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Ciccone v. World Savings Bank, F.S.B.

United States District Court, Third Circuit

May 15, 2013

CYNTHIA CICCONE et al., Plaintiffs,
v.
WORLD SAVINGS BANK, F.S.B., WACHOVIA CORP., WACHOVIA MORTGAGE, WACHOVIA BANK, WELLS FARGO BANK, JOHN DOES 1-10 (fictitious), and ABC Corp. No. 1-10 (fictitious), Defendants.

MEMORANDUM DECISION & ORDER

PETER G. SHERIDAN, District Judge.

Presently before the Court is a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) brought by Wells Fargo Bank, N.A. ("Wells Fargo") on behalf of itself and World Savings Bank, FSB ("World Savings"), Wachovia Corp. ("Wachovia"), Wachovia Bank, and Wachovia Mortgage (collectively referred to as "Defendants"). Defendants seek to dismiss Plaintiffs Clare and Cynthia Ciccone's (collectively referred to as "Plaintiffs") complaint stemming from a home mortgage transaction between Plaintiffs and Defendants. Defendants argue that Plaintiffs have failed to state any claims for which relief may be granted. For the reasons that follow, the Court grants Defendants' motion and dismisses the case with prejudice.

I. BACKGROUND

Plaintiffs' complaint (the "Complaint")[1] generally alleges that Defendants defrauded Plaintiffs by making misrepresentations and material omissions concerning a mortgage loan from Defendant World Savings to Plaintiff Clare Ciccone. Along with World Savings, the Complaint names as Defendants Wells Fargo, which is the successor in interest to World Savings, [2] and a number of other entities alleged to be Wells Fargo: Wachovia, Wachovia Bank, and Wachovia Mortgage.[3]

According to the Complaint, Cynthia Ciccone purchased a home located at 12 Mine Brook Road, Colts Neck, New Jersey in 1996 without a mortgage ("the Property"). Cynthia Ciccone's name is listed on the Property's deed of title along with the names Sheri Bethune and Clare Ciccone. This was Clare Ciccone's secondary residence. On September 7, 2007, Clare Ciccone obtained a $350, 000 loan from World Savings ("the Loan"), and signed a promissory note ("the Note") promising to repay. See Note, Kim Certif. Ex. B. That same day, both Plaintiffs, along with Sherri Ciccone-Bethune and Theodore Bethune, executed a mortgage ("the Mortgage") against the Property, which granted the lender World Savings rights in the Property tied to the promises in the Note. See Mortgage, Kim Certif. Ex. C. Defendant Wells Fargo later acquired the Loan and Mortgage, and defendant Wachovia Mortgage serviced the Loan. The Loan and Mortgage are the subject of the current dispute.

At the time the Loan was made, the Property was valued at $1, 900, 000. See Complaint § 46; Loan Application, Kim Certif. Ex. A. The Property was originally purchased without a mortgage, but Clare Ciccone and Sheri Bethune had obtained at least one home equity loan from Wachovia for $80, 000 in 2005. When the World Savings Loan closed in 2007, disbursements of $80, 318 and $147, 411 were made to Wachovia to pay off the existing home equity loan and other debt.[4] In total, the disbursements to Wachovia and other creditors including Visa, American Express, Bank of America, and Citi, amounted to $326, 140.29. There was also a cash disbursement made to Plaintiff Clare Ciccone of $16, 589. HUD-1 Settlement Statement, Kim Certif. Ex. D. The total settlement charges were $7, 270.

The Loan, which World Savings called a "Pick-A-Payment" loan, [5] is what is sometimes referred to as an Option ARM loan. The Complaint alleges that generally under these types of loans borrowers are allowed to make only minimum payments each month if they choose. Making only the minimum payments, however - at least for a period of time early on in the life of the loan when the minimum allowable payments amount to less than the interest due - results in negative amortization, i.e., a situation where unpaid interest is added to the principal. The minimum payments increase over time, sometimes drastically, so as to eventually cover both principal and interest, including the additional principal that accrued over the first several years. According to the Complaint, the minimum payments over the first four years of the Loan would total $76, 690, while the accrued interest would total $110, 950; thus, after the first four years the principal would rise from $350, 000 to $384, 260. Although the exact payments may have been subject to change because of the flexible nature of the Loan, a payment schedule that assumes only minimum payments are made would be roughly as follows:

