Wallace v. Midwest Financial & Mortg. Serv., Inc.

• Decision Date: 16 July 2010
• Docket Number: Civil Action No. 07-131-DLB
• Citation: 728 F.Supp.2d 906
• Court: U.S. District Court — Eastern District of Kentucky
• Parties: Harold C. WALLACE, Plaintiff v. MIDWEST FINANCIAL & MORTGAGE SERVICES, INC., et al., Defendants.

728 F.Supp.2d 906

Harold C. WALLACE, Plaintiff
v.
MIDWEST FINANCIAL & MORTGAGE SERVICES, INC., et al., Defendants.

Civil Action No. 07-131-DLB.

United States District Court,
E.D. Kentucky,
Northern Division,
at Covington.

July 16, 2010.

728 F.Supp.2d 909

Edward L. Jacobs, Bankemper & Jacobs, Ft. Thomas, KY, William H. Blessing, The Blessing Law Firm, Cincinnati, OH, for Plaintiff.

Harry D. Rankin, Michael T. Sutton, Sutton Rankin Law PLC, Edgewood, KY, Matthew W. Breetz, Stites & Harbison, PLLC, Louisville, KY, for Defendants.

Shane Soard, Florence, KY, pro se.

MEMORANDUM OPINION & ORDER

DAVID L. BUNNING, District Judge.

Plaintiff Harold Wallace avers that he was the victim of a scheme, perpetrated by various individuals and corporate entities, to defraud him by inducing him to enter into a large, high-interest mortgage with unfavorable terms through the use of fraudulent real estate appraisals. Plaintiff's Second Amended Complaint (Doc. # 132) alleges violations of the Racketeering Influenced Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1962(c)-(d), 1964(c); the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601-1667f; and the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §§ 2601-2617; in addition to claims arising under Kentucky state law for breach of contract, fraud, breach of fiduciary duty, and conspiracy.

This matter is currently before the Court on two motions for summary judgment: 1) Defendants Midwest Financial & Mortgage Services, First Financial Home Lending, Inc., David Schlueter and Bryan Bates' Motion for Summary Judgment (Doc. # 146), and 2) Defendant MortgageIT, Inc.'s Motion for Summary Judgment (Doc. # 149). Both motions have been fully briefed (Docs. # 150, 151, 155, 156), and the Court heard oral argument on July 2, 2010. Plaintiff was represented by Edward L. Jacobs, William H. Blessing, and Angela Wallace; Defendants Midwest Financial & Mortgage Services, Inc., David Schlueter, Bryan Bates, and First Financial Home Lending, Inc. were represented by Michael Sutton; and Defendant MortgageIT, Inc. was represented by Matthew W. Breetz and Richard Vance. Thus, the motions are ripe for review.

For the reasons that follow, because Plaintiff has demonstrated the existence of a genuine issue of material fact as to several of his claims, both motions for summary judgment will be granted in part and denied in part.

I. FACTUAL AND PROCEDURAL BACKGROUND

In October 2004, Harold Wallace purchased a new construction home at 2290 Berkshire Court in Florence, Kentucky for $272,316. (Doc. # 150, Ex. P). Wallace financed the purchase with an 80% loan-to-value option adjustable rate mortgage ("option ARM") from Washington Mutual.¹ Id. Approximately a year and a half later, Wallace obtained a $164,500 equity line of credit from Home Equity of America, Inc.² (Doc. # 163, Ex. 10).

In the summer of 2006, Wallace became interested in refinancing his existing loans and obtaining additional funds to pay for the renovation of his basement. The parties dispute exactly how Wallace came into contact with Midwest Financial & Mortgage Services, Inc. ("Midwest Financial"), a Kentucky mortgage brokerage owned and managed by David Schlueter and Bryan Bates. Wallace claims he responded to a mailed advertisement while Defendants contend that Wallace was referred to Midwest Financial by a home remodeler who had bid on Wallace's basement project.

728 F.Supp.2d 910

Regardless of this disagreement, it is undisputed that on July 31, 2006, Shane Soard, a Senior Loan Officer with Midwest Financial, called Wallace and arranged for the two to meet that evening at Wallace's home.

At their initial meeting, Wallace and Soard discussed Wallace's desire to procure $42,500 to finance his basement renovation, and Wallace completed a loan application. At the close of their meeting, Soard provided Wallace with a number of documents, including: a Good Faith Estimate of Settlement Charges, a Mortgage Loan Origination Disclosure, and an Adjustable Rate Mortgage Loan Disclosure Statement. Wallace signed each document, acknowledging its receipt. (Doc. # 149, Ex. D, E).

