Cetto v. Lasalle Bank Nat. Ass'n

• Citation: 518 F.3d 263
• Decision Date: 29 February 2008
• Docket Number: No. 06-1720.,06-1720.
• Parties: James Alexander CETTO, II; Elizabeth Ann Cetto, Plaintiffs-Appellants, v. LASALLE BANK NATIONAL ASSOCIATION, as Trustee for Structured Asset Investment Loan Series 2003-BC9 by Wilshire Credit Corporation, its Authorized Servicing Agent, Defendant-Appellee, v. Savings First Mortgage, LLC, Party in Interest.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

518 F.3d 263

James Alexander CETTO, II; Elizabeth Ann Cetto, Plaintiffs-Appellants, v. LASALLE BANK NATIONAL ASSOCIATION, as Trustee for Structured Asset Investment Loan Series 2003-BC9 by Wilshire Credit Corporation, its Authorized Servicing Agent, Defendant-Appellee, v. Savings First Mortgage, LLC, Party in Interest.

No. 06-1720.

United States Court of Appeals, Fourth Circuit.

Argued: October 30, 2007.

Decided: February 29, 2008.

ARGUED:

Thomas Ray Breeden, Manassas, Virginia, for Appellants. Paul Wilbur Jacobs, II, Christian & Barton, L.L.P., Richmond, Virginia, for Appellee.

ON BRIEF:

Nichole Buck Vanderslice, Christian & Barton, L.L.P., Richmond, Virginia, for Appellee.

Before NIEMEYER, SHEDD, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge SHEDD and Judge DUNCAN joined.

OPINION

NIEMEYER, Circuit Judge:

James and Elizabeth Cetto seek to rescind the refinancing of their Virginia home based on their claim that the total points and fees charged in the transaction qualified the loan as what is commonly referred to as a "high-cost mortgage" under the Truth in Lending Act ("TILA") as amended by the Home Ownership and Equity Protection Act ("HOEPA"), which entitled them to specific disclosures and terms that they were not afforded.¹ A high-cost mortgage is one in which the "points and fees" exceed 8% of the "total loan amount." See 15 U.S.C. § 1602(aa)(1)(B)(i). To support their claim, the Cettos contend that title search and title binder fees charged by the settlement agent at closing, which are usually not includable as "points and fees," should be included in the calculation of "points and fees" in this case because (1) the settlement agent was affiliated with the mortgage broker on the transaction and (2) the mortgage broker in turn was a "creditor" on the loan, as they claim that term is defined in 15 U.S.C. § 1602(f). They argue that the mortgage broker was a "creditor" because the mortgage broker had served as a lender on previous occasions in unrelated transactions, thus falling within their definition of "creditor," which is based on their interpretation of the last sentence of § 1602(f).

It is undisputed by the parties that the settlement agent in this case was affiliated with the mortgage broker and that if the mortgage broker meets the definition of "creditor" in § 1602(f) and Regulation Z under it, the fees paid to the settlement agent for the title search and title binder would have to be included as part of the "points and fees" charged on the transaction, making the loan a high-cost mortgage.

We conclude, as did the district court, that the mortgage broker in this case was not a "creditor" as defined in § 1602(f), and therefore the title search and title binder fees paid to the settlement agent were not includable as part of the "points and fees" charged. Without the inclusion of the title search and title binder fees, the loan to the Cettos was not a "high-cost mortgage" and therefore did not require the additional disclosures and protections of TILA and HOEPA. Accordingly, we affirm the judgment of the district court.

I

Following a solicitation from Savings First Mortgage, LLC, James and Elizabeth Cetto decided to refinance their home in Dale City, Virginia, "so that [they could] cash out and have some money to do whatever [they] needed to do in [Mr. Cetto's] business and at home." Savings First, functioning as a mortgage broker, obtained a 30-year adjustable interest rate loan for the Cettos from MorEquity, Inc., at an initial interest rate of 5.85%, subject to adjustments thereafter based on market conditions. Savings First charged the Cettos $7,400 for broker and processing fees.

Through the refinancing transaction, which closed on April 8, 2003, the Cettos borrowed $166,000, with which they paid off their previous mortgage and debts recorded against their house, as well as the costs and fees of the refinancing. They then took the balance in cash. With the cash, they fixed up their house, paid some bills, and took a vacation.

Settlement of the new loan was conducted by Accurate Settlement Services, Inc., an "affiliate" of Savings First, as defined by 12 U.S.C. § 1841(k). The settlement sheet, which the Cettos signed and dated at the closing on April 8, 2003, discloses that from the $166,000 proceeds of the loan, the Cettos paid:

(1) the prior mortgage and other debts recorded against their house in the amount of $103,191.52;

(2) amounts charged by third parties for appraisal, a title search and title binder, insurance, tax stamps, and property taxes, in the total amount of $3,226.83;

(3) prepaid finance charges of $12,169 (including a loan discount, mortgage broker and processing fees, mortgage underwriting and administration fees, flood certification fee, and release fee); and

(4) interest for 17 days, in the amount of $452.29.

