Flagstar Bank, FSB v. Cintron , 2012 Ohio 5914 ( 2012 )

[Cite as Flagstar Bank, FSB v. Cintron, 2012-Ohio-5914.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
MONTGOMERY COUNTY
FLAGSTAR BANK, FSB :
: Appellate Case No. 25110
Plaintiff-Appellee :
: Trial Court Case No. 2011-CV-509
v. :
:
FRANCISCO CINTRON, JR., et al. : (Civil Appeal from
: (Common Pleas Court)
Defendant-Appellants :
:
...........
OPINION
Rendered on the 14th day of December, 2012.
...........
SCOTT A. KING, Atty. Reg. #0037582, and JESSICA E. SALISBURY, Atty. Reg. #0085038,
Thompson Hine LLP, 2000 Courthouse Plaza, N.E., Post Office Box 8801, Dayton, Ohio
45401
Attorney for Plaintiff-Appellee
TROY J. DOUCET, Atty. Reg. #0086350, and AUDRA LEPI TIDBALL, Atty. Reg.
#0087764, Doucet & Associates, LLC, 4200 Regent Street, Suite 200, Columbus, Ohio 43219
Attorney for Defendant-Appellants
.............
HALL, J.
{¶ 1} Francisco and Beth Cintron appeal from the trial court’s entry of summary
2
judgment in favor of appellee Flagstar Bank on the bank’s foreclosure complaint. The Cintrons
also appeal from the trial court’s entry of summary judgment in favor of Flagstar on their
counterclaims under the federal Truth-in-Lending Act (“TILA”).
{¶ 2} The Cintrons advance five assignments of error on appeal. The first three
concern the trial court’s rulings regarding the Cintrons’ TILA counterclaims. The basis for the
counterclaims was Flagstar’s alleged failure to provide Francisco and Beth Cintron each with
two copies of a notice of right to cancel when they refinanced their home mortgage in 2009. In
their first assignment of error, the Cintrons contend the trial court erred in awarding Flagstar
summary judgment on the counterclaims because they presented overwhelming evidence to
rebut a statutory presumption in Flagstar’s favor regarding the number of copies they received.
In their second assignment of error, the Cintrons claim the trial court erred in not finding
deposition testimony sufficient to overcome the presumption that they each received two
copies of the notice of right to cancel. In their third assignment of error, the Cintrons contend
the trial court erred in overruling their own motion for summary judgment on the TILA
counterclaims.
{¶ 3} The Cintrons’ fourth and fifth assignments of error concern the trial court’s
entry of summary judgment in favor of Flagstar on its complaint for foreclosure. In their fourth
assignment of error, the Cintrons contend the trial court erred in awarding Flagstar summary
judgment where the bank did not comply with conditions precedent in the mortgage document.
In their final assignment of error, the Cintrons claim the trial court erred in awarding Flagstar
summary judgment where a genuine issue of material fact exists regarding the balance due on
the note.
3
{¶ 4} The facts underlying the parties’ dispute are summarized in the trial court’s
ruling as follows:
On August 14, 2007, the Cintrons executed a Note to finance their
purchase of certain real property located at 1031 Gleason Drive, Riverside,
Ohio 45424 (the “Property”).
Approximately 18 months later on February 5, 2009, and as part of an
effort to refinance the Property, the Cintrons submitted their completed
Uniform Residential Loan Application which included a document signed by
them and entitled “SERVICING DISCLOSURE STATEMENT NOTICE TO
FIRST LIEN MORTGAGE LOAN APPLICATIONS: THE RIGHT TO
COLLECT YOUR MORTGAGE LOAN PAYMENTS MAY BE
TRANSFERRED” (“Servicing Disclosure”). By signing the Servicing
Disclosure, the Cintrons acknowledged receipt of a copy of this document.
During his deposition, Francisco Cintron admitted that the signature on
the Servicing Disclosure “appeared to be his,” but he could not specifically
recall whether he actually signed the document or received a copy of it. During
her deposition, Beth Cintron admitted her handwriting and signature were on
the Servicing Disclosure.
Thereafter, at a March 17, 2009 closing (“the Closing”), the Cintrons
refinanced the Property by executing a note in Flagstar’s favor. The Cintrons
also executed a mortgage for the Property naming Flagstar as the mortgagee.
As part of the Closing, the Cintrons received a “Notice of Assignment, Sale or
4
Transfer of Servicing Rights” (“Notice of Assignment”), notifying them that
Flagstar would service their loan.
At the Closing, the Cintrons also signed a document entitled “LOAN
CLOSING DISCLOSURE ACKNOWLEDGMENTS” (“LCDA”) which
unequivocally stated: “We certify . . . that we received the Special Information
Booklet at the time of our mortgage application; that we received a Good Faith
Estimate of settlement costs and that each borrower received a copy of the
Truth in Lending Disclosure within three days of our mortgage application.”
Regarding the LCDA, Francisco Cintron admitted during his deposition
that his signature appeared to be on the LCDA. He further admitted that if he
signed the LCDA, he would have read it. Beth Cintron acknowledged that her
signature was on the Loan Closing Disclosure Form, but she could not
remember if she read it before signing.
Flagstar and the Cintrons agree that, during the Closing, the Cintrons
signed the “Notice of the Right to Rescind” (“NORTC”) which stated quite
clearly above the signature lines: “ON THIS DATE THE UNDERSIGNED
EACH RECEIVED TWO (2) COMPLETED COPIES OF THE NOTICE
OF OPPORTUNITY TO CANCEL” (emphasis added).
