Is there a cause of action for predatory lending?

 
CAN YOU SUE A CREDITOR FOR PREDATORY LENDING?

  

Federal judge in Texas says ‘No’ in suit against JPMorgan Chase Bank, N.A. involving a loan made on stated-income, and declines Plaintiff’s invitation to create such a cause of action. Chase, as successor servicer to EMC Mortgage LLC f/k/a EMC Mortgage Corporation ("EMC"), removed the borrower’s action from state court and secures dismissal for failure to state a claim.  

  

Predatory Lending Claim: no such thing, at least not yet    

  

EXCERPT FROM OPINION BY HON. JOHN McBRIDE, DISTRICT JUDGE  

  

The main thrust of plaintiff's predatory lending claim is that" [d]efendants engaged in predatory lending practices by, among other things, failing to make necessary disclosures to Plaintiff regarding their loan." Compl. at 7. Specifically, plaintiff alleges that defendants failed to provide certain disclosures allegedly required by TILA and RESPA three days after some initial meeting or submission of his loan application. Id. at 3, 7. Plaintiff, however, then alleges that he did receive disclosures at the loan's closing. Id. at 3, 7, 9. Plaintiff alleges that he "received some of these disclosures," without specifying which disclosures he received and which he did not. Id.

  

Plaintiff has not cited any state or applicable federal law, precedential or statutory, that creates a cause of action for "predatory lending." See, e.g., Brown v. Aurora Loan Servs., LLC, No. 4:11-CV-111, 2011 WL 2783992, at *4 (E.D. Tex. June 7, 2011), report and recommendation adopted at 2011 WL 2728384. Plaintiff even acknowledges that "predatory lending is not a recognized cause of action at this time." Compl. at 6.

 

Plaintiff argues that "predatory lending should be a recognized cause of action and this, a case of first impression subject to review by the Texas Supreme Court, is necessary, in order to lay the groundwork for future predatory lending claims." Id. The court is not persuaded by plaintiff's argument, as the court has found no case law in support of a cause of action for predatory lending. The court is not inclined to create a cause of action not previously recognized in Texas or federal law.

Moreover, plaintiff's conclusory allegations fail to allege sufficient facts to support his claim for "predatory lending." Plaintiff has not even stated what disclosures were not allegedly provided to him. Id. at 7. Accordingly, plaintiff's predatory lending claim must be dismissed.

SOURCE: United States District Court, N.D. Texas, Fort Worth Division. Civil Action No. 4:11-CV-812-A. DONALD BITTICK, Plaintiff, v. JPMORGAN CHASE BANK, NA, ET AL., Defendants. MEMORANDUM OPINION and ORDER of JOHN McBRYDE, District Judge. April 18, 2012. 

INTRO AND BACKGROUND SECTION FROM MEMORANDUM OPINION and ORDER BY JOHN McBRYDE, District Judge.

  

Now pending in the above-captioned action is the motion to dismiss for failure to state a claim, filed by defendant JPMorgan Chase Bank, N.A. ("Chase") on December 23, 2011. Plaintiff, Donald Bittick, filed no response to the motion, and the issues are ripe for consideration. After having considered such motion, the amended pleading filed by plaintiff, and applicable legal authorities, the court has concluded that the motion to dismiss should be granted.[1]

[1] The court has subject matter jurisdiction over plaintiffs claims against JPMorgan Chase ("Chase") by reason of 28 U.S.C. §§ 1441 and 1331, because plaintiffs allegations concerning the Real Estate Settlement Procedures Act ("RESPA") and the Truth in Lending Act ("TILA") arise under the laws of the United States. See 12 U.S.C. §§ 2605, 2609, 2610; 15 U.S.C. § 1601-1667f. The court has supplemental jurisdiction over all other claims. 28 U.S.C. § 1367.

 

Background

   

Plaintiff instituted this action by a pleading in the District Court of Tarrant County, Texas, 415th Judicial District, on July 29, 2011, against defendants Home Loan Mortgage Corporation d/b/a Expanded Mortgage Credit and Imperial Mortgage Corporation ("Imperial"), as Cause No. CV-11-1145. Plaintiff filed an amended petition on october 31, 2011, naming as defendants Imperial and JPMorgan Chase Bank, NA f/k/a Home Loan Corporation d/b/a Expanded Mortgage Credit.

Chase, as successor servicer to EMC Mortgage LLC f/k/a EMC Mortgage Corporation ("EMC"), removed the action to this court on November 16, 2011. Chase filed its first motion to dismiss on November 23, 2011. The court, by order of December 2, 2011, denied Chase's motion and further ordered plaintiff to file an amended complaint that complied with the requirements of Rule 8(a), Rule 10(a), and if applicable, Rule 9 of the Federal Rules of civil Procedure.

Plaintiff filed an amended complaint ("Complaint") on December 12, 2011. The Complaint appears to allege only two defendants, Chase and Imperial (collectively, "defendants"). Section I of the Complaint, titled "PARTIES," includes Chase and Imperial but not EMC.[2] Additionally, plaintiff names Chase and EMC as a single defendant in the caption of the Complaint.[3]

To date, only Chase has been served with citation in the state court. Chase filed a motion to dismiss the Complaint for failure to state a claim on December 23, 2011.

