In re DiVittorio

Decision Date28 May 2010
Docket NumberAdversary No. 09-1089.,Bankruptcy No. 05-20854-WCH.
PartiesIn re Angelo DiVITTORIO, Debtor. Angelo DiVittorio, Plaintiff, v. HSBC Bank, USA, N.A., As Trustee on Behalf of Ace Securities Corp. Home Equity Loan Trust and for the Registered Holders of Ace Securities Corp. Home Equity Loan Trust, Series 2006-SD1, Asset Backed Pass-Through Certificates, Ocwen Loan Servicing, LLC, and IndyMac Federal Bank, Defendants.
CourtUnited States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

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Harvey S. Shapiro, Boston, MA, for Plaintiff.

David Fialkow, Nelson Mullins Riley & Scarborough LLP, Richard C. Demerle, Michienzie & Sawin LLC, Boston, MA, for Defendants.

MEMORANDUM OF DECISION

WILLIAM C. HILLMAN, Bankruptcy Judge.

I. INTRODUCTION

The matters before the Court are the consolidated Motion to Dismiss (the "Motion to Dismiss") on remand from the United States District Court for the District of Massachusetts (the "District Court") and the Motion for Summary Judgment, both filed by the Defendant HSBC Bank, USA, N.A.1 (the "Defendant"), as well as the oppositions thereto filed by the Plaintiff-Debtor Angelo DiVittorio (the "Debtor"). On July 23, 2009, I granted the Motion to Dismiss and dismissed the Debtor's claims against the Defendant for alleged violations of the Massachusetts Consumer Credit Cost Disclosure Act ("CCCDA"),2 the Massachusetts analog to the federal Truth in Lending Act ("TILA"),3 for failure to state a claim upon which relief could be granted.4 On appeal, the District Court concluded that I failed to consider whether the Defendant complied with a portion of the Official Staff Commentary to TILA's enabling regulations (the "Commentary") in calculating the Annual Percentage Rate (the "APR") disclosed to the Debtor on the Truth in Lending Disclosure Statement (the "TIL Disclosure") in connection with a refinance of the Debtor's home and remanded the matter for reconsideration.5 On remand, the Defendant filed the Motion for Summary Judgment asserting that the Debtor was judicially estopped from raising or had otherwise waived his claims for alleged violations of the CCCDA. For the reasons set forth below, I will reaffirm my order dismissing the Debtor's complaint for failure to state a claim upon which relief could be granted and, alternatively, grant the Motion for Summary Judgment.6

II. BACKGROUND7

The facts of this case are largely not in dispute.8 The Debtor and his brother, Joseph DiVittorio (collectively, the "DiVittorios"), have resided at 39-41 Bonner Avenue, Medford, Massachusetts (the "Property") since 1970.9 After inheriting it from their parents, the DiVittorios refinanced the Property thirteen times between 1998 and 2003.10 On March 13, 2003, the Debtor closed the present loan transaction in the original amount of $330,000 by executing a note (the "Note") and granting a first mortgage to IndyMac Bank, FSB, ("IndyMac") (the "Mortgage").11 Joseph DiVittorio, a co-owner of the property, is a signatory of the Mortgage, but is not an obligor on the Note.12 The obligation under the Note and Mortgage was incurred primarily for personal, family, or household purposes.13 Although the IndyMac loan was an "income-stated loan," the Debtor contends that prior to the closing, IndyMac obtained the Debtor's credit report and information regarding the timeliness of his payments under his prior mortgages.14 The Defendant purports to be the current holder of the Mortgage.15

As previously stated, the closing took place on March 13, 2003, at which time the Debtor received multiple disclosures regarding the Note and Mortgage, including the TIL Disclosure, a three page document titled "Adjustable Rate Mortgage Loan Program Disclosure Non-Convertible 2/6 LIBOR Performance ARM" (the "ARM Disclosure"), the Addendum to Fixed/Adjustable Rate Note (the "Addendum") and the Rider to Security Instrument and Fixed/Adjustable Rate Rider (the "Adjustable Rate Rider").16 I note that the form of the TIL Disclosure is substantially similar to the model form provided in the appendix to Regulation Z,17 TILA's enabling regulations promulgated by the Federal Reserve Board.18 The TIL Disclosure indicated, inter alia, an APR of 7.365%.19

The TIL Disclosure further reflected that the loan contained a "variable rate feature" and referred the Debtor to a separate disclosure regarding the variable rate.20 The ARM Disclosure, which appears to be a generic disclosure form for this type of loan product, explained that the interest rate on the Note would be determined as follows:

Your Interest Rate will be based on an index rate plus a margin, rounded to the nearest .125% (the "Interest Rate"), unless your Caps limit the amount of change in the Interest Rate. The "Margin" is the amount which will be added to the index to determine your Interest Rate. The Margin may be reduced by. 50% for credit levels I+, I, and II as shown in the examples below; and, by 1.00% for credit levels III and IV after the second year of the loan if all payments for the first two years of the loan are paid on time. If the Margin is reduced after the second year of the loan, the Margin will not change through the remaining term of the loan. Please ask us for our current Interest Rates and Margins.21

