Yield Spread Premium

Darling v. Indymac Bank (TILA Audit)

Posted on January 19, 2009. Filed under: Case Law, Mortgage Audit, Mortgage Law, Predatory Lending, RESPA, right to rescind, Truth in Lending Act, Yield Spread Premium | Tags: , , , , , , , , , , , , , , , , , , , , , |

Darling v. Indymac Bank, F.S.B., No. 06-123-B-W (D.Me. 12/03/2007)

[1] UNITED STATES DISTRICT COURT DISTRICT OF MAINE
[2] Civ. No. 06-123-B-W
[3] 2007.DME.0000264
[4] December 3, 2007
[5] JOSEPH AND ROXANNE DARLING, PLAINTIFFS,
v.
INDYMAC BANK, F.S.B., AND WESTERN THRIFT & LOAN, DEFENDANTS.
[6] The opinion of the court was delivered by: Margaret J. Kravchuk U.S. Magistrate Judge
[7] MEMORANDUM OF DECISION ON MOTION TO EXCLUDE OR LIMIT EXPERT TESTIMONY
[8] The plaintiffs, Joseph and Roxanne Darling, have designated TJ Henderson, a consumer advocate and self-styled “auditor” of consumer mortgage loans, to offer expert testimony to the effect that, among other things, the Darlings “are unsophisticated borrowers [who] had no idea what was taking place” with a loan issued by defendant IndyMac Bank and brokered by co-defendant Western Thrift & Loan, that the loan in question was fraudulent and predatory due to the way in which the defendants made, or failed to make, required disclosures in various closing documents and other communications, and that these circumstances give rise to “a continuing right to rescind the loan transaction.” (Aff. of TJ Henderson ¶¶ 1-3, Doc. No. 18-2.) In addition to these opinions, Mr. Henderson would testify that the defendants’ conduct violated a number of state and federal laws. (Id. ¶ 3.) The defendants ask the Court to exclude any such testimony on the grounds that the opinions impermissibly intrude upon the Court’s duty to instruct on the law, the designated expert is not qualified to testify about the standard of care that applies to mortgage lenders and brokers, the opinions impermissibly and unhelpfully characterize the plaintiffs’ mental capacity, and the designation fails to fully comply with Rule 26(a)(2)(B). (Mot. to Exclude, Doc. No. 18.) The motion is GRANTED IN PART.
[9] Background
[10] The Darlings assert that they have filed their lawsuit under the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq.*fn1 (“TILA”) in order to rescind a consumer credit transaction, void the IndyMac Bank’s security interest in their home, and recover statutory damages, fees and costs based on alleged violations of the TILA and Regulation Z, 12 C.F.R. § 226. They have joined the mortgage loan broker Western Thrift & Loan as an additional defendant to pursue claims of unfair and deceptive business practices, breach of fiduciary duty, fraud, and negligent misrepresentation arising from statements allegedly made by a Western agent*fn2 in order to induce a closing on the mortgage loan. (Am. Compl., Doc. No. 3.)
[11] Discovery in this case has essentially proceeded without incident. There have been two limited extensions to date and discovery remains open until December 31 for the limited purpose of conducting certain depositions. On June 12, 2007, the Darlings timely designated TJ Henderson as an expert witness. According to Mr. Henderson’s resume, he appears to be someone who has made a career out of consumer advocacy related to the TILA. He does not appear to have a law degree, though his resume includes as relevant experience the “practice of law” in certain county courts in the State of Washington. Mr. Henderson also reports years of unspecified education in consumer protection law and recent professional experience as an auditor (presumably unlicensed as no licenses are disclosed) who has worked to combat predatory lending on behalf of companies named Co3m, Premier Mortgage Auditing, Consumer Guardian, and Advocates for Justice. Mr. Henderson identifies his current position as president for Consumer Guardian and also as someone who provides paralegal services, including mortgage auditing services. Business tools at his disposal include West Law and a consumer library made available by the National Consumer Law Center. (See TJ Henderson Resume, Doc. No. 18-2 at 4-5.)
[12] The Darlings also attached to their disclosure an affidavit prepared by TJ Henderson in support of their claims. (TJ Henderson Aff, Doc. No. 18-2 at 6-10.) The affidavit recites a number of legal conclusions or characterizations concerning the Darlings and their mortgage transaction. These include the following statements:
[13] 1. That the Darlings “are unsophisticated borrowers” (id. ¶ 2);
[14] 2. That, “based upon my audit and study of the [closing] documents . . ., the Darlings had no idea what was taking place with the loan or that they could reasonably determine what the loan cost or finance charge would consist of,” which is described as an “unreasonable tactic” (id.);
[15] 3. That the HUD-1 statement issued by IndyMac was “deceiving” because of the way it characterized a yield spread premium paid to Western as a “Broker Comp.” to be paid from the Darlings funds at closing and because of the location on the form where this reference was made (id.);
[16] 4. That a second group of disclosure forms were issued without including a new notice of the Darlings’ right to cancel (id.);
[17] 5. That these and other irregularities or misstatements give rise to “a continuing right to rescind the loan transaction” (id.);
[18] 6. That due to his training and experience TJ Henderson was able to perform a “proper audit” which disclosed the following additional violations of law:
[19] a. failure to make all disclosures required by the TILA, including a failure to disclose the existence of yield spread premium (YSP) or to explain its significance and a failure to make disclosures required by 12 C.F.R. §§ 226.17, 226.18 and 226.19;