To their credit, the Cintrons agree that they read the NORTC before
signing, and the NORTC contained the aforementioned acknowledgment,
thereby admitting receiving two copies of the NORTC each. Nevertheless, and
curiously, the Cintrons both testified during their depositions that each only
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received one copy of the NORTC at the Closing. So it goes.
On May 19, 2009, Flagstar sold the right to receive a portion of the
payments under the Note to the Governmental National Mortgage Association
(“Ginnie Mae”). Nevertheless, at all relevant times, Flagstar has retained
possession of the Note, remained its payee and serviced the Note.
In March 2010, the Cintrons moved to Port St. Lucie, Florida, and
abandoned the Property. In response to the Cintrons’ inquiry about a possible
short sale, Flagstar sent them an August 19, 2010 letter requesting certain
financial information. The Cintrons failed to provide the requested financial
information.
The Cintrons subsequently stopped paying the mortgage payments and
their account fell into default. Flagstar sent letters to the Cintrons on August
26, 2010, September 3, 2010, September 10, 2010, September 17, 2010,
September 18, 2010, and October 20, 2010, advising the Cintrons of their
account’s serious delinquency. These letters included a Notice of Acceleration,
a date for the Cintrons to cure their default, and warnings of a sale and how to
avoid foreclosure. The Cintrons acknowledge receiving these letters.
On January 20, 2011, Flagstar commenced the instant action to recover
the balance due on the Note and to foreclose the Mortgage. Flagstar asserts the
Cintrons never cured their default, and owe $219,816.08, plus interest at the
rate of 5.50% per annum from August 1, 2010.
On February 3, 2011, the Cintrons attempted to rescind the refinancing
6
by sending a certified letter and e-mail to Flagstar. On February 19, 2011, the
Cintrons received a third-party offer to purchase the Property for $178,000. On
March 4, 2011, the Cintrons filed their Answer and Counterclaim asserting
claims for: equitable estoppel and violations of the Truth in Lending Act
(“TILA”), the Real Estate Settlement Procedures Act (“RESPA”), the
Consumer Sales Practices Act (“CSPA”) and the Fair Debt Collection Practices
Act (“FDCPA”).
On September 23, 2011, Janet Pogliano Reder, Vice-president of
Operations for Flagstar Bank, testified the amount due on the Note is
$219,816.08, and produced supporting documentation including payment
histories and other financial data verifying that amount. During her deposition,
Ms. Reder produced a copy of Flagstar’s Mortgage Compliance Guide which
included Flagstar’s policy on RESPA and TILA.
On November 15, 2011, Todd Mendolia, corporate representative of
LSI Lender Processing Services Company (“LSI”), testified that Flagstar
provided the closing documents electronically to LSI along with written
instructions. LSI does not review closing documents for compliance with
federal law. The notary or signing agent would provide the loan closing
documents to the Cintrons for their signature, not LSI. Mendolia
understandably could not testify how many copies of the various documents the
notary printed out for the Cintrons to sign.
On January 10, 2012, during its telephone conference with counsel for
7
Flagstar and the Cintrons, the Court confirmed that both parties had completed
all discovery necessary to the Court’s determination of their dispositive
motions and that neither party intended to depose the notary present at the
Closing on the Cintrons’ refinancing at issue here.
(Feb. 14, 2012, Decision, Entry, and Order at 1-5) (footnotes with citations omitted).
{¶ 5} After reciting the facts, the trial court turned to the Cintrons’ TILA
counterclaims. It rejected their argument that Flagstar had violated TILA by not providing
each of them with two copies of the notice of right to cancel. The trial court held that the
Cintrons had failed to overcome a presumption of delivery that arose when they each signed a
form acknowledging receipt of two copies of the notice. Therefore, the trial court found that
the Cintrons had only three days, not three years, to rescind their mortgage. It reasoned:
Typically, TILA permits a borrower to rescind a mortgage transaction
within three days of the closing. However, if the required notice or material
disclosures are not delivered, the borrower’s right to rescind “shall expire three
years after the date of consummation.” And TILA requires a creditor to “deliver
two copies of the NORTC to each consumer entitled to rescind.” Here and to
their credit, the Cintrons each admitted receiving and reading the NORTC
before they signed it. By signing the NORTC, the Cintrons acknowledged that
each received two copies of the NORTC, thereby creating a rebuttable
presumption that they received the required four copies, and their bare bones,
self-serving denials to the contrary are not sufficient to rebut [15 U.S.C.
section] 1635(c)’s statutory presumption. Indeed, the Sixth Circuit and other
8
federal courts in this district have held that a borrower’s own post h[o]c denial
of receipt of NORTC in affidavit testimony is, as a matter of law, insufficient
to rebut the statutory presumption.
The only evidence the Cintrons offer to rebut the presumption of proper
delivery of the NORTC at the Closing is: 1) Flagstar has but one copy of the
NORTC in its records - but neither statutory nor case law required Flagstar to
keep multiple copies of the NORTC; and 2) neither Flagstar VP Ms. Reder nor
LSI corporate representative Mendolia could say how many copies of the
NORTC the Cintrons received from the notary at the Closing – but this is
hardly surprising since neither Reder or Mendolia were present at the Closing.
Interestingly, the Cintrons ultimately chose not to depose the notary,
the only person who could have salient and relevant information that could
have, perhaps, rebutted the presumption of proper delivery of the NORTC as
required by TILA.