Following the submission of Wallace's loan application, Dan Bowman, Midwest Financial's office manager, arranged for Accupraise, Inc., a real estate appraisal company located outside of Cleveland, Ohio, to appraise Wallace's home. Accupraise, Inc. subsequently provided Midwest Financial with a Uniform Appraisal Report which valued Wallace's home at $500,000. (Doc. # 149, Ex. F). Soard called Wallace to inform him that his home had appraised for nearly double what Wallace had paid only two years before and that, due to Wallace's high credit score (745), he was eligible for a $500,000 loan. Wallace denied interest in such a large loan, and reiterated to Soard that he was only looking to refinance his existing loans and borrow an additional $42,500 to finish his basement.

Approximately a day later, Soard called and told Wallace that he qualified for a $425,000 loan. During this phone conversation, Wallace and Soard agreed on the terms of the loan and set the loan closing for August 18, 2006. However, their agreement was never put into writing, and the parties present differing accounts of the conversation. Wallace contends that instead of presenting a range of loan options, Soard "steered" him toward an option ARM-a complex loan product whose terms Wallace alleges he did not understand. In contrast, Soard asserts that he offered to provide Wallace with a 30-year fixed-rate mortgage, but that Wallace specifically requested an option ARM despite Soard's explanation of the nature of such loans and admonition that if Wallace only made the "minimum payment" each month "he would never catch up."

Midwest Financial then submitted Wallace's loan application, home appraisal and other documentation to MortgageIT, Inc., a New York mortgage lender, for approval. Based on the appraisal and Wallace's excellent credit history, MortgageIT, Inc. approved, underwrote, and funded a $425,000 option ARM with a 3-year pre-payment penalty.

The loan closed at Plaintiff's home on August 18, 2006. The closing was attended by Wallace, Soard, and a representative of Federated Land Title Agency, Inc. ("Federated"), a title and closing company contracted to handle the closing by Midwest Financial. During the closing, the agent from Federated reviewed each loan document with Wallace, including the Note, Mortgage (which included a pre-payment penalty rider and an adjustable rate rider), HUD-1 Settlement Statement, and the Truth in Lending Disclosure. Wallace signed each document. (Doc. # 85, Ex. D; Doc. # 106, Ex. N; Doc. # 163, Ex. 3). In addition, Wallace was notified in writing that he had three days to rescind the loan. (Doc. # 163, Ex. 5).

Four days after the closing, Soard mailed Wallace his $42,046.72 "cash out" check.³ Wallace used the funds to improve

728 F.Supp.2d 911

his basement; he built a theater room and a library, created a storm "safe room," and installed a full bath. The cash Wallace received from his refinance, however, did not go as far as he expected. Although it enabled him to finish his basement, it was not enough to allow Wallace to fill his newly-renovated space with "toys" such as a pool table and a large-screen TV. Consequently, in November 2006, believing he had at least $75,000 of unused equity left in his home, Wallace began shopping for another loan.

Based upon Wallace's good credit score and his representation that his house had been recently appraised at $500,000 two mortgage brokers offered Wallace low-interest loans. However, these offers were withdrawn once one of the brokers arranged for Wallace's house to be appraised and learned that the property was only worth around $375,000. Unable to refinance, Wallace remains obligated on the $425,000 option ARM.

Wallace filed the instant action on May 23, 2007, alleging that he was the victim of a fraudulent scheme in which Midwest Financial procured an inflated appraisal of his home and induced him to enter into a large adjustable rate mortgage in order to receive an illegal kickback from MortgageIT, Inc. Wallace's Complaint alleged violations of RESPA and TILA, and asserted various state-law claims. (Doc. # 1).

Wallace has twice amended his Complaint, adding Defendants and claims with each revision.⁴ (Docs.# 69, 132). Wallace's Second Amended Complaint alleges nine claims against eight Defendants-including claims for violations of RICO, RESPA, and TILA in addition to several state-law claims-and seeks a variety of relief including treble damages, attorney's fees and costs under RICO; treble damages and attorney's fees for the violation of RESPA; damages, rescission of his loan, and attorney's fees and costs under TILA; compensatory damages for the aggravation, embarrassment, and mental strain caused by Defendants' conduct; punitive damages; and a declaratory judgment that Defendants' conduct violated the law. (Doc. # 132).

II. ANALYSIS

A. Standard of Review

Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is not a genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "In deciding a motion for summary judgment, the court must view the evidence, and draw all reasonable inferences, in favor of the nonmoving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

"The moving party bears the burden of showing the absence of any genuine issues of material fact." Sigler v. Am. Honda Motor Co., 532 F.3d 469, 483 (6th Cir.2008). Once the movant has satisfied its burden, the nonmoving party must "do more than simply show that there is some metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co., 475 U.S. at 586, 106 S.Ct. 1348, it must produce

728 F.Supp.2d 912

evidence showing that a genuine issue remains, Plant v....