KEVIN J. CAREY, UNITED STATES BANKRUPTCY JUDGE.
Before the Court is the objection by the Trustee for the New Century Liquidating Trust to Janet and Alfonso Longo's (the "Longos") unsecured claim number 3801 in the amount of $2,816,854.62 (the "Claim" or the "Longos' Claim"). The Court held an evidentiary hearing on the merits of the Longos' Claim. Subsequently, the Trustee and the Longos filed post-hearing briefs. For the reasons set forth below, the Trustee's objection will be sustained, in part, and denied, in part. The Longos' Claim will be allowed in the amount of $1,850.00.
On or about September 6, 2006, the Longos received a solicitation by mail offering home mortgage refinancing services.
On September 7, 2006, the Longos received from New Century a loan application packet of documents to execute (the "Packet"). Compl. ¶ 18. The Packet included an itemization of Prepaid Finance Charges, which showed additional charges that surprised the Longos. Compl. ¶ 19. The Longos contacted Mr. Street to inquire about these unexpected charges, and Mr. Street told them that the charges "did not apply to this loan" and that the Longos should disregard them. Compl. ¶ 20, Tr. 83:15-20.
On September 13, 2006, a notary employed by U.S. Certified Signers came to the Longos' home to conduct the closing. Compl. ¶ 23; Ex. T-5 (Longos' Response to Interrogatory No. 1). The Longos stated that the notary was in a hurry and that she rushed them through the closing documents. Compl. ¶ 24-25; Ex. T-5 (Longos' Response to Interrogatory No. 1). She presented the Longos with several documents, including the following, that the Longos did not have time to review: (i) Federal Truth-In-Lending Disclosure Statement (Ex. T-1); (ii) Notice of Right to Cancel (Ex. T-3); (iii) Good Faith Estimate (Ex. T-9); (iv) Adjustable Rate Note (Compl. Ex. H); (v) Mortgage (Ex. T-17); and (vi) Addendum to Escrow Instructions Debts and Disbursements (Ex. T-19). Tr. 111:15-17. The Longos also acknowledge that, at closing, they "did notice that the HUD-1 Settlement Statement listed the fees that mirrored the Good Faith Estimate that Defendant New Century Mortgage had sent them in the loan application packet of documents, and that Mr. Street had advised Plaintiffs to disregard." Compl. ¶ 25; Tr. 83:19-20. After the Longos signed the closing documents, the notary informed them that she did not have copies of the documents to give them and that she had to leave to go to her next closing.
The Longos' loan (the "Loan") consisted of an Adjustable Rate Note in the original principal amount of $365,000 with an original
On September 14, 2006, the Longos called Mr. Street and told him that the notary did not provide them with copies of any of the documents they had signed at closing.
The Longos state that on September 28, 2006, after numerous phone calls, they received copies from New Century of some of the closing documents. Compl. ¶ 33. After contacting various agencies (including the New Jersey Department of Banking) for assistance in obtaining copies of documents, the Longos later received other documents, including their TILA disclosure form and their Loan Application. Compl. ¶ 39. The Longos contend that Mr. Longo's signature on the Loan Application is forged and that the Loan Application inflates their income by more than $2,000 per month. Compl. ¶ 39, Ex. T-20.
On December 28, 2006, the Longos sent a letter to the New Jersey Department of Banking and Insurance complaining of the problems with the Loan and the closing. Ex. T-12. The New Jersey Department of Banking and Insurance, upon investigating the Longos' allegations, found that they were charged twice for the application fee in violation of New Jersey law. N.J. ADMIN. CODE § 3:1-16.2 (2013).
On April 2, 2007, New Century TRS Holdings, Inc. and related entities filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. By order dated June 28, 2007 (the "Bar Date Order"), this Court established August 31, 2007 at 5:00 p.m. (prevailing Pacific Time) as the deadline for filing proofs of claim in the chapter 11 case (the "Bar Date") (D.I. 1721). On July 9, 2007, the Debtors' claims and noticing agent, Xroads Case Management Service LLC (the "Claims Agent"), filed a Declaration of Service, stating that it mailed a copy of the Notice of Bar Date (the "Bar Date Notice") and a proof of claim form substantially similar to Official Form No. 10 to "parties listed on the Master Mailing Matrix as set forth on a list maintained by Debtors' counsel." (D.I. 1861). On August 3, 2007, the Claims Agent filed affidavits of publication stating that it had published the Bar Date Notice in The Wall Street Journal (National Edition) and the Orange County Register on July 23, 2007. (D.I. 2148 and D.I. 2149).
