McCutcheon v. America's Servicing Co.
| Decision Date | 20 March 2009 |
| Docket Number | No. 07-3742.,No. 07-3521.,07-3742.,07-3521. |
| Citation | 560 F.3d 143 |
| Parties | M. Clark McCUTCHEON, Appellant No. 07-3521 v. AMERICA'S SERVICING COMPANY; Fremont Investment & Loan Company; United Home Savings, LLC. M. Clark McCutcheon v. America's Servicing Company; Fremont Investment & Loan Company; United Home Savings, Lie. Fremont Investment & Loan Company, Appellant No. 07-3742. |
| Court | U.S. Court of Appeals — Third Circuit |
David A. Scholl, Esq. (Argued), Regional Bankruptcy Center of Southeastern PA, Newtown Square, PA, for Appellant.
Sandhya M. Feltes, Esq. (Argued), Kaplin, Stewart, Meloff, Reiter & Stein, Blue Bell, PA, for Appellee Fremont Investment & Loan Co.
Ann E. Walters, Esq. (Argued), Shimberg & Friel, Cherry Hill, NJ, for Appellee America's Servicing Co.
Before: FUENTES, FISHER, and ALDISERT, Circuit Judges.
M. Clark McCutcheon obtained a variable-rate mortgage on his home in December 2005. He challenged the validity of that mortgage in July 2006, filing suit against the mortgage broker, the mortgage lender, and the mortgage servicer. After a bench trial, McCutcheon was awarded some of the relief he sought when the District Court found that the mortgage lender, Fremont Investment & Loan Company ("Fremont"), must pay him statutory damages and attorneys' fees because it had overcharged him for title insurance in violation of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. But McCutcheon believed he was entitled to rescind the mortgage entirely. On appeal, his principal argument is that Fremont's charging error was large enough to allow him to rescind the mortgage under TILA because the full title insurance fee, not just the excess, should count as a charge levied in violation of the statute. McCutcheon also disputes the District Court's judgment regarding the statutory tolerance applicable to the title insurance overcharge and whether he received certain variable-rate disclosures required under TILA. For the reasons below, we will affirm the District Court's judgment in all respects.
Appellant M. Clark McCutcheon is an elderly man who lives on a retirement income of around $2600-$2900 per month. He resides in a Philadelphia home with a mortgage that he has refinanced several times since 1980. A broker that had been involved in one of the prior refinancings, Defendant United Home Savings, LLC ("United") began soliciting McCutcheon to refinance again in 2005. According to McCutcheon, he received paperwork regarding the mortgage loan for the first and only time on the evening of December 23, 2005, when an individual from the broker's office showed up at his home with papers to sign for the loan. At trial, McCutcheon testified that he could not read the paperwork at that time because he has glaucoma and the lighting at his house was dim, but he signed the loan documents anyway.
McCutcheon finally looked over the paperwork several days later, in early January 2006, and discovered it described a $405,000 variable-rate loan from Fremont, with an initial annual percentage rate of 11.868% and monthly payments totaling approximately $3500 to $4000. The documents contained a falsely inflated statement of McCutcheon's monthly income and disclosed a title insurance fee of $2383.
McCutcheon made the first few payments on the mortgage out of approximately $10,000 in cash he had received at settlement, but was soon unable to continue making payments. On May 1, 2006, the loan was assigned by Fremont to America's Servicing Company ("ASC"). On May 26, 2006, McCutcheon's attorney sent a letter to ASC and Fremont attempting to rescind the loan. ASC did not respond directly to the May 26 letter; it simply sent McCutcheon an "Act 91 letter" on July 3, 2006, pursuant to 35 Pa. Stat. Ann. § 1680.403c,1 notifying him that it intended to initiate a foreclosure action against him. ASC never actually initiated foreclosure proceedings.
McCutcheon filed suit on July 17, 2006, in the Eastern District of Pennsylvania, against Fremont, ASC, and United. His complaint alleged that Fremont and ASC had violated the Truth in Lending Act by overcharging for title insurance and failing to make required variable-rate disclosures; that ASC had violated the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605, by failing to respond to his rescission letter within 20 days of receipt; and that United had violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Stat. Ann. § § 201-1 et seq. McCutcheon sought both damages and rescission of the mortgage. Fremont brought a cross-claim against United seeking indemnification and contribution for any damages judgment, while ASC brought similar cross-claims against both Fremont and United.
