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Yaldu v. Bank of America Corp.

March 31, 2010


The opinion of the court was delivered by: Honorable David M. Lawson


Plaintiff Munther Yaldu filed this action against defendant Bank of America Corporation, the successor to Countrywide Financial Corporation which refinanced Yaldu's residential home mortgage, and defendant BAC Home Loans, the servicing agent for the loans. Yaldu alleges several claims based on irregularities in the refinancing process and contends that Countrywide engaged in predatory lending because it extended credit to Yaldu without any evidence that the loan could be repaid. The defendants filed a motion to dismiss for failure to state a claim. The plaintiff then filed his own motion to dismiss without prejudice, apparently because he cannot afford the legal fees necessary to prosecute his claim at the present time. The Court heard the parties' arguments in open court on November 10, 2009. The Court now concludes that several of the plaintiff's twelve counts must be dismissed under Federal Rule of Civil Procedure 12(b)(6). However, a few of those counts might survive the motion if the plaintiff is allowed an opportunity to amend his complaint to state claims with specificity. But because the plaintiff apparently chooses not to proceed with his case, the Court will dismiss those counts without prejudice.


According to the complaint, in April 2007, the plaintiff, a manager at the McDougall Market in Detroit, purchased a house in Sterling Heights, Michigan for $307,500. He put down $80,000 and financed the balance with a new mortgage from Countrywide Financial. In February 2008, the plaintiff decided to refinance his $231,000 loan balance through Countrywide in order to obtain a more favorable interest rate. Although the plaintiff's reported income for the years 2006 through 2008 was $21,901, $16,380, and $21,350, respectively, he claims that the lender intentionally misrepresented on the Uniform Residential Loan Application that the plaintiff's monthly income was $4,850, which translated to an annual income of $58,200. According to the plaintiff, the bank intentionally misstated his salary so that the plaintiff could qualify for a loan he could not afford. The plaintiff adds that he was promised that "the financing scheme utilized was meant to be temporary and that [he] would be able to sell [his] property or refinance the loans if paying the monthly loan payments became problematic." Compl. ¶ 21. The plaintiff alleges that this practice fit within the broader plan by the bank to "inflate[] the supposed market values of properties throughout the mortgage market in order to lend more money and sell the ill[-]begotten mortgage loans on the mortgage-backed securities . . . market." Id. ¶ 23.

The plaintiff defaulted on his payments and the defendants purportedly refused to make any accommodations. Countrywide was acquired by Bank of America, who currently owns the plaintiff's mortgage. Defendant BAC Home Loan Servicing, LP is the current servicer of the loan.

The plaintiff preempted the defendants' foreclosure action and a potential eviction by filing the present case, initially brought in the Macomb County Circuit Court but timely removed to this Court.

The plaintiff's complaint states twelve counts: (1) accounting to confirm the plaintiff's belief that he does not owe any money to the defendants; (2) violation of the Home Ownership and Equity Protection Act (HOEPA),15 U.S.C. § 1639, which prohibits extending credit without regard to payment ability of a consumer; (3) "predatory lending" based on the plaintiff's belief that the defendants extended credit to the plaintiff despite their knowledge that the plaintiff could not afford to repay; (4) violation of the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq. based on false interest rate, fee, and monthly payment disclosures in connection with the closing; (5) fraudulent misrepresentation based on the defendants' exaggerated value of the plaintiff's property on the mortgage market; (6) negligent misrepresentation based on the same conduct; (7) defamation of credit and violation of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq.; (8) rescission of notes and mortgages; (9) reformation of notes and mortgages; (10) violation of the Mortgage Brokers, Lenders, and Servicers Licensing Act, Mich. Comp. Laws § 445.1651 et seq., based on the defendants' alleged deceit; (11) violation of the usury law, Mich. Comp. Laws § 438.31 et seq.; and (12) temporary restraining order/preliminary injunction count. The plaintiff seeks an injunction preventing the defendants from evicting him and reporting negative credit information; rescission of the notes and mortgages; disgorgement of all interest paid to the defendants; reformation of the notes and mortgages to reflect a fair and equitable bargain; and costs and attorney's fees. In his response to the defendants' motion to dismiss, the plaintiff asserts his desire to "work" with the bank to adjust the value of his loan.

The defendants move to dismiss count 1 because there is no allegation that the parties engaged in a series of transactions necessitating an accounting and the plaintiff has an adequate remedy at law. They argue that counts 2 under HOEPA and 4 under TILA are time-barred, and the TILA count does not plead fraud with the requisite specificity, a defect shared by the fraud and negligent misrepresentation counts and the Mortgage Brokers, Lenders, and Servicers Licensing Act count, counts 5, 6 and 10. The defendants contend that count 3 -- predatory lending -- is not a recognized cause of action. The FCRA count (count 7) suffers from a variety of defects, including the failure to plead that reported information was false, and the failure of the plaintiff to notify a credit reporting agency of a dispute. Counts 8, 9, and 12 seeking rescission, reformation, and a preliminary injunction present no independent causes of action, but rather they are remedies. And count 11 under the Michigan usury statute must be dismissed because the loan at issue is exempted from the Michigan usury statute.