The Longos filed their Claim in the Debtors' bankruptcy case on January 28, 2008. On May 14, 2008, the Debtors filed their Twenty-First Omnibus Objection, seeking to disallow and expunge the Claim. (D.I. 7017). The Longos did not respond to the Claim objection. On July 11, 2008, the Court entered an Order Disallowing and Expunging Certain (A) Amended and Superseded Claims; (B) Late Filed Claims; and (C) No Supporting Documentation Claims (D.I. 8553). The Claim was disallowed and expunged in its entirety.
On December 9, 2008, the Longos filed a letter with the Court requesting that the Court reconsider its order disallowing and expunging the Longo Claim (the "Motion to Reconsider") (D.I. 9229). The New Century Liquidating Trust filed an objection to the Motion to Reconsider on January 13, 2009 (D.I. 9287). The Court granted the Longos' Motion to Reconsider on July 28, 2009 (D.I. 9753).
On November 20, 2009, the Court entered an Order confirming the Modified Second Amended Joint Chapter 11 Plan of Liquidation (the "Modified Plan") (D.I. 9905).
An Evidentiary Hearing concerning the merits of the Claim was held and, thereafter, the Trustee and the Longos each submitted Proposed Findings of Fact and Conclusions of Law (D.I. 10023 and 10049, respectively).
When a claim objection is filed in a bankruptcy case, the burden of proof as to the validity of the claim "rests on different parties at different times." In re Allegheny Int'l, Inc., 954 F.2d 167, 173 (3d Cir. 1992).
Bankruptcy Rule 3001(f) provides that a proof of claim executed and filed in accordance with the rules of procedure, i.e., includes the facts and documents necessary to support the claim, constitutes prima facie evidence of the validity and amount of the claim. Fed. R. Bankr.P. 3001(f). A proof of claim that lacks the supporting documentation required by Rule 3001 does not receive the presumption of prima facie validity. Rather, the claimant maintains the burden of proving its claim by a preponderance of the evidence. See, e.g., In re Kincaid, 388 B.R. 610, 614 (Bankr.E.D.Pa.2008).
Pursuant to Bankruptcy Code Section 502(a), a claim that is properly filed under Rule 3001 and Code section 501 is deemed allowed unless a party in interest objects. 11 U.S.C.A. § 502(a). "The objecting party carries the burden of going forward with evidence in support of its objection which must be of probative force equal to that of the allegations of the creditor's proof of claim." Kincaid, 388 B.R. at 613 citing Allegheny, 954 F.2d at 173-74. If the objecting party succeeds in overcoming the prima facie effect of the proof of claim, the ultimate burden of persuasion then rests on the claimant to prove the validity of the claim by a preponderance of the evidence. Id.
The Longos allege that the Debtors should be liable for the following TILA violations: (1) failure to provide them with proper pre-settlement disclosure of the terms of the mortgage, (2) failure to provide them with copies of any of the documents they signed at closing, and (3) failure to provide them with right of rescission notices at closing.
The Truth in Lending Act ("TILA") was enacted in 1968 and requires clear disclosure of all costs as well as the key terms of lending arrangements to inform consumers of the true cost of credit. 15 U.S.C.A. § 1601 et seq. (2013). TILA is implemented by "Regulation Z." 12 C.F.R. § 226 et seq. (2013). Section 1638(a) of TILA requires creditors to disclose specific items in certain consumer credit transactions, and section 1638(b) sets forth the form and timing requirements of those disclosures.
TILA prescribes different types of damages for violations: section 1640(a)(1) permits recovery of actual damages for TILA violations, while section 1640(a)(2)(A) provides statutory damages for certain specific TILA violations. 15 U.S.C.A. § 1640 (civil liability for TILA
15 U.S.C.A. § 1640(a) (emphasis added). Accordingly, statutory damages (i.e., those provided under section 1640(a)(2)) are available for certain violations of section 1638(a), but not for violations of section 1638(b). The only remedy for a violation of the form and timing requirements of section 1638(b) is actual damages. See, e.g., Baker v. Sunny Chevrolet, Inc., 349 F.3d 862, 871 (6th Cir.2003) (holding that statutory damages are not available for § 1638(b) violations); Warburton v. Foxtons, Inc., No. 04-2474, 2005 WL 1398512, *9 (June 13, 2005 Bankr.D.N.J) (same).
