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Hughes v. Equity Plus Financial

July 19, 2010


The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge


Defendant Wachovia Mortgage ("Wachovia") (a division of Wells Fargo Bank, N.A., formerly known as Wachovia Mortgage, FSB, formerly known as World Savings Bank FSB and named herein as "Golden West Financial, FSB, d/b/a World Savings Bank, FSB, Wachovia, FSB, Wells Fargo, N.A.") has filed a motion to dismiss Plaintiff's First Amended Complaint ("FAC") for failure to state a claim. For the reasons discussed below, Wachovia's motion is GRANTED.


On or about November 16, 2006, Plaintiff obtained a loan in the amount of $540,000 from World Savings Bank, FSB (which changed its name in December, 2007, to Wachovia Mortgage, FSB (Def.'s RJN, Ex. 2)). The purpose of the loan was to refinance Plaintiff's home located at 993 Via Sinuoso, Chula Vista, CA 91910 (the "Property"). The note was secured by a deed of trust on the Property.

According to the terms of the note, interest was to be paid at the yearly rate of 7.7%. The initial monthly payments were in the amount of $2,064.13. The monthly payment was scheduled to change on January 1, 2008, and every twelve months thereafter, until the 121st month, which would be the final payment change.

Plaintiff alleges that defendant Equity Plus Financial ("Equity"), Plaintiff's mortgage broker, inflated Plaintiff's income on the loan application without the knowledge of Plaintiff. (FAC ¶ 9.) According to Plaintiff, although her average monthly income for 2005 was $2,008.17, Equity stated that Plaintiff's monthly income was $11,000.00. Equity falsely represented to Plaintiff that she was "getting the best and only loan she qualified for." (FAC ¶ 7.) Equity and World Savings Bank did not ask for proof of Plaintiff's stated income because it would be evidence that Plaintiff was not qualified for the loan. (FAC ¶ 9.) Plaintiff further alleges that Equity did not explain the loan's features to Plaintiff before Plaintiff agreed to the loan. (FAC ¶ 10.)

Plaintiff claims that she qualified for the loan with a DTI ratio of 36/50, which "exceeds the maximum allowed DTI ratio per all usual and customary underwriting guidelines for ALTA and/or subprime lending." (FAC ¶ 16.) Plaintiff also claims that the DTI was incorrectly calculated by using the lowest payment on the loan instead of the highest payment. (FAC ¶ 12.)

Additionally, Plaintiff alleges that World Savings Bank paid Equity a broker's fee of $11,528 and a yield-spread premium of $5,400, "which was excessive, not justified, or disclosed to the Plaintiff." (FAC ¶ 17.) Plaintiff also alleges that an audit "showed that an accurate Good Faith Estimate, Truth in Lending and RESPA disclosures were not provided to the Plaintiff." (Id.)

On or about August 5, 2009, Plaintiff sent a letter of rescission to Wachovia. (FAC ¶ 20.)

Plaintiff's FAC asserts the following claims: (1) intentional misrepresentation; (2) fraudulent concealment; (3) breach of fiduciary duty (against Equity only); (4) constructive fraud (against Equity only); (5) violation of RESPA, 12 U.S.C. § 2607; (6) quiet title; (7) violation of TILA; and (8) violation of RESPA, 12 U.S.C. § 2605, and accounting.


A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted only where a plaintiff's complaint lacks a "cognizable legal theory" or sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). When reviewing a motion to dismiss, the allegations of material fact in plaintiff's complaint are taken as true and construed in the light most favorable to the plaintiff. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Although detailed factual allegations are not required, factual allegations "must be enough to raise a right to relief above the speculative level." Bell Atlantic v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965 (2007). "A plaintiff's obligation to prove the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not show[n] that the pleader is entitled to relief." Ashcroft v. Iqbal, __ U.S. __, 129 S,Ct. 1937, 1950 (2009) (internal quotation marks omitted).


Wachovia moves to dismiss Plaintiff's claims against it for failure to state a claim. As discussed below, the Court agrees that Plaintiff's claims against Wachovia are deficient.

A. Intentional Misrepresentation, Fraudulent Concealment, and Quiet Title Causes of Action

Plaintiff's state claims against Wachovia fail to state a claim because they are preempted by the Home Owners' Loan Act of 1933 ("HOLA"), 12 U.S.C. § 1641, et seq., and the regulations issued thereunder by the Office of Thrift Supervision ("OTS").

Through HOLA, "OTS . . . occupies the entire field of lending regulation for federal savings association." 12 C.F.R. § 560.2(a). Section 560.2(b) lists specific types of state laws that are preempted, including:

[S]tate laws purporting to impose requirements regarding:

(4) The terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan; . . .

(5) Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees; . . .

(9) Disclosure and advertising, including laws requirement specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring ...

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