Reese v. 1st Metropolitan Mortgage Co.
| Decision Date | 28 October 2003 |
| Docket Number | Civil Action No. 03-2185-KHV. |
| Parties | RICHARD REESE, SR. and TERRY J. REESE, Plaintiffs, v. 1ST METROPOLITAN MORTGAGE CO., and ABN AMRO MORTGAGE GROUP, INC., Defendants. |
| Court | Kansas Supreme Court |
MEMORANDUM AND ORDER
Richard Reese, Sr. and Terry J. Reese bring suit against 1st Metropolitan Mortgage Co. (1st Metropolitan") and ABN AMRO Mortgage Group, Inc. ("AAMG"), alleging that they violated the Truth In Lending Act, 15 U.S.C. § 1601 et seq., Regulation Z, 12 C.F.R. § 226, the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq., and the Kansas Consumer Protection Act, K.S.A. §§ 50-626, 627, 634 and 636. This matter comes before the Court on ABH AMRO Mortgage Group, Inc.'s Partial Motion To Dismiss (Doc. #10) filed May 19, 2003; the Motion Of Defendant 1st Metropolitan Mortgage Co. For Judgment On The Pleadings On Counts I And II (Doc. #16) filed June 9, 2003; and plaintiffs' Motion To Amend (Doc. #20) filed July 18, 2003. For reasons stated below, the Court sustains plaintiffs' motion and sustains defendants' motions in part.
Plaintiffs alleges the following facts:
Plaintiffs own property at 6940 Cottonwood Drive, Shawnee, Kansas. In February of 2002, plaintiffs saw an advertisement by 1st Metropolitan. Plaintiffs called 1st Metropolitan and said that they were interested in refinancing their home loan. In March of 2002, a representative of 1st Metropolitan went to plaintiffs' home to discuss the loan. During this visit, the representative did not give plaintiffs any documentation and plaintiffs did not sign any documents.
On March 18, 2002, the same representative returned to plaintiffs' home. The representative knew that plaintiffs wanted to refinance existing home mortgages and advised them that it was in their best interest to obtain a loan through 1st Metropolitan. Plaintiffs relied on this advice. At this second meeting, the representative gave plaintiffs several documents to sign, but he did not explain the documents or give them copies. One document was a promissory note and mortgage in favor of AAMG. Plaintiffs thereby entered into a consumer credit transaction with 1st Metropolitan and AAMG. The consumer credit was subject to a finance charge and was initially payable to refinance the existing mortgages on plaintiffs' home.
After plaintiffs signed the promissory note and mortgage, David Million, an agent of 1st Metropolitan who was not present at the meeting at plaintiffs' home, notarized plaintiffs' signatures. He back-dated the notarization to March 12, 2002 even though plaintiffs had signed the document on March 18, 2002.1
Plaintiffs allege that defendants violated (1) the Truth In Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. § 226, by advertising consumer credit in violation of the Act, entering a consumer transaction with plaintiffs without providing required disclosures, and failing to notify plaintiffs of their right to rescind (Count I); (2) the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., by not providing required disclosures (Count II); and (3) the Kansas Consumer Protection Act ("KCPA"), K.S.A. §§ 50-626, 627, 634 and 636, by not providing information and a good faith estimate of settlement expenses or notice of plaintiffs' right to rescind (Count III). First Amended Petition For Damages at 5-7, Exhibit 2 to Notice Of Removal Of Civil Action (Doc. #1) filed April 11, 2003.
AAMG asks the Court to dismiss Counts I and II, arguing that plaintiffs's TILA claim is timebarred and that RESPA does not provide a private cause of action. 1st Metropolitan seeks judgment on the pleadings on Counts I and II, making the same arguments as AAMG.
In ruling on a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well pleaded facts in the amended complaint and views them in a light most favorable to plaintiffs. Zinermon v. Burch, 494 U.S. 113, 118 (1990). The Court makes all reasonable inferences in favor of plaintiffs, and liberally construes the pleadings. Rule 8(a), Fed. R. Civ. P.; Lafoy v. HMO Colo., 988 F.2d 97, 98 (10th Cir. 1993). The Court may not dismiss a cause of action for failure to state a claim unless it appears beyond a doubt that plaintiffs can prove no set of facts in support of their theories of recovery that would entitle them to relief. Jacobs, Visconsi & Jacobs, Co. v. City of Lawrence, Kan., 927 F.2d 1111, 1115 (10th Cir. 1991). Although plaintiffs need not precisely state each element of their claims, they must plead minimal factual allegations on material elements that must be proved. Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991).
