Moses v. Citicorp Mortg., Inc., 97 CV 837(NG).

• Decision Date: 26 November 1997
• Docket Number: No. 97 CV 837(NG).,97 CV 837(NG).
• Citation: 982 F.Supp. 897
• Parties: Edward MOSES and Susan Moses, on behalf of themselves and all others similarly situated, Plaintiffs, v. CITICORP MORTGAGE, INC. and Citicorp, Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 897

982 F.Supp. 897

Edward MOSES and Susan Moses, on behalf of themselves and all others similarly situated, Plaintiffs, v. CITICORP MORTGAGE, INC. and Citicorp, Defendants.

No. 97 CV 837(NG).

United States District Court, E.D. New York.

November 26, 1997.

Roger W. Kirby, Daniel Hume, Kaufman, Malchman, Kirby & Squire, LLP, New York, NY, for Plaintiffs.

Thomas J. Kavaler, Jonathan R. Donnellan, Cahill, Gordon, & Reindel, New York, NY, for Defendants.

OPINION AND ORDER

GERSHON, District Judge.

In February 1997, this proposed class action was filed against defendants Citicorp Mortgage, Inc. ("CMI") and Citicorp. Defendants have moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Now pending before the court are both the motion to dismiss and plaintiffs' responsive motion to correct the caption.

MOTION TO CORRECT THE CAPTION

In response to defendants' argument that the complaint should be dismissed because plaintiffs have no standing, plaintiffs have moved to correct the caption. It is undisputed that Edward and Susan Moses, who are the sellers of the residential real estate involved in the transaction that is at issue in this case, should not have been listed as plaintiffs. Instead, Allen and Sharon Schneider, who borrowed money in order to buy the property, are the proper plaintiffs. Plaintiff's counsel represents that the names of Edward and Susan Moses, rather than Allen and Sharon Schneider, were inserted in the caption of the complaint through inadvertence. Although defendants oppose the motion, their motion to dismiss is devoted primarily to arguing that, even had the complaint named the Schneiders as plaintiffs, it should be dismissed. Defendants therefore will not be prejudiced by the naming of the Schneiders as plaintiffs in the complaint. The motion to amend the caption is accordingly granted, and the caption of the case is hereby amended to substitute Allen and Sharon Schneider as plaintiffs in place of Edward and Susan Moses. Throughout this opinion, any reference to "plaintiffs" is a reference to the Schneiders.

MOTION TO DISMISS

"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). For purposes of a motion to dismiss, the allegations of the complaint must be taken at face value. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 515, 92 S.Ct. 609, 614, 30 L.Ed.2d 642 (1971).

Allegations of the Complaint

The complaint alleges the following facts pertinent to both the named plaintiffs and the members of the putative class¹: Defendants, who are lenders in mortgage transactions, obtain mortgage business primarily from referrals by independent mortgage brokers. Plaintiffs and other members of the proposed class, as borrowers, pay mortgage brokers a fee for procuring mortgage loans for them from lenders, such as defendants. Mortgage brokers who work with defendants receive a fee not only from the borrowers, but also from defendants. And, based upon "side agreements and understandings" with mortgage brokers, defendants pay mortgage brokers "premium" payments if the brokers agree to inflate their customers' interest rates and loan terms. As a result of those agreements and understandings, the mortgage brokers "did not advise plaintiffs or the class of the actual interest rates and loan terms they were approved for, but instead advised the plaintiffs and class members that they had been approved at interest rates and points which were higher than the actual rates [defendants were] prepared to charge." Consequently, without knowing that defendants were prepared to approve them for loans on more favorable terms, plaintiffs and proposed class members signed loan papers "at above-market interest rates and points charges which had been inflated to accommodate the `premiums' [defendants were] paying the mortgage brokers."

As to the named plaintiffs, the complaint alleges the following: Plaintiffs needed a home mortgage and hired IPI Financial Services ("IPI"), a mortgage broker, to find a mortgage loan. They agreed to pay IPI a $125 application fee. IPI then sent plaintiffs' mortgage loan application to defendants, who approved the application. At plaintiffs' loan closing in February 1997, plaintiffs signed papers for a mortgage loan from defendants in the net amount of $90,000. Plaintiffs paid the application fee of $125 to IPI, as well as an underwriting fee of $226. In addition, defendants paid to IPI $1913.40. The complaint describes that $1913.40 payment as duplicative of the $125 application, or origination, fee paid by plaintiffs. Finally, the complaint alleges that

[n]either IPI nor [defendants] ever disclosed to plaintiffs, and [plaintiffs did] not know, that the [$1913.40 payment] was actually going to their mortgage broker for its role in inducing plaintiffs to sign for a Citicorp mortgage loan at an interest rate above the rate which [defendants] had told IPI it would require to make the loan to them.

The complaint charges that the premium payments paid by defendants to mortgage brokers are not made in response to any actual services rendered and that, "[i]n fact, such payments by [defendants] are kickbacks made solely for steering plaintiffs and the class members to [defendants] for loans at interest rates and points charges higher than those [defendants] would have otherwise required." Plaintiffs thus claim that defendants' premium payments to mortgage brokers violate 12 U.S.C. § 2607, a provision of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., and 24 C.F.R. § 3500.14 ("Regulation X") in that they constitute payments for the referral of business and duplicative payments. Plaintiffs also claim that defendants' practice of paying premiums constitutes a deceptive business practice in violation of New York General Business Law § 349. Relying on their claim that they paid higher points and/or higher monthly payments than necessary as a result of the side agreements between defendants and IPI, plaintiffs seek treble damages under 12 U.S.C § 2607(d)(2)² and damages under New York General Business Law § 349(h), as well as attorneys' fees, litigation expenses, and costs.

RESPA and Its Implementing Regulations

The primary question raised by defendants' motion is whether the complaint states a claim under RESPA. Congress enacted RESPA in response to its finding that "significant reforms in the real estate settlement process are needed to insure that consumers ... are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country." 12 U.S.C. § 2601(a). Two of the purposes of RESPA are to "effect certain changes in the settlement process for residential real estate that will result — (1) in more effective advance disclosure to home buyers and sellers of settlement costs; [and] (2) in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services...." 12 U.S.C. § 2601(b). Under the provisions of RESPA, "settlement services" include "the origination of a federally related mortgage loan³ (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of loans)...." 12 U.S.C. § 2602(3).

12 U.S.C. § 2607 prohibits certain practices in connection with settlement services involving a federally related mortgage loan. Specifically, Section 2607(a) prohibits referral fees:

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

12 U.S.C. § 2607(a). And Section 2607(b) prohibits splitting charges:

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607(b). Section 2607(c) goes on to explain that "[n]othing in this section shall be construed as prohibiting ... the payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed...." 12 U.S.C. § 2607(c).

RESPA confers on the Secretary of the Department of Housing and Urban Development ("HUD") the authority to prescribe rules and regulations to achieve the purposes of the Act. See 12 U.S.C. § 2617(a). The regulation adopted by HUD to fulfill its mandate is known as Regulation X. See 24 C.F.R. § 3500 et seq. Discussing the prohibition in 12 U.S.C. § 2607(b) on a split of charges, Regulation X provides that "[a] charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section." 24 C.F.R. § 3500.14(c). In addition, 24 C.F.R. § 3500.14(f), addressing the prohibition in 12 U.S.C. § 2607(a) on referral fees, defines "referral" as "includ[ing] any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business. ..." Id.

Whether the Complaint States a Claim Under RESPA

The complaint alleges that defendants pay mortgage brokers "premium" payments in exchange for the brokers' agreement to...