Clifford v. FMF Capital

Posted on October 12, 2008. Filed under: Case Law, Mortgage Audit, Mortgage Law, RESPA, Truth in Lending Act, Yield Spread Premium | Tags: , , , |


Case No. 1:06-CV-316
v. Hon. Richard Alan Enslen
The crooks in prison wear (orange jump suits) are easy to spot. Those in business wear are
not; though they do no less harm to their unsuspecting victims.
This matter is before the Court on Plaintiff Marcia Mae Clifford’s Motion for (Partial)
Summary Judgment concerning Count One of the First Amended Complaint. Plaintiff seeks partial
judgment only against Defendant Premier Mortgage Funding, Defendant FMF Capital, LLC having
been previously dismissed from this suit. The Motion has been fully briefed and oral argument is
unnecessary in light of the briefing. See W.D. Mich. L. Civ. R. 7.2(d).
Plaintiff Marcia Mae Clifford is an indigent person. (Financial Affidavit at 1; Order to
Proceed in Forma Pauperis.) According to her Financial Affidavit, her sole monthly income of
$715/month is furnished by the Social Security Administration (disability income); she also receives
$30/month of food stamp assistance. (Financial Affidavit 2.) Her sole property, apart from a $600
vehicle, is her primary residence at 232 Hambrook Street, Belding, Michigan, which is valued at
$79,000, most of which is subject to a mortgage by FMF Capital, LLC. (Id.)
How Ms. Clifford acquired this mortgage is the subject of this lawsuit and her claims against
Defendant Premier Mortgage Funding. Plaintiff has sued Defendant on several grounds, including
violation of the Real Estate and Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2601 et seq.
(First Am. Compl. ¶¶ 33-38.) Plaintiff acquired her loan from FMC Capital, LLC through Defendant
Premier Mortgage Funding, who acted as the mortgage loan originator/broker. (Pl.’s Br. in Support
of Mot., Ex. 2 at 1; Marcia Clifford Aff. ¶ 7.) The first Application for the loan, which was
completed by Defendant’s agent, Pleas Roy Daniels, disclosed no employment for Ms. Clifford on
the employment section of the Application. (Id.) The first Application also disclosed that Ms.
Clifford was applying for a fixed rate conventional mortgage refinancing loan. (Id.) This is not what
Ms. Clifford ultimately obtained, however.
Some weeks later when the loan was to close, the title agent, Laura Holstine of Netco Title,
presented for Ms. Clifford’s signature, at her home, a second loan application for an adjustable rate
loan. (Pl.’s Br. in Support of Mot., Ex. 3 at 1; Marcia Clifford Aff. ¶ 12-17.) The second
Application was also blatantly false in that it represented that Ms. Clifford was engaged in paid fulltime
work at a foster care home. (Id.) Ms. Clifford was urged to sign the forms and did not learn
the pertinent misrepresentations and loan terms until afterwards. (Id.)
Among the surprises to Ms. Clifford in the loan paper work were the high amount of
settlement charges ($4,692.19) for borrowing a total of $62,000. (Pl.’s’ Br. in Support of Mot, Ex.
5 at 1-2.) Of that amount, which was ample, Defendant included charges for both a $1,500 loan
origination fee and a $1,240 fee for the “yield-spread premium.” (Id. at 2 lines no. 101 & 108.) These
amounts were later characterized by the person who assessed them, Daniels, as “just ridiculous,
1Defendant’s characterization also fails to explain how they could have accepted a
representation of full-time work, but treated her as a shut-in for the purpose of closing the loan.
wow.” (Daniels Dep. 20.) Daniels only submitted Clifford’s loan application to a single lender for
approval. (Pl.’s Req. to Admit ¶ 24.)
Defendant, in its opposition briefing, characterizes the charges as routine for a high-risk loan
which warranted both additional services by the lender (investigation and verification) and additional
compensation for assuming a riskier loan. (Def.’s Br. 4-5.) Defendant has also characterized the
preparation of the false documents as caused by misrepresentations by Plaintiff, though Defendant
has not filed any evidence (affidavits or deposition testimony) supporting either its position about
how and why the loan documents were prepared falsely or its position that it performed additional
services for the yield-spread premium.1 (See Id. & Exhibits.) Even acknowledging that Plaintiff’s
credit score was not perfect, Plaintiff’s expert has stated under oath that the fees charges in
connection with this loan were approximately twice as much as what are considered high-end fees
for FHA lending appropriate to the borrower’s situation. (Danell Merren Aff. ¶¶ 6-7.) Defendant
has failed to provide competing evidence concerning the commercial reasonableness of the fees
charged, which on their face were “ridiculous” according to the person who prepared the documents.
Plaintiff’s Motion is brought pursuant to Federal Rule of Civil Procedure 56. Under the
language of Rule 56(c), summary judgment is proper if the pleadings, depositions, answers to
interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The
initial burden is on the movant to specify the basis upon which summary judgment should be granted
and to identify portions of the record which demonstrate the absence of a genuine issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The burden then shifts to the non-movant
to come forward with specific facts, supported by the evidence in the record, upon which a
reasonable jury could find there to be a genuine fact issue for trial. Anderson v. Liberty Lobby, 477
U.S. 242, 248 (1986). If, after adequate time for discovery on material matters at issue, the nonmovant
fails to make a showing sufficient to establish the existence of a material disputed fact,
summary judgment is appropriate. Celotex Corp., 477 U.S. at 323. The factual record presented
must be interpreted in a light most favorable to the non-movant. Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Rule 56 limits the materials the Court may consider in deciding a motion under the rule:
“pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits.” Copeland v. Machulis, 57 F.3d 476, 478 (6th Cir. 1995) (quoting Federal Rule of Civil