Plaintiff's Default

The Complaint states that after four years of making loan payments, Clare Ciccone could not afford the higher minimum monthly payments. Ciccone failed to make the payment due on February 1, 2011, and the loan went into default. Wachovia would not accept Clare Ciccone's offer of payments below the minimum. On March 23, 2011, Wachovia sent Ciccone a letter stating that its records indicated that Ciccone had failed to make the previous two mortgage payments, and that the Loan was in default. Wachovia informed Ciccone that if she did not pay $7, 837.99 by April 27, 2011, the lender would refer the account to an attorney to begin foreclosure proceedings. Plaintiffs did not cure the alleged default, and then filed an action on January 30, 2012 in the Superior Court of New Jersey, Law Division, Monmouth County. No foreclosure proceedings were ever initiated. See Order Vacating Order to Show Cause, dkt. entry no. 16. Then, on June 13, 2012, Plaintiff Cynthia Ciccone paid off the loan by borrowing $470, 000 at a 4% interest rate with no points, thus avoiding the threatened foreclosure.

Plaintiffs' Allegations

The Complaint generally alleges that through misstatements, omissions, and falsification of the Loan Application, Defendants induced Clare Ciccone to enter into the Loan and both Plaintiffs to sign the Mortgage, which were on bad or unfair terms for Plaintiffs but beneficial to Defendants. Defendants allegedly had knowledge through the loan application process that Clare Ciccone could not pay the mortgage after the first four years because the payments would be too high as compared to her liabilities and income. The Complaint also alleges that Defendants knew they would obtain all of the equity in the property when Clare Ciccone eventually defaulted on the Loan and Defendants foreclosed. And the Complaint alleges that Defendants benefited from the arrangement because under generally accepted accounting principals the entire interest payment due could be booked as income even when only the minimum amount was paid, which "generate[s] phantom profits, thereby boosting the stock price." § 50.

Alleged Falsification of the Loan Application

The claims in the Complaint generally center on the loan application and closing process, particularly on what was allegedly said - and not said - to Plaintiffs about the terms of the loan. There is also an allegation that a World Savings employee falsified a portion of the loan application. The Complaint states that World Savings "took the loan application" from Clare Ciccone by telephone on or about August 1, 2007. Complaint § 27. However, it is undisputed that the only loan application that Clare Ciccone ever signed was dated September 6, 2007. See Uniform Residential Loan/Equity Line of Credit Application, Kim Certif. Ex. A. The Complaint alleges that on the August 1, 2007 call, Clare Ciccone informed Paul Helmandollar, the World Savings employee she spoke with, that her then-present liabilities totaled $630, 820. However, the Complaint alleges that "Hermandollar only identified $4, 500 as Clare Ciccone's total liabilities' on the loan application in order to obtain approval for the loan." Id. § 30.

The loan application that Clare Ciccone signed on September 6, 2007 listed individual liabilities totaling over $630, 000 in a signed addendum, also dated September 6, 2007, which is referred to in the body of the loan application. The field in the loan application where the applicant is supposed to list information about current liabilities, including the name and address of creditors, unpaid balances, and monthly payment amounts, is populated with the words, written in upper-case bold letters: "SEE ADDENDUM". However, beneath the blank fields where information about individual liabilities was meant to be written (which information appears in the addendum), "Total Liabilities" are listed as only $4, 500. Compounding this apparent inaccuracy, Clare Ciccone's "Net Worth" as listed in the application is derived from the apparently inaccurate $4, 500 in liabilities; the "Net Worth" is listed as $2, 732, 500, which is the amount listed as her "Total Assets" - $2, 737, 000 - minus the inaccurate $4, 500 in liabilities. Although this is not specifically alleged in the Complaint, if Ciccone's net worth had been listed using what Plaintiff alleges was the correct amount of total liabilities, the application would have stated $2, 106, 180 as Ciccone's net worth instead of $2, 732, 500.[6]

The Complaint also alleges that "Helmandollar and defendants purposely misidentified this loan as a conventional loan' on the application instead of a negative amortization' loan, " and that they "purposely misidentified this loan as a refinance' in order to obtain approval for the loan." The Loan Application does identify the "Mortgage Applied For" as "Conventional", where the other choices are "VA", "FHA", "USDA", and "Other (explain)". The Loan Application also identifies the "Purpose of the Loan" as "Refinance", where the other choices are "Purchase", "Construction", "Construction-Permanent", "Equity Line of Credit", and "Other (explain)".

