Laudani v. Tribeca Lending Corporation et al

The Clerk entered a default against the third defendant, Manhattan Financial1
Services, Inc., on February 5, 2008.
1
UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
NICHOLAS LAUDANI, Chapter 13
Debtor Case No. 07-15355-JNF
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NICHOLAS LAUDANI,
Plaintiff
v. Adv. P. No. 07-1433
TRIBECA LENDING CORPORATION,
FRANKLIN CREDIT MANAGEMENT
CORPORATION, MANHATTAN
FINANCIAL SERVICES, INC.,
Defendants
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the Motion for Partial Summary Judgment (the
“Motion”) filed by Franklin Credit Management Corporation (“Franklin”) and its wholly
owned subsidiary, Tribeca Lending Corporation (“Tribeca”)(collectively, the
“Defendants”). Through their Motion, the Defendants seek summary judgment with1
respect to seven of the twelve counts set forth in the Verified Complaint filed by Nicholas
Laudani (“Laudani” or the “Debtor”).
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Laudani executed an Occupancy Certification on March 31, 2006 in conjunction2
with the refinancing of the Property in which wrote: “I occupy this 3 family.”
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The Court conducted a hearing on both the Motion and the Debtor’s Objection on
November 5, 2008 and took the matter under advisement. The issues presented include
whether the Defendants have sustained their burden of establishing the absence of genuine
issues of material fact, and whether they are entitled to judgment as a matter of law. See
Fed. R. Civ. P. 56(c), made applicable to this proceeding by Fed. R. Bankr. P. 7056.
II. PROCEDURAL BACKGROUND
The Debtor, acting pro se, filed a voluntary Chapter 13 petition on August 24, 2007.
One month later, on September 24, 2007, he filed his Schedules. On Schedule A-Real
Property, he disclosed an ownership interest in 29 Beechglen Street, Roxbury,
Massachusetts, describing it as a four-family residence (the “Property”). The Debtor listed2
its value at $450,000, the same value ascribed to the property by the City of Boston for tax
purposes. He added: “. . . [b]ut property 2 doors from mine at Foreclosure did not sell and
was in better shape not even $400,000 [sic] Perhaps in todays [sic] Market a quick sale could
be anywhere from $200,000 - $400,000.” On Schedule D-Creditors Holding Secured Claims,
the Debtor listed Franklin d/b/a Tribeca as the holder of a claim, but he stated on the
schedule: “I rescinded August 15-07 - My notion is that it is now unsecured debt.”
Shortly after filing his petition, the Debtor obtained the services of an attorney, and,
on October 13, 2007, counsel filed a notice of appearance on his behalf. One day later, the
Debtor filed amended schedules, as well as an amended Statement of Financial Affairs, and
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On Schedule G-Executory Contracts and Unexpired Leases, the Debtor listed3
one residential lease with an individual identified as Sheryl Brestos.
The Chapter 13 Trustee objected to confirmation of the Debtor’s Chapter 134
plan on the grounds that it is miscalculated and fails the best efforts test set forth in 11
U.S.C. § 1325(b)(1)(B). At hearing held on January 8, 2009, the Court sustained the
Trustee’s Objection by agreement and ordered the Debtor to file an amended Chapter
13 plan within thirty days.
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an Amended Statement of Current Monthly Income and Means Test Calculation and
Calculation of Commitment Period and Disposable Income, which revealed that the Debtor
is a below median income debtor capable of proposing a plan with a three year
commitment period. See 11 U.S.C. § 1325(b)(3). On Amended Schedule A, the Debtor listed
the Property with a current value of $415,000, subject to a disputed secured claim listed on
Schedule D in the sum of $360,000. On Amended Schedule B-Personal Property, the Debtor
did not disclose any claims or counterclaims against any of the Defendants.
On Schedules I and J-Current Income and Expenditures of Individual Debtor(s), the
Debtor listed income from employment as a “[l]oan officer-(strictl [sic] commission basis)”
with Metrocities Mortgage LLC in the net monthly sum of $729, as well as income from real
property in the sum of $3,400. On Schedule J, he disclosed expenditures of $1,108,3
excluding any mortgage payment, resulting in monthly net income of $3,021. On his
Statement of Financial Affairs, he disclosed gross income of $40,000 in 2005; and adjusted
gross income of $8,450 in 2006, referencing line 4 from his federal income tax return,
namely 2006 Form 1040EZ.4
On October 22, 2007, the Defendants filed a Motion for Relief from the Automatic
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Franklin set forth a prepetition arrearage in the sum of $67,444.89.5
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Stay Pursuant to 11 U.S.C. § 362 (the “Lift Stay Motion”). The Debtor objected to the Lift
Stay Motion. On November 1, 2007, he also objected to Tribeca’s proof of claim, which
Franklin filed as its servicer, in the amount of $421,151.15, on the grounds that “pre-5
petition, Laudani validly exercised his right, pursuant to the Truth in Lending Act, to
rescind the mortgage loan transaction,” leaving Tribeca with an unsecured claim. The
Debtor also objected to the amount of the claim on the ground that it contained fees and
charges and “other amounts not provided for by the underlying contract.”
On December 13, 2007, the Court consolidated both the Debtor’s objection to
Tribeca’s proof of claim and the Debtor’s objection to the Defendants’ Lift Stay Motion with
the adversary proceeding commenced by the filing of the Verified Complaint. In his
Verified Complaint, the Debtor set forth twelve counts against the Defendants arising out
of a refinancing transaction with Tribeca that occurred on May 3, 2006 as follows: Count
I - Fraud; Count II - Violations of Truth in Lending Act and M.G.L. ch. 140D; Count III -
Violation of M.G.L. ch. 184, §§ 17D and 17B and Chapter 93A; Count IV - Borrower’s
Interest; Count V - Negligent or Intentional Misrepresentation; Count VI - Economic
Duress; Count VII - Breach of Contract and of Servicing Regulations; Count VIII -
Unconscionability; Count IX - Violation of HOEPA and M.G.L. ch. 183C; Count X
Violations of Servicer Act; Count XI - Chapter 93A; and Count XII - Emotional Distress.
As noted above, Tribeca seeks summary judgment with respect to Counts II, IV, VI, VII,
VIII, IX and XII.
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III. MATERIAL FACTS
The following facts are derived from the Debtor’s Verified Complaint, the Debtor’s
Affirmation in Response to Defendants’ “Undisputed Facts,” and the Debtor’s
Supplemental Affirmation in Support of Objection to Defendants’ Motion for Partial
Summary Judgment, as well as Affidavits submitted by the Defendants, namely, the
Affidavit of Kevin P. Scanlon (“Scanlon”), containing transcripts from the depositions of
the Debtor and Robert J. Walsh (“Walsh”), the principal of Manhattan Financial Services,
Inc. (“Manhattan”), the mortgage broker involved in the loan transaction with Tribeca, as
well as other documents; the Affidavit of Karen A. Waite (“Waite”), a paralegal with the
law firm of Aloisi & Aloisi; and the Affidavit of Bruce I. Miller (“Miller”), who was
practicing with the law firm of Aloisi & Aloisi in May of 2006 and who was the Settlement
Agent at the closing which precipitated the Debtor’s adversary proceeding against the
Defendants.
In his Verified Complaint, the Debtor stated that he acquired the Property in 1986.
Excluding the transaction with Tribeca, the Debtor refinanced the Property twice after
purchasing it. In July of 2000, he obtained a loan secured by a first mortgage on the
Property from Homecomings Financial (“Homecomings”). The interest rate on the note
secured by the Homecomings mortgage was 11.4%. In May of 2005, the Debtor obtained
a second mortgage on the Property in the amount of $100,000 from the Carpenter Trust,
which, in the Debtor’s words, is a “hard money” lender, using Manhattan’s services as a
mortgage broker. At his deposition, Laudani testified that the interest rate payable to the
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Carpenter Trust was 18%. The Debtor described “hard money lending” as “strictly asset-
based lending with no consideration to your ability to pay it back . . . .”
In his Verified Complaint, the Debtor represented that he expected to receive a
$5,000 construction fund from the Carpenter Trust loan, but that the Carpenter Trust
withheld cash, making it impossible for him to renovate the Property for rental purposes.
As a result, according to Laudani, he was unable to make monthly mortgage payments,
and Homecomings initiated foreclosure proceedings in December of 2005. It scheduled a
foreclosure sale for May 5, 2006. At his deposition, the Debtor elaborated about the loan
from the Carpenter Trust. He testified that, although the purpose of the loan was to
rehabilitate his Property, he used the cash proceeds from the loan instead to pay bills and
start an internet company which failed.
In early December of 2005, knowing that he was in financial trouble, and, at a time
when he was employed as a Senior Loan Officer with Mortgage Pros USA, Laudani
contacted Manhattan “for a refinancing and indicating that he was interested in a ‘cash out’
transaction so that he could complete renovations of his home.”
The Debtor contradicted that representation, which is contained in his Verified
Complaint, in his Affirmation in Response to Defendants’ “Undisputed Facts.” In his
Affirmation, the Debtor stated that Robert Zimmerman, the trustee of the Carpenter Trust
contacted Walsh, Manhattan’s principal, and asked Walsh to contact him about refinancing
his Property. Walsh, in his deposition testimony, rejected that notion and testified that the
Debtor contacted him. Additionally, Walsh testified that he was not and is not an agent
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of Tribeca and at all times acted as an independent contractor in the refinancing transaction
at issue. Although the Debtor stated that, upon information and belief, Tribeca “only uses
mortgage brokers that it has selected and approved in advance,” he did not rebut Walsh’s
testimony that he was an independent contract vis à vis Tribeca.
On or around December 20, 2005, the Debtor sent Walsh a note by facsimile. On the
facsimile cover sheet, which reflected the name of his employer, Mortgage Pros USA, the
Debtor stated the following:
Mr. Zimmerman is very interested in this as you know. Anyways here is a
copy of my info.
See what you can do
LTV 60%
No Income, No Assetts [sic], No Employment
Loan Amount $335,000
Value $675,000
The Debtor testified at his deposition that, because he had “a couple of 90-day-lates [sic],”
few lenders were going to consider refinancing the Property “below 70 percent” and that
he was limited in the number of lenders who would work with him, although “cash out
was a possibility.” Additionally, he testified that he proposed three different scenarios to
Walsh involving loans in the amounts of $360,000, $365,000 and $390,000 and sent him
“three different application Type 1003’s” in those amounts. In his Supplemental
Affirmation, Laudani represented that despite his employment as a mortgage broker, he
did not believe he was “anymore ‘sophisticated’ that the average person looking to
refinance” and that he did not know “what documents or disclosures were required by law
to be given.” He disclosed that he had attended Berklee College of Music and the New
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England Conservatory of Music, without receiving a degree from either institution. He
also indicated that he became employed in the mortgage financing business in 2003 or 2004
because a friend told him “how lucrative it was.” The Court finds, however, that the
Debtor’s employment in, and familiarity with terminology used in the mortgage lending
industry, including that used in his fax to Walsh and at his deposition, is simply contrary
to his representation in his Supplemental Affirmation that he was no more sophisticated
than the average person looking to refinance.