Procedure 56(c)). Moreover, affidavits must meet certain requirements:
[A]ffidavits shall be made on personal knowledge, shall set forth such facts as would be
admissible in evidence, and shall show affirmatively that the affiant is competent to testify
to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred
to in an affidavit shall be attached thereto or served therewith.
Fed. R. Civ. P. 56(e).
In accordance with Rule 56(e), the Sixth Circuit has held “that documents submitted in
support of a motion for summary judgment must satisfy the requirements of Rule 56(e); otherwise,
they must be disregarded.” Moore v. Holbrook, 2 F.3d 697, 699 (6th Cir. 1993). Thus, in resolving
a Rule 56 motion, the Court should not consider unsworn or uncertified documents, Id., or unsworn
statements, Dole v. Elliot Travel & Tours, Inc., 942 F.2d 962, 968-69 (6th Cir. 1991); Little v. BP
Exploration & Oil Co., 265 F.3d 357, 363 n.3 (6th Cir. 2001). These requirements are fatal to
Defendant’s defense of Count One, which depend entirely upon unsworn statements in their
opposition briefing.
Plaintiff’s Count I RESPA claim alleges that Defendant, in connection with the above
described mortgage transaction, violated RESPA by accepting a “referral fee” for assigning the
mortgage to the lender. Section 8 of RESPA, as amended, provides in pertinent part:
No person shall give and no person shall accept any fee, kickback, or thing of value pursuant
to any agreement or understanding, oral or otherwise, that business incident to or a part of
a real estate settlement service involving a federally related mortgage loan shall be referred
to any person.
12 U.S.C. § 2607(a). Notwithstanding, the above section does not prohibit the payment of bona fide
salary or compensation for goods, facilities or services actually performed. 12 U.S.C. § 2607(c)(2).
Given these parameters of RESPA, the United States Department of Housing and Urban
Development (“HUD”) has developed two policy statements to distinguish between illegal
kickbacks/referral fees and legal fee for service agreements in the context of yield-spread premium
charges. See RESPA Statement of Policy 2001-1, 66 FR 53052, 53055-56 (Oct. 18, 2001); RESPA
Statement of Policy 1999-1, 64 FR 10080, 10084-85 (Mar. 1, 1999). These policies generally state
that yield-spread charges are not illegal per se, nor is the assessment of charges based upon a rate
sheet illegal per se, but, nevertheless, the individual lending transaction will be assessed for legality
based upon whether: the total compensation for the mortgage broker is for goods or facilities
furnished or services actually performed; and second, the total compensation mut be reasonably
related to the goods or facilities furnished or services actually performed. Mortgage counseling is
one service which may warrant additional compensation, but typically only when the broker obtains
at least three competing offers for borrower consideration. See 64 FR at 10085.
In this instance, the record supports that the mortgage lender did precious little to earn the
large loan origination fee let alone the additional yield-spread premium. What the broker did on this
record was to consult with the borrower, complete an application, complete a second falsified
application with adverse lending terms not sought by the borrower, and obtain a single lending offer
for the borrower’s acceptance. The broker was not involved at the closing and the fees assessed were
not related to mortgage counseling, which did not occur. Verification services were not
meaningfully provided given that the transaction was prepared to be fraudulent and to misstate the
borrower’s financial condition for the purpose of rewarding the brokerage firm, but impoverishing
the borrower. The only evidence of record shows that the total compensation for the loan origination
was grossly out of the range of reasonable compensation and no additional services were performed
to authorize payment of a yield-spread premium. See Perkins v. Johnson, 2007 WL 521172, *2 (D.
Colo. 2007) (permitting complaint alleged in accordance with RESPA/HUD standards). Cf. Schuetz
v. Banc One Mortg. Corp., 292 F.3d 1004, 1012-14 (9th Cir. 2002) (allowing payment of yieldspread
premium when based upon reasonable compensation within marketplace). No reasonable
juror could dispute on this record that the yield-spread premium, $1,240, was not reasonable in
amount and was not based upon actual goods, facilities or services when the agent who prepared the
documentation was of the view that the origination fees were ridiculous.
RESPA assesses damages in the event of an unauthorized kickback or referral fee in the
amount of three times the illegal fee. 12 U.S.C. § 2607(d)(2). Since the record is clear that the
unearned yield-spread premium fee was $1,240, the Court will assess treble damages on Count I in
the amount of $3,720. The Court will also enter partial judgment in favor of Plaintiff as to such
amount. While RESPA also allows a prevailing plaintiff to recover attorney fees and costs, see 12
U.S.C. § 2607(d)(5), see also Blum v. Stenson, 465 U.S. 886 (1984) (permitting attorney fee recovery
by not-for-profit legal organization), under the Federal Rules of Civil Procedure and the Western
District of Michigan Local Civil Rules, the process to recover those fees and costs is to occur only
after entry of the final judgment (in order to avoid piecemeal requests). See Fed. R. Civ. P. 54(d)
(permitting attorney fee and expense motions within 14 days of judgment); W.D. Mich. L. Civ. R.
54.1 (permitting filing of bill of costs within 30 days of judgment). As such, the question of costs
and attorney fees is reserved.
In accordance with this Opinion, Plaintiff’s Motion for (Partial) Summary Judgment shall
be granted and summary judgment shall enter as to Count I in favor of Plaintiff and against
Defendant Premier Mortgage Funding in the amount of $3,720, and the approval of costs and
attorney fees is reserved pending final judgment.
/s/ Richard Alan Enslen

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