[20] b. an overstatement of the loan’s annual percentage rate, referencing 12 C.F.R. § 226.22;
[21] c. an understatement of the loan’s finance charge, referencing 12 C.F.R. § 226.18(d)(1)(i);
[22] d. failure to inform the Darlings where to find the appropriate contract documents and clause for information about non-payment, default, and the lender’s right to accelerate payments, referencing 12 C.F.R. § 226.18(p); and
[23] e. failure to provide the required HUD booklet on loans, referencing 12 U.S.C. § 2406 et seq.
[24] (id. ¶ 3);
[25] 7. That, in his opinion, “this loan is fraudulent and consists of unjust enrichment and is predatory in nature (id. ¶ 3(i)); and, finally;
[26] 8. That these violations expose the lender to severe penalties, which he then characterizes (id. ¶ 5).
[27] Discussion
[28] Western challenges TJ Henderson’s proposed testimony on Rule 26 and Rule 702 grounds. (Mot. to Exclude, Doc. No. 18.) I address the Civil Rules issue first and then turn to the evidentiary challenge.
[29] A. Rule 26 of the Federal Rules of Evidence
[30] Western argues that Mr. Henderson’s testimony should be excluded because it “consists almost entirely of unsupported legal conclusions that merely advocate the positions of his retainers,” without articulating any industry standards or other reasons in support of his conclusions. (Mot. to Exclude at 12.) Western also notes that the Darlings failed to disclose the expert compensation they are providing to Mr. Henderson. (Id.) Rule 26 and the Court’s scheduling order require that an expert disclosure set forth a “complete statement of all opinions . . . and the basis and reasons therefor.” Fed. R. Civ. P. 26(a)(2)(B); Scheduling Order at 2, Doc. No. 13. Both the Rule and the scheduling order also call for a disclosure of, among other things, the compensation to be paid to the expert for his or her work and testimony.
[31] In regard to Mr. Henderson’s compensation, the Darlings report that they made no disclosure because they had engaged and paid Mr. Henderson to conduct an audit of their mortgage loan prior to commencing this litigation, that no fee has been requested for the Henderson affidavit that comprises Mr. Henderson’s “report” because it is just a restatement of his audit, and that the defendants have not deposed Mr. Henderson so there has been no occasion to determine what compensation he would require for services as an expert witness. (Pl.’s Opposition at 4, Doc. No. 23.) Although this manner of proceeding is unorthodox, I can discern no prejudice to the defendants from the mere fact that they do not yet know what, if any, compensation Mr. Henderson will receive for his litigation-related services. This failure of disclosure does not independently warrant the exclusion of Mr. Henderson’s opinions. The Darlings are required, however, to make a supplemental disclosure setting forth the terms of Mr. Henderson’s compensation as soon as they are established, or by the close of discovery, whichever occurs sooner.
[32] The second aspect of Western’s Rule 26 argument is that Mr. Henderson’s opinions should be excluded because the Darlings have not, in Western’s view, disclosed the basis and reasons for the opinions, only “unsupported legal conclusions.” (Mot. to Exclude at 12.) I conclude that this issue is best addressed as an evidentiary matter under Rule 702 of the Federal Rules of Evidence, rather than as a disclosure matter under Rule 26. The Darlings have made a disclosure of Mr. Henderson’s opinions and the reasons he offers for them. To the extent the Darlings are able to demonstrate that the basis and reasons they offer satisfy the standards of Rule 702 they will to that same extent meet the disclosure requirement of Rule 26.
[33] B. Rule 702 of the Federal Rules of Evidence
[34] Pursuant to Rule 702 of the Federal Rules of Evidence: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
[35] In Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), the Supreme Court discussed the gate-keeping role federal judges play under Rule 702 in screening unreliable expert opinion from introduction in evidence. Id. at 597. That role is “to ensure that an expert’s testimony ‘both rests on a reliable foundation and is relevant to the task at hand.'” United States v. Mooney, 315 F.3d 54, 62 (1st Cir. 2002). The proponent of the expert opinion must demonstrate its reliability, but need not prove that the opinion is correct. Id. at 63. “Once a trial judge determines the reliability of the expert’s methodology and the validity of his reasoning, the expert should be permitted to testify as to inferences and conclusions he draws from it and any flaws in his opinion may be exposed through cross-examination or competing expert testimony.” Brown v. Wal-Mart Stores, Inc., 402 F. Supp. 2d 303, 308 (D. Me. 2005). “Vigorous cross examination, presentation of contrary evidence, and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but admissible evidence.” Daubert, 509 U.S. at 596. It has been said that, ultimately, the Court must determine simply whether “the testimony of the expert would be helpful to the jury in resolving a fact in issue.” Cipollone v. Yale Indus. Prods., 202 F.3d 376, 380 (1st Cir. 2000).
[36] 1. Legal conclusions cannot be countenanced, but testimony concerning regulatory compliance should be facilitated rather than barred where regulatory compliance is at the heart of the case and the plaintiffs are not independently qualified to discuss the regulatory framework.