Actual damages are defined as "[a]n amount awarded to a complainant to compensate for a proven injury or loss; damages that repay actual losses." Vallies v. Sky Bank, 591 F.3d 152, 158 (3d Cir.2009) quoting Black's Law Dictionary 445 (9th ed. 2009). To prove actual damages under TILA, a plaintiff must show that "the TILA violation was the proximate cause of any actual damages." Peters v. Jim Lupient Oldsmobile Co., 220 F.3d 915, 917 (8th Cir.2000); see also Vallies v. Sky Bank, 591 F.3d 152, 157 (3d Cir.2009) ("The plain meaning of § 1640(a) requires causation to recover actual damages.")
The Third Circuit Court of Appeals has stated explicitly that a plaintiff must prove detrimental reliance to recover actual damages for a violation of TILA's disclosure requirements. Vallies, 591 F.3d at 157. The Vallies Court held that "[i]n the context of TILA disclosure violations, a creditor's failure to properly disclose must cause actual damages; that is, without detrimental reliance on faulty disclosures (or no disclosure), there is no loss (or actual damage)." In other words, "[t]o recover actual damages, consumers must show that they suffered a loss Id. because they relied on an inaccurate or incomplete disclosure." Id. at 158.
Other courts have described different tests to show causation and detrimental reliance. In Peters, for example, the Eighth Circuit adopted a four-part test to show causation: "a plaintiff must show that (1) he read the TILA disclosure statement, (2) he understood the charges being disclosed; (3) had the disclosure statement been accurate, he would have sought a lower price; and (4) he would have obtained a lower price." Peters, 220 F.3d at 917. The Third Circuit agreed that a plaintiff who can satisfy the Peters causation test would establish detrimental reliance. Vallies, 591 F.3d at 164, n. 19. The Sixth Circuit has decided that a plaintiff may establish detrimental reliance by demonstrating that he or she would have
The record before me demonstrates that New Century provided the Longos with a pre-settlement "Federal Truth-in-Lending Disclosure Statement" dated September 7, 2006 disclosing the items required by section 1638(a) including, among other things, the Amount Financed, Finance Charge, Annual Percentage Rate and Total of Payments. Ex. T-6. When the Longos questioned the broker about the "extremely high" fees, the broker told them to disregard the pre-settlement disclosures from New Century, claiming they were sent in error. Tr. 83:15-20, Ex. T-5 (Longos' Response to Interrogatory No. 1). As Mr. Street was not an agent of New Century, New Century is not responsible for his alleged actions.
Even if I assume — without deciding — that New Century did not provide all pre-settlement disclosures required by TILA, the Longos failed to prove any actual damages caused by New Century's alleged pre-settlement disclosure violations.
The last TILA violation alleged by the Longos is a failure to provide them at closing with notices advising of their right to rescind the Loan. TILA provides a borrower with a right to rescind the transaction and requires the creditor to provide the borrower with clear and conspicuous notice of this right. 15 U.S.C.A. § 1635(a).
"When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge." 12 C.F.R. § 226.23(d)(1). After the creditor receives a notice of rescission, the creditor must return to the consumer any money or property (such as earnest money, down payment or otherwise) given by anyone in connection with the transaction and take any action necessary to reflect termination of the security interest; then the consumer must tender to the creditor the money, property, or the property's reasonable value. 15 U.S.C.A. § 1635(b), Mitchell v. EMC Mortg. Corp., CV-09-1362-PHX-NVW, 2009 WL 3274407, *6 (D.Ariz. Oct. 13, 2009) (citing 12 C.F.R. § 226.23(d)).
The Longos' signed Notice of Right to Cancel states that they may rescind the Loan within three business days from the last to occur of the following events: the date of the transaction, the date they received the TILA disclosures, or the date they received the notice of right to cancel. Ex. T-3. Based on the record before me, the Longos have rebutted the presumption of delivery (15 U.S.C.A. § 1635(c)), but it is unclear when the Longos finally received copies of the notice of right to cancel. Pursuant to 12 C.F.R. § 226.23(a)(3), if copies of the notice were not delivered, the right to rescind ended three years after the date of consummation of the Loan, on September 13, 2009.