While TILA’s provisions are remedial in nature, and should be “given a
broad, liberal construction in favor of the consumer” the Cintrons would
“rebut” the delivery presumption in Flagstar’s favor by requiring Flagstar to
provide affirmative proof of delivery at the Closing of four copies of the
NORTC, thus eviscerating by judicial fiat TILA’s delivery presumption in
Flagstar’s favor. This the Court will not do. Rather, the Court finds that the
Cintrons’ TILA rescission rights expired on March 20, 2009 and that no
genuine issues of material fact remain on this issue.
9
(Decision, Entry, and Order at 5-6) (footnotes with citations omitted).
{¶ 6} After disposing of the TILA counterclaims,1 the trial court turned to Flagstar’s
foreclosure complaint. It rejected the Cintrons’ argument that Flagstar had failed to comply
with all conditions precedent to foreclosure:
The Cintrons attempt to avert foreclosure by claiming that Flagstar
failed to comply with all conditions precedent to recover under the terms
contained in the Mortgage; specifically, by failing to include the language
“foreclosure by judicial proceeding” in its correspondence to the Cintrons.
Flagstar, via affidavit, presented evidence that the Cintrons were sent at
least six letters advising of their default. Specifically, Flagstar letters dated
September 17 and 18, 2011 advised the Cintrons: “You have thirty (30) days
from the date of this letter to make your overdue payment. If you fail to cure
this default, Flagstar may accelerate your indebtedness by declaring the entire
amount due and payable immediately.” The same letters go on to state:
“Flagstar may invoke the power of sale and any other remedies permitted
under applicable law . . .” (emphasis added). Those same letters inform the
Cintrons how to avoid “foreclosure” and how to contact the Department of
Housing and Urban Development.
The Court finds to be hyper-technical and non-existent in law the
Cintrons’ argument that Flagstar somehow is thwarted herein because its letters
1
In addition to the TILA counterclaims, the trial court entered summary judgment in favor of Flagstar on the Cintrons’
counterclaims under the Real Estate Settlement Procedures Act, the Consumer Sales Practices Act, and the Fair Debt Collection Practices
Act. These other counterclaims are not at issue on appeal.
10
to the Cintrons did not specifically state they faced “foreclosure by judicial
proceeding”. The Cintrons have failed to cite the Court to any salient statutory
or case law supporting their argument. And for good reason – no such law
exists.
(Id. at 7-8).
{¶ 7} The trial court also rejected an argument that Flagstar had not proven the
amount due under the note. It reasoned:
The Cintrons blithely claim Flagstar improperly assessed charges and
fees, but have not offered a scintilla of evidence to substantiate this claim.
Indeed, the Cintrons’ affidavits are strangely silent on this very issue.
Additionally, Flagstar was under no obligation to accept a short sale offer. The
Cintrons have failed to meet the burden shifted to them under Civ.R. 56 and no
genuine issues of material fact preclude summary judgment in Flagstar’s favor.
(Id. at 9).
{¶ 8} The Cintrons’ first three assignments of error challenge the trial court’s ruling
on their TILA counterclaims. In their first two assignments of error, which they have briefed
and argued together, the Cintrons contend they rebutted the presumption of delivery that arose
when they signed a document acknowledging receipt of two copies of the notice of right to
cancel. At a minimum, then, the Cintrons claim a genuine issue of material fact exists
regarding how many copies of the notice they received. In their third assignment of error, the
Cintrons insist that the evidence so overwhelmingly established their receipt of just one copy
of the notice that the trial court erred in not entering summary judgment for them on their
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TILA counterclaims.
{¶ 9} In response to the Cintrons’ arguments, Flagstar contends their execution of an
acknowledgment of delivery created a presumption that they received two copies of the notice
of right to cancel. Flagstar asserts that the Cintrons failed to rebut the presumption and create a
genuine issue of material fact for trial. In any event, Flagstar reasons that whether the Cintrons
received one or two copies of the notice is immaterial because they admitted receiving the
notice and having an opportunity to read it. The Cintrons counter that even technical
violations of TILA—including the requirement to provide each borrower with two copies of a
notice of right to cancel—are actionable. The Cintrons insist that Flagstar’s failure to provide
them each with two copies of the notice extended their rescission period from three days to
three years.
{¶ 10} TILA gives consumers a right to rescind transactions secured by their
“principal dwelling.” 15 U.S.C. section 1635(a). A creditor is required to give consumers
notice of this right in accordance with certain implementing regulations. Id. Those regulations
have been codified at 12 C.F.R. section 226 and are known collectively as “Regulation Z.” A
consumer’s right to rescind is governed by 12 C.F.R. section 226.23. It provides that the right
to rescind may be exercised “until midnight of the third business day following
consummation, delivery of the notice required by paragraph (b) of this section, or delivery of
all material disclosures, whichever occurs last.” 12 C.F.R. section 226.23(a)(3) (emphasis
added).
{¶ 11} The “notice required by paragraph (b)” mentioned in 12 C.F.R. 226.23(a)(3) is
addressed in 12 C.F.R. 226.23(b)(1). It provides that “[i]n a transaction subject to rescission, a
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creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled
to rescind * * *.” Id. “If the required notice * * * [is] not delivered, the right to rescind shall
expire 3 years after consummation * * *.” 12 C.F.R. section 226.23(a)(3). Finally, a
borrower’s written acknowledgment of receipt of two copies of the required notice creates a
rebuttable presumption of delivery. 15 U.S.C. section 1635(c).