Motions to dismiss are governed by Rule 12(b) of the Federal Rules of Civil Procedure and allow for dismissal for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true." Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993). When deciding a motion under that rule, the court must construe the complaint in the light most favorable to the plaintiff, accept all factual allegations as true, and determine whether the complaint contains "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). "[A] judge may not grant a Rule 12(b)(6) motion based on a disbelief of a complaint's factual allegations."

Columbia Natural Res., Inc. v. Tatum, 58 F.3d 1101, 1109 (6th Cir. 1995). "However, while liberal, this standard of review does require more than the bare assertion of legal conclusions." Ibid. Federal Rule of Civil Procedure 8(a) requires that the complaint give the defendant fair notice of the nature of the claim and the factual grounds upon which it rests. Twombly, 550 U.S. at 555. Therefore, "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Ibid. (citation omitted). "In practice, 'a . . . complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.'" Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993) (quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (1984)); see also Ana Leon T. v. Fed. Reserve Bank, 823 F.2d 928, 930 (6th Cir. 1987) (per curiam) (mere conclusions are not afforded liberal Rule 12(b)(6) review).

In assessing the viability of a complaint the pleads both factual allegations and conclusions, courts must undertake a "two-pronged approach." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009). First, because conclusory allegations are not entitled to a presumption of correctness, the court must "identify[] the allegations in the complaint that are not entitled to the assumption of truth." Id. at 1951. "[B]are assertions," such as those that "amount to nothing more than a 'formulaic recitation of the elements'" of a claim, can provide context to the factual allegations, but are insufficient to state a claim for relief, and must be disregarded. Ibid. (quoting Twombly, 550 U.S. at 555). "It is the conclusory nature of [these] allegations, rather than their extravagantly fanciful nature, that disentitles them to the presumption of truth." Ibid.

After identifying the well-pleaded factual allegations, the Court must scrutinize these facts to see if they "plausibly suggest an entitlement to relief." Ibid. Although even "unrealistic or nonsensical" factual allegations must be credited, the Court now must determine whether there are "more likely explanations" for these facts than the inference required to support the plaintiff's legal theory. Id. at 1950-51 (stating that "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'" (quoting Fed. R. Civ. P. 8(a)(2))). This does not require a "probability," but "asks for more than a sheer possibility that a defendant has acted unlawfully." Id. at 1949. The question is whether the complaint has "'nudged'" the claim of wrongdoing "'across the line from conceivable to plausible.'" Id. at 1951 (quoting Twombly, 550 U.S. at 570). Applying this test is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.

"In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b); see also United States ex rel. Bledsoe v. Cmty. Health Sys., Inc., 342 F.3d 634, 643 (6th Cir. 2003); Frank v. Dana Corp., 547 F.3d 564, 570 (6th Cir. 2008) (holding that the complaint must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent" (internal quotation marks and citation omitted)). Where there are multiple defendants, a claim must identify which of the defendants made the alleged misrepresentations. Hoover v. Langston Equip. Assocs., Inc., 958 F.2d 742, 745 (6th Cir. 1992).

A. HOEPA (Count 2)

The Home Ownership and Equity Protection Act of 1994, 15 U.S.C. §§ 1602(aa), 1610, 1639, and 1640, was enacted to amend the TILA to afford greater protections and impose additional disclosure requirements for "high-cost" or "high-rate" loans. High-risk HOEPA loans are defined in 15 U.S.C. § 1602(aa)(1), and encompass "consumer credit transaction[s] that [are] secured by the consumer's principal dwelling, other than a residential mortgage transaction, a reverse mortgage transaction, or a transaction under an open end credit plan" in which a loan's annual percentage rate at consummation exceeds by more than 10 percent the applicable yield on Treasury securities, or when the total points and fees payable by the consumer exceed eight percent of the "total loan amount," or $400, whichever is greater. 15 U.S.C. § 1602(aa)(i)(A)-(B).

One of the two sections of HOEPA upon which the plaintiff relies, 15 U.S.C. § 1639(b)(3), is entitled "Modifications," and provides in its entirety:

The [Federal Reserve] Board may, if it finds that such action is necessary to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of rights created under this subsection, to the extent and under the circumstances set forth in those regulations.