On February 23, 2006, Manhattan faxed a “Liberty Loan Scenario Request No
Income, No asset, No Fico” form to Tribeca on Laudani’s behalf. That form set forth a loan
amount of $340,000. It also contained disclosures that the Debtor acquired the Property in
1990 for $150,000, that the Property was subject to liens in the amount of $330,000 and that
it had a value of $620,000. Manhattan then forwarded various forms to Laudani for his
signature. Although the Debtor testified that he did not recall receiving a letter dated
March 7, 2006, on that date, a Manhattan employee, Maidy Hoyland, sent him a letter
stating that she had received his disclosures but certain forms were missing or altered. She
returned all forms to him requesting that he return them signed and “unaltered” as soon
as possible. She advised: “As of right now, I am suspending activities on your loan request
until I have received all attached Disclosures.” As of March 29, 2006, Manhattan was still
in need of further information from Laudani. Walsh notified him by fax, indicating that
he needed verification of Laudani’s social security number and employment. Walsh stated:
“We only have 8 days left for fullfilling [sic] pre approval conditions . . . Send Back
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Disclosures!!
On April 9, 2006, Laudani signed a document captioned “Mortgage Broker
Disclosures Required by the Attorney General’s Consumer Protection [sic],” which set forth
a loan amount of $360,000 with an Annual Percentage Rate of 15.95%. The Debtor did not
dispute that Manhattan forwarded that document to him, as well as numerous other
documents, prior to the May 3, 2006 loan closing. Although in his Verified Complaint, he
stated his belief that “his signatures and dates on various documents were forged,” he did
not identify any instances where his signature was forged or dates were altered on the
various documents set forth in Exhibit G to Scanlon’s Affidavit which the Defendants
submitted in conjunction with their Motion for Partial Summary Judgment.
In his Verified Complaint, the Debtor stated unequivocally in several different
numbered paragraphs that he never received a loan application or a Good Faith Estimate
from either Manhattan or Tribeca prior to the closing and that he was unaware of the
identity of the lender until late April of 2006. The Debtor, as part of the package of
documents forwarded to him by Manhattan, however, signed and dated a “Borrower’s
Certification & Agreement” on March 31, 2006 in which he acknowledged that he “applied
for a mortgage loan through Manhattan Financial Services, Inc.” and that “[i]n applying
for the loan I/we completed a loan application containing information including, but not
limited to the purpose of the loan, the loan amount, source of the down payment,
employment and income information, assets and liabilities. . . .” Additionally, he signed
an “Affidavit and Acknowledgment from Borrower,” which was part of the package of
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The Debtor and Walsh executed, on or around March 31, 2006, two copies of a6
Loan Origination and Compensation Agreement which provided for an origination fee
of 3% of the loan amount of $360,000 ($10,800), a $600 processing fee, a $12 credit report
fee, and approximately $102 in FedEx/Courier expenses. The Agreement also provided
“Third Party Appraisal Fee: Paid Outside of Closing.”
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documents sent to him by Manhattan. In signing that document, which identified Tribeca
as the Lender on the first line, Laudani acknowledged that “I/We have received the Good
Faith Estimate and all required federal copies of which are annexed [sic], and acknowledge
having received such forms from Manhattan Financial Services, Inc. within 3 days of
my/our application date.” The Debtor did not directly address the documentary evidence
submitted by the Defendants with his signature, relying only on his Verified Complaint
and Affirmations.
In his Verified Complaint, the Debtor also represented that Manhattan requested an
appraisal of his Property. According to Laudani, he “obtained an appraisal from A.C.
Klein Appraisal Assoc. (“A.C. Klein”) dated January 9, 2006 . . . [which] . . . stated the value
of his house at $620,000.” Laudani further alleged that he e-mailed the appraisal to
Manhattan on February 14, 2006 and paid the $450 appraisal fee with a cash payment of
$250 and a credit card payment of $200 on March 10, 2006.6
Laudani represented in his Verified Complaint that he was seeking $60,000 in cash
out of the refinancing and that Manhattan assured him that he had plenty of equity and
“could get a cash out of $25,000 - $65,000.” He stated that he informed Manhattan of how
he intended to use the cash to renovate the Property. Additionally, he represented that he
asked Manhattan to provide him with state and federal disclosures, but he “did not get any
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The Debtor’s request for these specific disclosures undermines his assertion that7
he was no more sophisticated than the average person seeking refinancing.
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disclosures relating to the loan before the closing, such as truth-in-lending disclosures,
ARM program disclosure, good faith estimate, [and] Massachusetts Determination and
Documentation of Borrower’s Interest.”7
In his Verified Complaint, Laudani further represented that
[o]n the date of the closing, which was documented May 3, 2006, Laudani
was shocked to find, inter alia, that there was only $140.87 of cash to him on
one HUD-1 statement; that the APR was below the interest rate; that he
didn’t see any variable interest rate disclosure; that the monthly payment
was about $4,5550; that he was asked to sign two sets of HUD-1 statements
and two sets of Truth-in-Lending statements; and that the payoff of
Homecomings Financial was higher than expected.
Indeed, he stated that there were three different HUD-1 Settlement Statements at the
closing. He also stated that he initially refused to sign the documents due to his concern
about “the conflicting information he was being given as well as his ability to make the
monthly payments.” Reminded of the pending foreclosure sale by the closing attorney
from the firm of Aloisi & Aloisi, he stated he “had no choice but sign the closing documents
to prevent the foreclosure.”
In his Affidavit, Miller, the Settlement Agent, identified the documents Laudani
signed at the May 3, 2006 closing, stating:
My general habit, routine and practice at a closing is to review the HUD-1
Settlement Statement with the borrower first. I did that in this case. I usually
start with the second page and then go to the first page. A copy of the final
HUD-1 Settlement Statement that was executed at the time of the closing is
attached hereto as Exhibit A. I signed the HUD-1 Settlement Statement on
behalf of the lender. Although the first page is not signed by the borrower,
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to the best of my knowledge and belief, it is the final HUD-1 that used [sic]
at the closing.
(emphasis supplied). The two-page HUD-1 Settlement Statement submitted by the
Defendants contains both the Debtor’s signature and Miller’s signature on the second page.
The first page of the statement was neither initialed nor signed by the Debtor. In addition
to signing only the second page of the HUD-1, the Debtor signed, but did not date, a
Certification Addendum to the HUD-1, which provided:
I have carefully reviewed the HUD-1 settlement statement and to the best of
my knowledge and belief, it is a true and accurate statement of all receipts
and disbursements made on my account or by me in this transaction. I
further certify that I have received a copy of the HUD-1 Settlement
Statement.
Miller also signed the Certification attesting that “[t]he HUD-1 Settlement Statement which
I have prepared is a true and accurate account of this transaction. I have caused or will
cause the funds to be disbursed in accordance with this statement.”
At the closing, the Debtor signed and dated a Truth-in-Lending Disclosure
Statement. It set forth an Annual Percentage Rate (“APR”) of 12.419%, a Finance Charge
of $933,167.27, an Amount Financed of $340,496.11 and a Total of Payments of
$1,273,633.38. The Debtor also signed and dated a document captioned “Itemization of
Amount Financed” which referenced applicable lines on the HUD-1 Settlement Statement
submitted by the Defendants. The itemizations, other than mortgage and lien payoffs and
an amount in the sum of $1,243.12 referred to as “Loan Proceeds to: Aloisi & Aloisi,”
totaled $4,652.38 and included the following items appearing on page 2 of the HUD-1
Settlement Statement: hazard insurance reserves ($585.68), property tax reserves
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($1,302.12), an aggregate accounting adjustment (-$146.42), an appraisal fee ($275), title
insurance ($900), a title search fee ($69), recording fees ($150 and $175), a fee for a
municipal lien certificate ($25), and a hazard insurance premium ($1,317). The Itemization
of Amount Financed also contained a reference to a Payoff Schedule prepared by Waite,
the paralegal at Aloisi & Aloisi, which listed accounts that “must be paid off through
escrow as a condition of the attached loan approval.” Those accounts, which included
sums due Homecomings and the Carpenter Trust totaled $334,600.61. The Amount
Financed appearing on the Truth-in-Lending Disclosure Statement, namely $340,496.11,
reflects the total of the mortgage and lien payoffs, together with the sum of $1,243.12
identified as “Loan Proceeds to: Aloisi & Aloisi,” as well as the $4,652.38 in itemizations
set forth above ($334,600.61+ $1,243.12 + $4,652.38 = $340,496.11). The Amount Financed,
as noted, appears to be based on a payoff of $216,945 to Homecomings, as well as payments
of $1,020 to M.P.T.N., $7,977 to NCO Financial, $107,356.50 to the Carpenter Trust, and
$1,302.11 to the City of Boston for property taxes. It is unclear when Waite calculated the
payoff to Homecomings because she received a Payoff Statement from Homecomings
dated May 8, 2006, after the closing. It set forth a payoff of $217,905.57 with a per diem of
$60.10, as well as a wire transfer fee of $20. In her Affidavit, she explained:
The payoff of $334,600.61 listed on the Itemization of Amount Financed was
an estimate of the payoff amounts. The actual payoff amounts were higher
due to per diem interest charges. The final payoff figures are accurately
reflected on the final HUD-1 Settlement Statement signed by Mr. Laudani at
closing.
(emphasis supplied). Neither Miller nor Waite, however, explained why the Itemization
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The Court cannot discern how this figure was calculated. The Payoff Statement8
from Homecomings, dated May 8, 2006, provides that the payoff on that date was
$217,905.57. The statement referenced a per diem of $60.10, a late charge for a payment
received after May 16 of $57.78, and a wire transfer fee of $20.th
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of Amount Financed was not amended to correspond to the new payoff figures on the first
page of the final HUD-1 Settlement Statement or why it did not clearly provide that it
contained estimated figures.
The payoff to Homecomings set forth in the Itemization of Amount Financed in the
amount of $216,945 is $1,258.75 less than the actual payoff amount appearing on the
unsigned, first page of the HUD-1 Settlement Statement, namely $218 203.75, which both8
Miller and Waite referred to as the final HUD-1 Settlement Statement, the second page of
which the Debtor signed at the closing. The HUD-1 Settlement Statement also reflects sums
which are different than those used in the Payoff Schedule prepared by Waite referenced
on the Itemization of Amount Financed. For example, M.P.T.N. and NCO Financial were
listed on the HUD-1 Settlement Statement as having claims totaling $4,875 in contrast to
the Payoff Schedule which listed M.P.T.N as holding a claim in the sum of $1,020 and NCO
Financial as having a claim in the sum of $7,977. Additionally, on the HUD-1 Settlement
Statement, Miller listed a water and sewer lien in the sum of $1,500, excluded the property
tax claim in the sum of $1,302.11, and added a new creditor, Palisades Acquisition, with a
claim in the sum of $3,767.61. Using these new figures, the Amount Financed totals
$335,702.86. The difference between the Payoff Schedule prepared by Waite and the so-
called final HUD-1 Settlement Statement is $1,102.25 ($335,702.86 - $334,600.61), excluding
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Reconciliation of the HUD-1 Settlement Statement, the Truth-in-Lending9
Disclosure Statement and the Itemization of Amount Financed is not readily apparent.