{¶ 12} The Cintrons both admit signing an acknowledgment of receipt by each of two
copies of the notice of right to cancel. They argue, however, that they presented enough
evidence below to rebut the statutory presumption. In their appellate brief, the Cintrons cite
the following evidence to support their argument:
* * * [I]n addition to their own testimony and affidavits, the Cintrons
presented ample evidence to establish that they were not provided four copies
of the NOTRC. Flagstar admitted that only one copy of the NORTC signed by
both borrowers was included in the executed closing documents returned by the
title agency to Flagstar after the Cintrons’ closing. (Deposition of Corporate
Representative of Flagstar Bank, FSB, Janet Pogliano Reder, Vice President of
Operations (“Flagstar Dep.”), at 20-21). Flagstar reviewed the closing
instructions generated with the loan closing package for the settlement agent
and nowhere in those instructions did it direct any multiple copies to be made
of the NOTRC. (Id. at 23-24). The checklist printed with the closing package
indicated that the NOTRC was required, however, it did not indicate that there
were to be two per borrower, nor did it direct the settlement agent to make
copies. (Id. at 25). Upon examining copies of the closing documents generated
13
by Flagstar’s system and forwarded to the settlement agent in this case, Flagstar
was only able to identify one copy of the NOTRC in those documents. (Id. at
16-19).
Additionally, no one at Flagstar reviews the documents for compliance
with TILA prior to forwarding the documents to the settlement agent. (Id. at
27-28). The post-closing review for errors conducted by Flagstar only looks to
determine that each borrower on the transaction acknowledged and signed the
NOTRC. (Id. at 51). The error review will be satisfied even if there was only
one NOTRC signed by both borrowers, as is the case here. (Id. at 52). Flagstar
does not actually verify the correct number of copies of the NOTRC are
received as a part of its post-closing review. (See id.). This substantiates the
claims made in the Cintrons’ affidavits that they never received the required
four copies. (Aff. Of Francisco Cintron, at ¶12; Aff. of Beth Cintron, at ¶12).
The Cintrons also deposed a representative of the title company in this
case—LSI Lender Processing Services Company (“LSI”). LSI is the settlement
services provider that received the Cintrons’ loan closing documents directly
from Flagstar in this case, and whose agent presented the closing documents to
the Cintrons at closing. (Deposition of Corporate Representative of LSI Lender
Processing Services Company, Todd Mendolia, Senior Vice President of
Operations (“LSI Dep.”), at 8-9; 11-14; 22-23). Mr. Mendolia indicated that
LSI received loan closing instructions from Flagstar in conjunction with the
Cintrons’ closing and that LSI would have reviewed those instructions and
14
provided any items that were requested from the lender. (Id. at 18-20). The loan
closing instructions do not indicate that any copies should be made of the
NOTRC beyond the one included with the closing package. (Id.; Defendants’
Motion for Partial Summary Judgment, Exhibit 7 (“Exhibit 7"). Further, Mr.
Mendolia testified that LSI would not make multiple copies of any document it
received from a lender unless it was instructed to do so in the closing
instructions. (LSI Dep. at 22). No such instructions were present here.
Additionally, LSI does not review the documents it receives from lenders for
compliance with federal law. (Id. at 21-22). Included within the closing
documents that LSI received from Flagstar in this case is only one copy of the
NOTRC. (Id. at 25).
Further, to Mr. Mendolia’s knowledge, LSI did not
instruct the closing agent in this case (a notary) to
make additional copies of any documents, and if
any such instruction was given, it would have
been in writing. (Id. at 23-24). No written
instructions exist in the instructions provided to
the notary in this case. (See id.; Defendants’
Motion for Partial Summary Judgment, Exhibit 8
(“Exhibit 8"). Generally, after the documents are
signed, the notary returns the documents to LSI,
and LSI images the documents. (LSI Dep. at 48;
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51). In this case, after the closing, LSI returned
the documents, including only one copy of the
NOTRC, to Flagstar. (Id. at 31). This testimony
is consistent with Ms. Reder’s testimony that
included in the executed closing documents
returned by LSI to Flagstar after the Cintrons’
closing was only one copy of the NOTRC signed
by both borrowers. (Flagstar Dep. at 20-21). Mr.
Mendolia also testified that, to his knowledge, no
closing documents were provided to the Cintrons
before or after their closing date on March 17,
2009. (LSI Dep. at 37).
(Appellants’ Brief at 9-11).
{¶ 13} In a motion for summary judgment, the moving party bears the burden to
demonstrate, inter alia, that there is no genuine issue of material fact Civ.R. 56(C). The
moving party “bears the initial burden of informing the trial court of the basis for the motion,
and identifying those portions of the record that demonstrate the absence of a genuine issue of
material fact on the essential element(s) of the nonmoving party's claims.” Dresher v. Burt, 75
Ohio St.3d 280, 293, 662 N.E.2d 264 (1996). If that burden is satisfied, “the nonmoving party
then has a reciprocal burden * * * to set forth specific facts showing that there is a genuine
issue for trial and, if the nonmovant does not so respond, summary judgment, if appropriate,
shall be entered against the nonmoving party.” Id.; see Civ.R. 56(E).
16
{¶ 14} In Sibby v Ownit Mortg. Solutions, Inc., 240 Fed. Appx 713 (6th Cir.2007),
the plaintiff asserted a TILA violation arguing in part that she received only one copy of a
NOTRC. She failed to respond to a request for admissions that sought acknowledgment that
she received two copies. However, she testified in deposition that she had received only one
copy. Although she moved to withdraw or amend the unanswered admission, the trial court
denied the motion. The trial court granted summary judgment to the defendant. The court of
appeals affirmed, noting that although the denial of withdrawal of the admission was not an
abuse of discretion, it did not matter. The signed NOTRC form acknowledging that plaintiff
received two copies created a presumption that she received two copies. The Sixth Circuit
reasoned that “[p]laintiff's deposition testimony that she only received one copy [was]
insufficient to rebut this presumption.” Id. at 717, citing Williams v. First Gov't Mortgage
and Investors Corp., 225 F.3d 738, 751 (D.C.Cir.2000) (finding testimony by plaintiff of
non-delivery insufficient to rebut presumption).
