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WARBURTON v. FOXTONS

June 13, 2005.

JOSEPH B. WARBURTON and EMMA M. WARBURTON, Individually and on Behalf of a Class of Similarly Situated Individuals Plaintiffs,
v.
FOXTONS, INC., FOXTONS NORTH AMERICA, INC., FOXTONS FINANCIAL, INC., FOXTONS REALTOR, WORLDWIDE FINANCIAL RESOURCES, INC., NEW CENTURY MORTGAGE CORP., COMPANY X, Y, Z, JOHN DOES 1-10 Defendants.



The opinion of the court was delivered by: FREDA WOLFSON, Magistrate Judge

OPINION

Presently before the Court are three separate Motions to Dismiss Plaintiffs' Class Action Complaint*fn1 pursuant to Fed.R.Civ.P. 12(b)(6), filed by Defendants Foxtons Inc., Foxtons North America, Inc., Foxtons Financial, Inc., and Foxtons Realtor ("Foxtons Defendants"); Defendants New Century Financial Corporation and New Century Mortgage Corporation ("New Century Defendants"); and Worldwide Financial Resources, Inc. ("Financial Resources"). Plaintiffs' Class Action Complaint alleges violations of the Real Estate Settlement Procedures Act ("RESPA"); the Truth in Lending Act ("TILA"); the New Jersey Consumer Fraud Act ("CFA"); the New Jersey Real Estate Sales Full Disclosure Act ("RESFDA"); breach of contract; breach of the covenant of good faith and fair dealing; and unjust enrichment. The Court has jurisdiction over Counts I and II pursuant to 28 U.S.C. § 1331, and over the remaining claims pursuant to 28 U.S.C. § 1367(a). Plaintiffs do not contest dismissal of (1) its RESPA claim arising under 12 U.S.C. § 2604; or (2) its TILA claim based upon the failure to provide a Notice of Rescission pursuant to 15 U.S.C. § 1635, but oppose dismissal of the remainder of their RESPA and TILA claims. As such, the Court will dismiss Plaintiffs' claims pursuant to 12 U.S.C. § 2604 and 15 U.S.C. § 1635 as unopposed. For the reasons stated herein, the Court also will dismiss the remainder of Plaintiffs' RESPA and TILA claims, with a right to amend. The Court will further deny without prejudice Defendants' Motions to Dismiss the state law claims, since I decline to exercise supplemental jurisdiction over Plaintiffs' state law claims pursuant to 28 U.S.C. § 1367(c) unless Plaintiffs amend their Complaint to state viable federal claims. I. BACKGROUND

  Defendant Foxtons Realtor, a division of Foxtons North America, is a residential real estate brokerage firm that conducts business in New Jersey. Complaint ("Compl.") at ¶¶ 10-12. On March 16, 2003, Plaintiff Emma Warburton called Foxtons requesting to see a house listed with Foxtons in Sewell, New Jersey ("the property"). Id. at ¶ 27. Foxtons told Ms. Warburton that in order to see the property, she was required to be pre-qualified for a mortgage. Id. at ¶ 28. Ms. Warburton was not informed at that time that she would be able to be pre-qualified by another lender, or that the Foxtons prequalification process would cost $199.00. Id. at ¶¶ 31-32.

  Foxtons then transferred Ms. Warburton to a loan officer from Foxtons Financial, Inc., a mortgage brokerage firm that is a wholly owned subsidiary of Foxtons North America, who took her application over the phone and told her that he would call her back to let her know whether she was prequalified. Id. at ¶¶ 12, 29. About one hour later, the financial loan officer called Ms. Warburton to tell her that she was approved for a conventional fixed-rate mortgage at a rate of 5.875%, and that she would have to pay the $199.00 application fee to complete the process. Id. at ¶ 32.

  Although Plaintiffs did not pay the application fee at that time, they were permitted to view the property on March 19, 2003. Id. at ¶ 34. On March 20, 2003, Plaintiffs contacted Foxtons to place a bid on the property, but were told that their bid would not be accepted until they paid the application fee. Id. at ¶ 35-36. Ms. Warburton provided Foxtons Financial with a credit card number to pay the fee at that time, and provided all of the documents required by Foxtons Financial on March 24, 2003. Id. at ¶ 37-38. On March 25, 2003, Plaintiffs received a letter from Foxtons Financial, dated March 24, 2003, stating that they had been had been approved for a mortgage in the amount of $340,000.00. Id. at ¶ 39 and Exh. 1 to Foxton Defendants' Motion to Dismiss. The Plaintiffs also received the Contract of Sale on March 25, 2003, which they executed and faxed to Foxtons' closing coordinator. Compl. at ¶ 40. The seller completed the contract on March 29, 2003; on March 30, 2003, Plaintiffs gave Foxtons a $5,000.00 deposit, and received a copy of the fully executed contract. Id. at ¶ 41.

