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Johnson v. Multi-Solutions, Inc.

2011 WL 3667554 (U.S. Dist. Ct. D. N.J. 2011) (Unpublished)

MORTGAGES; CONSUMER FRAUD ACT; TILA — In order to assert a claim under the Truth in Lending Act or the Home Ownership and Equity Protection Act, the complainant must be a consumer of credit from the lender it is suing and thus cannot make claims against the lender who is merely the assignee of a mortgage.

A landowner defaulted on his mortgage and the property was listed for a Sheriff’s sale. A foreclosure rescue company sent the landowner a letter stating that it could help him avoid foreclosure. He signed an exclusivity agreement, indicating that only this company would help him attempt to avoid the foreclosure. The landowner believed the agreement to be a lease/buy-back arrangement, however the agreement resulted in the landowner’s wholesale transfer of the property to an investor with the landowner being required to pay monthly rent to this new owner. The property was deeded to the investor and then leased back to the landowner. The closing agent produced two settlement agreements, one which fraudulently indicated that the landowner had received funds from the proceeds of sale and the other memorializing that the investor would use the sale proceeds to pay off the landowner’s previous mortgage. The new investor executed a new mortgage on the property with a new lender. This lender assigned the loan to another one. After the investor defaulted on its mortgage, the assignee scheduled foreclosure proceedings and a Sheriff’s sale. At the sale, a new buyer took title to the property.

The landowner claimed this was a foreclosure rescue scam and filed a complaint alleging violations of the Truth in Lending Act (TILA), the Home Ownership and Equity Protection Act (HOEPA), the Credit Repair Organizations Act (CROA), the Real Estate Settlement Procedures Act (RESPA), and the New Jersey Consumer Fraud Act (NJCFA). The lender and its assignee moved for summary judgment and the court granted their motion.

In order to assert a claim under the TILA and the HOEPA, the complainant must be a “consumer of credit.” The only party to whom the lender loaned money was the investor. The landowner was not a party to the mortgage agreement between the investor and the lender. Because there was no transaction between the landowner and the lender, the landowner could not be a consumer of credit. The landowner still argued that the lender and its assignee were subject to TILA and HOEPA because they had constructive knowledge that the landowner was the intended, and thus implied, borrower because a loan officer was aware of the foreclosure rescue business. The Court analyzed the possibilities of an agency relationship and stated that a corporation (the lender) is not charged with the legal consequences of an employee’s knowledge of a fact if it lies outside the scope of the employee’s duties to the corporation. Here, the Court could find no evidence that the loan officer or anyone else knew that the foreclosure rescue company was involved with this particular sale-leaseback between the landowner and the investor. Therefore, the Court granted summary judgment in favor of the lender on the TILA and HOEPA claims.

The Court next addressed the RESPA claim. RESPA requires disclosure of fees and costs involved in residential real estate transactions in order to prevent kickbacks or referral fees and to reduce escrow amounts. Since the lender has not charged the landowner any fees, the Court granted summary judgment in favor of the lender on the RESPA claim.

Lastly, to state a NJCFA claim, a landowner must show: (1) unlawful conduct by defendant; (2) its own ascertainable loss; and (3) a causal relationship between the unlawful conduct and the ascertainable loss. Here, the landowner argued that the lender should be held vicariously liable for the unlawful conduct of the closing agent on the sale-leaseback transaction. However there was no evidence that the closing agent had any relationship with the lender. The closing agent had stated that he was representing the investor in this deal. Therefore the Court dismissed the NJCFA claim against the lender.

Summary judgment was also granted to the assignee on the claims under TILA, HOEPA, and RESPA because it was merely the assignee of the mortgage held by the lender.

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