{¶ 15} The Sixth Circuit also has recently dealt with an “envelope theory,” where
home owners, as in this case, swear that everything they received at a closing is, and was,
contained in their envelope that now contains only one NORTC. The appellate court stated:
“We hold that the so-called ‘envelope theory,’ without more, is insufficient to rebut the
presumption of proper delivery which the signed Notice creates.” Lee v. Countrywide Home
Loans, Inc., 692 F.3d 442, 451 (6th Cir.2012). We recognize a split of federal authority as to
what is necessary to rebut the statutory presumption raised by signing the two-copy delivery
acknowledgment form. In Marr v. Bank of America, N.A., 662 F.3d 963, 968 (7th Cir.2011),
the Seventh Circuit held that “envelope theory” evidence is sufficient to rebut the statutory
17
presumption of delivery of the requisite forms. Accord Cooper v. First Government Mortg.
and Investors Corp., 238 F.Supp.2d 50, 64 (D.D.C.2002). But if the statutory presumption
could be rebutted by nothing more than the borrowers’ own subsequent denial of receipt,
directly contradicting a form they read and signed, then the statutory presumption would have
no meaning. The signed form acknowledging receipt of two copies would be no more than any
other fact presented in support of summary judgment, subject to denial by a self-serving
change of mind.2 Accordingly, we choose to follow the cited Sixth Circuit cases holding that a
borrower’s contrary testimony, or “envelope theory” evidence, is insufficient to rebut the
presumption that the defendants received sufficient copies of the required notice.
{¶ 16} Even if we assume, arguendo, that the Cintrons’ evidence rebutted the
statutory presumption, we find no genuine issue of material fact for trial. This is so because
whether the Cintrons received one or two copies of the notice is immaterial. Notably, the
Cintrons admit receiving, signing, and having an opportunity to read one copy of the notice.
The possible absence of a second copy did not impair their knowledge of the right to rescind
or the exercise of that right. We are unpersuaded that the possible failure to receive a second
copy of the notice in this case extended the Cintrons’ rescission period from three days to
three years under TILA.
{¶ 17} In reaching this conclusion, we find persuasive the Fourth District Court of
Appeals’ opinion in Contimortgage Corp. v. Delawder, 4th Dist. Lawrence No. 00CA28,
2001 WL 884085 (July 30, 2001). In that case, a borrower sought rescission of a mortgage
2
In a similar fashion, when a litigant submits an affidavit opposing summary judgment that, without explanation, contradicts his
prior deposition testimony, that affidavit does not create a genuine issue of material fact. Byrd v. Smith, 110 Ohio St.3d 24, 2006-Ohio-3455,
850 N.E.2d 47.
18
loan after the lender commenced foreclosure proceedings. The borrower alleged a TILA
violation based on a failure to receive two copies of the notice of right to cancel. She admitted,
however, that she had signed an acknowledgment of receipt of two copies. The trial court
found it impossible to determine how many copies actually had been provided. It nevertheless
rejected a TILA counterclaim because the borrower had been informed of her right to rescind
and was not prejudiced. On appeal, the Fourth District agreed. In relevant part, it reasoned:
Appellant argues in her assignment of error that the trial court erred by
holding that the lender’s failure to strictly comply with TILA was a mere
technical mistake. Instead, she contends that those errors were material and
extended her right of rescission for three years. For the following reasons, we
disagree. Initially we note that the TILA does not require perfect notice; rather,
it requires a clear and conspicuous notice of rescission rights. * * * Although
Bankers may have only provided appellant and her mother with one copy of the
“Notice of Right to Cancel” between them in violation of Section 226.23(b)(1),
Title 12, C.F.R., that notice nevertheless “clearly and conspicuously” indicated
that they possessed a right of rescission. Appellant also confirmed during the
trial that the closing officer had informed them that they had three days to
rescind or to cancel the transaction. Obviously, appellant was informed of and
knew of her legal rights regarding rescission. We believe that these facts and
circumstances sufficiently satisfy the TILA statutory requirements and, in our
opinion, meet the spirit if not the precise letter of the accompanying
regulations.
19
***
In sum, we agree with the trial court’s conclusion that any TILA
mistakes in the instant case constitute technical (if not hyper-technical)
mistakes and do not violate the spirit of the law. We therefore find no error in
the court’s judgment that appellant could not rescind the mortgage loan. * * *
[W]hatever mistakes that may have occurred in the loan closing, neither
appellant nor her mother suffered any apparent prejudice. We find no evidence
to show that appellant was damaged or that appellant wanted to rescind the
loan. Only after appellant was in default and foreclosure proceedings had begun
(approximately eighteen months after the loan closing) did appellant express
her desire to rescind the loan.
Id. at *3-4.
{¶ 18} Later in its ruling, the Fourth District recognized a “growing reticence on the
part of Congress to have TILA applied in a rote and technical fashion which penalizes lenders
in instances in which no harm to borrowers has occurred.” Id. at *6. The Delawder court
continued:
The judiciary has begun to take heed of these problems as well. Thus,
while federal law generally requires strict compliance with TILA, some courts
have noted that strict compliance does not necessarily mean “punctilious”
compliance if, with only minor deviations, substantial and clear disclosure of
the fact or information demanded by the applicable statute or regulation occurs.