As emphasized above, the interest rate was subject to a performance based rate reduction feature (the "Reduction Feature") by which the Debtor would qualify for a reduced margin if he made the first two years of payments timely. While the ARM Disclosure did not indicate the Debtor's "credit level" or the potential margin reduction he would receive pursuant to the Reduction Feature,22 both the Addendum and the Adjustable Rate Rider clarified that the Debtor was entitled to a .500% margin reduction if he made the first twenty-two payments timely.23

According to the Complaint, IndyMac utilized the reduced interest rate the Debtor would have been entitled to under the Reduction Feature, thereby assuming he would make the first twenty-two payments timely, to compute the APR on the TIL Disclosure.24 The TIL Disclosure, however, did not reflect this assumption on its face as the basis for its APR calculation.25 Nonetheless, failure to make the first twenty-two payments timely would result in an additional interest payment of approximately $100 per month for twenty-eight years and over $30,000 in additional finance charges.26

The Debtor filed his Chapter 13 petition on October 11, 2005.27 Since that time, the Note and Mortgage have been the subject of a great deal of litigation between the Debtor and the Defendant's servicer, Ocwen Loan Servicing, LLC ("Ocwen").28 Ocwen first moved for relief from stay to foreclose the Property on August 10, 2006.29 The Debtor opposed the motion, and after two months of negotiations, the parties filed a stipulation on October 25, 2006 whereby the Debtor would cure a post-petition arrearage.30 On March 22, 2007, Ocwen filed an affidavit of non-compliance asserting that the Debtor had defaulted on the terms of the stipulation.31 The Debtor again opposed, and after eight continuances of the hearing on Ocwen's affidavit of non-compliance, the Debtor filed an Assented to Motion of Debtor for Authority to Modify Loan with Ocwen Loan Servicing, LLC on November 30, 2007.32

Pursuant to the Modification Agreement (the "Modification"), the interest rate on the loan was reduced from in excess of 11% to 7% fixed, and the arrearage was amortized over the remaining life of the loan.33 The Modification also contained the following release (the "Release") given by the Debtor:

YOUR RELEASE OF OCWEN: IN THE EVENT THAT YOU HAVE ANY CLAIMS, ACTIONS OR CAUSES OF ACTION, STATUTE OF LIMITATIONS OR OTHER DEFENSES, COUNTERCLAIMS OR SETOFFS OF ANY KIND WHICH EXIST AS OF THE DATE OF THIS MODIFICATION, WHETHER KNOWN OR UNKNOWN TO YOU, WHICH YOU NOW OR HEREAFTER MAY ASSERT AGAINST OCWEN IN CONNECTION WITH THE MAKING, CLOSING, ADMINISTRATION, COLLECTION OR THE ENFORCEMENT BY OCWEN OF THE LOAN DOCUMENTS, THIS MODIFICATION OR ANY OTHER RELATED AGREEMENTS, THEN BY EXECUTING THIS MODIFICATION YOU FOREVER IRREVOCABLY WAIVE AND RELINQUISH THEM. FOR PURPOSES OF THIS SECTION, OCWEN SHALL SPECIFICALLY, sic INCLUDE BUT
SHALL NOT BE LIMITED TO, PRESENT AND FORMER OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SERVICING AGENTS, ATTORNEYS AND ALL PRIOR AND SUBSEQUENT PARTIES OR PREDECESSOR(S) IN INTEREST, TO BOTH OCWEN AND THE INVESTOR.34

The Modification expressly defined both Ocwen and "Investor" to include HSBC Bank.35 While both the Debtor and his former counsel signed the Modification, HSBC Bank did not sign the copy submitted to the Court.36 I approved the Modification on December 11, 2007.37

Despite the Modification, the Debtor once again fell behind on his post-petition mortgage payments and Ocwen moved for relief from stay for the second time on October 10, 2008.38 After several extensions, the Debtor filed an opposition on February 3, 2009.39 On February 5, 2009, at the suggestion of Debtor's counsel, I granted Ocwen's motion for relief effective March 27, 2009.40

Shortly thereafter, by a letter dated February 11, 2009 addressed to the Defendant, Ocwen, and IndyMac, the Debtor purported to rescind the loan and requested an accounting, almost six years after the closing of the refinancing.41 The Defendant disputed the validity of the Debtor's exercise of rescission.42 On February 13, 2009, the Debtor, through new counsel, filed a motion seeking to vacate my order granting relief from stay (the "Motion to Alter Order") on the basis that the Debtor rescinded the loan.43 Ocwen filed an opposition, and on March 10, 2009, the Debtor filed the above-captioned adversary proceeding asserting novel theories in support of his claim of rescission under the CCCDA.44 Although the statute of limitations had already expired under the CCCDA,45 the Debtor permissibly advanced right of rescission...

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