The Longos admit that a representative of First National Mortgage Sources, LLC asked whether they would like to rescind the Loan during a telephone conversation on or about September 22, 2006, but they declined. Ex. T-4. In a letter to the Ocean County Department of Consumer Affairs dated November 1, 2006, Mrs. Longo wrote that Charles Day of First National Mortgage Sources, LLC said that "if we
However, the Longos are entitled to statutory damages for violation of the TILA provision requiring a borrower to receive clear and conspicuous notice of the right to rescind. See 15 U.S.C.A. § 1640(a)(2)(A) (allowing statutory remedies for failure to comply with § 1635). Pursuant to 15 U.S.C.A. § 1640(a)(2)(A)(iv), the Court has discretion to grant statutory damages or not less than $400.00 or greater than $4,000.00. This record reflects that Nick Street (and the notary he hired) failed to provide copies of the Notice of Right to Cancel to the Longos at closing, although the Longos signed the form acknowledging receipt. Ex. T-3. It was not apparent to New Century on the face of the Loan documents that the Longos did not receive copies of the Notice of Right to Cancel. Accordingly, 1 will add statutory damages to the Longos' claim against New Century in the amount of $1,000.00. See Merriman v. Beneficial Mortgage Co. of Kansas, Inc. (In re Merriman), 329 B.R. 710, 716 (D.Kan.2005), Bell v. Parkway Mortgage, Inc. (In re Bell), 309 B.R. 139, 168 (Bankr. E.D.Pa.2004) reconsidered in part 314 B.R. 54 (Bankr.E.D.Pa.2004).
In sum, the Longos received proper pre-settlement TILA disclosures from New Century. Although they did not receive copies of the disclosures at the Loan closing, in violation of the form and timing requirements of TILA § 1638(b), the sole remedy for this violation is actual damages, which the Longos have failed to establish. Failure to provide copies of the notice of right to cancel is a violation of TILA § 1635(a), and the Longos are entitled to statutory damages in the amount of $1,000.00 for the lender's failure to comply.
HOEPA, 15 U.S.C.A. § 1639, is an amendment to TILA that created a special class of regulated loans characterized by higher interest rates, costs, or fees, "that requires lenders to make additional disclosures beyond those that are required by TILA for certain high cost mortgages." Bell, 309 B.R. at 149. Regulation Z provides that a high-cost loan is one with respect to which:
12 C.F.R. § 226.32 (West 2013).
The Longos allege that New Century failed to provide them with additional disclosures required for a loan covered by
The Longos allege that New Century violated RESPA by (1) receiving unreasonable and excessive compensation for its services; (2) failing to disclose the closing costs; and (3) forging the Longos' signatures on the HUD-1 Settlement Statement, which inaccurately stated the actual costs of the Loan. Compl. ¶ 59. The record contains no evidence to support the Longos' first allegation that New Century received unreasonable and excessive compensation.
RESPA requires disclosures related to closing costs for certain loans. RESPA was enacted to ensure that consumers receive information on the "nature and costs of the settlement process" and to protect consumers from unreasonably costly settlements by eliminating kickbacks and referral fees. See 12 U.S.C.A. § 2601. "RESPA requires that borrowers receive certain disclosures explaining the costs associated with settlement and describing lender services and escrow account practices." Nelson v. JPMorgan Chase Bank, N.A., 707 F.Supp.2d 309, 315 (E.D.N.Y. 2009) citing (in part) 12 U.S.C. §§ 2603, 2604; see also 24 C.F.R. § 3500.7. "RESPA further requires that lenders and/or brokers provide a Good Faith Estimate ("GFE") of settlement costs and fees in connection with mortgage loans and home equity credit lines." Nelson, 707 F.Supp.2d at 315-16. See 12 U.S.C.A. §§ 2603, 2604; 24 C.F.R. §§ 3500.7 (Good Faith Estimate), 3500.8 (HUD-1 Settlement Statements).
The record demonstrates that the Longos received numerous GFE disclosures shortly after they applied for the Loan and at closing.