[37] Western’s overarching theme is that the proposed opinion testimony is riddled with statements of legal standards and legal conclusions that are not really opinions at all. (Mot. to Exclude, passim.) It is the Court’s duty, naturally, to instruct the jury*fn3 concerning the applicable legal standards that govern this action. Nieves-Villanueva v. Soto-Rivera, 133 F.3d 92, 99-100 (1st Cir. 1997). It will fall to the fact witnesses to provide the jury with evidence of the facts and circumstances that gave rise to this action. The question, then, is whether Mr. Henderson, by dint of his mortgage auditing experience and any specialized knowledge he possesses, might be able to help the jury better understand the evidence to determine a fact in issue. Id. at 100. The Darlings assert in their opposition that Mr. Henderson will be able to articulate “various improprieties with the loan/mortgage transaction and documentation,” listing his observations that certain required documentation was missing and that the APR and finance charge calculations were erroneous. (Pls.’ Opposition at 1-2.) However, they acknowledge the appearance of a problem, noting, “if and to the extent that Mr. Henderson has gone beyond those factual observations and opined that same represent violation(s) of law, his testimony can be easily limited/prescribed at trial to conform to an appropriate scope.” (Id. at 2.) I fail to understand why this particular problem should not be addressed ahead of trial. Mr. Henderson should not be permitted to take the witness stand and simply state such things as “this loan is fraudulent and consists of unjust enrichment and is predatory in nature.” (TJ Henderson Aff. ¶ 3(i).) However, in fairness, it does not appear likely that that would be the extent of his testimony. Although Mr. Henderson’s affidavit is peppered with recitations of legal conclusions, his material opinions are really quite straightforward: (1) certain required TILA disclosures and/or documents were missing and (2) certain required disclosures were false. He is able to draw the first conclusion based on an audit of the closing documents. He has articulated which documents were missing. He is able to draw the second conclusion based on independent calculations. It is not difficult to conclude that the typical layperson would be unable to review a set of mortgage loan closing documents to assess whether a particular, required document was present or not. Nor is it difficult to imagine that the typical layperson would not be familiar with calculating finance charges and annual percentage rates. In other words, there does not appear to be anything inherently wrong with having an expert state that certain required documents were missing from the closing documents of a transaction or that certain calculations were erroneous, without straying into the territory of legal conclusions such as that the loan is “unjust” or “predatory,” or that it gives rise to liability or justifies any particular remedy. Thus, I conclude that the “legal conclusion” argument for exclusion does not entirely undermine Mr. Henderson’s audit or his opinions as to regulatory compliance. It does, however, call for a limitation to be placed on Mr. Henderson’s testimony. There is no reason apparent in this case why Mr. Henderson should need to tell the jury what the penalties of noncompliance are, what remedies are appropriate (such as contract rescission, which is an equitable remedy reserved to the Court, in any event), that the circumstances demonstrate unjust enrichment, predatory lending or fraud. Those particular opinions are hereby excluded on the ground that they are inappropriate legal conclusions and, as such, would not really help the jury make sense of the facts.
[38] There remains the matter of how to best address testimony to the effect that certain conduct was “in violation of TILA” or other federal or state laws and regulations. The issue of how to handle testimony concerning regulatory compliance is not as easy to resolve as either party suggests. In this case, although an expert might need to speak in terms of the TILA’s regulatory framework in order to discuss regulatory compliance, that is not necessarily the same thing as instructing the jury on issues of law or merely reciting legal conclusions. On the other hand, for testimony about noncompliance to have meaning there is a need to convey to the fact finder that there exists a regulatory framework that mandates compliance. Probably the most appropriate way to handle a situation like this one is not to preclude the testimony altogether, but to provide the jury with preliminary instructions concerning the regulatory framework and require the expert to couch his compliance testimony in terms of the Court’s instructions on the law, rather than in terms of his private characterizations of the law. See, e.g., United States v. Caputo, 382 F. Supp. 2d 1045, 1053 (N.D. Ill. 2005) (taking this approach in a criminal case involving FDA regulatory “enforcement policies”). Alternatively, the Court could leave for trial the task of drawing the “fine” distinction between proper expert testimony and legal conclusions, to avoid setting an over-exacting standard in a case that appears to turn almost entirely on regulatory compliance. See, e.g., TC Sys. Inc. v. Town of Colonie, 213 F. Supp. 2d 171, 181-82 (N.D. N.Y. 2002) (“[T]he Court is reluctant to preclude all testimony regarding FCC criteria at this early stage. If a proper foundation is laid and Kravtin can establish a nexus between the FCC criteria and the facts here, her testimony may be appropriate.”).
[39] 2. The Darlings’ expert disclosure is sufficient to qualify Mr. Henderson to testify about regulatory compliance matters, but not about the customs and practices of mortgage loan brokers and lenders.
