Tatone v. SunTrust Mortg., Inc.

• Decision Date: 08 March 2012
• Docket Number: Civ. No. 11–1862 (MJD/JSM).
• Citation: 857 F.Supp.2d 821
• Parties: Aaron TATONE, Plaintiff, v. SUNTRUST MORTGAGE, INC., Nationstar Mortgage, LLC, et al.
• Court: U.S. District Court — District of Minnesota

857 F.Supp.2d 821

Aaron TATONE, Plaintiff,

v.SUNTRUST MORTGAGE, INC., Nationstar Mortgage, LLC, et al.

Civ. No. 11–1862 (MJD/JSM).

United States District Court, D. Minnesota.

March 8, 2012.

Kody B. Holker, Holker Law Offices, PLLC, Maple Grove, MN, for Plaintiff.

Benjamin E. Gurstelle, Briggs & Morgan, PA, Brent R. Lindahl, Minneapolis, MN, Christina M. Weber, Wilford, Geske & Cook, PA, Woodbury, MN, for Suntrust Mortgage, Inc., Nationstar Mortgage, LLC., et. al.

ORDER

MICHAEL J. DAVIS, Chief Judge.

The above matter came on before the Court on the Report and Recommendation of United States Magistrate Judge Janie S. Mayeron, dated February 13, 2012. No objections have been filed to that Report and Recommendation in the time period permitted.

Based on the Report and Recommendation of the Magistrate Judge, upon all the files, records and proceedings herein, the Court now makes and enters the following Order.

IT IS HEREBY ORDERED that:

1. Defendant Nationstar Mortgage, LLC's Motion to Dismiss with Prejudice or in the Alternative for Summary Judgment [Docket No. 2] is GRANTED and all claims against Nationstar are hereby dismissed with prejudice.

2. Defendant SunTrust Mortgage, Inc.'s Motion to Dismiss with Prejudice [Docket No. 4] is GRANTED in part and denied in part as follows:

a. Counts One through Six and Eight through Twelve are hereby dismissed with prejudice;

b. Count Seven (fraud) is hereby dismissed with prejudice to the extent the plaintiff has pled “fraud in the factum;”

c. Count Seven (common law fraud) is dismissed without prejudice.

3. All claims against Assured Mortgage Group LLC (a/k/a Anchor Home Finance, LLC), Burton Joseph, Investment Property Advisors, Inc., Brandon Flavin and Real Source Title, LLC are hereby dismissed without prejudice.

LET JUDGMENT BE ENTERED ACCORDINGLY.

REPORT AND RECOMMENDATION

JANIE S. MAYERON, United States Magistrate Judge.

The above-entitled matter came before the undersigned on defendant Nationstar Mortgage, LLC's Motion to Dismiss [Docket No. 2] and defendant SunTrust Mortgage, Inc.'s Motion to Dismiss [Docket No. 4]. Kody Holker, Esq. appeared on plaintiffs behalf. Benjamin E. Gurstelle, Esq. and Brent R. Lindahl, Esq. appeared on behalf of defendant SunTrust Mortgage, Inc. David Mortensen, Esq. appeared on behalf of defendant Nationstar Mortgage, LLC.

This matter was referred to the undersigned Magistrate Judge for a Report and Recommendation by the District Court pursuant to 28 U.S.C. § 636(b)(1)(B) and Local Rule 72.1.

I. BACKGROUNDA. Tatone's Complaint

Plaintiff Aaron Tatone sued SunTrust Mortgage, Inc. (“SunTrust”), Nationstar Mortgage, LLC (“Nationstar”) and others ¹ in Minnesota State District Court. Notice of Removal [Docket No. 1]. SunTrust Mortgage, Inc. removed the case to Federal District Court. Id.

Tatone's Complaint alleged the following: In November, 2007 the defendants ² “worked together” to lend Tatone funds to purchase property at 2358 Rushmore Road, Hastings, Minnesota (the “2358 Rushmore Rd. property”). Complaint, ¶ 10. Using the same real estate agent, mortgage broker and title company, Tatone closed on another property the same day (2403 Rushmore Road) and another property (2377 Rushmore Road) a week later. Id., ¶ 11. Tatone did not list his pending purchases of the other properties on his loan application for the 2358 Rushmore Road property. Id. Tatone alleged that all three of the properties are rental properties, defendants assured him that the real estate transactions were properly structured and that the rental income from the properties would exceed the monthly payments he would have to make. Id., ¶ 12. An unnamed “broker/real estate agent” provided a check for the down payment on each property and promised Tatone that the first year of payments would be made with funds from the closing. Id., ¶¶ 12, 17. Defendant Flavin, the real estate broker who coordinated the transaction, received a commission of $43,400 or 17.5% of the purchase price. Id., ¶ 19.

Tatone purchased the 2358 Rushmore Road property for $248,000 and the loan amount was $235,600 with 7.125% interest for thirty years. Tatone was to make interest only payments for the first 120 months. Complaint, ¶ 15. Tatone alleged that the assessed tax value of the property between 2008 and 2010 never approached the property's purchase price. Id., ¶ 16.

