In re Figard

• Decision Date: 26 February 2008
• Docket Number: Adversary No. 06-07064-JAD.,Related To Document No. 144.,Related To Document No. 145.,Bankruptcy No. 06-70268-JAD.
• Citation: In re Figard, 382 B.R. 695 (Bankr. W.D. Pa. 2008)
• Parties: In re David R. FIGARD, and Rebecca J. Figard, Debtor. David R. Figard, and Rebecca J. Figard, Plaintiffs, v. PHH Mortgage Corporation f/k/a Cendant Mortgage Corporation, d/b/a Coldwell Banker Mo., and/or its Successors or Assigns, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

382 B.R. 695

In re David R. FIGARD, and Rebecca J. Figard, DebtorDavid R. Figard, and Rebecca J. Figard, Plaintiffs, v.PHH Mortgage Corporation f/k/a Cendant Mortgage Corporation, d/b/a Coldwell Banker Mo., and/or its Successors or Assigns, Defendant.

Bankruptcy No. 06-70268-JAD.

Adversary No. 06-07064-JAD.

Related To Document No. 144.

Related To Document No. 145.

United States Bankruptcy Court, W.D. Pennsylvania.

February 26, 2008.

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Mary K. Wheeler, Esq., for the Debtors/Plaintiffs.

John R. Canavan, Esq., for PHH Mortgage Corporation.

MEMORANDUM OPINION

JEFFERY A. DELLER, Bankruptcy Judge.

This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052.The matter before the Court is a Motion For Summary Judgment filed by PHH Mortgage Corporation, f/k/a Cendant Mortgage Corporation, d/b/a Coldwell Banker MO., and/or its successors or assigns ("PHH Mortgage" of "Defendant") with respect to various lender liability type claims asserted by David and Rebecca Figard(the "Figards" or the "Plaintiffs") against PHH Mortgage.This matter is a non-core proceeding pursuant to 28 U.S.C. § 157(c)(1), and each of the parties has consented to the Court hearing and determining this matter on a final basis pursuant to 28 U.S.C. § 157(c)(2).

Pursuant to the Motion For Summary Judgment, PHH Mortgage asks that this Court grant the Defendant summary judgment and deny All of the lender liability claims asserted by the Figards.For reasons set forth more fully in this Memorandum Opinion, the Court hereby grants the Motion for Summary Judgment in part, denies it in part, and finds as follows, to-wit:

I.

The material facts of this case are generally not in dispute.The underlying bankruptcy case was commenced by the Figards filing a voluntary petition under Chapter 13 of the United States Bankruptcy Code on April 25, 2006.(Bankruptcy DocketNo. 1).¹On July 21, 2006, the Figards filed a complaint against PHH Mortgage giving rise to the instant adversary proceeding.(DocketNo. 1).

In or around August/September 2004, the Figards decided to become first-time home buyers after having lived in rental property for approximately 10 years.(DocketNo. 148, Exhibit A, R. FigardDep. 15:8-9, June 8, 2007).On or about September 23, 2004, the Figards entered into an Agreement of Sale for the purchase of a house located at 2321-23 16th Avenue, Altoona, Pennsylvania.( Exhibit B).The Agreement of Sale called for the purchase of the home for $60,000.00 with a down payment of $500.00, and was contingent upon the Figards obtaining a 30—year, conventional mortgage loan at an interest rate not to exceed 8%. (Id.).

On or before September 28, 2004, the Figards decided to contact PHH Mortgage to inquire about qualifying for a mortgage.A representative of PHH spoke on the telephone with the Figards on September 28, 2004, and gathered information for their "Personal Profile & Loan Request,""Statement Of Assets And Liabilities," and the "Residential Loan Application."(DocketNo. 148, Exhibits C, D, and "E respectfully).The Figards represented to PHH Mortgage that David Figard's monthly income was $3,300.00, and Rebecca Figard's monthly income was $1,516.67 for a total household monthly income of $4,816.67.(DocketNo. 148, Exhibits C and E).These documents, along with a "Federal And State Compliance Document"(DocketNo. 148, Exhibit F) and "Request for Transcript of Tax Return"(DocketNo. 148, Exhibit G), were sent to the Figards for their signatures.(DocketNo. 147, ¶ 13).

The "Federal And State Compliance Document" included, inter alia, a"Good Faith Estimate of Settlement Costs," and an "Initial Truth-In-Lending Disclosure."Based upon information provided by the Figards over the phone to PHH Mortgage, the "Good Faith Estimate of Settlement Costs" estimated that the total monthly payment for the Figards would be $709.05.²(DocketNo. 148, Exhibit F).The "Initial Truth-In-Lending Disclosure" indicated that the total amount financed would be $58,143.56 with an annual percentage rate ("APR") of 11.70591%.³(Id.).This would yield a finance charge⁴ of $124,660.06 for a total payment of $182,803.62 at the completion of all payments.(Id.).

PHH Mortgage generated a Fannie Mae Underwriting Findings report ("Underwriting Findings") using the information provided by the Figards and the Fannie Mae Desktop Underwriter software.⁵(DocketNo. 148, Exhibit J).According to the Underwriting Findings, the Figards met Fannie Mae's eligibility requirements and were recommended for an Expanded Approval Risk Level III loan.(Id.).

Fannie Mae required a 35% minimum mortgage insurance coverage for all mortgages with a loan-to-value ratio⁶ greater than 95%.(DocketNo. 148, Exhibit K).As the Figards were seeking to acquire a mortgage loan of $58,143.56 on property valued at $60,000.00, they had a loan-tovalue ratio of approximately 97%.⁷Thus the Underwriting Findings required 35% minimum mortgage insurance coverage.

The Figards signed the documents that were sent to them by PHH and returned them along with copies of their most recent pay stubs and tax information.(DocketNo. 148, Exhibit A, R. FigardDep. 116:20-117:8, June 8, 2007).Once the pay stubs were provided, PHH recalculated the Figards' estimated monthly in'come.David Figard's monthly income was calculated to be $4,040.66 and Rebecca Figard's monthly income was calculated to be $1,244.42 for a combined household monthly income of $5,285.08.(DocketNo. 148, Exhibit M).These numbers were reflected on the "Residential Loan Application" provided to the Figards at their closing on October 27, 2004 which they signed.(DocketNo. 148, Exhibit T).

Using the new combined household income figure from the Figard's pay stubs, PITH Mortgage re-performed the Fannie Mae Underwriting Findings on October 26, 2004.(DocketNo. 148, Exhibit T; see also Docket No, 148, Exhibit O).The new Underwriting Findings found that the Figards qualified for the exact same Expanded Approval Risk Level III loan that they qualified for under the first Underwriting Findings which used the estimates the Figards provided over the telephone.(DocketNo. 148, Exhibit O).And, just like the previous Underwriting Findings, 35% minimum coverage of mortgage insurance was required.(Id.).The new Underwriting Findings did increase the total monthly payment of the Figards to $765.21 which was a $56.17 increase over the previous estimate.⁸(Id.).

The Figards closed on their new home on October 27, 2004.(DocketNo. 170, Exhibit 3, R. FigardDep. 141:21-24, June 8, 2007).Present at the closing were Mr. and Mrs. Figard, the closing attorney, Beverely Mears, Esq., the previous owner of the house, Thomas Stout, and a representative from Johnston Realty named Charolette.(DocketNo. 170, Exhibit 3, R: FigardDep. 141:25-142:7).There was no representative of PHH Mortgage present when the Figards closed on their home.(DocketNo. 170, ¶ 82).At closing the Figards were provided with the following documents: "Final Truth In Lending Disclosure""Initial Escrow Account Disclosure Statement"; a Note; the mortgage paperwork; and a "Residential Loan Application."(DocketNo. 147, ¶ 27).

The "Final Truth-In-Lending Disclosure" listed an APR of 11.69756% for the total amount financed of $58,232.95.⁹(Docket 148, Exhibit R).Coupled with the finance charge of $124,570.67, the Figards could expect a total payment of $182,803.62 over the life of the loan.(Id.).In addition, the Final Truth-In-Lending Disclosure informed the Figards of the following: (1) that the loan was fixed; (2) paying off their mortgage loan early would not result in a penalty and may entitle them to a refund of part of the finance charges; (3)they were giving PHH Mortgage a security interest in the property being purchased; and (4) and that someone purchasing their new home would not be able to assume the remainder of the mortgage on the original terms. (Id.).Both David and Rebecca Figard signed and dated this document at the closing.(Id.).

The "Initial Escrow Account Disclosure" gave the Figards an estimate of the activity they could expect to see in their escrow account during the first year of their mortgage loan payments.The estimate was based upon the Figards paying a monthly mortgage payment of $765.221¹⁰ of which $435.05 would be paid towards their principal and interest, and the remaining $330.17 would be placed into an escrow account.(DocketNo. 148, Exhibit I).The Figards signed and dated this document at the closing.(Id.).

The Figards signed a Note at closing which contained ten covenants along with an addendum pertaining to the timely payments rewards program.(DocketNo. 148, Exhibit H).In this agreement, the Figards promised to pay $60,000.00 plus interest at a yearly rate of 7.875% for thirty years.¹¹(DocketNo. 148, Exhibit H, ¶¶1, 2, and 3).In addition, the Note provided the Figards with details as to what the consequences were if the Figards failed to make their loan payments as required by the Note in the covenant entitled "Borrower's Failure To Pay As Required."(DocketNo. 148, Exhibit H, ¶ 6).Included in this covenant was a provision which permitted the Note Holder, i.e., PHH Mortgage, to be entitled to the costs and expenses of enforcing the Note, which included reasonable attorney fees.(DocketNo. 148, Exhibit H, ¶ 6(e)).

The mortgage instrument granted PHH Mortgage a security interest in the 2321-23 16th Avenue property.(DocketNo. 148, Exhibit S).Under "Uniform Covenants" in the section titled "Payment of Principal, Interest, Escrow Items, Prepayment Charges and Late Charges" the mortgage instrument indicated, inter alia, that PHH Mortgage has both the right to retain and reject any payment or partial payment that is insufficient to bring the loan current.(Docket No. 148, Exhibit...