Tree v. Paul Thomas Homes Inc
| Decision Date | 07 September 2010 |
| Docket Number | A10-182,File No. 27CV0720045,71CV091287 |
| Parties | Hawkins Tree and Landscaping, Inc., Plaintiff, v. Paul Thomas Homes, Inc., et al., Defendants, Andrew Rute, et al., Appellants, American Home Mortgage, a New York corporation, et al., Respondents. |
| Court | Minnesota Court of Appeals |
Hawkins Tree and Landscaping, Inc., Plaintiff,
v.
Paul Thomas Homes, Inc., et al., Defendants, Andrew Rute, et al., Appellants,
American Home Mortgage, a New York corporation, et al., Respondents.
File No. 27CV0720045
71CV091287
State Of Minnesota
In Court Of Appeals
Filed September 7, 2010
John R. Neve, Neve Law, P.L.L.C., Minneapolis, Minnesota (for appellants)
Rebecca F. Schiller, Reiter & Schiller, P.A., St. Paul, Minnesota; and Katherine M. Melander, Coleman, Hull & Van Vliet, P.L.L.P., Minneapolis, Minnesota (for respondents)
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. §480A.08, subd. 3 (2008).
Affirmed Stauber, Judge
Hennepin County District Court
Considered and decided by Stauber, Presiding Judge; Lansing, Judge; and Peterson, Judge.
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STAUBER, Judge.
On appeal from the district court's refusal to reopen a mortgage foreclosure judgment, appellant-mortgagors argue that the district court abused its discretion (1) by refusing to reopen the judgment based on respondents' Truth In Lending Act violations and respondents' lack of standing; (2) by granting respondents' motion for substitution of the parties; and (3) by refusing to enjoin the foreclosure of appellants' property. We affirm.
In February 2007, appellants Andrew and Gayla Rute sought to refinance their home mortgage through respondent American Home Mortgage (AHM). On February 20, 2007, Gayla Rute executed and delivered to AHM an adjustable rate note in the original principal amount of $1,365, 000. To secure payment of the indebtedness evidenced by the Note, the Rutes simultaneously executed and delivered to respondent Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for AHM, a mortgage securing the Rutes' home. The mortgage was registered in the office of the Hennepin County Registrar of Titles on March 9, 2007. Shortly thereafter, AHM assigned its interest in the adjustable rate note to Wells Fargo Bank, N.A.
In September 2007, Hawkins Tree and Landscaping, Inc. (Hawkins) commenced a mechanics-lien-foreclosure action against the Rutes, alleging that the Rutes failed to pay for landscaping services. AHM and MERS (collectively "respondents") were named as defendants in the action, along with the Rutes. Respondents subsequently filed a cross-
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claim against the Rutes seeking a judgment of the amount due and owing under the Note. Respondents also sought foreclosure of the Rutes' real property pursuant to the mortgage and a deficiency judgment in the event that the proceeds of the foreclosure sale were insufficient to satisfy the judgment.
The district court entered a default judgment against Gayla Rute and in favor of respondents in the amount of $1,497, 737.58, the principal and interest then owing on the Note. The court also ordered a sheriff's sale of the Rutes' property to satisfy the judgment, and further ordered a deficiency judgment against Gayla Rute in the event that the proceeds of the sale were not sufficient to satisfy the judgment. The sheriffs sale was scheduled for March 27, 2009.
On March 10, 2009, the Rutes sent correspondence to AHM, MERS, and Wells Fargo asserting their rights of rescission under the Truth In Lending Act (TILA). Two weeks later, the Rutes moved to reopen the foreclosure judgment and for a temporary restraining order enjoining the sheriffs sale. Following a hearing, the district court granted the motion for the temporary restraining order, postponing the March 27, 2009 foreclosure sale and scheduling an evidentiary hearing.
MERS assigned its interest in the mortgage to Wells Fargo on July 15, 2009. Shortly thereafter, the evidentiary hearing was held on the Rutes' motion to reopen the judgment and for a temporary injunction. At the hearing, Andrew Rute testified that shortly before the closing date of the refinance of their property, he and his wife discovered that the terms of the loan were different than originally communicated. Because they could not afford the proposed loan payments, Andrew Rute contacted Tonii
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Greene, the Rutes' "mortgage guy" and an employee of AHM. According to the Rutes, they were told by Greene that if they paid a $100,000 mortgage broker fee to J.T. Horizons, he would fix the loan after closing by promptly refinancing the Rutes into better, more favorable loan terms with lower, more affordable payments. In apparent reliance on Greene's statements, the Rutes closed on their refinancing with AHM and later wired $100,000 to J.T. Horizons. However, the $100,000 broker fee was never reduced to writing, and the Rutes never received the more favorable terms which Greene had promised. The Rutes also testified that, at the closing, they received only three Notices of Right to Rescind (NORs), which they claim was a violation of the TILA's requirement that they receive four NORs. Finally, the Rutes claimed that the TILA was violated because the interest rate on the Note was higher than the APR interest rate in the Truth in Lending Disclosure.