* * * Courts are beginning to recognize that borrowers should not be permitted
20
to use the TILA as an instrument of harassment or oppression against the
lending industry. * * * Rather, the TILA provisions should be enforced with
common sense and be applied without losing sight of the legislative purpose
behind its enactment. * * * To do otherwise generates disrespect for the law by
creating a morass of technical regulations with no connection to the human
experience.
Id. at *6 (citations omitted).
{¶ 19} Armed with citations to contrary case law, the Cintrons argue that Delawder
represents the minority position nationwide. Be that as it may, we are unaware of any binding
authority contrary to Delawder. We note too that Delawder, while representing the minority
view, does not stand in isolation. See, e.g., Residential Funding Co., LLC v. Thorne, 6th Dist.
Lucas No. L-09-1324, 2010-Ohio-4271, ¶40-42 (citing Delawder and finding no TILA
violation where a borrower who was fully informed of his right to rescind had received only
one notice form rather than two); In re Jones, 298 B.R. 451, 459 (Bankr. D.Kan. 2003), citing
In re Ramirez, No. 01-42119-13, Adv. No. 01-7122, Order Granting Summary Judgments at
11-12 (Bankr.D.Kan. May 28, 2003).
{¶ 20} Nor are we persuaded by the Cintrons’ claim that Delawder patently ignores
the language of TILA. As set forth above, Regulation Z obligates a creditor to “deliver two
copies of the notice of the right to rescind to each consumer[.]” 12 C.F.R. 226.23(b)(1). “If the
required notice * * * [is] not delivered,” the right to rescind extends to three years. 12 C.F.R.
section 226.23(a)(3). Here, it is appellants’ argument that Flagstar did not deliver two copies
of the notice to both borrowers. There is no dispute, however, that the “required notice” (as
21
opposed to the required number of copies) was delivered to the Cintrons. Under such
circumstances, we agree with Delawder that extending the rescission period to three years
would not advance the legitimate purpose of TILA, is not required by the language of the
statute, and would serve only to injure the lending institution. Therefore, regardless of how
many copies of the notice the Cintrons received, we find no genuine issue of material fact as
to whether they have established a TILA violation resulting in a three-year right to rescind.
Because the Citrons both admitted receiving a copy of the notice and having an opportunity to
read it, we conclude that the statutorily “required notice” was delivered. Accordingly, the first,
second, and third assignments of error are overruled.
{¶ 21} In their fourth assignment of error, the Cintrons contend the trial court erred in
awarding Flagstar summary judgment where the bank did not comply with certain conditions
precedent in the mortgage document. In particular, the Cintrons cite paragraph twenty-two of
the mortgage, which states:
Lender shall give notice to Borrower prior to acceleration following
Borrower’s breach * * *. The notice shall specify * * * (d) that failure to cure
the default on or before the date specified in the notice may result in
acceleration of the sums secured by this Security Instrument, foreclosure by
judicial proceeding and a sale of the Property.
(Flagstar’s Motion for Summary Judgment, Henry affidavit, Exhibit A-6 at p. 9, ¶22).
{¶ 22} The Cintrons argue that the pre-foreclosure notices sent by Flagstar were
insufficient because they failed to warn about the possibility of “foreclosure by judicial
proceeding.” We disagree. Flagstar sent the Cintrons a number of letters advising them of
22
their default and warning them about possible foreclosure. Although none of the letters
contained the precise phrase “foreclosure by judicial proceeding,” the Cintrons were made
aware of that potential outcome. Flagstar notified them that they were in default and that
acceleration and foreclosure could occur. Flagstar described “foreclosure” as the “legal
means” to repossess property. (Id. at Exh. A-10). On another occasion, Flagstar advised the
Cintrons that their mortgage soon would “be referred to a foreclosure attorney who will begin
legal actions * * *.” (Id. at Exh. 37).
{¶ 23} In our view, the notices adequately advised the Cintrons about possible
“foreclosure by judicial proceeding” (which is, incidentally, the only type of foreclosure
available in Ohio) despite not using those exact words. We agree with the trial court that the
Cintrons’ argument to the contrary is “hyper-technical” and unpersuasive. The fourth
assignment of error is overruled.
{¶ 24} In their fifth assignment of error, the Cintrons claim the trial court erred in
awarding Flagstar summary judgment where a genuine issue of material fact exists regarding
the balance due on the note. The Cintrons advances three arguments in support of their claim:
(1) Flagstar representative Janet Reder was unable during her deposition “to interpret or offer
any explanation of the mortgage history ledger, nor was she able to provide any verification of
the fees charged to the account”; (2) Flagstar failed to mitigate its damages by not responding
to a third party’s offer to purchase the Cintrons’ home for $178,000 as a short sale; and (3)
Flagstar failed to reduce the amount due under the note by the amount it will receive through
VA mortgage insurance.
{¶ 25} Upon review, we find no genuine issue of material fact regarding the balance
23
owed by the Cintrons under the note. During her deposition, Reder was unsure what time
period each page of a “mortgage history ledger” covered. She also was unsure how many
separate late fees had been assessed, but she did identify the total amount of late fees owed.
Although the Cintrons complain about Reder not knowing what “specific services” were
performed for the late fees, we see no reason why any services would need to be performed for
a “late fee” to be charged. Reder also identified a property inspection fee and explained that
the foreclosure process required an inspection by a licensed appraiser. In addition, she testified
about a $60 fax fee. She presumed that it had to do with a fax regarding the payoff amount of
the Cintrons’ loan. Reder had no first-hand knowledge whether the Cintrons had paid the fee.
