Kerby v. Mortgage Funding Corp., CIV.A. CCB-97-1509.

• Decision Date: 08 January 1998
• Docket Number: No. CIV.A. CCB-97-1509.,CIV.A. CCB-97-1509.
• Citation: 992 F.Supp. 787
• Parties: Stephen W. KERBY and Deborah A. Kerby, on behalf of themselves and others similarly situated v. MORTGAGE FUNDING CORPORATION, Major Title Group, Inc., Severn Savings Bank, F.S.B., Countrywide Funding Corp., ABC Corp., a presently unidentified business entity or entities, Mark H. Friedman, Alan J. Hyatt and John Doe, a presently unidentified individual or individuals.
• Court: U.S. District Court — District of Maryland

992 F.Supp. 787

Stephen W. KERBY and Deborah A. Kerby, on behalf of themselves and others similarly situated v. MORTGAGE FUNDING CORPORATION, Major Title Group, Inc., Severn Savings Bank, F.S.B., Countrywide Funding Corp., ABC Corp., a presently unidentified business entity or entities, Mark H. Friedman, Alan J. Hyatt and John Doe, a presently unidentified individual or individuals.

No. CIV.A. CCB-97-1509.

United States District Court, D. Maryland.

January 8, 1998.

COPYRIGHT MATERIAL OMITTED

Jerold J. Oppel, John M.G. Murphy, Kelly A. Cameron, Ober, Kaler, Grimes & Shriver, Baltimore, MD, for Plaintiff.

Michael Schatzow, John A. McCauley, W. Anne Hamel, Venable, Baetjer & Howard, Baltimore, MD, Gerald M. Richman, Ellicott City, MD, for Mortgage Funding & M. Friedman.

Jeffrey Hines, Craig S. Brodsky, Eccelston & Wolf, Washington, DC, for Major Title.

Benjamin Rosenberg, Gerard J. Gaeng, Esq., Timothy Boucher, Rosenberg, Proutt, Funk & Greenberg, Baltimore, MD, for Severn S.B. & Alan Hyatt.

Joseph Kolar, Margo H.K. Tank, Goodwin, Procter & Hoar, Washington, DC, for Countrywide.

MEMORANDUM

BLAKE, District Judge.

Now pending are the defendants' motions to dismiss various counts of this putative class action arising out of an alleged fraudulent mortgaging refinancing scheme. Plaintiffs, the Kerbys (on behalf of themselves and others similarly situated), allege thirteen counts, which include against all defendants violations of the following federal statutes, upon which this court's jurisdiction is based: the Real Estate Settlement Procedures Act of 1974 ("RESPA"), 12 U.S.C.A. §§ 2601 — 2617 (West 1989 & Supp.1997), the Truth in Lending Act ("TILA"), 15 U.S.C.A. §§ 1601 — 1667f (West 1982 & Supp.1997), and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C.A. §§ 1961 — 1968 (West 1984 & Supp.1997). The remaining counts consist of pendent state law claims against some or all defendants, including common law fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, intentional interference with contractual relations, civil conspiracy, and violation of the Maryland Consumer Protection Act. Punitive damages under Maryland laws are also sought.

BACKGROUND

According to their First Amended Complaint, the Kerbys bought and financed their home in 1986, when home mortgage interest rates were relatively high. Rates began to decline in the early 1990s, and refinancing became an attractive option to many homeowners. The various defendants allegedly agreed to violate numerous laws in order to profit from this suddenly hot refinancing market, in which they refinanced mortgages for members of the class of plaintiffs that the Kerbys purport to represent.

The defendants allegedly plotted and executed a successful conspiracy by which defendant Mortgage Funding Corporation ("Mortgage Funding") would be the conduit for highly profitable mortgage loans, from which each defendant would realize a portion of the proceeds. Mortgage Funding obtained its refinancing clientele by promising potential borrowers the "lowest mortgage rate available." (Pl.'s 1st Am. Compl. ¶ 15.) Accordingly, in late summer 1993 the Kerbys received a telephone call from a mortgage broker, believed and relied upon his or her promise to give them the lowest available refinancing rate, and submitted an application which Mortgage Funding approved.