At the very top of the Loan Application's first page, directly below the title "Uniform Residential Loan/Equity Line of Credit Application", the application states: "This application is designed to be completed by the applicant(s) with the Lender's assistance." At the end of the application, Clare Ciccone certified that all of the information contained in the loan application was "true and correct as of the date set forth opposite my signature and that any intentional or negligent misrepresentation of this information may result in civil liability, including monetary damages...."

Alleged Misstatements and Omissions Concerning Terms of the Loan

The Complaint alleges that defendants made false statements and omissions to induce Plaintiffs to enter into the loan. In general, the Complaint alleges that by calling the Loan a "Pick-A-Payment" loan, Defendants were suggesting that the borrower could pick their payment amount if they could not afford a higher payment. For example, the Complaint alleges that Hermandollar informed Clare Ciccone on the August 1, 2007 call that "she could continue to request a lower payment (initial minimum payment) that she could afford during the term of the loan." Complaint § 51.

The Complaint also alleges that Defendants did not advise Clare Ciccone of a number of things. Generally, Plaintiffs allege that the Defendants did not advise them that the mortgage payments would increase over time, that accrued interest would exceed payments such that principle would increase, or that the lender had a right to foreclose on the property in the event of default. Defendants also allegedly failed to advise Plaintiff whether the loan would be beneficial to her considering the lower interest Wachovia loans that were paid off at the time of closing.

The documents that are properly before the Court on this motion contain a number of disclosures and other relevant information. The Note that Clare Ciccone signed is titled "Fixed Rate Mortgage Note, Pick-A-Payment Loan." See Kim Certif. Ex. B. Directly below the title, it says, in capital letters but in font the same size as the rest of the text in the document: "THIS NOTE CONTAINS PROVISIONS ALLOWING FOR CHANGES IN MY MONTHLY PAYMENT AND MY UNPAID PRINCIPAL BALANCE." The interest rate of 7.55% is clearly set out on the first page. The Note identifies the "Amount of My Initial Monthly Payments" (emphasis added) as $1, 428.85, and while the Note does not contain a full payment schedule, it proceeds to immediately explain the fact of and the method of calculation of the monthly payment amount changes over time. See § 3. The Note also explicitly limits the unpaid principal balance to 125% or less of $350, 000 (the principal originally borrowed). Finally, the Note states that "[i]n addition to the protections given to the Lender under the Note, the Security Instrument dated the same date as this Note gives the Lender security against which it may proceed if I do not keep the promises which I made in this Note."

The Mortgage, signed by both Plaintiffs Clare and Cynthia Ciccone, along with Sherri Ciccone-Bethune and Theodore Bethune, [7] contains the following statement in bold upper-case letters featured prominently at the top of the first page:

THIS IS A FIRST MORTGAGE WHICH SECURES A NOTE WHICH CONTAINS PROVISIONS ALLOWING FOR CHANGES IN MY PAYMENT AMOUNT AND PRINCIPAL BALANCE (INCLUDING FUTURE ADVANCES AND DEFERRED INTEREST).... THE MAXIMUM AGGREGATE PRINCIPAL BALANCE SECURED BY THIS MORTGAGE IS $437, 500.00 WHICH IS 125% OF THE ORIGINAL PRINCIPAL NOTE AMOUNT.

Mortgage, Kim Certif. Ex. C. By signing the mortgage, Plaintiffs acknowledged receipt of one copy of the Note. See id. § 16. The Mortgage also clearly states that the lender has the right to sell the secured property if there is a "Breach of Duty" by the borrower. "Breach of Duty" as defined by the agreement includes the borrower's failure to pay the full amount of each payment when due, the borrower's failure to perform any promises or agreements under the Note or ...


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