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YOUNG v. 1ST AMERICAN FIN. SERVS.

January 15, 1998

LEROY AND SHIRLEY YOUNG, Plaintiffs,
v.
1ST AMERICAN FINANCIAL SERVICES, et al., Defendants.



The opinion of the court was delivered by: ROBERTSON

 Plaintiffs Leroy and Shirley Young allege a Truth in Lending Act ("TILA") violation, as well as fifteen causes of action under District of Columbia law, *fn1" in connection with a mortgage loan made to them by defendant Option One Mortgage Company ("Option One") and brokered by defendant 1st American Financial Services ("1st American"). Plaintiffs also seek to invalidate the foreclosure sale of their mortgage carried out by defendants Cohn and Goldberg.

 Now before the court are motions for summary judgment filed by each of the defendants and a partial motion for summary judgment filed by plaintiffs. For the reasons set forth below, plaintiffs' motion will be denied, the motions of Option One and Cohn and Goldberg will be granted, and 1st American's motion will be granted in part and denied in part.

 BACKGROUND

 In late 1993 or early 1994, plaintiffs fell behind on their mortgage payments to Crestar Bank after Mr. Young lost his job. While Crestar was preparing to foreclose on their house, plaintiffs were contacted by defendant 1st American, who arranged for the mortgage to be refinanced with a loan from Central Money Mortgage Company. Plaintiffs could not afford the payments on the new mortgage, however, and soon exercised their right to rescind that mortgage under TILA. Still facing the loss of their home, plaintiffs thereafter filed for bankruptcy, but again they were contacted by 1st American. After further negotiation, 1st American undertook to refinance plaintiff's mortgage again, this time through defendant Option One. That mortgage is the subject of the instant litigation.

 The gravamen of plaintiffs' complaint is that 1st American fraudulently procured their signatures on the Option One mortgage with the false promise of yet another refinancing, on more favorable terms, if they made one year of timely payments on the Option One mortgage. Plaintiffs had owed only $ 40,000 on their home, but the loan brokered by 1st American was for $ 91,000 -- enough to pay off the previous loan, pay the significant closing costs, and make payments on the Option One mortgage for one year. *fn2" Plaintiffs aver that they told 1st American that they could not afford the new loan and would only take it if promised the chance to refinance after a year of payments. The salesman they dealt with at 1st American's does not remember making such a promise, but neither does he deny it. Plaintiffs also aver that, without their knowledge, 1st American misstated their income on their loan application with the knowledge that they could not afford the payments on the loan for which the application was made. *fn3"

 Plaintiffs made payments on the Option One mortgage for one year and then requested refinancing. The request was denied, as they assert 1st American intended from the start. Plaintiffs then fell behind on their payments, and Option One hired Cohn and Goldberg to foreclose on plaintiffs' home.

 In early December 1996, Cohn and Goldberg sent a notice to plaintiffs by certified mail, return receipt requested, that the foreclosure sale would be held January 10, 1997. *fn4" Plaintiffs never signed a receipt for the certified mail. Defendants held the foreclosure sale on January 16, 1997, six days after the originally scheduled date. Option One purchased the house at the foreclosure sale for the amount outstanding on the loan, an amount approximately $ 40,000 less than the appraised value of the house. Option One then began the eviction process, but that has been halted by this litigation. Cohn and Goldberg have agreed not to record a deed terminating the Youngs' right to the property until this litigation has concluded.

 ANALYSIS

 Plaintiffs' claims can be grouped into three categories:

 (A) TILA violations. Plaintiffs allege that Option One overstated the Annual Percentage Rate (APR) on the mortgage and unlawfully excluded certain closing costs from the calculation of the finance charge.

 (B) Fraud. Plaintiffs seek to hold both 1st American and Option One liable for the allegedly fraudulent offer to refinance the mortgage.

 (C) Invalid foreclosure. Plaintiffs assert that the foreclosure sale was invalid because the notice was inadequate under the applicable District of Columbia statute and that Cohn and Goldberg breached their fiduciary duties as substitute trustees under the deed of trust.

 A. The Truth in Lending Act5

 1) Overstated APR

 Plaintiffs' first TILA allegation is that Option One overstated the APR applicable to their mortgage by approximately one fourth of one percent. Plaintiffs correctly assert that TILA requires the APR to be correct to within one eighth of one percent, plus or minus. As plaintiffs acknowledged at oral argument, however, a misstated APR does not entitle them to relief unless they can avail themselves of TILA's "extended right of rescission" under 15 U.S.C. § 1635(f). They cannot do so here, because 15 U.S.C. § 1649(a)(3)(C) provides that "a consumer shall have no extended rescission rights under section 1635(f) of this title with respect to ... (3) any disclosure relating to the finance ...


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