff balance within seven business days of a written request. It defines a "creditor" as one who regularly extends consumer credit and is the entity to whom the debt is initially payable. While TILA allows for civil liability against assignees of creditors in specific cases, it is limited, particularly regarding the visibility of violations on disclosure statements.
Defendants have moved to dismiss Count VI, arguing neither qualifies as a "creditor" under TILA. Seterus, as the loan servicer, is deemed to have no liability for TILA violations since it is neither the loan originator nor an assignee. Similarly, Wilshire, another servicer, is not liable for TILA violations for the same reasons.
Regarding Fannie Mae, Kemp contends that it should be liable as an assignee of the original creditor because it currently owns the loan, thus stepping into the original creditor's role. She argues that failing to hold Fannie Mae accountable would undermine TILA's remedial purpose.
Fannie Mae contends that 15 U.S.C. § 1602(g) applies only to the original creditor and not to subsequent assignees, asserting that § 1641(a), which expands TILA's applicability to certain assignees, is irrelevant since the alleged inaccuracy is not evident in the disclosure statement. Fannie Mae cites cases from the Eleventh and Second Circuits to support its position, arguing that the assertion that § 1639g pertains solely to mortgage originators is flawed. The court concurs, clarifying that a private right of action against an assignee exists only under limited conditions where a violation is clear on the disclosure statement's face.
Specifically, the court addresses whether an inaccurate payoff statement qualifies as a violation visible from the disclosure statement. Citing the Eleventh Circuit's Evanto case, which found that a failure to provide a payoff balance does not qualify as such a violation, the court notes that payoff balances can only be determined post-loan, thus not appearing on initial disclosures. The Second Circuit similarly acknowledges the limited liability for assignees under TILA.
Despite recognizing potential issues of fairness if assignees evade liability while overcharging, the court affirms it cannot alter the statute's language or disregard the Federal Reserve's regulations. Consequently, Kemp's claims related to inaccurate payoff balances are deemed non-cognizable against Fannie Mae as an assignee.
Regarding the failure to provide new disclosures, Kemp argues that the property inspection fees represent new charges, thus transforming Fannie Mae into the original creditor and necessitating new TILA disclosures. The court agrees that the addition of these fees constituted a new credit transaction, requiring updated disclosures under TILA since such disclosures must be made before the transaction is finalized. However, it notes that inaccuracies in disclosures due to changes in existing loans typically do not warrant a TILA claim unless they were inaccurate at the time of the transaction's consummation.
New TILA disclosures are mandated under specific circumstances such as refinancing, loan assumption, or interest rate adjustments on variable-rate transactions, none of which apply to Kemp's case. Although Kemp references a case suggesting that unauthorized fees can initiate a new credit transaction, other rulings, including a Sixth Circuit decision, clarify that additional disclosures are not necessary for fees charged after the original transaction. The Sixth Circuit emphasized that TILA's disclosure obligations arise before the consummation of a credit transaction. Kemp does not dispute the initial disclosures received, nor can she challenge the defendants on this matter.
The legality of property inspection fees under Maryland law has yet to be resolved, but they were previously included in the deed of trust, suggesting they may not constitute new credit transactions that would trigger TILA liability for Fannie Mae. Consequently, Kemp's TILA claims against Fannie Mae are dismissed.
Regarding supplemental jurisdiction, the court, having dismissed all federal claims, declines to exercise jurisdiction over state law claims, deeming them more suitable for state court due to their focus on Maryland commercial law. The court grants the motion to dismiss Count VI with prejudice and remands the case back to state court for the state law claims.
Additionally, Kemp's argument at oral argument regarding Fannie Mae's potential liability as an assignee under specific regulations is rejected. The court finds no inconsistency between the regulation and the statute, as the regulation does not create a private right of action; such a right exists only against creditors as defined in the Act.
Kemp's argument that the regulation contradicts and supersedes the statute is invalid, as regulations cannot override the statutes under which they are created. For regulations to be valid, they must align with the relevant statute. Courts must enforce the statute's plain language unless the outcome is absurd. Therefore, Kemp can only succeed on her TILA claims if the defendants are liable under specific provisions of the U.S. Code. Although her opposition brief suggested that a loan modification required new disclosures, she clarified during oral argument that she is not pursuing this claim. Several judges have ruled that TILA does not apply to loan modifications, and even if a loan modification occurred, TILA's disclosure requirements do not apply to such modifications, as established in multiple cases.
