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Omar K. Newland v. Aurora Loan Services

August 22, 2011

OMAR K. NEWLAND,
PLAINTIFF,
v.
AURORA LOAN SERVICES, LLC, ET AL.
DEFENDANTS.



The opinion of the court was delivered by: Judge Beryl A. Howell

MEMORANDUM OPINION

Plaintiff Omar K. Newland, a resident of the District of Columbia, brings this case alleging fraud and deception in the process by which he obtained a mortgage loan in 2007. The Amended Complaint names eight defendants: Lehman Brothers Bank, FSB, the plaintiff's mortgage lender, which is now bankrupt (hereinafter "Lehman Brothers"); Aurora Loan Services, LLC, the current servicer of the plaintiff's loan (hereinafter "Aurora Loan"); Atlantic Law Group, the employer of the substituted trustees; Mortgage Electronic Registration Systems, the nominee of Lehman Brothers and mortgagee of record (hereinafter "MERS"); Multi-Fund of Columbus, Inc., a mortgage brokerage (hereinafter "Multi-Fund"); Avion Johnson, a mortgage broker employed by Multi-Fund; First Ohio Banc & Lending, Inc., a mortgage brokerage (hereinafter "First Ohio"); and Tim Boyle, a mortgage broker employed by First Ohio. The Complaint argues that the defendants fraudulently conspired to provide the plaintiff with a higher interest rate than he should have received. Defendants Aurora Loan, MERS, and First Ohio have moved to dismiss the plaintiff's Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons explained below, the motions to dismiss by Aurora Loan, MERS, and First Ohio are granted.*fn1

I.BACKGROUND

Plaintiff Omar K. Newland alleges that on or about October 9, 2006 he contacted Multi-Fund about obtaining 100% residential mortgage financing. Am. Compl. ¶¶ 4, 10. Mr. Johnson, the plaintiff's broker at Multi-Fund, informed the plaintiff that he was pre-qualified for a mortgage loan in an amount up to $685,000 and that he would "use his best effort" to locate a lender who would provide the plaintiff with one hundred percent mortgage loan financing. Id. ¶

10. In return, the plaintiff agreed to pay Multi-Fund's one percent loan origination fee upon closing of the loan. Id. ¶ 10. Later in October 2006, Mr. Johnson informed the plaintiff that he had found a lender who would provide him with one hundred percent financing at an interest rate of 9.2 percent. Id. ¶ 11. When the plaintiff indicated that he felt this interest rate was high given his credit rating, Mr. Johnson agreed but stated that the rate was high because few lenders were willing to provide borrowers with one hundred percent financing. Id. The plaintiff claims to have relied on the "truth of that statement" in deciding to seek financing through Multi-Fund from the lender Mr. Johnson identified. Id.

In late December 2006, the plaintiff sent Mr. Johnson a copy of a sales contract for the purchase of a residential property at 1733 Trinidad Ave., N.E., Washington, D.C. ("the Property") for $590,000. Id. ¶ 14. Mr. Johnson informed the plaintiff that the 9.2 percent interest rate had expired and that the new rate was 9.3 percent, to which the plaintiff agreed. Id.

The sales contract provided for January 31, 2007 as the settlement date for the purchase of the Property, and Mr. Johnson assured the plaintiff throughout the first three weeks of January that there was no reason that date would pose a problem. Id. ¶¶ 16-17. A few days before the scheduled closing, however, Mr. Johnson notified the plaintiff that there was a heavy volume of settlements scheduled for January 31 and the plaintiff's settlement would have to be postponed. Id. ¶ 18. Mr. Johnson told the plaintiff that he would not be charged per diem interest for the month of February, and the loan was scheduled to close on February 7. Id.

On January 18, 2007, Mr. Johnson sent the plaintiff a Department of Housing and Urban Development Good Faith Estimate (hereinafter "HUD Estimate"), which was dated October 17, 2006. Id. ¶ 17. The HUD Estimate did not disclose the "yield spread premium"*fn2 (hereinafter "YSP") at the top of the document where other forms of broker compensation were listed, but instead disclosed the premium -- which Lehman Brothers would pay to Multi-Fund -- "inconspicuously and deceptively" at the bottom of the page. Id. ¶ 24; see Superior Court Documents, ECF No. 4, Ex. A, (hereinafter "Superior Court Documents"), at 151. The plaintiff asserts that Mr. Johnson never informed the plaintiff that the higher interest rate of 9.2 percent, to which he had initially agreed because Lehman Brothers had committed to provide one hundred percent financing, would result in such additional compensation for the broker from the lender. Id. ¶ 25. Moreover, Mr. Johnson did not disclose to the plaintiff the definition of a yield spread premium, the reason Multi-Fund would be paid a yield spread premium, the cost to the plaintiff of the yield spread premium, or the fact that the plaintiff qualified for a lower interest rate in absence of the yield spread premium. Id. ¶ 26.