It would be unlikely that the Debtor could perform the required computations without
a calculator and time to understand the ramifications of the increased payoff required to
close the loan, particularly as the $1,243.12 figure appearing on the Itemization of
Amount Financed is not identified as “Cash to Borrower,” but rather loan proceeds
payable to Aloisi & Aloisi.
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the $1,243.12 included in the Amount Financed in the Truth-in-Lending Statement.
Assuming the Total of Payments is correct, the Amount Financed on the Truth-in-Lending
Statement signed by the Debtor and submitted as an exhibit to Miller’s Affidavit
($340,496.11) and an Amount Financed based on the so-called final HUD-1 Settlement
Statement can only be reconciled if the $1,243.12 item identified as “Loan Proceeds to:
Aloisi &Aloisi” is reduced by $1,102.25. In fact, when the $1,243.12 number appearing on
the Itemization of Amount Financed as “Loan Proceeds to : Aloisi & Aloisi” is reduced by
$1,102.25, the resulting figure is $140.87 - - the cash-back that the Debtor received after the
closing.9
With respect to the Truth-in-Lending Disclosure Statement and the Itemization of
Amount Financed, the Debtor, in his Verified Complaint, stated that “[t]he errors in the
amounts of payoffs and fees/charges significantly alter the amount financed , the pre-paid
finance charge, and the APR as disclosed in the Truth-in-Lending statement.” The Debtor
also asserted that the APR was calculated improperly. Additionally, as noted above, he
claimed, without identifying any documents among those submitted by the Defendants,
that “his signatures and dates on various documents were forged.”
Laudani indicated that after the closing he asked Miller’s secretary to fax a copy of
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This is the same figure appearing on the Itemization of Amount Financed as10
being payable to Aloisi & Aloisi.
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the HUD-1 Settlement Statement to him, which she did. That statement, the first page of
which he alleged he initialed, set forth a cash distribution to borrower of $1,243.12, rather10
than the $140.87 appearing on the so-called final HUD-1 Settlement Statement attached to
Miller’s Affidavit. The Debtor complained that the copy provided to his bankruptcy
attorney by Tribeca has a first page without initials or signatures. He also complained that
he did not receive copies of the closing documents for several weeks “after repeated
requests.” He stated that he received a check in the sum of $140.87 on May 9, 2006, but that
that sum was different than the one appearing on the HUD-1 faxed to him after the closing.
In his Verified Complaint, the Debtor also listed various payoffs which he was
unable to reconcile, emphasizing the following expenses which were part of the “Amount
Financed” calculated by Tribeca: a payment of $1,020 to a creditor identified as M.P.T.N.,
an appraisal fee of $275 paid to A.C. Klein, and a title insurance premium of $900 for which
he was overcharged $225.
In her Affidavit, Waite represented that after the three-day right of rescission had
expired, Aloisi & Aloisi issued a check to M.P.T.N. in the amount of $1,020. She further
stated that “[o]n May 9, 2006, the MPTN [sic] check, along with Mr. Laudani’s cash out
check, was mailed to him.” It is undisputed, however, that M.P.T.N. has never been paid.
Laudani stated that “so far as I know, it was never received.” Laudani also indicated that
he picked up his check in the amount of $140.87 at the offices of Aloisi & Aloisi and cashed
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Similarly, although the Debtor indicated that he paid a portion of an appraisal11
fee with a credit card, but he did not submit documentation supporting that assertion.
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it.
Waite explained that Laudani was initially charged $900 for title insurance, listed
on line 1101 of the HUD-1 Settlement Statement, although he should have been charged
a lower “reissue rate” instead. Thus, he was overcharged $225. With respect to the
appraisal fee, she stated: “[t]o the best of my knowledge and belief, the lender, Tribeca
paid the appraiser. The Defendants did not produce a canceled check establishing payment
for the appraisal.11
In addition to the documents discussed above, according to Miller, the Debtor also
executed the following closing documents, which are attached to Miller’s Affidavit: a
Mortgage; a 1-4 Family Rider (Assignment of Rents); and an Adjustable Rate Note in the
principal sum of $360,000, with an initial interest rate of 12.99%; an Adjustable Rate Rider;
a Notice of Right to Cancel, which contains the attestation in capital letters that “Each of
the undersigned hereby acknowledges the receipt of two (2) completed copies of this
Notice of Right to Cancel;” a Uniform Residential Loan Application; a Continuation
Sheet/Residential Loan Application; an ARM Program Disclosure; a Consumers’ Guide
to Obtaining a Home Mortgage; a Mortgage Rate Lock Commitment; and a Payment Letter
to Borrower, setting forth a monthly payment amount, including insurance and taxes, of
$4,559.96. The Uniform Residential Loan Application set forth the following comparison
of payments:
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Neither party submitted a copy of a complete or incomplete Borrower’s12
Interest Worksheet.
18
Present Proposed
First Mortgage (P & I) 2,500.00 3,979.51
Other Financing (P & I) 1,700.00
Hazard Insurance 146.42 146.42
Real Estate Taxes 434.04 434.04
Total 4,780.46 4,559.97
The Debtor could not afford the monthly mortgage payments to Homecomings and
the Carpenter Trust, and he could not afford the mortgage payment to Tribeca. Although
he noted the existence of a “Massachusetts Borrower’s Interest Worksheet” with a date of
May 3, 2006, which was never completed, he stated that his monthly income was about
$1,517. In addition to complaining that he did not receive a Borrower’s Interest12
Worksheet, he disputed receipt of all required documents. He specifically stated that he
“only received one copy of the Notice of Right to Cancel, not two.” He also denied that the
three-day right of rescission expired.
Laudani made no payments to Tribeca. He represented that he received a
foreclosure notice from the Defendants in October of 2006. The Defendants scheduled a
foreclosure sale for June 28, 2007. The Defendants rescheduled the sale for August 28, 2007.
In his Verified Complaint, the Debtor represented that he sent a rescission letter to the
Defendants on August 15, 2007. He filed his Chapter 13 bankruptcy petition approximately
one week later.
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19
The Debtor, in his Supplemental Affirmation, stated that “[t]his whole transaction
has been enormously stressful and upsetting,” adding that “[w]orrying about whether I
was going to lose my home to foreclosure makes me sick, both physically and
emotionally.” He also stated that the dosages of the prescription drugs which he takes had
to be increased “by about 300%.” His statements about his medical conditions were
unsupported by affidavits from medical professionals or any other form of evidence.
IV. DISCUSSION
A. Standard for Summary Judgment
As noted by this Court in In re Sullivan, 346 B.R. 4 (Bankr. D. Mass. 2006), the United
States Court of Appeals for the First Circuit articulated the standard for summary
judgment in Desmond v. Varrasso (In re Varrasso), 37 F.3d 760 (1st Cir.1994). The First
Circuit stated:
It is apodictic that summary judgment should be bestowed only when no
genuine issue of material fact exists and the movant has successfully
demonstrated an entitlement to judgment as a matter of law. See Fed.R.Civ.P.
56(c). As to issues on which the movant, at trial, would be obliged to carry
the burden of proof, he initially must proffer materials of evidentiary or
quasi-evidentiary quality-say, affidavits or depositions-that support his
position. See Lopez v. Corporacion Azucarera de Puerto Rico, 938 F.2d 1510,
1517 (1st Cir.1991); Bias v. Advantage Int’l, Inc., 905 F.2d 1558, 1560-61
(D.C.Cir.), cert. denied, 498 U.S. 958, 111 S.C[t]. 387, 112 L.Ed.2d 397 (1990); cf.
Mendez v. Banco Popular de Puerto Rico, 900 F.2d 4, 7 (1st Cir.1990) (“The
mere fact that plaintiff failed to file a timely opposition does not mean that
defendant’s Rule 56 motion should be granted”). When the summary
judgment record is complete, all reasonable inferences from the facts must
be drawn in the manner most favorable to the nonmovant. See, e.g., Morris
v. Government Dev. Bank, 27 F.3d 746, 748 (1st Cir.1994); Garside, 895 F.2d
at 48; Greenburg v. Puerto Rico Maritime Shipping Auth., 835 F.2d 932, 934
(1st Cir.1987). This means, of course, that summary judgment is
inappropriate if inferences are necessary for the judgment and those
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20
inferences are not mandated by the record. See Blanchard v. Peerless Ins. Co.,
958 F.2d 483, 488 (1st Cir.1992) (warning that summary judgment is
precluded “unless no reasonable trier of fact could draw any other inference
from the ‘totality of the circumstances’ revealed by the undisputed
evidence”).
Sullivan, 346 B.R. at 18 (quoting Desmond v. Varrasso, 37 F.3d at 763). In in a footnote, the
First Circuit cautioned: “As to issues on which the nonmovant [the Debtor in this case] has
the burden of proof, the movant need do no more than aver ‘an absence of evidence to
support the nonmoving party’s case.’ The burden of production then shifts to the
nonmovant, who, to avoid summary judgment, must establish the existence of at least one
question of fact that is both ‘genuine’ and ‘material.’” Desmond v. Varrasso, 37 F.3d at 763
n. 1. (citations omitted). In addition, the non-moving party “must set forth more than
conclusory allegations, improbable inferences or unsupported speculation to establish
genuine issues of material fact. Competent evidence is required.” Medina-Munoz v. R.J.
Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990).
Applying this standard, the Court, at the outset, rejects the Debtor’s “belief” that
various documents and the dates on them were forged. Such a bald assertion typifies the
conclusory allegations rejected by the First Circuit in Medina-Munoz. The Debtor had
copies of all documents attached to the Affidavits filed by Scanlon, Miller, and Waite for
over two months. He failed to point to, or submit a copy of, a single document with a
signature that he contended was forged. Because the Debtor failed to identify any forged
documents, the Court is confronted with a conundrum: the Debtor’s statements in his
Verified Complaint and Affirmations are inconsistent with the documents produced by the
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As noted by the court in Cayre v. Long Beach Mortg. Co., 470 F.Supp.2d 3, 613
n.1 (D. Mass. 2007),
The Federal Reserve Board has granted some exemptions to TILA in
Connecticut, Maine, Massachusetts, Oklahoma, and Wyoming. 12 C.F.R.
Pt. 226, Supp. I 12 C.F.R. § 226.29(a) ¶ 4. In these few states, as to certain
TILA requirements, certain federal provisions have no force and creditors
21
Defendants which he signed. Stated another way, the Debtor represented that he did not
receive various documents and disclosures, but he signed documents sent to him by
Manhattan that indicated that he, in fact, received various documents and disclosures.
Because in ruling on a motion for summary judgment all reasonable inferences must be
resolved in the Debtor’s favor, the Court shall not conclude, at this time, that the Debtor is
deliberately obfuscating the truth about what he knew and when he knew it.
