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Alfred Wagner and Amber Wagner v. Aurora Loan Servicing

December 27, 2011


The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge


Before the Court is Defendants Aurora Loan Servicing, LLC ("Aurora") and Mortgage Electronic Registration Systems' ("MERS", collectively "Moving Defendants") Motion to Dismiss Complaint Filed December 9, 2010 ("Motion"), filed on August 25, 2011. Pro se plaintiffs Alfred Wagner and Amber Wagner (collectively "Plaintiffs") did not file a timely memorandum in opposition to the Motion and, on October 19, 2011, this Court issued an inclination stating that it was inclined to grant the Motion as unopposed. This matter came on for hearing on November 2, 2011. Appearing on behalf of the Moving Defendants was Karyn Doi, Esq., and Plaintiff Amber Wagner ("Mrs. Wagner") appeared by telephone. Plaintiff Alfred Wagner ("Mr. Wagner") did not appear and the Court therefore orally granted the Motion as to Mr. Wagner's claim. Over the Moving Defendants' objection, the Court granted Mrs. Wagner's oral request for an extension of time to file a memorandum in opposition to the Motion.

Mrs. Wagner filed her memorandum in opposition on November 18, 2011. The Court ordered the Moving Defendants to file a reply, and they did so on December 2, 2011. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, the Moving Defendants' Motion is HEREBY GRANTED for the reasons set forth below.


Plaintiffs filed the instant action on December 9, 2010. Plaintiffs' Complaint states that, on or about April 11, 2007, Plaintiffs entered into a loan agreement with Defendant All State Funding ("All State"). The $383,920.00 loan was for the purchase of 74-5086 Hanahanai Loop, Kailua-Kona, HI 96740 ("the Property"), and Plaintiffs granted All State a security interest in the Property. [Complaint at ¶¶ 1-2.] The loan was a "2/1 ARM for 40 years[,]" with an initial interest rate of 6.375%, and interest-only payments of $2,213.59 for the first two years. [Id. at ¶ 2.] Plaintiffs assert that the loan was a "stated income" loan, and its approval was based on the value of the Property, without regard to their ability to repay the loan. [Id.] All State was also the mortgage broker, and Aurora is the loan servicing company that has foreclosed upon the Property. [Id. at ¶¶ 6-7.] MERS was the nominee/beneficiary of the original mortgage.*fn1 [Id. at ¶ 10.]

The Complaint alleges that: Defendants failed to provide Plaintiffs with various forms and disclosures, as required by federal law, including the Truth in Lending Act ("TILA"), the Equal Opportunity Credit Act ("EOCA"), and the Fair Dept Collection Act ("FDCA"); and Defendants engaged in abusive lending practices because they did not verify that Plaintiffs had the ability to repay the loan. Plaintiffs contend that Defendants' mortgage activities render them subject to, inter alia, TILA, the Real Estate Settlement Procedures Act ("RESPA"), 20 C.F.R. §§ 3500.10, 10241.3, and Hawai`i unfair and deceptive acts and practices ("UDAP") statutes. [Id. at ¶¶ 14-16.]

Plaintiffs allege that Defendants were aware of the risks involved with the loan they offered Plaintiffs and intentionally concealed those risks. Plaintiffs claim that, as a result, they may potentially lose their home. Plaintiffs allege that Aurora is liable for any TILA violations that occurred before it obtained the servicing rights to the loan if the violations were apparent on the face of the disclosures. [Id. at ¶¶ 21-22.] Plaintiffs claim that the terms of the loan were not clear and conspicuous and that the terms were illegal. The allegedly illegal terms included: excessive ratios of income to liability; excessive fees and charges; and excessive interest rates, as compared to alternate financing that Plaintiffs could have qualified for. [Id. at ¶ 24.]

Plaintiffs allege that All State received a Par Premium/Yield Spread Premium ("YSP"), an increase in the interest rate which is paid to the broker for approximately three years. After that, the interest rate on the loan remains the same, and the lender reaps the benefit of the higher rate. Plaintiffs allege that they never agreed to pay a YSP to All State and therefore All State and Aurora have been unjustly enriched and have collected unearned fees, which is prohibited by RESPA. [Id. at ¶¶ 26-27.] Plaintiffs also allege that Defendants violated the EOCA by placing Plaintiffs in a loan with a significantly higher interest rate than they should have qualified for. [Id. at ¶ 28.] Further, they allege the loan was illegal because Defendants extended it even though All State did not conduct proper due diligence to verify Plaintiffs' income. All State allegedly knew that, if it did verify Plaintiffs' income, they would not have qualified for the loan. [Id. at ¶¶ 29-30.]