Moreover, even assuming — without deciding — that the numerous disclosures were improper, the decisional law is clear that there is no private right of action for violations of RESPA's disclosure provisions. 12 U.S.C.A. §§ 2603-2604 (governing settlement statements and GFEs), or any related regulations.
The Longos also allege that New Century violated RESPA by forging their signatures on the HUD-1 Settlement Statement prepared for the Loan closing. However, the HUD-1 Settlement Statements provided by both the Longos and the Trustee (see Compl. Ex. F, Compl. Ex. L and Ex. T-10) do not contain any signatures, forged or otherwise. Based upon this record, I cannot conclude that the Longos can pursue a claim under RESPA against New Century.
The Longos allege that New Century Mortgage gave them a high-cost home loan and failed to provide them with the mandatory "Notice to Borrower" in violation of the New Jersey Home Ownership Security Act of 2002 ("HOSA"). HOSA is New Jersey's corollary to HOEPA and, like HOEPA, requires additional disclosures for high-cost home loans. See N.J. Stat. Ann. § 46:10B-22 et seq.
The record before me demonstrates that the Longos' Loan is not subject to the provisions of HOSA because their Loan does not qualify as a "high cost home loan," which the statute defines as:
N.J. STAT. ANN. § 46:10B-24. Pursuant to this definition, the "threshold" analysis only applies to loans with a principal amount of $350,000.00 (as adjusted) or less.
The Longos also allege that New Century violated the New Jersey Consumer Fraud Act ("CFA"), enacted to protect consumers from deception and fraud. N.J. Stat. Ann. § 56:8-1 et seq.
Cox v. Sears Roebuck & Co., 138 N.J. 2, 17, 647 A.2d 454, 462 (1994) (internal citations omitted, emphasis in original). To state a claim under the CFA, the Longos must show 1) unlawful conduct by New Century; 2) an ascertainable loss by the Longos; and 3) a causal relationship between New Century's unlawful conduct and the Longos' ascertainable loss. See,
The Longos argue that their ascertainable loss or injury is that they were fraudulently induced to enter into a loan that they could not afford due to the Loan's excessive fees and the lender's failure to pay off all of their other consumer debts. Tr. 110:9-13. The Longos have alleged that New Century "engaged in unconscionable commercial practice and material misrepresentation" of the Loan and "knew through its receipt of the Longos' income documentation that the Longos could not afford a loan in the amount of $365,000.00," Compl. ¶ 89. They further allege that New Century "employed fraudulent methods to lure the Longos into proceeding forward with the Loan." Id. Lastly, the Longos claim that New Century "willfully failed to provide [them] with any disclosure documents prior to closing, and deliberately withheld the Longos' closing documents after the closing, thereby not giving the Longos the right to rescind this loan." Id.
The Longos argue that New Century improperly considered an inflated income amount for the Longos that enabled the Longos to qualify for the Loan, which they could not afford. Compare The Underwriter's Income Analysis (Ex. T-22) with documentation to support the Longos' monthly income. (Ex. T-23). In Dixon-Ford v. U.S. Bank, N.A. (In re Dixon-Ford), No. 10-01772, 2011 WL 6749083 (Bankr.D.N.J. Dec. 21, 2011), the Court decided that:
Dixon-Ford, 2011 WL 6749083, *7 (internal citations and quotation marks omitted). In Dixon-Ford, the borrower provided the lender with documentation that she was employed as a telephone services representative and earned $45,000.00 annually; however, the lender prepared a loan application indicating that the borrower was employed as the "vice president" and earned $11,900.00 monthly ($142,800.00 annually). Id. at *2. The lender also had two "verification of employment" forms: one correctly stating the borrower's income and position, and one that had been altered. Id. The lender sought summary judgment, arguing that the borrower could not have relied on a misstatement of her own financial information and that, in any event, the borrower signed the mortgage documents and was jointly responsible for any misrepresentations. Id. at *1. The Dixon-Ford Court denied summary judgment, noting that the lender's act of "materially" and "grossly" misstating the borrower's income, together with an altered employment verification form, could be enough to violate the CFA, especially "in light of the Act's broad application and remedial purpose." Id. at *7. The Dixon-Ford Court pointed out that, unlike claims of common law fraud, "the CFA excuses the victim of a fraud from the burden of showing reliance thereon, instead requiring only proof of a causal nexus between the act or omission and the loss." Dixon-Ford, 2011 WL 6749083 at *6 (internal punctuation and citation omitted).