The District Court held a bench trial at which McCutcheon and a Fremont employee testified, with the latter claiming that Fremont had mailed McCutcheon the necessary variable rate documents on December 20, 2005, and offering certain business records in support. In a written order outlining its decision, the District Court concluded that ASC had failed to respond to a written request for rescission within 20 days in contravention of RESPA, but that there had been no damages as a result. As to the TILA claims, the District Court determined that the title insurance charge of $2383 was overstated by $668 because Fremont should have only charged McCutcheon the refinance insurance rate of $1719. The District Court also found that McCutcheon had timely received the required variable rate disclosures and simply failed to read them.
Despite concluding that Fremont had violated TILA, the District Court held that because the excess $668 fee did not exceed TILA's statutory tolerance for minor violations of one-half of one percent of the loan amount (in this case, $2025), McCutcheon could not rescind the mortgage. Therefore, it awarded McCutcheon only statutory damages of $1000 and reasonable attorneys' fees. The District Court also held that ASC was not liable for any TILA violations. Since it had not originated McCutcheon's loan, ASC could be held accountable only for statutory violations apparent on the face of the loan documents, and the judge found no such obvious violations. See 15 U.S.C. § 1641.
McCutcheon timely appealed the District Court's judgment. Meanwhile, he also requested attorneys' fees of $14,851 from the District Court, while Fremont argued that an award of $4234 was appropriate. The District Court, without explanation, awarded McCutcheon attorneys' fees in the amount of $10,000. Fremont cross-appeals that order.
The District Court exercised its jurisdiction over this action under 28 U.S.C. § 1331. We have jurisdiction pursuant to 28 U.S.C. § 1291.2
On the appeal of a bench trial, we review a district court's findings of fact for clear error and its conclusions of law de novo. Am. Soc'y for Testing & Materials v. Corrpro Cos., 478 F.3d 557, 566 (3d Cir.2007). We review the District Court's attorneys' fees determination for abuse of discretion. In re AT & T Corp., 455 F.3d 160, 163-64 (3d Cir.2006).
McCutcheon challenges three aspects of the District Court's decision: the ruling that Fremont need only have disclosed the $668 title insurance overcharge as a finance charge under TILA, rather than the whole title insurance fee; the determination that the applicable TILA tolerance was $2025 rather than the $35 tolerance triggered by the initiation of foreclosure; and the finding that Fremont had properly given McCutcheon the required variable rate disclosures.
The Truth in Lending Act regulates the relationship between lenders and consumers, including mortgagees and mortgagors, by requiring certain disclosures regarding loan terms and arrangements. Among other things, lenders must disclose the applicable "finance charge" for a mortgage, defined as "the sum of all charges ... imposed directly or indirectly by the creditor as an incident to the extension of credit," such as interest, service charges, borrower-paid broker fees, and so on. 15 U.S.C. § 1605(a); see also id. § 1632(a). If a mortgage lender does not include such a charge in the finance charge, it has violated the Act. However, TILA leaves some room for small errors; under the statute's "tolerances for accuracy" provision, 15 U.S.C. § 1605(f), damages may be awarded for such a disclosure violation only if "the amount disclosed as the finance charge ... [varies] from the actual finance charge by more than $100." Id. § 1605(f)(1)(A). A mortgagor may rescind in response to a disclosure error, meanwhile, only if, among other things, the amount disclosed as the finance charge varies from the actual finance charge "by more than an amount equal to one-half of one percent of the total amount of credit extended" — here, $2025.3 Id. §§ 1605(f)(2)(A), 1635(f), 1649(a)(3); see also 12 C.F.R. § 226.23(g)(1) (reiterating tolerance standard).
A fee for title insurance is generally exempted from inclusion in the finance charge. 15 U.S.C. § 1605(e)(1). However, title insurance is treated as a finance charge if is not "bona fide and reasonable in amount." 12 C.F.R. § 226.4(c)(7). McCutcheon contends that Fremont deliberately padded the title insurance fee as part of a larger pattern of overcharges, and thus the entire $2383 was not bona fide. He therefore suggests that the whole title insurance fee, rather than just the overcharge of $668, should have been counted toward the $2025 tolerance.
This is an impermissible reading of 12 C.F.R. § 226.4(c)(7). First, such an application of that regulation would be inconsistent with the language of § 1605(f), which bases the tolerance calculation on whether "the amount disclosed as the finance charge ... does not vary from the actual finance charge by more than" the specified amount. (Emphasis added.) In this case, had Fremont not overcharged McCutcheon by $668, the proper ...
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