She next testified about a fee charged by Wolverine Real Estate Services, Inc. She admitted
not knowing what services the company had performed for the fee. Finally, Reder testified
about a fee for “forced placed insurance” on the Cintrons’ home and admitted lacking
first-hand knowledge as to whether Flagstar had paid the fee. (Reder depo. at 73-89).
{¶ 26} Reder’s deposition establishes that she lacked intimate familiarity with every
fee charged to the Cintrons’ account. Nothing in her testimony suggests, however, that the
Cintrons did not owe the fees, which were included on a mortgage history ledger that included
all credits and charges. During her deposition, Beth Cintron testified that she was “not aware”
of any unauthorized fees or charges on her account. (Beth Cintron depo. at 69). Francisco
Cintron testified similarly. (Francisco depo. at 186). We note too that Flagstar representative
Kelly Henry provided an affidavit in support of summary judgment averring that the total
amount owed by the Cintrons on their note was $219,816.08 plus interest, which was the
amount of the trial court’s judgment in favor of Flagstar (See Henry affidavit at ¶28; March 1,
24
2012, Judgment Entry and Decree of Foreclosure). Appellants failed in their reciprocal duty
under Civ. R. 56(E) to set forth specific facts showing a genuine issue for trial. We agree with
the trial court that the Cintrons failed to demonstrate a genuine issue of material fact as to the
amount due under the note.
{¶ 27} We also agree with the trial court that Flagstar did not fail to mitigate its
damages. The record reflects that the Cintrons approached Flagstar about a short sale. Flagstar
responded by sending the Cintrons certain paperwork to complete and return. The Cintrons
never completed the paperwork needed to facilitate a short sale. They also demanded that
Flagstar not pursue a deficiency judgment as part of any short-sale agreement. (Beth Cintron
depo. at 64-65; Francisco Cintron depo. at 161-162, Exh. 44). Under these circumstances, we
find no genuine issue of material fact as to whether Flagstar failed to mitigate its damages by
not responding to a short-sale offer.
{¶ 28} Finally, we find no genuine issue of material fact as to whether Flagstar failed
to reduce the amount due under the note by the amount it will receive through VA mortgage
insurance. The record does not reflect that Flagstar necessarily will receive compensation from
the VA. In any event, the record contains no evidence that Flagstar had received any VA
loan-guarantee proceeds at the time of the trial court’s ruling. Therefore, at that time, there
was nothing for the trial court to offset against the amount due under the Cintrons’ note.
Accordingly, the fifth assignment of error is overruled.
{¶ 29} The judgment of the Montgomery County Common Pleas Court is affirmed.
.............
DONOVAN, J., concurs.
25
GRADY, P. J., dissenting:
{¶ 30} On motions for summary judgment, an affidavit of the party against whom the
motion is made which does nothing more than contradict a ground for relief on which the
motion relies, particularly when the issue concerned is a matter of opinion, and when standing
alone is generally held insufficient to preserve a genuine issue of material fact on the matter
concerned. The affidavit is then rejected as “self-serving.”
{¶ 31} The affidavits of the Cintrons stating that each did not receive two copies of
the Notice of Right to Rescind from the closing agency used by Flagstar Bank stated a
proposition of fact, not their opinions. Further, they are entitled to rely on their personal
review of the documents they were given to make their statements.
{¶ 32} Even if the Cintrons’ affidavits could be viewed as self-serving, the Cintrons
did not rely on their affidavits alone. They offered the testimony of Todd Mendolia, Senior
Vice-President of Flagstar Bank’s closing agency, that his firm received no instructions from
Flagstar Bank to provide the Cintrons with the required number of notices, and that otherwise
the agency would not have done so. The court was required to construe that evidence most
strongly in the Cintrons favor. Civ.R. 56(C). The evidence the Cintrons offered is sufficient
to preserve a genuine issue of material fact whether they were provided the required number of
copies.
{¶ 33} The majority does not deny that proposition, concluding instead that even if
the required number of copies of the notice were not delivered to the Cintrons, summary
judgment was nevertheless proper because the Cintrons not only acknowledged in writing that
they received the required notices, but further concede that they had the opportunity to read the
26
notice they signed. Therefore, any failure to comply with 12 CFR § 226.23(b)(1) resulted in
no material prejudice to the Cintrons because the policy purposes of the regulation were
satisfied. The majority relies on Contimortgage Corp. v. Delawder, 4th Dist. Lawrence No.
00CA28, 2001 WL 884085 (July 30, 2001), and other decisions which have held likewise.
{¶ 34} In enacting the Consumer Credit Protection Act, the Congress stated the
following findings and declaration of purpose at 15 USCS § 1601:
(a) Informed use of credit. The congress finds that economic stabilization
would be enhanced and the competition among the various financial
institutions and other firms engaged in the extension of consumer credit
would be strengthened by the informed use of credit. The informed
use of credit results from an awareness of the cost thereof by
consumers. It is the purpose of this title [15 USCS §§ 1601 et seq.] to
assure a meaningful disclosure of credit terms so that the consumer will
be able to compare more readily the various credit terms available to
him and avoid the uninformed use of credit, and to protect the consumer
against inaccurate and unfair credit billing and credit card practices.