[40] Western’s next argument is that Henderson should not be permitted to testify about any deviation from customary practice because he is not a broker with experience in mortgage lending or any professional license in that commercial practice area. (Mot. to Exclude at 9-10.) The Darlings respond that it is “premature” for the Court to conclude that Mr. Henderson lacks the qualifications “to render opinions describing the applicable yield rate, actual and stated percentage interest rates and the presence of hidden and undisclosed charges.” (Pls.’ Opposition at 3.) They say that they are not required to retain a “blue-ribbon practitioner,” quoting United States v. Malone, 453 F.3d 68, 71 (1st Cir 2006). (Id. at 3-4.) They do not expand upon the qualifications set forth in Mr. Henderson’s resume and affidavit.
[41] Based on a review of the expert disclosure materials, Mr. Henderson has been obtaining education in law and consumer protection since 1989, practiced law for five years in certain county courts in Washington, participated in at least eight seminars and workshops on the TILA between 2002 and 2006, and has been active with four “companies” in organized efforts to combat predatory lending. The companies in question are Co3m, Premier Mortgage Auditing, Advocates for Justice, and Consumer Guardian. Henderson is currently the president and owner of Consumer Guardian. Mr. Henderson’s affidavit indicates that he has been “in the mortgage auditing business for 9 years and legal industry for the past 15 years.” (TJ Henderson Aff. at 1.) Henderson’s affidavit does not otherwise elaborate on any of the qualifications sketched out in his resume, such as by better describing the work performed by the companies he has worked for or the type of legal work he used to perform in Washington.
[42] An expert’s qualifications, like other issues addressed to the admissibility of an expert’s opinions, “should be established by a preponderance of proof.” Daubert, 509 U.S. at 592 n.10. The proponent of the challenged evidence carries the burden of proof. The proponent must not assume that an evidentiary hearing will be held; the Court has the discretion to decide the motion on briefs and with reference to expert reports, depositions and affidavits on record. United States v. Diaz, 300 F.3d 66, 73-74 (1st Cir. 2002).
[43] The trouble here is that the Darlings have designated an unconventional expert and given short shrift to Western’s arguments that their designee has questionable qualifications. The fact that Mr. Henderson is an unconventional expert is not a bar in itself, but there needs to be some reassurance here that Mr. Henderson’s specific training and experience make him a suitable person to educate the jury about issues of fact. Instead, the Darlings rest on Mr. Henderson’s resume and affidavit and casually argue that the record does not in its present state prove he is not qualified, partly because Western has not deposed Mr. Henderson. (Pls.’ Opposition at 3.) I conclude on this record that Mr. Henderson’s qualifications to address the specific issue flagged here by Western, i.e., the customs and practices of mortgage lenders and brokers, are not adequately established. That does not mean, however, that Mr. Henderson is unqualified to serve as an expert witness regarding compliance with the TILA regulatory framework and related consumer law. Mr. Henderson has made a practice of educating himself on consumer law matters, including the requirements of the TILA, and he has worked for several years consulting with borrowers to determine whether the mortgage loans they have entered into have complied with that law and others. Thus, he appears to be suited to the task of helping to shepherd the Darlings’ regulatory compliance claims through the trial process, provided he does so within appropriate parameters set by the Court to prevent him from purporting to state the law to the jury.*fn4 He may not, however, speak to what is customary practice among mortgage lenders and brokers, only to what is required by the regulatory framework.
[44] 3. Mr. Henderson’s views concerning the Darlings’ relative sophistication and their understanding of the terms of the loan are unreliable and unhelpful and must be excluded.
[45] Western challenges Mr. Henderson’s basis and qualifications to offer opinions about the Darlings’ level of sophistication or their level of knowledge about the terms of the transaction they entered into. (Mot. to Exclude at 11.) The Darlings do not even attempt to preserve these facets of their expert disclosure. As there is no apparent basis to support a finding that Mr. Henderson is qualified to testify-or possesses specialized knowledge enabling him to testify-about the Darlings’ level of sophistication or their understanding of the loan’s terms, these opinions are excluded. Mr. Henderson may discuss what he considers to be noncompliant disclosures without having to opine that the Darlings were actually misled.
[46] Conclusion
[47] For the reasons stated above, Western’s motion to exclude the testimony of TJ Henderson is GRANTED, IN PART. Mr. Henderson is precluded from testifying about the penalties and remedies available in cases of regulatory noncompliance. He is also precluded from testifying that the circumstances of this case demonstrate unjust enrichment, predatory lending or fraud. Additionally, Mr. Henderson is precluded from testifying about the customary practices observed by mortgage lenders and brokers. Finally, Mr. Henderson is precluded from characterizing the Darlings’ level of sophistication or their level of knowledge about the terms of the transaction they entered into.
[48] CERTIFICATE
[49] Any objections to this Order shall be filed in accordance with Fed.R.Civ. P. 72. So Ordered.