B. Count II - Violations of Truth-in-Lending Act and Mass. Gen. Laws ch. 140D
1. Statue of Limitations
The Defendants seek summary judgment based upon the one-year statute of
limitations set forth in the federal Truth-in-Lending Act, (“TILA”), 15 U.S.C. § 1640(e),
because the Debtor filed his Verified Complaint on December 4, 2007, over one-year from
the May 3, 2006 closing. Under TILA, actions for damages must be brought within one-
year of the occurrence of the violation, and actions for rescission must be brought within
three years. See 15 U.S.C. §§ 1640(e) and 1635(f). See generally Beach v. Ocwen Fed. Bank,
523 U.S. 410, 419 (1998). The Debtor, however, relies upon the four-year statute of
limitations applicable to the Massachusetts Consumer Credit Cost Disclosure Act
(“MCCCDA”), Mass. Gen. Laws ch. 140D, §§ 1-35, TILA’s state law counterpart, for both13
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are subject to state requirements that are generally similar to the federal
requirements. See Belini v. Washington Mut. Bank, FA, 412 F.3d 17, 20 (1st
Cir.2005) (citing Ives v. W.T. Grant Co., 522 F.2d 749, 755 (2d Cir.1975)).
According to the Federal Reserve Board’s regulations, however, the
exemption’s displacement of federal law in favor of state law is not
absolute. 12 C.F.R. § 226.29(b). It is well established that debtors retain at
least the ability to file suits for damages in federal court pursuant to 15
U.S.C. § 1640, regardless of the exemption. Belini, 412 F.3d at 20.
The Debtor stated in his Verified Complaint that he “is entitled to rescission of14
the mortgage loan, actual damages, statutory damages, court costs and attorney’s fees.”
Regardless of whether the Debtor proceeds under state law, federal court15
decisions under TILA “are instructive in construing the parallel provisions of the
CCCDA.” Jaaskelainen v. Wells Fargo Bank, N.A. (In re Jaaskelainen), 391 B.R. 627, 640
(Bankr. D. Mass. 2008).
22
damages and rescission. See Mass. Gen. Laws. Ch. 140D, § 10 (“An obligor’s right of14
rescission shall expire four years after the date of consummation of the transaction or upon
the sale of the property, whichever occurs first, . . . .”); see also Mass. Gen. Laws Ch. 260, §
5A (“Actions arising on account of violations of any law intended for the protection of
consumers . . . inclusive of chapter one hundred and forty D . . . whether for damages,
penalties or other relief and brought by any person . . . shall be commenced only within
four years next after the cause of action accrues.”). Accordingly, the Defendants are not
entitled to summary judgment based upon TILA’s one-year statute of limitations.
2. Material Disclosures
The Defendants also argue that the Debtor is barred from exercising his rescission
rights because he failed to do so within three business days of the May 3, 2006 closing,
citing both 15 U.S.C. § 1635(a) and Mass. Gen. Laws ch. 140D, § 10(a). The MCCCDA15
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23
provides in relevant part:
[T]he obligor shall have the right to rescind the transaction until midnight of
the third business day following the consummation of the transaction or the
delivery of the information and rescission forms required under this section
together with a statement containing the material disclosures required by
this chapter, whichever is later, by notifying the creditor, in accordance with
regulations of the commissioner, of his intention to do so.
Mass. Gen. Laws ch. 140D, § 10(a). While pointing out that the Debtor did not exercise his
rescission rights within three business days, the Defendants recognize that rescission rights
can be extended when the lender fails to provide certain material disclosures. Material
disclosures mean:
[T]he annual percentage rate, the method of determining the finance charge
and the balance upon which a finance charge will be imposed, the amount
of the finance charge, the amount to be financed, the total of payments, the
number and amount of payments, and the due dates or periods of payments
scheduled to repay the indebtedness.
Mass. Gen. Laws ch. 140D, § 1. See also Id. at § 12; 15 U.S.C. § 1602(u); and 12 C.F.R.
226.23(a)(3) n. 48. The Defendants argue that they provided all material disclosures. Indeed,
they state the following:
The Plaintiff alleges at ¶ 75 of his Verified Complaint, that the Itemization of
Amount Financed included erroneous amounts for payoffs ($334,600.61) and
“loan proceeds” for Aloisi & Aloisi ($1,243.12). These figures are estimates
of the amounts to be paid off and the corresponding amount that remained
(“loan proceeds”) after all the payoffs would be distributed to the settlement
agent/borrower. Shortly before Mr. Laudani’s loan closed, however, it was
determined that due to additional per diem charges on the two outstanding
mortgages, the total payoff amount of the mortgages increased from
$324,301.50 to $325,560.25 [$1,258.75]. As a result, the amount remaining for
the settlement agent/borrower, decreased by a corresponding amount as
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Thus, the so-called excess loan proceeds of $1,243.12 decreased by $1,102.25,16
leaving $140.87. Stated another way, the increased mortgage payoffs of $1,258.75 were
offset by a $156.50 decrease in payments to M.P.T.N., NCO Financial, and others
($1,258.75 - $156.50 = $1,102.25). Accordingly, the Amount Financed could remain the
same on the Truth-in-Lending Disclosure Statement.
24
reflected on the final executed HUD-1 Settlement Statement.16
Despite payoff increases, the total amount financed as listed on the
Itemization of Amount Financed did not change, nor did the prepaid finance
charge. Both of these figures are correct and accurate.
The Court notes that both TILA and the MCCCDA permit the use of estimates but
they must be labeled as such. See 15 U.S.C. § 1631(c); Mass. Gen. Laws ch. 140D, § 7(c); 209
Mass. Code Regs. 32.17 (b)(3)1. (“If any information necessary for accurate disclosure is
unknown to the creditor, it shall make the disclosure based on the best information
reasonably available and shall state clearly that the disclosure is an estimate.”). The
Itemization of Amount Financed executed by the Debtor at the closing on May 3, 2006,
according to Waite, was based on estimates, but it was not labeled as such.
The Court finds that the Defendants successfully established how the so-called, final
HUD-1 Settlement Statement, the Truth-in-Lending Disclosure Statement, and the
Itemization of Amount Financed are reconcilable. The Debtor, however, maintains that
multiple disclosures and problems with items set forth in the Amount Financed preclude
summary judgment.
The Court finds, however, that there are genuine issues of material fact as to three
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Section 12 of chapter 140D provides:17
For the purposes of this subclause, “itemization of the amount financed”
means a disclosure of the following items, to the extent applicable:
(i) the amount that is or shall be paid directly to the
consumer;
(ii) the amount that is or shall be credited to the consumer’s
account to discharge obligation owed to the creditor;
(iii) each amount that is or shall be paid to third persons by
the creditor on the consumer’s behalf, together with an
identification of or reference to the third person; and
(iv) the total amount of any charges described in subclause
(iii) of clause (A) of paragraph (2).
Mass. Gen. Laws ch. 140D, § 12(a)(2)(B)
25
items that are part of the Amount Financed, namely the $275 appraisal fee; the $900 cost17
of title insurance which was overstated in the amount of $225; and the non-payment of
$1,020 to M.P.T.N. Neither the Debtor nor the Defendants established who paid the $275
appraisal fee to A.C. Klein and because all inferences must be drawn in the Debtor’s favor,
the Court is compelled to conclude that a genuine issue of material fact exists as to that
component of the Amount Financed.
Similarly, a genuine issue of material fact exists as to the M.P.T.N. obligation. The
Defendants submitted no admissible evidence as to why Waite mailed a check payable to
M.P.T.N. to the Debtor instead of the creditor. Additionally they did not offer evidence as
to why Tribeca did not amend its disclosures to account for the non-payment.
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Finally, the Amount Financed included $225 in excess of what should have been
included for title insurance. Although the Defendants discovered the error and remitted
the amount of the overpayment to the Debtor in the amount of $225.30, they did so in
October of 2007, long after the closing. Thus, a genuine issue of material fact exists as to
whether the inclusion of the overpayment, in conjunction with the other two items made
part of the Amount Financed, resulted in a materially inaccurate Truth-in-Lending
Disclosure Statement.
The Court notes that, although the Debtor has asserted that the Defendants
misrepresented the Finance Charge and the Annual Percentage Rate, any error in those
disclosures must stem from errors in the Amount Financed, as the Debtor did not dispute
any specific items improperly included in the Finance Charge in response to the
Defendants’ submissions. Because the Amount Financed is the difference between the total
of prepaid finance charges, namely $19,503.89 and the loan amount of $360,000, and
because the Debtor did not challenge a single component of the $19,503,89 in prepaid
finance charges in his pleadings filed after the Defendants’ Motion for Summary Judgment
or at oral argument on the Motion for Partial Summary Judgment, the relevance of the
problems noted by the Debtor with respect to the Amount Financed may not give rise to
a claim for rescission. Nevertheless, in view of the questions about the appraisal fee, the
payment to M.P.N.T, and the excess fee initially charged for title insurance, the Court
concludes that genuine issues of material fact exist as to the accuracy of the Amount
Financed, and, accordingly, the Debtor’s receipt of the material disclosures required by
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27
Mass. Gen. Laws ch. 140D, §§ 1 and 12. Stated another way, the parties at trial on Count
II must address issues surrounding the three charges identified above and the ramifications
of errors, if any, that result See Mass. Gen. Laws ch. 140D, §§ 10(a), 32(a). See also Mass.
Gen. Laws ch. 140D, § 4(f); 209 Code Mass. Regs. § 32.18(d); and Mayo v. Key Fin. Servs.,
Inc., 424 Mass. 862, 864 (1997).
3. Timeliness of Disclosures
The Debtor also represented in his Verified Complaint that he did not receive the
required disclosures in a timely manner, including, but not limited to, “the identity of the
lender, and the Adjustable Rate Mortgage Program disclosure.” The Debtor further stated
that he never received a loan application from Tribeca until the day of the closing. The
Defendants, however, maintain that the TILA disclosures did not have to be made until the
time of consummation of the loan on May 3, 2006.
Section 12 of Mass. Gen Laws ch. 140D, provides in relevant part the following:
Except as otherwise provided in this chapter, the disclosures required under
subsection (a) shall be made before the credit is extended. . . .
In the case of a residential mortgage transaction, as defined in section one,
which is also subject to the Real Estate Settlement Procedures Act 12 U.S.C.
2601 et seq, good faith estimates of the disclosures required under subsection (a)
shall be made in accordance with regulations of the commissioner under subsection
(c) of section seven before the credit is extended, or shall be delivered or placed in the
mail not later than three business days after the creditor receives the consumer’s
written application, whichever is earlier. If the disclosure statement furnished
within three days of the written application contains an annual percentage
rate which is subsequently rendered inaccurate within the meaning of
subsection (c) of section five, the creditor shall furnish another statement at
the time of settlement or consummation.
Mass. Gen. Laws ch. 140D, § 12(b)(1) and (2)(emphasis supplied). In view of the foregoing
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28
provisions, and the Debtor’s representation in his Verified Complaint that he “never filled
out any application before the closing,” the Court finds that the Debtor is estopped from
arguing that he was entitled to a good faith estimate prior to the closing. The Debtor cannot
have it both ways. If he completed an application prior to the closing, he was entitled to
have a good faith estimate mailed to him not later than three business after receipt of the
written application. Because Laudani indicated that he did not execute an application,
Tribeca was entitled to provide it before the credit was extended at the closing.
