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Rosenberg v. Washington Mutual Bank

March 22, 2004

JEFFREY M. ROSENBERG AND JONI L. ROSENBERG, PLAINTIFFS-APPELLANTS,
v.
WASHINGTON MUTUAL BANK, FA AND WASHINGTON MUTUAL, INC., DEFENDANTS-RESPONDENTS.



On appeal from the Superior Court of New Jersey, Civil Division, Burlington County, Docket No. BUR-L-00314-03.

Before Judges Conley, Wecker and Weissbard.

The opinion of the court was delivered by: Conley, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 10, 2004

In May 2000, plaintiffs obtained a thirty-year, $225,000 loan from defendant Washington Mutual Bank, FA (WMBFA), which they used to buy a vacation home. They agreed to a type of adjustable rate mortgage (ARM) which offers several different types of payment options. At some point they stopped making payments and, in January 2003, filed a Superior Court, Law Division action against WMBFA and defendant Washington Mutual, Inc. (WM). The complaint seeks injunctive relief and damages for alleged consumer fraud violations and breach of contract.

The crux of their complaint is that the billing statements, sent to them by WMBFA*fn1, are deceptive. Specifically, as characterized in their appellate brief:

the Complaint does not allege that [WMBFA] is not entitled to charge interest on a mortgage, nor does it allege that [WMBFA] is not entitled to account for negative amortization on a loan, let alone be prohibited from collecting deferred interest or increased principal from its customers. Rather, the Complaint takes issue with the manner in which [WMBFA] advises its customers of the amount due each month and the effect such a monthly payment will have on [WMBFA's] New Jersey customers, including Plaintiffs. The Complaint further alleges that [WMBFA's] Monthly Loan Statement is deceptive in the manner it is presented to Plaintiffs and the class.

The focus of their state law claims, then, is upon WMBFA's billing disclosures, or alleged lack thereof. Concluding that federal law preempted these claims, the trial judge granted defendants' motion to dismiss. Although the parties engage in a discussion of a plethora of federal and other state law, we think it plain that the precise focus of plaintiffs' claims, i.e., WMBFA's billing disclosures, has been expressly preempted. Even if not preempted, we see nothing deceptive, inaccurate or fraudulent in the billing statements to support consumer fraud or breach of contract claims. Accordingly, we affirm.

Plaintiffs' complaints are occasioned by the type of interest and loan repayment plan they agreed to. Although the principal amount of the loan was $225,000, plaintiffs were advised in large, bold print, in the"Adjustable Rate Rider" (ARR) that was incorporated into the mortgage and signed by them, that:

THIS RIDER CONTAINS PROVISIONS ALLOWING FOR CHANGES IN MY INTEREST RATE AND MY MONTHLY PAYMENT. MY MONTHLY PAYMENT INCREASES WILL HAVE LIMITS WHICH COULD RESULT IN THE PRINCIPAL AMOUNT I MUST REPAY BEING LARGER THAN THE AMOUNT I ORIGINALLY BORROWED, BUT NOT MORE THAN 125% OF THE ORIGINAL AMOUNT (OR $281,250.00). MY INTEREST RATE CAN NEVER EXCEED THE LIMIT STATED IN THE NOTE AND RIDER. A BALLOON PAYMENT MAY BE DUE AT MATURITY.

The ARR explains that the interest rate is tied to an index. The index is the twelve-month average"of the annual yields on actively traded United States Securities" and is compiled by the Federal Reserve Board. Each month, WMBFA adds 2.75% to the index and that total is plaintiffs' interest rate until the next month, when the calculation is redone and a new rate is determined. The ARR also contains a"cap" provision, which provides that that maximum possible interest rate under this system is 11.5%.

Changes to the actual monthly payment, however, occur on a different schedule. According to the ARR, under most circumstances the monthly payment will remain within 7.5% above or below the previous monthly payment. Because of this limit, the ARR recognizes that plaintiffs'"monthly payment could be less or greater than the amount of the interest portion of the monthly payment that would be sufficient to repay the unpaid principal... owe[d] at the monthly payment date in full on the maturity date in substantially equal payments." In situations where the payment is less than the recalculated monthly interest, the difference is added to the principal of the loan and accrues interest (Negative Amortization). In cases where the payment is more, the excess payment is applied to reduce the principal (Accelerated Amortization).

This system is subject to further limitations. Should the situation arise where plaintiffs are"underpaying", the additions to principal are capped at 125% of the original principal. In the event that the principal would otherwise exceed 125% of the original principal, plaintiffs would be required to pay a new monthly payment notwithstanding the aforementioned 7.5% rule. This new monthly payment would be"an amount which would be sufficient to repay [the] then unpaid principal in full on the maturity date at my interest rate in effect the month prior to the payment due date in substantially equal payments." The monthly payment calculation is revisited every five years and adjusted without regard to cap limitations.

Each month, WMBFA sent a loan statement to plaintiffs. The complaint includes the February 7, 2002, statement. It plainly shows how the adjustable rate and optional payment plans operate. We reprint that statement ...


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