I must determine whether adjustment of the Longos' income in the underwriter's analysis constitutes an "unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation" under the definition of the CFA that, regardless of intent, could mislead and cause injury to a borrower. In other words, is the adjusted income similar to the gross misstatements of Dixon-Ford or more like the miscalculation of Jatras? The documentation provided by the Longos to New Century showed monthly income of $5,155.00, while the underwriter's analysis listed their monthly income as $6,568.00.
At bottom, New Century's adjustment of the Longos' income is much closer to the facts of Jatras. The increase is not a "gross" or "material" misstatement, but an internal calculation for New Century's own underwriting purposes. The record before me indicates that the adjustment to the Longos' income contained in New Century's internal analysis was apparently customary; but, in any event, I cannot conclude that the income adjustment caused any damage to the Longos.
Next, the Longos assert a claim under the CFA based upon alleged misrepresentations about the amount of consumer debts the Loan would pay in full. The Longos claim that Mr. Street reviewed their credit report and said that the Loan would result in consolidating their debts, so they would owe only the Loan, utility bills, and car loan. Ex. T-4; Tr. 46:3-10.
However, the record reflects that New Century disbursed funds sufficient to cover all consumer debts it was directed to pay pursuant to the Loan Application. Ex. T-20. Mr. Street prepared the Loan Application, which included a list of the Longos' debts and "starred" those that were supposed to be paid. Tr. 45:2-13 ("the broker usually gets [the debts] from [the borrowers'] credit report and/or they speak with the borrowers to gather the information. And ... they put a star by all of the debts that are to be paid off").
On this record, I cannot conclude that New Century made any misrepresentations to the Longos about the debts to be paid by the Loan. Moreover, I cannot conclude that New Century's failure to prepare a separate check for one Target credit card in the amount of $1,523.00 is the cause of any injury arising from the Loan.
Taken as a whole, the Longos' remaining CFA claims (along with other claims based on TILA and RESPA, discussed above) allege injuries caused by the misleading or fraudulent acts and statements of Mr. Street, the broker.
"An agency relationship is created `when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents to so act.'" New Jersey Lawyers' Fund for Client Protection v. Stewart
Generally, an agency relationship requires showing actual or apparent authority. Id. Mrs. Longo testified that she believed Mr. Street worked for New Century, as shown by a letter she faxed to "Nick Street, At New Century." Ex. T-13; Tr. 107:24-108:8. However, Ms. Lindsay testified at the Hearing that New Century had two types of relationships with brokers: (1) directly employed brokers, who obtained loans for New Century only, and (2) independent brokers, who were able to submit loan proposals to different lenders. Tr. 44:10-22. Mr. Street was an independent broker. Id. In Morilus v. Countrywide Home Loans, Inc., 651 F.Supp.2d 292 (E.D.Pa.2008), the borrowers argued that the lender and broker had an actual agency relationship because the lender (i) established standard procedures for the broker to follow to do business with the lender; (ii) monitored the broker's work, and (iii) decided to terminate the broker for failing to follow procedures. The Morilus Court disagreed, explaining that "[w]hile control is a key factor in determining whether an agency was intended, it must be of such a high degree that the purported agent is deemed to have had almost no independence." Id. at 300. There is no evidence before me that Mr. Street was required to submit the Longos' Loan to New Century or that New Century controlled any of Mr. Street's actions. The record before me establishes that Mr. Street was not a New Century employee and no actual agency relationship existed between Mr. Street and New Century.
The Longos have asserted repeatedly, however, that they believed Mr. Street was acting on behalf of New Century. Apparent authority exists "when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations." Id. quoting RESTATEMENT (THIRD) OF AGENCY § 2.03 cmt. c. (2006). The doctrine looks to the actions of the principal, not the agent: liability results only when the principal's actions "have misled a third party into believing that a relationship of authority does, in fact, exist." Blaisdell Lumber Co. v. Horton, 242 N.J.Super. 98, 103, 575 A.2d 1386, 1388 (App.Div.1990) (quoting Wilzig v. Sisselman, 209 N.J.Super. 25, 506 A.2d 1238 (App.Div.1986) ("the apparency and appearance of authority must be shown to have been created by the manifestations of the alleged principal, and not alone and solely by proof of those of the supposed agent.").