Opinion Footnotes

[50] *fn1 Components of the Truth in Lending Act are distributed throughout the United States Code. The sections cited here, as cited by the Darlings in their pleadings, refer to the TILA’s consumer credit cost disclosure provisions.
[51] *fn2 The Darlings originally named the agent as an additional defendant but have since voluntarily dismissed the claims against him. (Voluntary Dismissal, Doc. No. 17.)
[52] *fn3 Because the Darlings’ plea for relief requests more than equitable remedies, there is a legal component to their TILA claim that is properly submitted to a jury in light of their jury demand. See Franklin v. Hartland Mortgage Ctrs., Inc., No. 01 C 2041, 2001 U.S. Dist. LEXIS 24238 (N.D. Ill. June 18, 2001) (order on motion to strike jury demand) (concluding in a TILA action that the plaintiff had the right to have his claim for statutory damages submitted to the jury and quoting Beacon Theaters, Inc. v. Westover, 359 U.S. 500, 510 (1959)) (“[W]hen legal and equitable claims are joined in one action, absent exceptional circumstances, a litigant has a right to have the issues common to the legal and equitable claims tried first to a jury”)). Additionally, the claims against Western are traditional tort claims appropriately tried to a jury.
[53] *fn4 In its reply, Western argues for the first time that Mr. Henderson’s percentage rate calculations and finance charge calculations should be excluded because there are merely factual matters for which no expert testimony is needed or which should be presented by an accountant. (Def.’s Reply at 1, Doc. No. 24.) I disagree with Western’s contentions. Mr. Henderson discloses that performing these calculations is part of his auditing function and it seems plain that the average layperson is not accustomed to computing annual percentage rates or even finance charges. Having someone other than the plaintiffs articulate the process is apt to save time at trial and prove beneficial to the jury.

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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: , , , |

 

 UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
_____________________
MARCIA MAE CLIFFORD,
Case No. 1:06-CV-316
Plaintiff,
v. Hon. Richard Alan Enslen
FMF CAPITAL, LLC and
PREMIER MORTGAGE FUNDING,
OPINION
Defendants.
_______________________________/
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).
BACKGROUND
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.)
2
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.
3
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.
STANDARDS FOR SUMMARY JUDGMENT
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
4
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
5
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.
LEGAL ANALYSIS
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
6
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
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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.
CONCLUSION
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
DATED in Kalamazoo, MI: RICHARD ALAN ENSLEN
June 11, 2007 SENIOR UNITED STATES DISTRICT JUDE

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