In the Complaint, plaintiff alleges claims for predatory lending, common-law fraud, fraud in the inducement, fraud by nondisclosure, civil conspiracy to commit common-law fraud and fraud in the inducement, procedural and substantive unconscionability, and violations of the Real Estate Settlement Procedures Act ("RESPA") and the Truth in Lending Act ("TILA"). Plaintiff sought judgment for economic, special, and exemplary damages, pre- and post-judgment interest, attorney's fees and costs, and declaratory relief.

In summary, plaintiff made the following allegations in the Complaint:

In 2004, plaintiff moved into the property at 202 Lake Hollow Drive, Weatherford, Texas, under a rental agreement. Compl. at 2. Between the end of 2005 and early 2006, plaintiff began efforts to purchase the property, and consulted with a realtor recommended by the owner. Id. Plaintiff also consulted with the broker recommended by the realtor. Id. at 2-3. This first broker denied plaintiff's application and suggested that plaintiff use "Imperial, a broker who worked in conjunction with, and was approved by Defendant EMC." Id. at 3. The first broker "who gathered all of Plaintiff's initial paperwork for the loan application sent it to Defendant Imperial." Id. Plaintiff did not see any of the paperwork after it was released from the original broker into Imperial's possession. Id.

Because plaintiff could not pay the amount to close the sale, he informed Imperial that he could not purchase the property. Id. An unidentified Imperial representative "offered to loan the Plaintiff approximately $1,000 toward the down-payment and subsequently roll that amount into the loan so that Defendants could eventually be paid back." Id.

As to the loan application, plaintiff complains that Imperial did not verify plaintiff's stated income and did not rely upon plaintiff's true income in determining his qualification for the approved loan. Id. at 3-4. "Imperial used Plaintiff's `stated income' as it was provided to them by the original loan broker rather than obtaining and ascertaining an accurate income amount from Plaintiff" to ensure that he was qualified for the approved loan amount. Id. at 3. The loan application "reflects that Plaintiff made $5,000 per month through self employment income." Id. Plaintiff "maintains he represented the true income to Defendant Imperial, but this was unlikely the income on which the loan was based[,] as the loan amount and interest rates were not compatible with Plaintiff's income and repayment capabilities." Id. Furthermore, this "stated income figure was never verified by Defendant Imperial." Id. It is not clear whether plaintiff's "true income" is $5,000 or another figure.

Plaintiff also complains that federally mandated disclosures were not provided to him in advance of closing.[4] "[A]s best as Plaintiff recalls, he was never provided with any of the other required disclosures including but not limited to the Truth-In Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA), etc either at or three (3) days after the initial loan application when he signed the Form 1003." Id. at 3-4. "It was not until the day of closing that Plaintiff received some of these disclosures"; by then, "it was too late to fully review the documentation and understand the implications of the loan." Id. at 4.

The loan became effective" [o]n or about June 21, 2006," when "Plaintiff signed the loan agreement with his wife, Wendy Bittick, who signed as a non-purchasing spouse." Id. As to the loan interest rate, plaintiff alleges that the interest rate on the "loan was not based on the stated income amount that Plaintiff provided to the initial loan broker."[5] Id. at 4.

Between the end of 2009 and beginning of 2010, plaintiff "got off track with payments and was forced to apply for a temporary loan modification with Defendant in May 2010." Id. Instead "of accelerating Plaintiffs' note, Defendant EMC agreed to a temporary loan modification in May 2010." Id. Under the agreement, EMC "agreed to a temporary modification of a reduction of the interest to only 5.5%," and that "the difference between the previous rate and the current temporary rate [would] be tacked onto the back of the note." Id. at 4.

At present, plaintiff remains "under the temporary loan modification, but will inevitably be subjected . . . to the initial, unfair interest rates once the temporary" period ends. Id. Plaintiff did not learn of "many of the actions taken by Defendants [sic] Imperial and by approval, Defendant EMC," until he consulted with an attorney.[6] Id. at 4. He eventually realized that "many things that transpired in his loan transaction were hallmarks of predatory lending practices." Id. Defendant has not been making payments, because he "is hesitant and uncertain about continuing to pay the loan under its current terms." Id. at 5. Instead, he "is escrowing the necessary funds." Id.

After plaintiff filed the Complaint, Chase filed a motion to dismiss the Complaint. 

[...]

Conclusion and Order

The court therefore concludes that plaintiff has not alleged any facts that would allow the court to draw the reasonable inference that plaintiff is entitled to any relief, or that either defendant is liable to plaintiff under any of the theories of liability alleged in the Complaint. As a result, plaintiff's Complaint fails to state a plausible claim to relief and should be dismissed.

For the reasons given above,

The court ORDERS that all claims asserted by plaintiff against defendants be, and are hereby, dismissed with prejudice. 

SOURCE: United States District Court, N.D. Texas, Fort Worth Division. Civil Action No. 4:11-CV-812-A. DONALD BITTICK, Plaintiff, v. JPMORGAN CHASE BANK, NA, ET AL., Defendants. MEMORANDUM OPINION and ORDER of JOHN McBRYDE, District Judge. April 18, 2012.