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Shinn v. Encore Mortgage Services

May 8, 2000

STANLEY SHINN AND CATHERINE SHINN, HUSBAND AND WIFE,
PLAINTIFFS,
V.
ENCORE MORTGAGE SERVICES, INC., AND STERLING HOME MORTGAGE COMPANY,
DEFENDANTS.



The opinion of the court was delivered by: Honorable Joseph E. Irenas

OPINION

IRENAS, District Judge

Presently before the Court is defendant Sterling Home Mortgage Company's motion to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6). For the reasons set forth below, this motion is granted.

I.

The facts in this matter are undisputed. On or about December 10, 1998, plaintiffs borrowed $74,900 from defendant Encore Mortgage Services, Inc. ("Encore") in order to finance the purchase of a residential property in Oaklyn, New Jersey (the "Mortgage Loan"). In connection with the Mortgage Loan, plaintiffs executed and delivered to defendant Encore an Adjustable Rate Note (the "Note") and Mortgage. In addition to providing for a variable rate, the Note included a Prepayment Penalty Addendum, which provided that, in the event the Mortgage Loan is prepaid in full during the first 36 months of the loan term, plaintiffs agreed to pay a prepayment fee calculated in accordance with a specified formula. The Note and Mortgage were later assigned by defendant Encore to defendant Sterling Home Mortgage Company ("Sterling").

On January 25, 1999, approximately 45 days after the closing of the Mortgage Loan, plaintiffs refinanced their mortgage with Champion Mortgage. Plaintiffs then paid to defendant Sterling the entire outstanding balance of the Mortgage Loan together with a prepayment fee in the amount of $4,838.80.

On or about October 12, 1999, plaintiffs filed a complaint with the Superior Court of New Jersey, Law Division, Gloucester County. In Count I of this complaint, plaintiffs alleged that defendants Encore and Sterling violated N.J.S.A. 46:10B-1 et seq. (the "Prepayment Law"), which generally prohibits residential mortgage lenders from charging prepayment fees. In Count II, plaintiffs asserted a claim based on the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-2 and in Count III, plaintiffs sought to certify a class action based on defendants' unlawful action as set forth in Counts I and II.

On or about November 4, 1999, plaintiffs amended their complaint to include a fourth Count, a Federal Truth in Lending Act claim. Subsequently, on December 9, 1999, defendant Encore removed the case to this Court. On or about January 3, 2000, defendant Encore filed an Answer to plaintiffs' Amended Complaint. On March 7, 1999, in lieu of filing an answer to plaintiffs' Amended Complaint, defendant Sterling filed the instant motion to dismiss. This motion was joined by defendant Encore.

In the present motion, Sterling asserts that its contractual right to collect a prepayment fee was not affected by the Prepayment Law. *fn1 Sterling advances three arguments in support of this assertion. First, Sterling argues that the Prepayment Law is preempted by the express provisions of the federal Alternative Mortgage Transactions Parity Act of 1982, 12 U.S.C. § 3801 et seq. ("Parity Act"). Second, Sterling cites to N.J.S.A. 46:10B-9 and argues that the Prepayment Law does not apply to any loan the prepayment of which is governed by any other New Jersey or federal law, and any loan which is made pursuant to any New Jersey or federal law which expressly authorizes interest charges in excess of 6% per year. Sterling states that both New Jersey's civil usury law, N.J.S.A. 31:1-1, and Section 501 of the federal Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C. §1735-7a ("DIDA"), authorize interest charges in excess of 6% per year. Finally, Sterling argues that pursuant to the Prepayment Act, N.J.S.A. 46:10B-3, permits the charging of a prepayment fee on loans that are repaid in full within the first 18 months of the loan term.

II.

Fed. R. Civ. P. 12(b)(6) provides that a court may dismiss a complaint "for failure to state a claim upon which relief can be granted." In considering a Rule 12(b)(6) motion, the court will accept the allegations of the complaint as true. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). Dismissal of claims under Rule 12(b)(6) should be granted only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

Although the court must assume as true all facts alleged, "[i]t is not . . . proper to assume that the [plaintiff] can prove any facts that it has not alleged." Associated Gen. Contractors of Calif., Inc., v. California State Council of Carpenters, 459 U.S. 519, 526 (1983). Also, when "[c]onfronted with [a 12(b)(6)] motion, the court must review the allegations of fact contained in the complaint; for this purpose the court does not consider conclusory recitations of law." Commonwealth of Pennsylvania v. Pepsico, Inc., 836 F.2d 173, 179 (3d Cir. 1988) (emphasis added).

III.

The Prepayment Law, N.J.S.A. 46:10B-2, states that "[p]repayment of a mortgage loan may be made by or on behalf of a mortgagor at any time without penalty." However, Sterling cites another section of the Prepayment Law, N.J.S.A. 46:10B-9, and argues that this section makes section 10B-2 inapplicable to plaintiffs' mortgage loan. N.J.S.A. 46:10B-9 provides that: This Act shall not apply to loans secured by a mortgage on real property the prepayment of which is governed by any other statute of this state or of the United States, nor shall it apply to any loans secured by mortgage on ...


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