While the Rutes' motion to reopen the judgment and for a temporary injunction was under advisement, AHM, MERS, and Wells Fargo moved to have Wells Fargo substituted for AHM and MERS. The district court subsequently issued an order concluding that the Rutes did not have a reasonable defense on the merits based on the TILA or on standing. Thus, the court (1) denied the Rutes' motion to vacate the judgment and (2) denied the Rutes' motion for injunctive relief. The court also granted respondents' motion for substitution of the parties. This appeal followed.1
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A party may move the district court for relief from a final judgment on the ground of "mistake, inadvertence, surprise, or excusable neglect." Minn. R. Civ. P. 60.02(a). Whether to grant such a motion is discretionary with the district court, and its decision will not be reversed unless the district court clearly abused its discretion. Riemer v. Zahn, 420 N.W.2d 659, 661 (Minn. App. 1988). But interpretation of a statute is a question of law that is reviewable de novo. Reider v. Anoka-Hennepin Sch. Dist. No. 11, 728 N.W.2d 246, 249 (Minn. 2007).
Generally, to justify vacating a default judgment, the moving party must show that (1) he has a reasonable defense on the merits; (2) he has a reasonable excuse for his failing to answer; (3) he acted with due diligence after receiving notice of the judgment; and (4) no substantial prejudice will result to the plaintiff if the judgment is reopened. Hinz v. Northland Milk & Ice Cream Co., 237 Minn. 28, 30, 53 N.W.2d 454, 455-56 (1952).
The Rutes argue that (1) there were certain TILA violations that allow them to rescind their mortgage and (2) respondents lacked standing to bring an action under the Note and mortgage. The Rutes argue that either ground provides them with a basis to reopen the foreclosure judgment.
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A. Defenses under the TILA
The TILA's purpose is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing... practices." 15 U.S.C. § 1601(a) (2006); Wise Furniture v. Dehning, 343 N.W.2d 26, 28 (Minn. 1984). To effectuate its purposes, the TILA delegated broad regulatory and rulemaking powers to the Federal Reserve Board. 15 U.S.C. §§ 1602(a), 1604 (2006); see Bone v. Hibernia Bank, 493 F.2d 135, 138 (9th Cir. 1974). Acting under this authority, the Federal Reserve Board issued Regulation Z. 12 C.F.R. § 226.1. Courts have strictly enforced the requirements of the TILA and those of Regulation Z to promote the TILA's purpose of protecting consumers. Fairley v. Turan-Foley Imports, Inc., 65 F.3d 475, 479-80 (5th Cr. 1995).
Under the TILA, consumers have a right to rescind a mortgage loan until midnight of the third business day following the consummation of the transaction. 15 U.S.C. § 1635(a) (2006). However, certain violations of the TILA may extend the obligor's right to cancel beyond the initial period. See, e.g., 12 C.F.R. § 226.23(a)(3). Pursuant to Regulation Z, the obligor's right to rescind extends from three business days to three years if a creditor fails to deliver "the required notice or material disclosures" to the obligor. Id. But an obligor's right to rescind expires "upon the sale of the property." 15 U.S.C. § 1635(f) (2006).
The Rutes argue that there were three TILA violations: (1) a mortgage broker fee of $100,000 that was fraudulently obtained by a business affiliated with AHM's
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employees and was never disclosed in writing; (2) inaccurate disclosure of the annual percentage rate (APR) of the loan; and (3) an insufficient number of NORs provided at closing. The Rutes argue that any one of these three violations allows them to rescind their mortgage and provides them with a reasonable defense on the merits.2
Under the TILA, a creditor must disclose the finance charge and the method for determining the finance charge. 15 U.S.C. § 1602(u) (2006). These disclosures must be made "clearly and conspicuously in writing, in a form that the consumer may keep." 12 C.F.R. § 226.17(a)(1). If "the required notice or material...
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