{¶ 35} The Congress delegated to the Board of Governors of the Federal Reserve
System the authority to “prescribe regulations to carry out the purposes of this title,” 15
USCS § 1604(a), adding:
* * * these regulations may contain such classifications, differentiations, or
other provisions, and may provide for such adjustments and exceptions for any
class of transactions, as in the judgment of the Board are necessary or proper to
27
effectuate the purposes of this title [15 USCS §§ 1601 et seq.], to prevent
circumvention or evasion thereof, or to facilitate compliance therewith.
{¶ 36} 15 USCS § 1635(a) confers a three-day right of recision on consumers who
engage in credit transactions, which is exercised “by notifying the creditor, in accordance with
regulations of the Board, of his intention to do so.” The form and contents of the notice
prescribed by the Board and to be delivered to the consumer are set out at 12 CFR §
226.23(b)(1). The preceding section, 12 CFR § 226.23(3), establishes the right of recision
conferred by 15 USCA § 1635(a), adding:
If the required notice or material disclosures are not delivered, the right to
rescind shall expire 3 years after consummation, upon transfer of all the
consumer’s interest in the (secured) property, or upon sale of the property,
whichever occurs first.
{¶ 37} In Contimortgage Corp. v. Delawder the court reasoned that the failure to
provide the consumer two copies of the notice of recision was a mere technical mistake that
did not prejudice the consumer’s rights because she had been otherwise informed of her right
to rescind, having signed an acknowledgment that she received two copies. Noting that the
form of notice “clearly and conspicuously” indicated the right of recision, as 12 CFR §
226.23(b)(1) requires, the court concluded that the notice delivered to the consumer met the
spirit if not the precise letter of the accompanying regulations, and that regulation is
“hypertechnical” and the failure to comply was not material.
{¶ 38} The holding in Contimortgage Corp. applies a common-law analysis to the
enforcement of an administrative regulation. Commenting on that practice, Justice Scalia
28
writes:
But though I have no quarrel with the common law and its process, I do
question whether the attitude of the common-law judge - the mind-set that
asks, “What is the most desirable resolution of this case, and how can any
impediments to the achievement of that result be evaded?” - is appropriate for
most of the work that I do, and much of the work that state judges do. We live
in an age of legislation, and most new law is statutory law. As one legal
historian has put it, in modern times “the main business of government, and
therefore of law, [is] legislative and executive . . . . Even private law, so-called,
[has been] turning statutory. The lion’s share of the norms and rules that
actually govern [] the country [come] out of Congress and the legislatures . . . .
The rules of the countless administrative agencies [are] themselves an
important, even crucial, source of law.
***
In reality, however, if one accepts the principle that the object of judicial
interpretation is to determine the intent of the legislature, being bound by
genuine but unexpressed legislative intent rather than the law is only the
theoretical threat. The practical threat is that, under the guise or even the
self-delusion of pursuing unexpressed legislative intents, common-law judges
will in fact pursue their own objectives and desires, extending their lawmaking
proclivities from the common law to the statutory field. When you are told to
decide, not on the basis of what the legislature said, but on the basis of what it
29
meant, and are assured that there is no necessary connection between the two,
your best shot at figuring out what the legislature meant is to ask yourself what
a wise and intelligent person should have meant; and that will surely bring you
to the conclusion that the law means what you think it ought to mean - which is
precisely how judges decide things under the common law.
Scalia, A Matter of Interpretation, Princeton University Press (1997), pp. 13, 17-18.
{¶ 39} That, unfortunately, is the path the Contimortgage Corp. court followed, on
the view that literal compliance with the four-copies requirement also puts an undue burden on
lenders who commit honest mistakes, potentially benefits borrowers who default on their
obligations, and “exposes the mortgage industry to extraordinary liability that may threaten the
solvency of the industry.”3 Id., at 6. Contimortgage Corp. also made reference to several
critical views of such requirements expressed by members of Congress when the Federal
Truth In Lending Class Action Relief Act was debated in 1995. Apparently, that opposition
did not persuade the Congress to eliminate the requirement of two copies of the Notice of
Recision imposed by the Federal Reserve Board pursuant to the 1968 Federal Consumer
Credit Protection Act.
{¶ 40} The Congress made a finding and articulated a policy in 15 USCA 1601, et
seq., and based on that finding chose to rely on the particular expertise of the Federal Reserve
Board to “prescribe regulations to carry out the purpose of this title * * * as in the judgment of
3
This parade of horribles is avoided, for practical purposes, by the requirement courts have imposed that upon recision the
borrower must return or “tender back” the loan proceeds prior to termination of the lender’s security interest in the property. See brief of
Flagstar Bank, FSB, pp. 17-18.
30
the Board are necessary or proper to effectuate the purpose of this title, to prevent
circumventions or evasion thereof, or to facilitate compliance therewith.” 15 USCS §
1604(a). That statutory delegation leaves little or no room for the courts to vary from the
procedures the Board prescribed, on the view that the regulation promulgated by the Board
should have been otherwise. That, in my view, is what the holding in Contimortgage Corp.
does, and I decline to follow it.
{¶ 41} Having found that Civ. R. 56(C) is not satisfied, I would reverse the summary
judgment for Flagstar Bank, FSB on its foreclosure claim and the Cintrons’ counterclaim, and
remand the case for further proceedings.
.............
Copies mailed to:
Scott A. King
Jessica E. Salisbury
Troy J. Doucet
Audra Lepi Tidball
Hon. Steven K. Dankof
Case Name: Flagstar Bank FSB v. Francisco Cintron, Jr., et al.
Case No: Montgomery App. No. 25110
Panel: Grady, Donovan, Hall
Author: Michael T. Hall
Summary: