In re McConnell

• Decision Date: 30 May 2008
• Docket Number: Adversary No. 07-07034-JAD.,Bankruptcy No. 06-70724-JAD.
• Citation: 390 B.R. 170
• Parties: In re Roy J. McCONNELL, Debtor. Roy J. McConnell, Plaintiffs, v. K-2 Mortgage, d/b/a The Real Estate Closing Company, LLC, Decision One Mortgage Company, LLC, Washington Mutual Home Loans, M & T Bank, Countrywide Home Loans, and HSBC Mortgage Services, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

Page 170

390 B.R. 170

In re Roy J. McCONNELL, Debtor Roy J. McConnell, Plaintiffs, v. K-2 Mortgage, d/b/a The Real Estate Closing Company, LLC, Decision One Mortgage Company, LLC, Washington Mutual Home Loans, M & T Bank, Countrywide Home Loans, and HSBC Mortgage Services, Defendant.

Bankruptcy No. 06-70724-JAD.

Adversary No. 07-07034-JAD.

United States Bankruptcy Court, W.D. Pennsylvania.

May 30, 2008.

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Mary K. Wheeler, Ebensburg, PA, for Debtors/Plaintiffs.

Michelle K. Carson, for Decision One Mortgage Company and HSBC Mortgage Services.

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 To Dismiss Pursuant To Fed.R.Bankr.P. 7012 and Fed.R.Civ.P. 12(b)(6) ("Motion To Dismiss"), which has been filed by defendants Decision One Mortgage Company, LLC ("Decision One") and HSBC Mortgage Services, Inc., ("HSBC Mortgage"). The Motion, insofar as it challenges the Plaintiffs standing to prosecute this Adversary proceeding, has been joined by defendant Countrywide Home Loans ("Countrywide").

I.

In evaluating a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, as incorporated herein by Federal Rule of Bankruptcy Procedure 7012, the Court must assume the facts alleged in the Complaint to be true and draw all factual inferences in favor of the non-moving party. In re Loranger Mfg. Corp., 324 B.R. 575, 577-78 (Bankr.W.D.Pa.2005) (citing Schrob v. Catterson, 948 F.2d 1402, 1405 (3d Cir.1991)). In order for a motion to dismiss to be successful, it must be clear that no relief could be granted to the plaintiff under any set of facts that could be proved consistent with the allegations in the complaint. hum v. Bank of America, 361 F.3d 217, 223 (3d Cir.2004) (citing Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)).

For the reasons set forth below, the Court finds that the Motion to Dismiss has merit. As a result, an Order will be entered which dismisses this Adversary Proceeding without prejudice to the Plaintiff filing a curative amendment within twenty (20) days.

II.

The causes of action in the Complaint consist primarily of various lender liability type claims against all of the defendants, including a claim for fraud (Count I), a claim for predatory lending (Count II), and a claim for alleged violations of the Pennsylvania Unfair Trade Practices And Consumer Protection Law (Count IV).¹

The factual allegations in the Complaint are not lengthy, and consist of the following:

• In early 2005, K-2 Mortgage solicited the Plaintiff about possibly refinancing the mortgage on Plaintiffs residence. (Docket No. 1, ¶ 14).²

• At some point in either January or February of 2005, the Plaintiff agreed to a refinancing, and the Plaintiff understood that the proceeds of the refinancing were to be used to satisfy an existing mortgage on his residence in favor of Washington Mutual and to payoff a vehicle loan owing M & T Bank. (Id. at ¶¶ 15-18). The Plaintiff also understood that the amount of the refinancing would be such that he would have a surplus of funds, and that the surplus would be used by the Plaintiff to make repairs to his residence. (Id.).

• On or about Friday, February 4, 2005,³ a representative of K-2 Mortgage visited Plaintiffs home for purposes of closing on the proposed refinancing. (Docket No. 1, 1119). During this meeting, the Plaintiff was accompanied by an acquaintance of his, a woman named Margaret Helsel, who is a codebtor with respect to the refinancing. (Id.); (see also Bankr. Case No. 06-70724-JAD, Docket No. 1, Sch. H).

• Ms. Helsel invited the representative into the Plaintiffs home so that the Plaintiff, Ms. Helsel, and the K-2 Mortgage representative could review and sign the necessary paperwork. (Docket No. 1, ¶ 19). Because the representative of K-2 Mortgage "was in a hurry," Plaintiff was allegedly precluded by K-2 Mortgage from reviewing the loan documents or asking questions about their content. (Id.).

• The Plaintiff, and Ms. Helsel, nonetheless executed the loan documents. Once the documents were signed, the representative of K-2 Mortgage departed with the signed paperwork, and left unsigned copies with the Plaintiff. (Id.).

• Over the weekend, the Plaintiff and Ms. Helsel attempted to read and review the documents that they had just signed. (Id. at ¶ 20). On the following Monday, February 7, 2005, Ms. Helsel contacted K-2 Mortgage and allegedly orally requested a recision of the loan that she and the Plaintiff had agreed to just a few days earlier. (Id. at ¶ 21). She was allegedly advised by K-2 Mortgage that it was "too late" to rescind the transaction because the loan documents had already been "sent ... in for processing." (Id.).

• The HUD-1 settlement statements attached to the Complaint are dated February 10, 2005 and list a disbursement date of February 15, 2005. (Docket No. 1, Exhibits 1 and 2). There is no explanation in the Complaint as to the varying dates between the HUD-1 settlement statement and the Plaintiffs allegation as to when the documentation provided by K-2 Mortgage was signed by the parties.

• The refinancing was in the form of two loans. In the settlement statements, Decision One Mortgage Company, LLC is identified as the lender and The Real Estate Closing Company is identified as the settlement agent for both loans. (Id.).

• With respect to the first loan, it was for $78,400.00, and settlement charges of $7,108.26 were incurred with respect to the closing of the same. (Docket No. 1, Exhibit 1). However, at closing two disbursements were actually to be made (one to Washington Mutual and one to M & T Bank) totaling $89,421.37 in aggregate.⁴ (Id.). The settlement statement with respect to the first loan states that the Borrowers, (i.e., the Debtor and Ms. Helsel) would have to disburse $18,129.63. This sum is essentially the shortfall between the amount of the first loan and the aggregate amount of the settlement charges coupled with the amounts owing to Washington Mutual and M & T Bank.⁵ (Id.).

• With respect to the shortfall, the Plaintiff funded it with the second loan. The second loan amount was for $19,600.00 with a total settlement charge of $1,470.37. (Docket No. 1, Exhibit 2). Once the settlement charges were deducted from the total amount of the loan, there was a total amount of $18,129.63 remaining. (Id.). This amount was disbursed to The Real Estate Closing Company as indicated in Section M of the settlement statement entitled "Disbursement To Others." (Id.). There is no explanation in the Complaint as to why the transaction was structured as two loans as opposed to just one loan; and it is apparent from the Complaint that no loan funds were left over for the Plaintiff to make repairs to his property.

• Prior to the closing on the loans, representatives of K-2 Mortgage allegedly promised the Plaintiff, among other things, that the loan would be an "affordable fixed rate mortgage." (Id. at ¶ 14). However, from the inception of the closing on the two loans, Plaintiff was unable to maintain payments on these obligations. (Id. at ¶ 22). The Plaintiff therefore alleges that K-2 Mortgage "knew or should have known that the Plaintiff and his friend would be unable to sustain the debt load inflicted by the transaction described above." (Id. at ¶ 27).

III.

In addition to the factual allegations set forth in the Complaint, the Court notes that on September 21, 2006, the Debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code. (Bankruptcy No. 06-70724JAD, Doc. No. 1). The Plaintiff proposed a repayment plan in his Chapter 13 case, and the plan form utilized by the Plaintiff states that "[p]roperty of the estate shall not re-vest in the Debtor until the bankruptcy case is closed." (Id at Doc. 8). This plan was confirmed on an interim basis by order of the Court dated December 14, 2006, and thus remains effective as of the date of this Memorandum Opinion. (Id. at Doc. 14).

The instant adversary proceeding was commenced upon the Plaintiff filing the Complaint against the six named defendants on July 15, 2007, which was more than two years after the closing of the loans at issue. (Docket No. 1). The Defendants Decision One and HSBC Mortgage filed their Motion To Dismiss on August 17, 2007.⁶ (Docket No. 7). A hearing was held on the Motion To Dismiss on January 18, 2008.

At the hearing on the Motion to Dismiss, the Plaintiff acknowledged that K-2 Mortgage was not an agent of Decision One with respect to the matters set forth in the Complaint, and that Decision One's role in this case is that it was merely the entity that made the loans to the Plaintiff. The Plaintiff, through counsel, however suggested that the defendants acted "in concert" with K-2 Mortgage and, as a result are equally liable for any alleged claims.

It also is not disputed by the Plaintiff that Defendants HSBC Mortgage and Countrywide had no involvement with the loans at issue. Rather, subsequent to the closing of the Decision One loans, both HSBC Mortgage and Countrywide merely obtained an assignment of the Plaintiffs first and second mortgage, respectively. It was also acknowledged at the hearing on the Motion to Dismiss that the lawsuit in question is property of the bankruptcy estate.

At the January 18, 2008 hearing, the Court requested that the parties file supplemental briefs in support of their respective positions. Because some of the defenses raised by Decision One and HSBC Mortgage brought into question the ability of Chapter 13 debtors to commence suit against creditors when such claims are property of the estate, the Court also authorized the Chapter 13 Trustee to intervene on a limited basis to solely be heard on the issue of whether Chapter 13 debtors have the...