Tatone was timely with his mortgage payments at first, but then the “debt load sold to Tatone ... was too much of a burden for [him] to bear” and the 2358 Rushmore Road property went into foreclosure. Complaint, ¶¶ 13, 14. Tatone claimed that the underwriting on the mortgage was flawed because the lender failed to determine whether Tatone could repay the loan. Id. ¶ 18. Tatone's monthly income, other debts and mortgage payment on the 2358 Rushmore Road property yielded a debt to income ratio of 33.9%. Id., ¶ 21. However, the debt Tatone incurred in closing on the 2403 Rushmore Road property was not reflected on Tatone's loan application for the 2358 Rushmore Road property. Id., ¶ 23. See also Affidavit of Christina Weber (“Weber Aff.”), Ex. 2 (Uniform Residential Loan Application signed by Tatone) [Docket No. 22–1].

The Complaint alleged that defendants Flavin, Joseph and Real Source failed to disclose the 2403 Rushmore Road property and corresponding debt on Tatone's loan application for the 2358 Rushmore Road property. Complaint, ¶ 23. Adding the payments owed on the two properties yielded a debt to income ratio of 83.6% to 98.6%. Id., ¶ 24. “Although Defendant SunTrust was unaware of the mortgage from Countrywide/Bank of America, Defendants Flavin, Joseph, and Real Source were aware of the other mortgage and put Tatone in harms way with this loan.” Id.

Tatone further alleged that “troubling factors” came to light regarding the 2358 Rushmore Road property transaction, including “high debt to income ratios, lack of due diligence in underwriting, excess fees and charges, yield spread premium, high loan to value, payment shock and over leveraging.” Complaint, ¶ 25. Tatone complained that his ability to repay the loan on 2358 Rushmore Road was not considered and that defendants SunTrust and Nationstar ignored his requests for Qualified Written Requests under the Real Estate Settlement Procedures Act (“RESPA”), the Truth in Lending Act (“TILA”) “and other applicable state and Federal Statutes.” Id., ¶ 28. Tatone claimed that defendants were creditors within the meaning of TILA, defendants were legally obligated as fiduciaries to ensure that the transaction was legal and complied with RESPA and TILA, and must comply with TILA, RESPA, the federal Unfair and Deceptive Business Practices Acts, Minnesota Uniform Deceptive Trade Practices Act; the Minnesota Consumer Fraud Act, and Code of Federal Regulations § 226.23(3),³ “among others.” Id., ¶¶ 29–32.

Count One ⁴ of the Complaint sought a declaration that defendants had perpetuated a fraudulent loan transaction and the power of sale contained in the loan was of no force and effect because the loan violated state and federal law. Complaint, ¶¶ 33–35. Count Two sought injunctive relief to prevent the foreclosure of the property, asserting that Tatone would suffer irreparable injury if the foreclosure proceeded, because the real property “is unique,” he will lose the beneficial use and enjoyment of the property and his credit score will be damaged. Id., ¶¶ 36–38. Count Three alleged that defendants breached their duty of good faith and fair dealing by willfully withholding disclosures, withholding notices in regard to excessive fees and closing costs, using below standard underwriting, and by placing Tatone in a loan he could not afford to repay. Id., ¶¶ 39–43. Count Four alleged that defendants violated TILA by failing to make the requisite disclosures, and any applicable statutes of limitation were tolled as a result of defendants' failure to provide the required disclosures. Id., ¶¶ 45–47. Count Five alleged that defendants violated RESPA by charging excessive fees, including closing costs. Id., ¶¶ 50–52. Count Six sought rescission of the loan based on defendants' TILA and RESPA violations, fraudulent concealment, deceptive acts and practices and public policy grounds. Id., ¶¶ 54–56.

Count Seven alleged fraud. Complaint, ¶¶ 58–65. Tatone maintained that defendants induced him to enter into the loan by withholding relevant information from him. Id., ¶¶ 60, 61. Tatone also alleged that the loans were fraudulent because neither “SunTrust/Nationstar” nor Assured Mortgage Group, LLC performed adequate due diligence regarding Tatone's ability to repay the loans, Tatone was provided an unrealistic repayment schedule, and the underwriting was flawed. Id., ¶ 61. Tatone further pled “fraud in the factum,” which he asserted voided the “the instrument” (presumably the note or mortgage) because he was induced to sign without a reasonable opportunity to learn of the fraudulent character of “the instrument.” Id., ¶¶ 62, 63.

Count Eight alleged unfair business practices, based primarily on Tatone's assertion that defendants failed to disclose important facts about the loan to him and preyed upon his naivete. Complaint, ¶ 66. Tatone alleged that as a result of the defendants' “fraudulent, deceptive, unfair and other wrongful conduct ... Defendants have violated State and Federal law by consummating an unlawful, unfair and fraudulent business practice....” Id., ¶ 67.

Count Nine alleged that defendants breached their fiduciary duty to Tatone by failing to make disclosures to him regarding the loan and repayment terms. Complaint, ¶¶ 69–73.

Count Ten alleged that defendants engaged in “predatory lending”—a claim Tatone based on “the Office of the Comptroller of the Currency['s] defin[ition] of Predatory Lending as any lien secured by real estate which share well known common characteristics that result in Unfair and Deceptive Business Practices.” Complaint, ¶ 75. Tatone asserted that defendants'...