The party seeking to rely on the apparent authority of a putative agent must establish: (1) that the appearance of authority has been created by the conduct of the alleged principal and it cannot be established alone and solely by proof of [conduct by] the supposed agent; (2) that a third party has relied on the agent's apparent authority to act for a principal; and (3) that the reliance was reasonable under the circumstances. AMB Property, LP v. Penn America Ins. Co., 418 N.J.Super. 441, 454, 14 A.3d 65 (App.Div.2011).
The Morilus Court considered whether an apparent agency relationship existed between the broker and the lender. The Morilus Court noted that the broker had no power to bind the lender since any loan application had to be submitted to the lender's underwriting department for independent approval. Morilus, 651 F.Supp.2d at 301. The borrowers in Morilus claimed they "subjectively believed" the broker was the lender's agent because he was their sole contact regarding the terms of the loan. However, the Court concluded that the borrower had not provided evidence of any action by the lender
Other courts that have examined the apparent agency issue have also determined that a broker/lender relationship alone, without some act by the lender, does not establish apparent agency. See Pezza v. Wells Fargo Bank, N.A., No. 09-2097, 2011 WL 3847248, *5-*6 (D.N.J. Aug. 30, 2011) (Lender was not liable for broker's alleged oral misrepresentation of loan terms at closing when there was no evidence that the broker was the employee or agent of the lender); Rivers v. Credit Suisse Boston Financial Corp., No. 05-6011, 2007 WL 1038567, *6 (D.N.J. March 30, 2007) (Closing agent hired by the borrowers did not represent or implicate the lender through his actions). See also Stewart Title, 1 A.3d at 639-40 (Attorney was not an agent for the title company when the title company made no representation to the borrowers that the attorney had actual or apparent authority to act of its behalf and lacked control over the attorney).
The Longos argue that the original solicitation for the loan, sent by New Century, directed them to contact Nick Street. Tr. at 107:24-108:8. The Longos testified that they discarded the original solicitation. Id. However, the evidence does not demonstrate that the Longos contacted Mr. Street because they had a particular interest in borrowing from New Century.
Considered with the other evidence before me, I cannot conclude that the original solicitation suggested in any way that Mr. Street had authority to act as New Century's agent. Mr. Street worked for First National Mortgage Source LLC, not New Century. Furthermore, the record shows that New Century sent pre-closing disclosure information that was at odds with the information that Mr. Street was providing to the Longos. This indicates that Mr. Street and New Century were not acting in concert. Mr. Street had no authority to approve a loan, hut submitted the Longos' information to New Century and awaited a decision from New Century's underwriting department. Based on this record, I cannot conclude that New Century gave the Longos any indication that Mr. Street could act as its agent, and I cannot conclude that it would be reasonable for the Longos to believe that Mr. Street had authority to act on New Century's behalf.
Accordingly, on the facts before me, New Century has no liability under the CFA. The fraudulent conduct alleged by the Longos was Mr. Street's. Because Mr. Street did not act with express or apparent authority of New Century, there is no agency relationship and New Century is not liable for the fraudulent acts of Mr. Street.
The Longos believe that New Century violated its own internal under-writing policies and procedures and that the Loan, therefore, should not have been funded. Although the Longos have identified several possible irregularities with the procurement of their mortgage, none of the irregularities have statutory remedies.
The Trustee has agreed that the Longos are entitled to an unsecured claim of $850.00. For the reasons set forth above, I have determined that the Longos are entitled to statutory damages of $1,000.00 for a violation of TILA. I have determined that the Trust's objection to the Longos' remaining claims against New Century under HOPEA, RESPA, HOSA and CFA should be sustained. The Longos' claim will be allowed as an unsecured claim in the amount of $1,850.00.
An appropriate Order follows.
N.J. ADMIN. CODE § 3:1-16.2 (2013).
Regulation Z also provides, in relevant part, that "[t]he creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep." 12 C.F.R. § 226.17(a)(1). It also requires the disclosures to be made "before consummation of the transaction." 12 C.F.R. § 226.17(b).
15 U.S.C.A. § 1635(a). See also 12 C.F.R. § 226.23(b)(1).
N.J. STAT. ANN. § 56:8-2.