A motion for judgment on the pleadings under Rule 12(c), Fed. R. Civ. P., is governed by the same standards as a motion to dismiss under Rule 12(b)(6). See Mock v. T.G. & Y. Stores Co., 971 F.2d 522, 528 (10th Cir. 1992).
Defendants ask the Court to dismiss plaintiffs' claim under the TILA, arguing that it is barred because they filed this case more than one year after the loan transaction was consummated. The statute of limitations, 15 U.S.C. § 1640(e), provides that an action may be brought "within one year from the date of the occurrence of the violation." Id. Plaintiffs' second amended complaint alleges that defendants violated the TILA by advertising consumer credit and by entering a consumer transaction with plaintiffs on March 18, 2002 without providing required disclosures or notifying plaintiffs of their right to rescind.2 The second amended complaint does not specifically allege when defendants advertised consumer credit in violation of the TILA, but it alleges that plaintiffs responded to the advertisement in February of 2002. Plaintiffs did not file suit until March 17, 2003. Thus, any claim that defendants violated the TILA by advertising consumer credit is barred and must be dismissed. Plaintiffs' claim that defendants violated the TILA by entering a consumer transaction with them on March 18, 2002, without providing required disclosures and notifying them of their right to rescind, is within the one-year limitations period. The Court therefore overrules defendants' motions as to this claim.
Congress enacted RESPA in 1974 to provide consumers more information about the nature and costs of the settlement process and to protect them from unnecessarily high and abusive settlement charges. 12 U.S.C. § 2601. RESPA regulates the provision of real estate "settlement services," which are defined as "any service[s] provided in connection with a real estate settlement, including, but not limited to . . . the origination of a federally related mortgage loan." Id. § 2602(3).
Count II of plaintiffs' second amended complaint alleges that defendants did not provide the required RESPA disclosures and that defendants violated 12 U.S.C. §§ 2603 and 2604 of RESPA. Defendants ask the Court to dismiss plaintiffs' RESPA claim, arguing that Sections 2603 and 2604 do not provide a private cause of action. Plaintiffs respond that even though these specific sections do not expressly authorize a private cause of action, one is implied. The Tenth Circuit has not addressed this issue.
RESPA authorized the Secretary of Housing and Urban Development (the "Secretary") to develop a standard real estate settlement form to be utilized in all federally related mortgage loans.3 12 U.S.C. § 2603(a). The costs of settlement must be disclosed to the borrower prior to closing by means of this standard form.4 12 U.S.C. § 2605. In addition, the lender must complete and make available to the borrower either before or at settlement this uniform settlement statement reflecting the actual settlement costs.5 12 U.S.C. § 2603(b).
Section 2604(a) of Title 12 instructs the Secretary to prepare information booklets to lenders, which are designed to help borrowers.6 Section 2604(b) gives the Secretary discretion in prescribing the form and detail of these information booklets, but they must include in clear and concise language:
(1) a description and explanation of the nature and purpose of each cost incident to a real estate settlement;
(2) an explanation and sample of the standard real estate settlement form developed and prescribed under section 2603 of this title;
(3) a description and explanation of the nature and purpose of escrow accounts when used in connection with loans secured by residential real estate;
(4) an explanation of the choices available to buyers of residential real estate in selecting persons to provide necessary services incident to a real estate settlement; and
(5) an explanation of the unfair practices and unreasonable or unnecessary charges to be avoided by the prospective buyer with respect to a real estate settlement.
12 U.S.C. § 2604(b). Additionally, lenders must give borrowers a good faith estimate of charges for settlement services which they will likely incur in connection with settlement, id. § 2604(c), and lenders must distribute the informational booklet to loan applicants at time of receipt or preparation of applications.7 Id. § 2604(d).
To determine whether a federal statute implicitly creates a private cause of action, a court should determine (1) whether Congress created the statute for plaintiffs' special benefit; (2) whether Congress intended to create a private remedy; (3) whether a private remedy would be consistent with the legislative purpose; and (4) whether the area is so traditionally relegated to the states that it would be inappropriate to infer a cause of action based solely on federal law. Cort v. Ash, 422 U.S. 66, 78 (1975). The key inquiry is whether Congress intended to create a private right of action. See Schmeling v. NORDAM, 97 F.3d 1336, 1343-44...
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