  On March 26, 2003, Plaintiffs requested a first mortgage for 80% and a second mortgage (a line of credit) for 10%, instead of the $340,000 loan referenced in the March 24 letter. Id. at ¶ 42. Plaintiffs then scheduled a closing date for May 30, 2003. Id. at ¶ 43. Also on March 26, 2003, Plaintiffs received an updated Good Faith Estimate from Foxtons of a 5.875% interest rate on the loan. Id. at ¶ 44.

  On May 19, 2003, Plaintiffs received a call from Foxtons Financial notifying them that Fannie Mae had not accepted their loan, but that Foxtons would get a loan from another lender. Id. at ¶ 47. As such, the Foxtons representative asked for updated pay stubs and bank statements. Id. Plaintiffs allege that until that time, they were unaware that Foxtons was having difficulty obtaining a lender for the mortgage. Id. at ¶ 46.

  Foxtons called Plaintiffs on May 21, 2003 to tell them that their loan had not yet been accepted, but was able to tell them on May 25, 2003 that they had finally located a lender. Id. at ¶¶ 48, 49. On May 27, 2003, Plaintiffs received a telephone call from a representative of Defendant Worldwide Financial Resources ("Financial Resources"), who told them that they were not able to provide the loan at a fixed rate of 5.875%. Id. at ¶ 50. The Financial Resources representative told Plaintiffs that because of the number of inquiries on their credit, the best rate that they could offer was a 2-year Adjustable Rate Mortgage at a rate of 8.75%, and that he needed updated financial information. Id.

  On May 30, 2003, Plaintiffs closed on their mortgage loan with New Century Mortgage Corporation, the approving lender. HUD-1 Settlement Statement attached as Foxtons Defendants Exh. 3 and Plaintiffs Exh. 2 ("HUD-1"). According to the HUD-1, among the "Items Payable in Connection with Loan," were a $500.00 application fee and a 2% yield spread premium paid by New Century to Financial Resources. Id. at 2.

  Plaintiffs argue that the Foxtons Defendants real estate marketing and loan brokering practices were "unscrupulous," and that Plaintiffs and other members of the class were victimized through a scheme that ties real estate services with loan financing services to enhance profits. They argue that by failing to disclose fees, Foxtons makes itself more attractive to homebuyers, and put itself in a position to gain a commission that it might not have earned had the homebuyers been aware of these additional fees, in particular, the $199.00 prequalification fee, the $500.00 application fee, and the alleged commission paid in the form of a yield spread premium from the mortgage lender.

  Plaintiffs also allege that Foxtons encourages home buyers to utilize their in-house financial services by immediately transferring potential buyers to Foxtons Financial, which takes a loan application over the telephone. Compl. at ¶ 24. Foxtons allegedly neither informs potential buyers that it is affiliated with Foxtons Financial, nor advises them of their ability to obtain prequalification from another lender. Id. Plaintiffs maintain that Foxtons offers consumers mortgage loans at interest rates that Foxtons agrees to honor upon receipt of certain documents, but fails to take the actions necessary to provide the loans at the rates and terms disclosed. Id. at ¶ 25.

  Plaintiffs also argue that when Foxtons is unable to fulfill the promises that it allegedly made to induce the sale and market its loan brokering services, it will pass off potential homebuyers to other brokers and lenders, for which it receives a commission in the form of a yield spread fee. Id. at ¶ 26. When it does so, Foxtons benefits from lenders offering higher mortgage rates, because it receives a percentage of the loan as commission. Id. at ¶ 7. Homebuyers are allegedly not notified of the switch to a higher interest rate loan until days prior to closing. Id. at ¶ 6. With respect to the non-Foxtons Defendants, Plaintiffs allege that the "in processing Plaintiffs' loans, the non-Foxtons defendants failed to comply with disclosure laws to the detriment of the Plaintiffs," and generally engaged in fraudulent and deceptive practices. Id. at ¶ 8; Plaintiffs' Opposition Brief ("Pl. Opp. Br.") at 1.

  II. DISCUSSION

  A. Motion to Dismiss ...


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