With respect to the identity of the lender, the Court again notes inconsistencies in
the Debtor’s pleadings. Although Laudani in his Affirmation asserted he was unaware of
the identity of the lender until the date of the closing, in his Verified Complaint he asserted
that he learned the identity of the lender in late April when he received his insurance
binder. Additionally, before the closing, he signed the Affidavit and Acknowledgment
from Borrower which identified Tribeca as the lender.
4. Multiple HUD-1 Settlement Statements
The Debtor asserted that he signed multiple copies of disclosure documents and that
the Truth-in-Lending Disclosure Statement overstated the Amount Financed by $5,458.37.
Because of that assertion, he rejected Defendants’ reliance upon one final HUD-1 Settlement
Statement. The Debtor argued that he was confused because there were several drafts of
the HUD-1 Settlement Statement. Because the Defendants submitted a HUD-1 Settlement
Statement with the Debtor’s signature, and the Debtor did not contest his signature on that
document, the Court finds that regardless of whether there were multiple versions of the
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29
HUD-1 Settlement Statement, the Debtor failed to rebut the Defendants’ evidence of a final
statement. Accordingly, the HUD-1 Settlement Statement, identified by Miller and Waite
as the final HUD-1 Settlement Statement is the operative document. Moreover, Laudani
failed to produce copies of the HUD-1 Settlement Statements that he referenced in his
Verified Complaint, including the HUD-1 Settlement Statement that he stated was faxed
to him immediately after the closing. Nevertheless, in a case cited by the Defendants,
Pulphus v. Sullivan, No. 02 C 5794, 2003 WL 1964333 (N.D. Ill. April 28, 2003), the court
stated: “Because plaintiff has alleged that she received two contradictory disclosure
statements simultaneously, not successively, Citizens can take no refuge in the regulation
governing the correction of early disclosures.” Id. at *13 (citing Vance v. National Benefit
Ass’n, No. 99 C 2627, 1999 WL 731764, at *3 (N.D. Ill. Aug. 30, 1999) (stating, in a loan
splitting case involving a credit card charge combined with a retail installment contract,
that “‘[the] giving of two separate disclosure statements for a single loan transaction is a
violation of TILA’s requirement of a single, comprehensible disclosure of the cost of
credit.”) (internal quotation marks and citation omitted)). Although the loan transaction
described by the Debtor in his Verified Complaint does not involve loan splitting, the
Court finds that even though there was a final HUD-1 Settlement Statement there is an
issue of material fact as to whether the Debtor simultaneously was given and signed
disclosure forms that were materially inconsistent.
5. Variable Interest Rate Disclosure
Massachusetts regulations require multiple disclosures with respect to adjustable
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30
rate mortgages. For mortgage loan transactions subject to the Real Estate Settlement
Procedures Act (“RESPA”), 12 U.S.C. §§ 2602-2617, the following regulation applies:
If the annual percentage rate may increase after consummation in a
transaction secured by the consumer’s principal dwelling with a term greater
than one year, the following disclosures must be provided at the time an
application form is provided or before the consumer pays a non-refundable fee,
whichever is earlier:
(a) The booklet titled Consumer Handbook on Adjustable Rate
Mortgages published by the Board and the Federal Home Loan
Bank Board, or a suitable substitute.
(b) A loan program disclosure for each variable-rate program
in which the consumer expresses an interest. The following
disclosures, as applicable, shall be provided:
1. The fact that the interest rate, payment, or
term of the loan can change.
2. The index or formula used in making
adjustments, and a source of information about
the index or formula.
3. An explanation of how the interest rate and payment
will be determined, including an explanation of how the
index is adjusted, such as by the addition of a margin.
4. A statement that the consumer should ask
about the current margin value and current
interest rate.
5. The fact that the interest rate will be discounted, and
a statement that the consumer should ask about the
amount of the interest rate discount.
209 Mass. Code Regs. 32.19 (emphasis supplied) (footnotes omitted). “Disclosures may be
delivered or placed in the mail not later than three business days following receipt of a
consumer’s application when the application reaches the creditor by telephone, or through
an intermediary agent or broker.” Id. at note 45b. See also 12 C.F.R. § 226.18(f)(2)(“ If the
annual percentage rate may increase after consummation in a transaction secured by the
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Section 1639 sets forth the additional disclosures that are required if the loan is18
a high cost loan.
31
consumer’s principal dwelling with a term greater than one year, the following disclosures
[must be made]: (i) The fact that the transaction contains a variable-rate feature. . . [and] .
. . (ii) A statement that variable-rate disclosures have been provided earlier.”).
As noted above, material disclosures are defined as “the annual percentage rate, the
method of determining the finance charge and the balance upon which a finance charge
will be imposed, the amount of the finance charge, the amount to be financed, the total of
payments, the number and amount of payments, the due dates or periods of payments
scheduled to repay the indebtedness, and the disclosures required by section 1639(a).”
Mass. Gen. Laws ch. 140D, §§ 1 and 12; 15 U.S.C. § 1602(u). The list does not specifically18
include the variable rate disclosures set forth in the state and federal regulations. Thus, the
Defendants argue that “only a failure to disclose the very existence of the variable rate
constitutes a “material” non-disclosure which would extend the right of rescission. They
cite, inter alia, Pulphus v. Sullivan, No. 02 C 5794, 2003 WL 1964333 (N.D. Ill. April 28,
2003). In that case, the court determined the following:
The plain meaning of the [Federal Reserve] Board’s commentary on 12 C.F.R.
§ 226.23(a)(3) is that only one variable rate disclosure violation-a lender’s
failure to disclose the existence of a variable rate feature-tolls the rescission
period. A lender’s failure to provide any of the other variable rate disclosures
required by 12 C.F.R. §§ 226.18(f) and 226.19(b) may subject it to other
sanctions, but it will not extend the rescission period granted to the
consumer. According to the Supreme Court, “deference [to the Board] is
especially appropriate in the process of interpreting the Truth in Lending Act
and Regulation Z. Unless demonstrably irrational, [the Board’s] staff
opinions construing the Act or Regulation should be dispositive.” Ford
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Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980). There is nothing
irrational about the Board’s desire to extend the period to rescind a loan, a
rather Draconian remedy, only for those consumers who were completely
unaware that their loan had a variable rate. Accordingly, we will adhere to
the plain language of its interpretation and hold that the only variable rate
disclosure that is material within the meaning of 12 C.F.R. § 226.223(a)(3) is the
disclosure that a loan has a variable interest rate feature. Vanzant [the plaintiff]
was told her second loan had a variable rate feature, and she does not allege
any other basis for extending the rescission period. Therefore, her claim to
rescind the second loan, which was filed nearly seventeen months after the
transaction was consummated, is untimely. See generally Resolution Trust
Corp. v. Martinez, No. C-3-93-429, 1994 WL 1631035 (S.D. Ohio Aug. 24,
1994) (deferring to Board’s interpretation of 12 C.F.R. § 226.23(a)(3) and
holding that lender is only required to disclose existence of variable rate
feature to avoid extending rescission period).
2003 WL 1964333 at *14 (emphasis supplied).
Laudani signed an “ARM Program Disclosure” and a “Consumers’ Guide to
Obtaining a Home Mortgage” at the closing. Thus, the Defendants provided him with
disclosure of the existence of a variable interest rate, although they did not establish that
they made the other disclosures required by 209 Mass. Code Regs. 32.19. The Debtor cited
no case or regulation to support his position that he is entitled to rescind the mortgage
based upon a failure to provide those additional variable rate disclosures.
In view of the foregoing, the Court concludes that the Defendants are not entitled
to summary judgment on Count II of the Debtor’s Complaint with respect to the material
disclosures required under MCCCDA as discussed in section B.2 and B.4 above. Trial shall
be limited to issues discussed in those sections. Defendants’ Motion shall be granted with
respect to the timeliness of disclosures and the variable interest rate disclosure.
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C. Count IX - Violation of HOEPA and Mass. Gen. Laws ch. 183C
Laudani alleged in his Verified Complaint that “[t]he actual APR, not the scheduled
APR exceeds comparable treasury security yield by more than 8%.” Additionally, he
stated:
The defendants violated 15 U.S.C. § 1639 and M.G.L. Ch. 183C by failing to
make various disclosures required under this section, by misrepresenting
material information on the transaction, by failing to disclose in a timely
manner, and by extending credit without regard to payment ability of
Laudani. No income information was ever taken by defendants.
In response, the Defendants, in their Memorandum in Support of their Motion for Partial
Summary Judgment, argue that the loan made to Laudani was not a high cost loan subject
to the requirements of either the Home Owners Equity Protection Act (“HOEPA”), 15
U.S.C. § 1639, or the Massachusetts Predatory Home Loan Practices Act, Mass. Gen. Laws
ch. 183C, § 1 et seq.
As noted by the court in Morrison v. Brookstone Mortg. Co., Inc., 415 F.Supp.2d 801
(S.D. Ohio 2005), “HOEPA is an amendment to the Truth in Lending Act, 15 U.S.C. § 1601,
et seq. The law requires that certain disclosures be made, including certain terms and
admonitions regarding a “high cost mortgage.” 415 F.Supp.2d at 807. Section 1602(aa) of
TILA contains a two-part test for determining whether a mortgage loan is governed by
HOEPA, namely an “APR” test and a “points and fees” test. It provides:
A mortgage referred to in this subsection means a consumer credit
transaction that is secured by the consumer’s principal dwelling, other than
a residential mortgage transaction, a reverse mortgage transaction, or a
transaction under an open end credit plan, if–
(A) the annual percentage rate at consummation of the
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transaction will exceed by more than 10 percentage points the
yield on Treasury securities having comparable periods of
maturity on the fifteenth day of the month immediately
preceding the month in which the application for the extension
of credit is received by the creditor; or
(B) the total points and fees exceed the greater of 8 % of the
total loan amount or $400.00.
15 U.S.C. § 1602(aa)(1)(A) and (B). See also 12 C.F.R. § 226.32 (providing coverage when
“[t]he annual percentage rate at consummation will exceed by more than 8 percentage
points for first-lien loans, or by more than 10 percentage points for subordinate-lien loans,
the yield on Treasury securities having comparable periods of maturity to the loan
maturity as of the fifteenth day of the month immediately preceding the month in which
the application for the extension of credit is received by the creditor”). Points and fees are
defined by the statute to include
(A) all items included in the finance charge, except interest or the time-price
differential;
(B) all compensation paid to mortgage brokers;
(C) each of the charges listed in section 1605(e) of this title (except an escrow
for future payment of taxes), unless-
(i) the charge is reasonable;
(ii) the creditor receives no direct or indirect compensation;
and
(iii) the charge is paid to a third party unaffiliated with the
creditor; and
(D) such other charges as the Board determines to be appropriate.
§ 1602(aa)(4). Required disclosures for a high cost mortgage must be made not less than
three business days prior to the transaction’s consummation. 15 U.S.C. § 1639(b)(1). As the
court stated in Vincent v. Ameriquest Mtg. Co. (In re Vincent), 381 B.R. 564 (Bankr. D.
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Mass. 2008), for those borrowers whose loans are governed by HOEPA, “the creditor has
an obligation to not extend credit ‘based on the consumers’ collateral without regard to the
consumers’ repayment ability, including the consumers’ current and expected income,
current obligations and employment.’” 381 B.R. at 570 (citing 15 U.S.C. § 1639(h)).
The Defendants, relying upon the Truth-in-Lending Disclosure Statement and
Itemization of Amount Financed, apply the APR test based upon what they described as
“a preliminary loan application to Tribeca made by Walsh on February 23, 2006.” They
maintain that the relevant date for comparable securities is thus January 15, 2006 when,
according to the Federal Reserve Board Statistical Release H-15, the yield on 20 year
treasury bonds, which at the time was the closest maturity to a 30-year mortgage, was
4.59%. Adding 8% to that figure yields an APR of 12.59%, compared with the 12.419% set
forth in the Truth-in-Lending Disclosure Statement.
The Debtor did not respond to the Defendants’ computation. Although genuine
issues of material fact exist as to three elements of the Amount Financed and the Debtor’s
purported receipt of multiple disclosures, the Court finds that the burden shifted to the
Debtor to come forward with a credible scenario which would cause the loan to fail the
APR test. Silence in the face of the Defendants’ submission is insufficient. The Debtor
referenced multiple HUD-1 Settlement Statements and Truth-in Lending Disclosure
Statements in his Verified Complaint. Although he stated that the Amount Financed was
overstated by $5,458.37 and the actual APR was 12.6476%, he subsequently failed to
address the computations set forth in the Defendants’ Motion for Partial Summary
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Judgment. At oral argument, his counsel limited his objections to the items discussed
above in the Amount Financed.
The Defendants also applied the HOEPA points and fees test, relying upon 12 C.F.R.
§ 226.32(b)(1). Starting with the prepaid finance charge of $19,503.89, the Defendants
deducted the prepaid interest charge of $3,074.89, the credit report charge of $11.50, and
the flood certificate charge of $13.50, resulting in a total of $16,404 for points and fees or,
in the words of the Defendants, “just 4.81% of the Amount Financed, $340,496.11.” Because
the points and fees do not approach the 8% trigger, the Defendants stated the loan is not
a HOEPA loan.
As with the APR test, the Debtor did not mention, let alone address, the total points
and fees test set forth in 15 U.S.C. § 1602(aa). The Defendants filed their Motion for Partial
Summary Judgment on August 19, 2008. The Debtor filed his Objection over eight weeks
later. Because the Debtor failed to produce a scintilla of evidence that would permit this
Court to find that the May 3, 2006 loan was a HOEPA loan, other than bald assertions that
the APR was calculated improperly, the Court rejects the Debtor’s position that the loan
is governed by the provisions of HOEPA.
The Debtor also purported to state a claim under Mass. Gen. Laws ch. 183C, the
Massachusetts Predatory Home Loan Practices Act. That Act proscribes high cost home
mortgage loans which meet the following conditions:
i) the annual percentage rate at consummation will exceed by more than 8
percentage points for first-lien loans, or by more than 9 percentage points for
subordinate-lien loans, the yield on United States Treasury securities having
comparable periods of maturity to the loan maturity as of the fifteenth day
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Although the Defendants’ loan may not be proscribed by the Massachusetts19
Predatory Home Loan Practices Act, it nevertheless may violate Mass. Gen. Laws ch.
93A. See Commonwealth of Massachusetts v. Fremont Investment and Loan, 452 Mass.
733, *8, 897 N.E.2d 548, 560 ( 2008)(“the judge appropriately could and did ‘look to
Chapter 183C as an established, statutory expression of public policy that it is unfair for
a lender to make a home mortgage loan secured by the borrower’s principal residence
in circumstances where the lender does not reasonably believe that the borrower will be
able to make the scheduled payments and avoid foreclosure.’”).
37
of the month immediately preceding the month in which the application for
the extension of credit is received by the lender; and when calculating the
annual percentage rate for adjustable rate loans, the lender shall use the
interest rate that would be effective once the introductory rate has expired.
(ii) Excluding either a conventional prepayment penalty or up to 2 bona fide
discount points, the total points and fees exceed the greater of 5 per cent of
the total loan amount or $400; the $400 figure shall be adjusted annually by
the commissioner of banks on January 1 by the annual percentage change in
the Consumer Price Index.
Mass. Gen. Laws ch. 183C, § 2. As is clear from the language of the Act, it mirrors HOEPA.
For the same reasons set forth above, the Court finds that the Debtor failed to meet his
burden of demonstrating an issue of material fact as to the applicability of the
Massachusetts Predatory Home Loan Practices Act to the loan transaction with Tribeca.
Thus, the Defendants are entitled to summary judgment on Count IX.19
D. Count VIII-Unconscionability
The Defendants argue that the Debtor cannot establish either procedural or
substantive unconscionability in the loan transaction. They point to Laudani’s position as
a Senior Loan Officer with Mortgage Pros USA and his request for a no income, no asset
verification loan. They also argue that the loan was not negatively amortized and did not
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contain a balloon payment feature. The Debtor, in a one sentence response in which he
referred to the impending foreclosure sale which ostensibly deprived him of any choice but
to close the loan with Tribeca, merely stated that “[t]hese same facts support Laudani’s
claim that the transaction was substantively and procedurally unconscionable.”
This Court addressed the applicable law with respect to a claim for
unconscionability in Maxwell v. Fairbanks Capital Corp. (In re Maxwell), 281 B.R. 101
(Bankr. D. Mass. 2002). Quoting the decision of the district court in United Companies
Lending Corp. v. Sargeant, 20 F.Supp.2d 192 (D. Mass.1998), this Court stated:
Unconscionability is a question of law to be assessed at the time the contract
was executed by the parties. See Zapatha v. Dairy Mart, Inc., 381 Mass. 284,
291, 408 N.E.2d 1370 (1980). It is a case-specific assessment. “Because there
is no clear, all-purpose definition of ‘unconscionable,’ nor could there be,
unconscionability must be determined on a case by case basis, giving
particular attention to whether, at the time of the execution of the agreement,
the contract provision could result in unfair surprise and was oppressive to
the allegedly disadvantaged party.” Id. 381 Mass. at 292-93, 408 N.E.2d 1370
(internal citations omitted). . . .
The principle of unconscionability is addressed in the Uniform Commercial
Code, see U.C.C. § 2-302, and the Supreme Judicial Court has applied the
principles of unconscionability articulated there to “situations outside the
ambit of the code.” Waters v. Min Ltd., 412 Mass. 64, 67, 587 N.E.2d 231
(1992). Under Massachusetts law, the doctrine of unconscionability
recognizes procedural and substantive unconscionability. See Zapatha, 381
Mass. at 292-93, 294 n. 13, 408 N.E.2d 1370. Procedural unconscionability
evaluates the circumstances under which the contract was executed to
determine if it is the product of unfair surprise. Substantive
unconscionability evaluates the actual terms of the contract to determine if
they are substantively unfair. “If the sum total of the provisions of a contract
drive too hard a bargain, a court of conscience will not assist its
enforcement.” Waters, 412 Mass. at 68, 587 N.E.2d 231 (citing Campbell Soup
Co. v. Wentz, 172 F.2d 80, 84 [3d Cir.1948] ). . . .
* * * * * *
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The fact that this conduct constitutes an unfair or deceptive practice,
however, does not mean that this conduct was unconscionable.
Maxwell, 281 B.R. at 128-29 (quoting Sargeant, 20 F.Supp.2d at 206-07). In In re Sullivan,
346 B.R. 4, 26 (Bankr. D. Mass. 2006), this Court recognized that “‘[t]he test [for
unconscionability] is a conjunctive one; that is, a plaintiff must prove both substantive and
procedural unconscionability to prevail on this theory.’” 346 B.R. at 26 (citing Storie v.
Household Intern., Inc., No. 03-40268-FDS, 2005 WL 3728718 at *9 (D. Mass. Sept. 22, 2005)
and Zapatha v. Dairy Mart, Inc., 381 Mass. 284, 293 (1980) (“This two-part test for
unconscionability involves determining whether there was an absence of meaningful
choice on the part of one of the parties, together with contract terms which are
unreasonably favorable to the other party.”)).
Viewing the facts in the light most favorable to the Debtor, the Court accepts the
Debtor’s assertion that he did not receive disclosures until the closing. Because the Debtor
failed to produce evidence to rebut that produced by the Defendants with respect to the
applicability of HOEPA and Mass. Gen. Laws ch. 183C, the Court finds that the Defendants
were not required to make disclosures prior to the closing except for the variable interest
rate. Accordingly, the absence of disclosures prior to the closing does not alone make the
loan unconscionable .
The Debtor also asserts that there were multiple HUD-1 Settlement Statements that
showed, in different versions, that he was entitled to $1,271.12 in cash, $1,243.12 in cash,
and $140.87 in cash, which is the sum that he received following the closing. He also states
that he was shocked to learn, inter alia, that he would only be receiving $140.87, that the
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At his deposition, the Debtor testified, “I was limited in the number of lenders20
that would lend to me, but they were going to lend cash out to me. With this type of
program, cash out was a possibility.”
40
APR was below the contractual interest rate, and that he was asked to sign two sets of
HUD-1 Settlement Statements and two sets of Truth-in-Lending Disclosure Statements. The
Court finds that, while the disparity in those sums, as well as the potential problems with
the amounts set forth in the Amount Financed, possibly could result in damages or even
rescission under the MCCCDA, the Debtor failed to point to specific facts that would
permit this Court to determine that the mortgage loan was both procedurally or
substantively unconscionable. In particular, the Debtor failed to establish that there was
“gross disparity in the values exchanged” such that he gained no advantage from the
transaction. The Debtor, who was employed at Mortgage Pros, stated in his Affirmation
that he was not a sophisticated borrower. Although the Court finds that the Debtor’s
deposition testimony in which he demonstrated some knowledge of the lending industry,
in particular, familiarity with the terms such as “hard money lender” and “NINA,”
seemingly contradicts his Affirmation that he was not a sophisticated borrower, assuming20
he were as unsophisticated as he maintains, his status as such a borrower, without more,
does not make him a victim of unconscionable actions taken by the Defendants. His
circumstances at the time of the May 3, 2006 closing were far different than those of the
borrowers in Maxwell and Sargeant. The Debtor was aware that he was not a candidate
for a conventional mortgage. He had refinanced his home several times, he was a landlord,
he had borrowed money from a “hard money” lender secured by a second mortgage to
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obtain cash to refurbish his Property, cash which he used for an internet start-up company
instead, he was facing foreclosure, and he was behind in his revolving credit card
payments. He specifically requested a loan through a mortgage broker with whom he had
dealt in the past - - a loan that did not require verification of his income, assets or
employment. Even if the Debtor were surprised that he was unable to obtain more cash
from his refinancing with Tribeca than he ultimately received, that surprise is not the
equivalent of the unfair surprise component needed to establish procedural
unconscionability. This is particularly so in view of the Debtor’s dealings with the
Carpenter Trust when he learned that he would receive much less money than he
originally anticipated. Moreover, the Debtor cannot credibly argue that he received no
benefit from the transaction, which satisfied two mortgages and several liens against the
Property and resulted in cancellation of an impending foreclosure sale. Accordingly, the
Court shall enter an order granting summary judgment to the Defendants on Count VIII.
E. Count IV -Borrower’s Interest
In his Verified Complaint, the Debtor alleged that the refinancing was not in his
interest because his monthly payments increased. He also alleged that the Defendants
failed to conduct the analysis required by the statute prior to making the loan and that a
copy of the Massachusetts Borrower Interest Worksheet provided by Tribeca was blank.
The Defendants maintain that they are entitled to summary judgment on Count IV
because the Debtor is both factually and legally incorrect. They add that the Debtor’s
reliance on the blank Borrower’s Interest Worksheet is misplaced, stating the following:
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The Regulation sets forth the following factors:21
(a) the borrower’s new monthly payment is lower than the total of all
42
While the statute and regulations require a lender to determine whether the
loan is in the borrower’s best interest, they do not require that the lender
provide to the borrower any documentation of this analysis. Even if the
statute requires the lender to complete the worksheet, the failure to do so
does not harm the borrower in a case like this were [sic] the statutory factors
make clear that the loan was in the borrower’s best interest.
The Debtor’s only response to this argument was that his payments increased and that “the
defendants cannot escape that fact by saying they are not required to give Laudani a copy
of their calculations.”
Pursuant to Mass. Gen. Laws ch. 183, § 28C,
(a) A lender shall not knowingly make a home loan if the home loan pays off
all or part of an existing home loan that was consummated within the prior
60 months or other debt of the borrower, unless the refinancing is in the
borrower’s interest. The “borrower’s interest” standard shall be narrowly
construed, and the burden is upon the lender to determine and to
demonstrate that the refinancing is in the borrower’s interest.
Factors to be considered in determining if the refinancing is in the borrower’s
interest include but are not limited to:--
(1) the borrower’s new monthly payment is lower than the
total of all monthly obligations being financed, taking into
account the costs and fees;
(2) there is a change in the amortization period of the new loan;
(3) the borrower receives cash in excess of the costs and fees of
refinancing;
(4) the borrower’s note rate of interest is reduced;
(5) there is a change from an adjustable to a fixed rate loan,
taking into account costs and fees; or
(6) the refinancing is necessary to respond to a bona fide
personal need or an order of a court of competent jurisdiction.
Mass. Gen. Laws ch. 183, § 28C. See also 209 Code Mass. Regs 53.04(3). A lender is21
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monthly obligations being financed, taking into account the costs and fees;
(b) there is a change in the amortization period of the new loan compared
to the original amortization term of the old home loan;
(c) the borrower receives cash in excess of the costs and fees of refinancing;
(d) the borrower’s note rate of interest is reduced;
(e) there is a change from an adjustable to a fixed rate loan, taking into
account costs and fees;
(f) the refinancing is necessary to respond to a bona fide personal need or
an order of a court of competent jurisdiction; or
(g) the time it takes to recoup the costs of refinancing, taking into account
the costs and fees.
209 Mass. Code Regs. 53.04.
43
required to determine the borrower’s interest not later than the closing. 209 Code Mass.
Regs. 53.06. The statute further provides:
[I]f a home loan does not meet one of the factors in 209 CMR 53.04(1) [sic], a
lender shall indicate specifically how the lender determined that the home
loan was in the borrower’s interest . . . [and] . . . [a] lender may request that
a borrower acknowledge receipt of such a worksheet or other
documentation; provided, however, a lender shall not shift the burden to the
borrower to demonstrate that a home loan is in the borrower’s interest; and
provided further that a lender shall not require a borrower to sign a waiver
of future claims under M.G.L. c. 183, § 28C or 209 CMR 53.00 [sic].
209 Code Mass. Regs. 53.07. The Borrower’s Interest Statute does not specifically set forth
a remedy for violation of its provisions. Nevertheless, by implication, a borrower may be
entitled to costs and attorney’s fees as subsection (b) provides:
Notwithstanding any provision to the contrary contained in this chapter
regarding costs and attorneys’ fees, in any action instituted by a borrower
who alleges that the defendant violated subsection (a), the borrower shall not
be entitled to costs and attorneys’ fees if the presiding judge, in the judge’s
discretion, finds that, before the institution of the action by the borrower, the
lender made a reasonable offer to cure and that offer was rejected by the
borrower.
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Mass. Gen. Laws ch. 183, § 28C(b).
The Debtor represented in his Verified Complaint that “[t]he total monthly payment
for both Homecomings and Carpenter Trust was about $4,200.” In his Memorandum, the
Debtor represented that “the payments to his previous mortgagees totaled around $4,200,
including taxes and insurance.” That statement is inconsistent with the allegation in his
Verified Complaint and the Loan Application produced by the Defendants which he signed
at the closing. The statement in the Memorandum cannot create a genuine issue of material
fact without the submission of documentary evidence to rebut what was set forth in the
Loan Application. The “Payment Letter to Borrower,” which the Debtor also signed at the
closing, reveals that the monthly payment for principal and interest was $3,979.50. The
Defendants, through the Loan Application signed by the Debtor at the closing, submitted
evidence that the total monthly payments to Homecomings and the Carpenter Trust was
$4,780.46, including insurance and taxes, while the monthly payment on the Tribeca loan,
including insurance and real estate taxes, was $4,559.96. Thus, the Debtor’s monthly
payment decreased.
Applying the factors set forth in the statute and regulations, the Court finds that the
Debtor failed to rebut the Defendants’ assertion that the refinancing was in his best interest.
The Debtor’s loan transaction with Tribeca resulted in the payoff and consolidation of two
mortgages, one from Homecomings and one from the Carpenter Trust. His loan payment
was reduced by approximately $220; the interest rate was lower than the 18% interest rate
applicable to the Carpenter Trust loan; and the refinancing was necessary to respond to “a
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bona fide personal need,” namely the avoidance of an imminent foreclosure sale.
Additionally, the Debtor received some cash from the transaction.
In response to the Defendants’ Motion for Summary Judgment, as noted above, the
Debtor erroneously represented that his mortgage payments prior to the May 3, 2006
refinancing were $4,200, including insurance and taxes. The Court finds that his argument
is woefully insufficient to rebut the Defendants’ submissions and to establish the existence
of a genuine issue of material fact. Not only did the Debtor fail to apply the factors set
forth in the statute, he also failed to articulate how he was damaged by any failure of the
Defendants to provide him with, or keep a copy of, the Borrower’s Interest Worksheet. His
remaining arguments were conclusory and devoid of any evidence as to causation and
damage resulting from any violation of the statute. Accordingly, the Court shall enter an
order granting summary judgment in favor of the Defendants on Count IV.
F. Count VII- Breach of Contract
In Count VII of his Verified Complaint, the Debtor alleged that he was induced to
enter into the loan transaction with Tribeca; that the actions of the Defendants were
intended to deprive him of his home and the equity in it for their own pecuniary gain; that
the Defendants knew or should have known that he “did not have the ability to repay the
amount lent without a rental income dependent on the renovation of his house to be
funded by a significant cash out from the loan;” that the Defendants failed to perform
certain terms of the loan by failing to pay “various fees/charges” on the HUD-1 Settlement
Statement or overstating amounts they paid, and by failing to “distribute the amount of
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cash to Laudani as he was induced to believe before the closing and as was reflected in two
of the three HUD-1 statements;” that because the value of the Property was in excess of the
loan amounts, the Defendants knew they could foreclose and “make a profit unjustly,
unfairly and inequitably.” He further asserted that the Defendants violated the covenant
of good faith and fair dealing which is part of every contract.
The Defendants maintain that Count VII consists largely of allegations already
addressed in other counts of Laudani’s Complaint. They assert that they established
through Waite’s affidavit, to which canceled checks were attached, that with the exception
of M.P.T.N., they accurately listed payoff amounts and paid all amounts they were
required to pay. They also assert that there was no breach of contract with respect to the
amount of the cash-out Laudani expected to receive because, even if true, the crux of that
allegation is fraud, not breach of contract. Citing Liss v. Studney, 450 Mass. 473, 477 (2008),
they argue that the Debtor did not allege that they exerted undue leverage or acted to
deprive him of his “right . . . to receive the fruits of the contract.” Moreover, they argue
that the Debtor failed to establish that they violated the Borrower’s Interest Statute, Mass.
Gen. Laws ch. 183, § 28C. They conclude:
Even if the loan were not in Laudani’s best interest, however, defendants’
conduct in making the loan does not breach the common law duty of good
faith and fair dealing. As the Supreme Judicial Court pointed out in Liss,
“[t]he covenant may not . . . be invoked to create rights and duties not
otherwise provided for in the existing contractual relationship. . . . The scope
of the covenant is only as broad as the contract that governs the particular
relationship.” Yet, that is exactly what Laudani is attempting to do. The loan
contract imposed no duty on defendants to make a loan Laudani could not
repay.
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The Defendants also reject any notion that a common law duty exists for a lender to make
a loan that the borrower can repay.
In Liss, the Supreme Judicial Court stated:
Every contract is subject to an implied covenant of good faith and fair
dealing. The purpose of the covenant “is to guarantee that the parties remain
faithful to the intended and agreed expectations” of the contract, and to
ensure that “neither party shall do anything that will have the effect of
destroying or injuring the right of the other party to receive the fruits of the
contract.” The covenant “may not . . . be invoked to create rights and duties
not otherwise provided for in the existing contractual relationship.” “The
scope of the covenant is only as broad as the contract that governs the
particular relationship.”
450 Mass. at 477 (citations omitted).
The Debtor’s allegations under Count VII are largely duplicative of those contained
in Counts II and V and X. The Court rejects the Debtor’s contention that the Defendants
breached the implied covenant of good faith and fair dealing simply by making the loan
to him. The Court finds, however, that there is an issue of fact with respect to payment of
M.P.T.N., presumably a creditor with a lien or execution against the Property. The Debtor
failed to allege how he was damaged by the failure to pay M.P.T.N., whose lien would
have priority over the mortgage lien of the Defendants and would have to be paid before
the Defendants’ could satisfy the mortgage debt following a foreclosure sale. Nevertheless,
the Court shall enter an order denying summary judgment on Count VII.
G. Count VI-Economic Duress
In his Verified Complaint, the Debtor stated that the loan he obtained “constitutes
a disproportionate exchange of values.” Additionally, he complained that without the
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distribution of cash in the amount that he was originally told he was to get he was not able
to renovate his house for rental purposes, that the repayment of the loan was far beyond
his ability to pay without rental income, and that there was a certainty that he would lose
the equity in his house. Accordingly, he sought damages, as well as a judgment declaring
the mortgage loan null and void.
The Defendants seek summary judgment with respect to Count VI arguing that they
did not cause the financial circumstances which the Debtor claims pressured him into
signing the loan documents. They add that “even if Laudani could establish duress, he
ratified the transaction by accepting the benefits of the loan and failing to repudiate it for
more than 18 months after the closing.” In response, the Debtor, while admitting that he
was under duress from other sources, maintains that the Defendants’ delay in providing
him with disclosures, until, at best, the closing, “left him with no reasonable choice but to
close, let [sic] he lose his home to foreclosure.”
In Cabot Corp. V. AVX Corp., 448 Mass. 629 (2007), the Supreme Judicial Court set
forth the applicable law. It stated:
It is well established that a contract entered into under duress is voidable.
Barnette v. Wells Fargo Nev. Nat’l Bank, 270 U.S. 438, 444, 46 S.Ct. 326, 70
L.Ed. 669 (1926). Coveney v. President & Trustees of the College of the Holy
Cross, 388 Mass. 16, 22, 445 N.E.2d 136 (1983), citing Avallone v. Elizabeth
Arden Sales Corp., 344 Mass. 556, 561, 183 N.E.2d 496 (1962). Cappy’s, Inc.
v. Dorgan, 313 Mass. 170, 174, 46 N.E.2d 538 (1943). Freeman v. Teeling, 290
Mass. 93, 95, 194 N.E. 677 (1935). Restatement (Second) of Contracts § 175
(1981). See 7 A. Corbin, Contracts § 28.1 (rev. ed.2002); 28 S. Williston,
Contracts § 71:3 at 431 (4th ed. 2003) (Williston). Such duress need not be
physical; it may be economic in nature. International Underwater Contrs.,
Inc. v. New England Tel. & Tel. Co., 8 Mass.App.Ct. 340, 342, 393 N.E.2d 968
(1979) (International Underwater Contrs.), citing Struck Constr. Co. v. United
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States, 96 Ct.Cl. 186, 220, 1942 WL 4411 (1942). “To show economic duress (1)
a party ‘must show that he has been the victim of a wrongful or unlawful act
or threat, and (2) such act or threat must be one which deprives the victim of
his unfettered will,’ ” International Underwater Contrs., supra, quoting 13 S.
Williston, Contracts § 1617, at 704 (3d ed.1970), resulting in the threatened
party being “compelled to make a disproportionate exchange of values.”
International Underwater Contrs., supra, quoting 13 S. Williston, Contracts,
supra.
“The elements of economic duress have also been described as follows: ‘(1)
that one side involuntarily accepted the terms of another; (2) that
circumstances permitted no other alternative; and (3) that said circumstances
were the result of coercive acts of the opposite party.’” International
Underwater Contrs., supra, quoting Urban Plumbing & Heating Co. v.
United States, 187 Ct.Cl. 15, 408 F.2d 382, 389 (1969), cert. denied, 398 U.S. 958,
90 S.Ct. 2164, 26 L.Ed.2d 542 (1970). To show duress, a victim “must go
beyond the mere showing of a reluctance to accept [and] financial
embarrassment” and show that acts of the other party produced these
factors. Williston, supra at § 71:7 at 449. Thus, “[i]n order to substantiate the
allegation of economic duress or business compulsion ... [t]here must be a
showing of acts on the part of the defendant which produced [the financial
embarrassment]. The assertion of duress must be proved by evidence that the
duress resulted from defendant’s wrongful and oppressive conduct and not
by plaintiff's necessities.” International Underwater Contrs., supra, quoting
W.R. Grimshaw Co. v. Nevil C. Withrow Co., 248 F.2d 896, 904 (8th Cir.1957).
Id. at 637-38.
As is evident from the list of elements sets forth by the Supreme Judicial Court, the
Debtor failed to allege or submit evidence with respect to coercive acts or threats on the
part of the Defendants, which deprived him of his will. The Debtor was well aware of the
impending foreclosure sale when he contacted Manhattan, and, even if the closing attorney
or someone else suggested to the Debtor that the foreclosure sale was imminent, the Court
finds that that statement is not the type of coercive or unlawful act or threat that would
give rise to liability on the part of the Defendants. The Defendants did not create the
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problems that caused the Debtor to enter into the loan transactions. The Defendants had
not scheduled the foreclosure sale which constrained the Debtor’s options or borrowed
money from the Carpenter Trust at 18% interest. Indeed, the Debtor admitted that he used
the proceeds from the Carpenter Trust loan to start an internet business instead of using
them to refurbish his Property. Moreover, the Debtor failed to submit a scintilla of
evidence that a representative of Tribeca, as opposed to Walsh or a representative of
Manhattan, represented to him that he would be able to obtain $25,000 to $60,000 in cash
in view of the loan amount and the number of mortgages and encumbrances on the
Property. Accordingly, the Court shall enter an order granting summary judgment to the
Defendants with respect to Count VI.
H. Count XII-Emotional Distress
Through Count XII, Laudani asserted that “[t]he actions of the defendants, as
described herein, caused Laudani to suffer emotional distress of a type and severity that
is unjustified, unreasonable and intolerable in a civilized society.” The Debtor did not
differentiate between negligent or intentional infliction of emotional distress. In their
Motion for Summary Judgment, the Defendants outlined the elements of causes of action
for negligent and intentional infliction of emotional distress, and argued that the Debtor
failed to satisfy applicable standards.
In Regan v. Beneficial Massachusetts, Inc. (In re Regan), No. 07-1308, 2008 WL
4373001 (Bankr. D. Mass. Sept. 22, 2008), this Court, quoting Payton v. Abbot Labs, 386
Mass. 540 (1982), stated:
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“[A] plaintiff in order to recover for negligently inflicted emotional distress
must prove the following: (1) negligence; (2) emotional distress; (3) causation;
(4) physical harm manifested by objective symptomatology; and (5) that a
reasonable person would have suffered emotional distress under the
circumstances of the case.” In Payton Labs, the court required the objective
symptomatology to be substantiated by expert medical testimony, and to be
reasonably foreseeable. Id. at 556-57. It also stated that emotional distress is
reasonably foreseeable when there is a causal relationship between the
physical injuries suffered and the emotional distress alleged. Id. at 556.
Regan, 2008 WL 4373001 at *14 n.14. As noted by the court in Islam v. Option One
Mortgage Corp., 432 F.Supp.2d 181, 195 n. 15 (D. Mass. 2006), “Massachusetts law . . .
requires that a legal duty undergird a claim of negligent infliction of emotional distress.”
In Islam, the court scoured Massachusetts law, concluding that there was considerable
uncertainty surrounding the existence of a duty for purposes of a negligence claim under
Massachusetts law in the context of debt collection (as opposed to the context in this case,
namely the making of a loan) by a secured creditor. 432 F.Supp.2d at 198. The court, in
denying a motion to dismiss a claim for negligent infliction of emotional distress,
concluded that it might consider it appropriate to certify the question of the existence of
a duty to the Supreme Judicial Court, if the plaintiffs prevailed after trial. Id. Indeed, the
court expressed hesitancy in finding a negligence duty based upon duties imposed by
Massachusetts statutory law. Noting that consumer protection statutes provide their own
enforcement mechanism, the court stated “[t]o create a common-law negligence action
based on these statutes would be to graft an unwritten remedy onto [sic] their enforcement
scheme. This the Court is unprepared to do.” Id, at 196.
In this case, the Debtor did not plead the required elements of a claim for negligent
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infliction of emotional distress and did not even consider the existence of a duty on the part
of the Defendants in what is generally recognized as a contractual debtor-creditor
relationship. Moreover, the Debtor did not point to specific facts to establish the elements
of a claim for negligent infliction of emotional distress. Although he discussed health
issues, he did not attach the affidavit of his treating physician or analyze causation in other
than a conclusory fashion. Indeed, his argument was limited to the statement that his
“affirmation details the emotional distress this ordeal has caused him.” That statement is
insufficient to create a genuine issue of material fact warranting trial on the merits.
In Regan, this Court also discussed intentional infliction of emotional distress. The
Court quoting Simon v. Solomon, 385 Mass. 91 (1982), stated:
To recover for intentional infliction of emotional distress as an independent
claim, the plaintiff must show the following: (1) that the actor intended to
inflict emotional distress or that he knew or should have known that
emotional distress was the likely result of his conduct; . . . (2) that the conduct
was ‘extreme and outrageous’ . . .; (3) that the actions of the defendant were
the cause of the plaintiff’s distress; . . . and (4) that the emotional distress
sustained by the plaintiff was ‘severe’ . . . .” 385 Mass. at 96 (citing Agis v.
Howard Johnson Co., 371 Mass. 144-45 (1976) ). If each of these elements is
proven, the plaintiff can recover for purely emotional suffering
unaccompanied by physical injury. Id.
Regan, 2008 WL at *14 n.13. See also Johnson v. Town of Nantucket, 550 F.Supp.2d 179, 183
(D. Mass. 2008).
The Debtor represented that the Defendants’ conduct was “unjustified, unreasonable
and intolerable.” The Court finds, as a matter of law, that the Debtor failed to substantiate
with credible evidence that the Defendants’ conduct in making the loan “was extreme,
outrageous and beyond all possible bounds of decency.” See Taylor v. Swartwout, 445
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Notably, the Debtor did not identify the person at either Manhattan or Tribeca22
who told him he would received thousands of dollars.
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F.Supp.2d 98, 105 (D. Mass. 2006). The Debtor pointed to no evidence in the record that the
Defendants intended or knew or should have known that their actions in making a loan
to Laudani would cause him emotional distress. The record does not support the
conclusion that the loan was beyond the bounds of decency. Although the Debtor detailed
manifestations of illnesses he suffered, he failed to submit evidence as to the causal
connection between the loan from Tribeca, as opposed to his overall financial
circumstances, including an impending foreclosure sale, a failed internet start-up company,
and limited income from employment and rent, and his emotional distress. The Debtor’s
ability to resolve his financial crisis was severely circumscribed by his history of late and
missing payments to both secured and unsecured creditors. The loan from Tribeca bought
the Debtor time to address his financial problems, even though it did not yield the
thousands of dollars he alleged he was told he would receive. Although the Debtor22
indicated that he needed the money to make repairs to his Property, the Court notes that
the Debtor is renting at least one unit of his multi-family home for $3,400 per month.
Moreover, the Court notes that it is reasonable to infer that if the Debtor’s Property needed
repairs costing $25,000 to $60,000, it is unlikely that he could rent the units before the first
mortgage payment came due under the Note. Although the Court must construe the
evidence in the light most favorable to the Debtor, as noted in Medina-Munoz, 896 F.2d at
8, the Court need not accept the Debtor’s unsupported allegations to establish a genuine
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issue of material fact. The Debtor submitted no evidence whatsoever about the condition
of his Property, its occupancy at the time of the loan transaction, and his expected rental
income which would have permitted him to pay his monthly mortgage obligation to
Tribeca. Additionally, as noted by the court in Nosek v. Ameriquest Mtg. Co. (In re
Nosek), No. 04-4517, 2006 WL1867096 (Bankr. D. Mass. June 20, 2006), this Court is without
jurisdiction to hear a tort claim for intentional infliction of emotional distress. See 28 U.S.C.
§ 157(b)(5). Accordingly, the Court shall enter an order granting summary judgment with
respect to Count XII.
V. CONCLUSION
In view of the foregoing, the Court shall enter an order granting in part and denying
in part the Defendants’ Motion for Partial Summary Judgment. The Court shall enter an
order granting summary judgment with respect to Counts IV, VI, VIII, IX XII and denying
summary judgment with respect to Counts II as set forth in section IV.B of this
Memorandum and VII.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: January 16, 2009
cc: David G. Baker, Esq., Kevin P. Scanlon, Esq., Carolyn Bankowski, Esq.
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