The scheme involved a number of players. Mortgage Funding, having been formed by defendant Mark H. Friedman to capitalize on the hot refinancing market, was never intended to service the loans. Instead, Severn Savings Bank, F.S.B. ("Severn") "was chosen as the nominal `funder' of the loans." (Pl.'s First. Am. Compl. ¶ 22.) The loan was, however, "pre-sold" to defendant Countrywide Funding Corporation, which assumed the loan fourteen days after closing. The Kerbys discovered Severn's role as lender (but not Countrywide's later assumption of the loan) at the closing on 14 September 1993, when Severn gave them the RESPA-required Good Faith Estimate of Settlement Costs containing Severn's name and address at the top of the document. (Id. Ex. A.) Defendant Major Title Group, Inc. ("Major Title"), another entity formed and controlled by Mr. Friedman, was the settlement agent. In addition to itemizing the closing costs totaling $5,785.25, payable to Severn, the Good Faith Estimate stated:

These estimates are provided pursuant to the Real Estate Settlement Procedures Act of 1974, as amended (RESPA).... The estimates are based on the charges generally made by The Major Title Group, [address]. This loan originated with Mortgage Funding Corporation (MFC). Mortgage Funding assigns a substantial amount of its applications to Severn Savings Bank, who then becomes the "Lender" to you, the Borrower. Mortgage Funding has common ownership with The Major Title Group.

You may select your own attorney or title company to perform the settlement of your loan. No matter who you choose as settlement agent, the agent must be approved by the Bank and settlement must take place in accordance with the forms and procedures as the Bank deems necessary. *If you do select a settlement agent other than The Major Title Group, The Major Title Group will review forms on behalf of the Bank and will still charge you a review fee in the amount of approximately $250.00.

The Good Faith Estimate should have been given to the Kerbys within three calendar days of receipt of their application. See 24 C.F.R. § 3500.7(b). The reason for the delay, according to the Kerbys, was that the Good Faith Estimate was intentionally misleading in that it concealed certain illegal kickbacks; by not providing it until closing, the defendants ensured "that the document would be essentially lost in the avalanche of documents typically involved in a real estate settlement, and would lessen the chance that the borrower would discover and challenge the inaccuracies." (Id. ¶ 18.) This strategy apparently worked, as the Kerbys only discovered the alleged misrepresentations more than three years after closing.

According to an internal Severn document entitled "Funding Detail," (id. Ex. C.), the Kerby refinancing resulted in the following payments to the defendants from a $116,350 loan. Severn received $540.88 for holding the "pre-sold" loan for 14 days. Mortgage Funding received from Severn $5,304.39 for its brokering efforts. $2,296.25 of this amount was disclosed to the Kerbys on the HUD-1 Settlement Statement (which is a federally-required statement of actual closing costs, as compared with the statement of estimated closing costs in the Good Faith Estimate) as closing costs payable to Severn. (Id. Ex. B.) The balance came from Countrywide, the ultimate lender, in the form of an alleged illegal kickback, sometimes called a "yield spread premium," which is basically a commission paid to a mortgage broker for generating an above-par interest rate loan. Countrywide paid Severn this amount, which Severn paid to Mortgage Funding. The Kerbys reason that, "if the ultimate funder were willing to pay this substantial amount to obtain the loan instruments, one might conclude that the rate was too high, and further negotiation might well secure a lower rate. In fact, this is precisely the theory behind the disclosure requirements of federal law." (Id. ¶ 29.)

ANALYSIS

1. Jurisdiction Over the RESPA and TILA Claims

Count 1 alleges that the yield spread premium paid by Countrywide and received by Severn is a prohibited "kickback" under RESPA, 12 U.S.C.A. § 2607(a). Count 3, also brought under RESPA, alleges that Mortgage Funding, Severn, ABC and Doe split this kickback between them in violation of 12 U.S.C.A. § 2607(b). Count 2 alleges that the defendants violated various provisions of TILA and the regulations thereunder by failing to disclose the yield spread premiums.

The defendants claim that these counts are barred because the statute of limitations has run. The Kerbys agree that the time limits under the two statutes have passed, but claim that fraudulent concealment on the part of the defendants equitably tolled the statute of limitations until they reasonably could discover the violations. The defendants argue in reply that the time limitations contained in RESPA and TILA are jurisdictional rather than procedural, and, thus, the Kerbys are foreclosed even from arguing that the defendants' conduct tolled the statute. Accordingly, the issue presented on this motion is the narrow one of whether the principle of equitable tolling can ever apply to the limitations periods in RESPA and TILA — an issue over which courts are in disagreement.

The two provisions are similar, and will be analyzed together. RESPA provides in relevant part:

§ 2614 Jurisdiction of courts; limitations

Any action pursuant to the provisions of section 2605, 2607, or 2608 of this title may be brought in the United States district court or in any other court of competent jurisdiction, ... within 3 years in the case of a violation of section 2605 of this title and 1 year in the case of a violation of section 2607 or 2608 of this title from the date of the occurrence of the violation ....

12 U.S.C.A. § 2614. TILA provides in relevant part:

Jurisdiction of courts; limitations on actions

(e) Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation. This subsection does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law.

15 U.S.C.A. § 1640(e).

"The basic question to be answered in determining whether, under a given set of facts, a statute of limitations is to be tolled, is...