15 U.S.C. § 1639(b)(3).

The plain language of this subsection makes it clear that it does not impose a duty on lenders, but rather provides a congressional authorization of regulatory action in the lending industry. Without much explanation, it is quite clear that this subsection does not create an individual cause of action. See Breitmeyer v. CitiMortgage, Inc., 09-11560, 2009 WL 3628005, at *5 (E.D. Mich. Oct. 30, 2009) (Murphy, J.); King v. Bank of Am. Corp., 09-12481, 2009 WL 2960425, at *2 (E.D. Mich. Sept. 11, 2009) (Roberts, J.); McLean v. Countrywide Home Loans, Inc., No. 09-11239, 2009 WL 2777017, at *3 (E.D. Mich. Aug. 27, 2009) (Steeh, J.).

The second subsection of HOEPA the plaintiff invokes is 15 U.S.C. § 1639(h), which prohibits creditors from "engag[ing] in a pattern or practice of extending credit to consumers under mortgages referred to in section 1602(aa) of this title based on the consumers' collateral without regard to the consumers' repayment ability, including the consumers' current and expected income, current obligations, and employment." Claims under section 1602(aa) of HOEPA are subject to the same statutes of limitation that are applicable to TILA, which is one year from the date of the transaction. See 15 U.S.C. §§ 1635(f), 1640(e). In this case, the refinancing loan closed in February 2008 but the plaintiff did not file his complaint until May 18, 2009. The statute of limitations, therefore, bars this claim.

B. TILA (Count 4)

The Truth in Lending Act, Pub. L. No. 90-321, 82 Stat. 146 (codified as amended at 15 U.S.C. § 1601 et seq.), "'was enacted to promote the informed use of credit by consumers by requiring meaningful disclosure of credit terms.'" Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874, 875 (6th Cir. 2006) (quoting Begala v. PNC Bank, Ohio, N.A., 163 F.3d 948, 950 (6th Cir. 1998)). The Act has a dual purpose: "to facilitate the consumer's acquisition of the best credit terms available; and to protect the consumer from divergent and at times fraudulent practices stemming from the uniformed use of credit." Jones v. TransOhio Sav. Ass'n, 747 F.2d 1037, 1040 (6th Cir. 1984) (citing Mourning v. Family Publ'ns Serv., Inc., 411 U.S. 356, 363 (1973)). Consistent with this purpose, the Act gives a consumer-borrower the right to rescind a loan secured by the borrower's principal dwelling within three business days of the transaction. 15 U.S.C. § 1635(a). Beyond that, the Act allows for rescission of the loan secured by the borrower's principal dwelling even after the three days following the transaction where "the lender fails to deliver certain forms or to disclose important terms accurately." Beach v. Ocwen Fed. Bank, 523 U.S. 410, 411 (1998) (citing 15 U.S.C. § 1635(f)). Alternatively, the Act allows an action for damages, including "actual damages," statutory damages in the amount of "not less than $400 or greater than $4,000," and the costs and attorney's fees. See 15 U.S.C. § 1640(a)(1)-(3).

To establish a claim, the borrower must prove that the lender failed to disclose one of the enumerated items of information relating to the terms and conditions of the loan. See 15 U.S.C. § 1638(b)(1). An assignee of a creditor may be liable under the Act as well, 15 U.S.C. § 1641(a), but only where "(A) the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement provided in connection with such transaction pursuant to this subchapter; and (B) the assignment to the assignee was voluntary." 15 U.S.C. § 1641(e)(1). "[A] violation is apparent on the face of the disclosure statement if (A) the disclosure can be determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement; or (B) the disclosure statement does not use the terms or format required to be used by this subchapter." 15 U.S.C. § 1641(e)(2). The statute further provides that "[a] servicer of a consumer obligation arising from a consumer credit transaction shall not be treated as an assignee of such obligation for purposes of this section unless the servicer is or was the owner of the obligation." 15 U.S.C. § 1641(f)(1).

A plaintiff must bring her action for damages under section 1640 of the Act "within one year from the date of the occurrence of the violation." 15 U.S.C. ยง 1640(e). The statute of limitations for damages actions is subject to equitable tolling in the case of fraudulent concealment. Jones, 747 F.2d at 1041-43 (holding that equitable tolling was available in a TILA case when the complaint alleged "knowing and fraudulent concealment of the variable interest rate provision and of the mortgage note itself"). In such a case, "the one year period will begin to run when the borrower discovers or had reasonable opportunity to discover the fraud involving the complained of TILA violation." Id. at 1041. "In order to establish equitable tolling by the doctrine of fraudulent concealment, the plaintiffs must allege and establish that: 1) defendants concealed the conduct that constitutes the cause of action; 2) defendants' concealment prevented plaintiffs from discovering the cause of action within the limitations period; and 3) until discovery, plaintiffs exercised due diligence in trying to find out about the cause of action." Egerer v. Woodland Realty, Inc., 556 F.3d 415, 422 (6th Cir. ...

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