At the loan closing on February 7, 2007 the plaintiff learned for the first time that the loan had a prepayment penalty provision and refused to continue with the closing. Id. ¶ 19. The plaintiff contacted Mr. Johnson, who apologized for the oversight and stated that he would attempt to have the provision removed from the loan. Id. The following day, on February 8, Mr. Johnson informed the plaintiff that Lehman Brothers had agreed to remove the prepayment penalty on the condition that the 9.3 percent interest rate was raised to 9.8 percent. Id. ¶ 20. The plaintiff "believed that he had no choice at that point except to agree to the increased interest rate" and agreed to the new rate. Id. As an apology for his oversight and failure to inform the plaintiff about the prepayment penalty, Mr. Johnson told the plaintiff that Multi-Fund would reduce its loan origination fee from 1% to 0.5%. Id. On February 9, the plaintiff signed the documents necessary to finalize the loan for the purchase of the Property. Id. ¶ 21. Lehman Brothers paid First Ohio, who was the "actual Broker originating the loan," an incentive fee "of up to 0.125% of the loan amount after closing." Id. ¶¶ 22, 37.

The plaintiff made payments on the loan from the closing date until April 2009, at which point he defaulted on his monthly payments. Mem. Supp. Aurora Loan & MERS Mot. Dismiss (hereinafter "Aurora/MERS Mem."), ECF No. 7, at 2. Due to his default, a foreclosure sale on the property was scheduled for May 4, 2010. Id.; Am. Compl. ¶ 28.

One day before the scheduled foreclosure sale, on May 3, 2010, the plaintiff commenced this case by filing a complaint in the Superior Court of the District of Columbia. The plaintiff alleged, inter alia, fraud, deceit, connivance, unconscionability, breach of contract, negligence, and unlawful trade practices. Superior Court Documents, Ex. A, Compl. The plaintiff also filed motions for a Temporary Restraining Order ("TRO") and a Preliminary Injunction enjoining the foreclosure sale. Superior Court Documents, at 56-69. The Superior Court denied the plaintiff's motion for a TRO and the foreclosure sale took place as scheduled on May 4, 2010. Id. at 7, 145; Aurora/MERS Mem., at 2. On May 21, 2010, the Superior Court denied as moot the plaintiff's motion for a Preliminary Injunction. Superior Court Documents, at 6.

On July 2, 2010, the plaintiff amended his Complaint, alleging in fourteen counts that the defendants engaged in conspiracy to defraud, fraud in the inducement and deceit (Counts 1-4, 6, 9); violated the D.C. Consumer Protection Procedures Act, D.C. CODE § 28-3901, et seq. (Count 5); and were negligent (Counts 9-12); and that the defendants Multi-Fund and First Ohio breached their fiduciary duty (Count 7). The plaintiff seeks cancellation of instruments and rescission (Count 8),*fn3 a declaration that the loan agreement is "unenforceable" since "it was procured by fraud, deceit, conspiracy and unconscionability" (Count 13), and issuance of a permanent injunction "setting aside the foreclosure sale in order to restore [plaintiff's] ownership rights" in the Property (Count 14).

Defendants Aurora Loan and MERS removed the action to this Court based on diversity of citizenship on August 11, 2010. Notice of Removal, ECF No. 1. Now pending before the Court are two motions to dismiss the plaintiff's Complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Defendants Aurora Loan and MERS have filed a joint motion asserting that the plaintiff's claims are barred by the applicable statute of limitations and that the plaintiff has failed to state a claim. Aurora/MERS Mem., at 4-5. Defendant First Ohio has also filed a motion to dismiss the Complaint for the same reasons. First Ohio Mem. Supp. Mot. Dismiss (hereinafter "First Ohio Mem."), ECF No. 11, at 1.

Additionally, before the case was removed from Superior Court, defendant Atlantic Law Group filed a motion to dismiss for failure to state a claim, arguing that "all fourteen counts pled in the First Amended Complaint allege acts and omissions of the other Defendants" and, "aside from being identified . . . as a named party, there are no allegations of any acts or omissions by Atlantic Law under the Statement of Facts or any other allegations to support any of the Counts." Atlantic Law Mem. Supp. Mot. Dismiss, Superior Court Documents, ECF No. 1, at 4. The plaintiff has not filed an ...


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