The Complaint alleges the following claims against all Defendants, unless otherwise specified:

1) a claim for declaratory relief, alleging that the power of sale in the loan is not effective because of Defendants' violations of state and federal law, and asserting that title to the Property must remain with Plaintiffs (Count I);

2) a claim for injunctive relief, enjoining the pending non-judicial foreclosure sale of the Property (Count II);

3) breach of the implied covenant of good faith and fair dealing (Count III);

4) TILA violations based on All State's and Aurora's failure to provide the initial disclosures required under TILA, and Aurora's failure to provide other notices and disclosures (including the "CHARM booklet") as required by applicable federal regulations (Count IV);

5) RESPA violations based on the excessive and hidden fees associated with the loan and the failure to provide a Special Information Booklet explaining the settlement costs within three days after submission of the loan application (Count V);

6) a claim for rescission based on the TILA and RESPA violations, fraudulent concealment, UDAPs, and based on public policy grounds (Count VI);

7) UDAP violations based on: the alleged failure to conduct diligent underwriting practices; the intentional placement of Plaintiffs in a loan they could not afford; the failure to make the required disclosures; concealing business affiliates; and rushing the loan to closing (Count VII);

8) breach of fiduciary duty by: failing to advise Plaintiffs of the likelihood of default; placing Plaintiffs in a loan they could not afford; failing to give the required disclosures; and otherwise failing to comply with TILA and RESPA laws and regulations (Count VIII);

9) unconscionability based on unfair bargaining power, the other violations previously alleged, and the windfall that Defendants reaped because of their predatory lending practices (Count IX);

10) predatory lending based on the violations previously alleged (Count X);

11) a quiet title claim against any defendant claiming an interest in the Property (Count XI); and

12) a "lack of standing" claim against MERS, alleging that MERS did not have the authority to assign Plaintiffs' promissory note (Count XII).

Plaintiffs seek: compensatory, special, general, treble, and punitive damages; attorneys' fees and costs; declaratory and injunctive relief; rescission of the loan and restitution; a judgment requiring Defendants to prove that they have authority to foreclose on Plaintiffs' promissory note; quiet title; prejudgment interest; and any other appropriate relief.

Aurora filed its Answer on March 16, 2011. [Dkt. no.

6.] There is no indication in the record that Plaintiffs completed service on All State.

I. Aurora and MERS's Motion

In the instant Motion, Aurora and MERS argue that each count of the Complaint fails to state a claim upon which relief can be granted.

Count I fails because Plaintiffs are not entitled to declaratory relief for their UDAP, TILA, or RESPA claims. There can be no UDAP violation because there is no duty requiring a lender to determine a borrower's ability to repay a loan, unless the lender exceeded its traditional role, which did not happen in this case. The TILA rescission and damages claims are time-barred because Plaintiffs entered into the loan in April 2007, but did not file this action until December 2010. Aurora and MERS also suggest that the RESPA claim is time-barred, but they assert that the claim also fails because Plaintiffs did not identify which specific RESPA statute Defendants allegedly violated.

Count II fails because there is no independent cause of action for injunctive relief.

Aurora and MERS argue that the Court should dismiss Count III (breach of the implied covenant of good faith and fair dealing) for the reasons set forth in Marzan v. Bank of America, 779 F. Supp. 2d 1140, 1147-48 (D. Hawai`i 2011).

Count IV (TILA), Count V (RESPA), Count VI (rescission), and Count VII (UDAP) should be dismissed for the same reasons set forth regarding Count I. Further, rescission is a remedy, not an independent cause of action.

Count VIII (breach of fiduciary duty) fails because there is no fiduciary duty between a borrower and a lender, absent special circumstances that are not present in this case.

Count IX (unconscionability) fails because unconscionability is a defense to the enforcement of a contract and, to the extent that it can be asserted as an independent claim, Plaintiffs have failed to identify a particular contract term that is unconscionable.

Count X fails because there is no common law cause of action for predatory lending. Any predatory lending allegations must support other recognized causes of action. Count XI fails because the Complaint merely states the elements of a claim under Haw. Rev. Stat. § 669-1; Plaintiffs have not alleged sufficient facts to support a cognizable claim to quiet title.

Finally, Count XII fails because the Complaint appears to suggest that MERS may not foreclose because it is not a holder of the promissory note, but this does not state claim as pled for a lack of standing claim based on MERS's alleged status as a fictitious entity. MERS and Aurora, however, acknowledge that the district judge in Marzan dismissed this claim with leave to amend.

The Moving Defendants therefore urge the Court to grant the Motion.

II. Mrs. Wagner's Opposition

In her memorandum in opposition, Mrs. Wagner states that neither she nor Mr. Wagner ever entered into a loan with "Aurora Bank/Aurora Loan Services LLC". [Mem. in Opp. at 2 (citing ...

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