The $46,960.36 balance was paid to the Cettos. The settlement sheet discloses, as significant to TILA and HOEPA, that the "total loan amount" as defined by statute was $153,378.71 and that the "points and fees" as defined by statute were $12,169. The cost of the loan therefore was 7.93% ($12,169 $153,378.71), rendering the loan not a high-cost mortgage because the "points and fees" were not greater than 8% of the amount financed. See 15 U.S.C. § 1602(aa)(1)(B)(i).

About three months after the refinancing closed, on July 1, 2003, MorEquity sold the loan and mortgage to Lehman Brothers as part of a package of 286 loans bundled for investment purposes, denominated as "Structured Asset Investment Loan Series 2003-BC9," and LaSalle Bank National Association was appointed the trustee of the bundled asset. For purposes of the Cettos' claims in this case, LaSalle Bank stands in the place of MorEquity, the original lender. See 15 U.S.C. § 1641(d)(1).

The refinancing increased the Cettos' monthly payment on their home from $866 per month to $1,199 per month (including real estate taxes and insurance), which the Cettos found stressful. Mr. Cetto said he knew his monthly payment would go up, but he did not know that it would be that much. In addition, after reviewing the closing costs, Mr. Cetto observed that they were unexpectedly high. As he testified in deposition, "After [the three-day cancellation period had elapsed when he reviewed the loan papers] I noticed, you know, wow, this is high."

By letters dated September 14 and 17, 2004, some 17 months after closing, addressed to the servicing agent for the bundled loans asset, Mr. Cetto stated that he was rescinding the refinancing transaction, claiming violations of TILA, HOEPA, and the Real Estate Settlement Procedures Act, as well as "other consumer protection statutes." When his demand for rescission was rejected on the basis that the Cettos' loan did not qualify for the more generous rescission provision of HOEPA, the Cettos commenced this action against LaSalle Bank, as assignee of the loan and mortgage.

In their complaint, the Cettos alleged that the $166,000 refinancing loan was a high-cost mortgage, as defined by 15 U.S.C. § 1602(aa)(1)(B)(i), because, according to their calculation, the total "points and fees" exceeded 8% of the total loan amount. To support their claim that the loan cost them more in "points and fees" than 8%, they included as "points and fees" $1,274.48 paid to Accurate Settlement, the settlement agent, for its title search and title binder. They claimed, therefore, that federal law entitles them to disclosures and terms that were not provided. Based on these violations, they alleged that they are entitled to rescission, statutory damages and other damages, attorneys fees, and costs.

LaSalle Bank denied that the settlement agent's fees were properly includable as "points and fees" to determine whether the transaction qualified as a high-cost mortgage, and it also filed a cross-claim for $188,669.44, plus interest, attorneys fees, and costs, alleging that the Cettos failed to make payments on the loan since August 11, 2004, and that the loan therefore is in default.

On cross-motions for summary judgment, the district court denied the Cettos' motion and granted LaSalle Bank's motion. The court concluded that Savings First was not a "creditor" on the transaction but rather acted only as the mortgage broker in that it did not lend any money to the Cettos. Therefore the fees paid to Accurate Settlement, an affiliate of Savings First, for its title search and title binder were not "points and fees" charged by a "creditor" or one affiliated with a "creditor." From the district court's judgment dated June 1, 2006, the Cettos filed this appeal.

The only issue raised on appeal is whether, under TILA and HOEPA, the definition of "creditor," as set forth in 15 U.S.C. § 1602(f), includes a person who acted only as a mortgage broker in the particular transaction, but who had acted as a lender in the past for unrelated transactions. This issue, which requires a construction of § 1602(f), is one of first impression.

II

In greater particularity, the Cettos seek rescission of their refinancing loan and damages because of various violations of TILA and HOEPA, which require a lender to make certain disclosures and prohibit certain loan terms if the loan qualifies as what is commonly referred to as a high-cost mortgage. A loan is a high-cost mortgage when "the total points and fees payable by the consumer at or before closing" exceed "8 percent of the total loan amount." 15 U.S.C. § 1602(aa)(1)(B)(i). The Cettos maintain that the points and fees calculation for their loan failed to include $1,274.48 paid to Accurate Settlement for the title search and title binder. When those charges are included as costs, the points and fees paid by the Cettos exceed 8%, triggering the additional protections that HOEPA added when it amended TILA.

The Cettos' claim, therefore, depends on whether the title search and title binder fees paid to...