Wells Fargo Bank v. Eastham

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No. 103,533

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

WELLS FARGO BANK, N.A., et al.,
Appellees,

v.

PHYLLIS M. EASTHAM, et al.,
Appellants.


SYLLABUS BY THE COURT
A party that obtains through a voluntary assignment the creditor's rights to a
residential mortgage subject to the Truth in Lending Act is not subject to suit for the
original creditor's violations of the Act that were not apparent on the face of the required
disclosure statement. The failure to provide disclosures in a timely manner generally will
not be apparent on the face of the disclosure statement and, on the facts of this case, the
assignee has no liability for violations of the Truth in Lending Act by the original creditor
regarding the timing of required disclosures.

Appeal from Johnson District Court; GERALD T. ELLIOTT, judge. Opinion filed November 19,
2010. Affirmed.

Richard D. Dvorak, of Tomes & Dvorak, Chartered, of Overland Park, for appellants.

Jennifer A. Donnelli and Thomas E. Nanney, of Bryan Cave LLP, of Kansas City, Missouri, for
appellees.

Before MALONE, P.J., CAPLINGER and LEBEN, JJ.


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LEBEN, J.: A few months after purchasing their home, Jason and Phyllis Eastham
stopped making their monthly mortgage payments, and Wells Fargo, which had obtained
rights to their loan and mortgage by assignment, received a foreclosure judgment against
them. The Easthams filed a counterclaim against Wells Fargo seeking to hold Wells
Fargo liable for their initial lender's failure to comply with the Truth in Lending Act's
disclosure requirements. The district court granted summary judgment in Wells Fargo's
favor, and the Easthams have appealed.

But even though the Eastham's initial creditor did violate the Truth in Lending
Act's disclosure requirements, another party who later receives the initial lender's rights
by assignment is not liable for such violations unless they are apparent upon facial
examination of a required document called the disclosure statement. Here, the initial
creditor violated a timing requirement: it didn't give the Easthams the disclosure
statement when it was supposed to. But a timing violation does not fall within the
situations that Congress has deemed to be facially apparent violations—incorrect or
incomplete disclosures or disclosures that don't use the required terms or format—so
Wells Fargo is not liable for the violation.

FACTUAL AND PROCEDURAL BACKGROUND

Jason Eastham borrowed $228,000 from Intervale Mortgage Corporation to buy
the house that he and his wife, Phyllis Eastham, had been renting. The Easthams signed a
mortgage on the property as collateral for the loan. Jason was negotiating interest rates
until the day of closing. At closing, held July 5, 2005, Jason signed a new loan
application with an interest rate that was higher than he had expected so that he could
close that day, which the seller demanded. The loan application included a Truth in

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Lending Act disclosure statement that both he and Phyllis then signed. Shortly after that,
the Easthams signed the mortgage documents.

In October 2005, Jason was hospitalized for a ruptured benign brain tumor; he
suffered a stroke after the surgery that removed the tumor. Soon after that, the Easthams
stopped paying their monthly mortgage payments, and the mortgage went into default.

By then, the loan and mortgage had been assigned to Wells Fargo. Wells Fargo
petitioned for foreclosure in April 2006. The Easthams answered and filed a
counterclaim against Wells Fargo, but the district court entered a judgment of foreclosure
against Jason; the court directed that the counterclaim's allegations proceed to trial.

The counterclaim alleged that Wells Fargo, as Intervale's assignee, engaged in
predatory lending practices and didn't comply with provisions of the Federal Trade
Commission Act, the Truth in Lending Act, the Equal Credit Opportunity Act, and the
Fair Credit Reporting Act. During pretrial discussions, the Easthams refined their
counterclaim into three main contentions: (1) that Wells Fargo is liable for Intervale's
failure to give them the required Truth in Lending Act disclosures sooner than minutes
before closing; (2) that they were forced into the loan and mortgage by the seller's threats
that they wouldn't get the property since he was being foreclosed on; and (3) that they're
entitled to rescind the mortgage because Intervale did not give them the proper notice of
their right to rescind within 3 days.

After the claims were refined, Wells Fargo moved for summary judgment. The
district court granted the motion, concluding that Wells Fargo could not be liable as an
assignee for Intervale's alleged Truth in Lending Act disclosure violations; that Wells
Fargo could not be liable for the seller's alleged duress to get the Easthams to buy the

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property; and that the Easthams waived their right to seek rescission under the Truth in
Lending Act because they brought their rescission claim more than 3 years after closing.
The district court granted the summary judgment motion.

The Easthams appeal and insist that genuine issues of material fact exist to
preclude summary judgment on the alleged violation of the Truth in Lending Act's
disclosure requirements. The Eastham's brief on appeal does not argue the other bases
presented to the district court in support of the counterclaim, so those issues have been
waived. See Kingsley v. Kansas Dept. of Revenue, 288 Kan. 390, 395, 204 P.3d 562
(2009) (issues not briefed are waived). Our review is thus limited to the appropriateness
of summary judgment on the Easthams' claim that Wells Fargo can be held liable for
Truth in Lending Act violations of the original lender, Intervale Mortgage Corp.

STANDARD OF REVIEW
AND ADMITTED FACTS ON APPEAL

Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, admissions on file, and any affidavits show that no genuine issue as to
any material fact exists and that the moving party is entitled to judgment as a matter of
law. Miller v. Westport Ins. Corp., 288 Kan. 27, 32, 200 P.3d 419 (2009). Although the
Easthams contend that factual disputes do exist, the facts relevant to the legal issue before
us—and determinative of this appeal—are undisputed. Wells Fargo asserted in the district
court, based on the Easthams' own testimony, that the Easthams received and signed the
Truth in Lending Act disclosure statement at closing. The Easthams presented no
contrary evidence, and the district court properly found those facts uncontroverted.
Neither party disputes the content of the disclosure document. Because there are no
disputed facts that are important to the legal issue before us, we review the grant of
summary judgment without any required deference to the district court. See Smith v.

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Kansas Gas Service Co., 285 Kan. 33, 39, 169 P.3d 1052 (2007); Davis v. Allstate
Insurance Co., 36 Kan. App. 2d 717, 720, 143 P.3d 413 (2006).

In this case, Wells Fargo is entitled to judgment as a matter of law unless Intervale
violated TILA's disclosure requirements and Wells Fargo is liable for Intervale's actions
as the assignee of the mortgage. We reference the statutory provisions as they existed
when the Easthams closed on their home in July 2005. While some statutory changes
have been made since that time regarding the timing of disclosures, no changes have been
made that relate to whether the failure to comply with the timing rules would be apparent
on the face of the disclosure statement.

ANALYSIS

The Truth in Lending Act requires that the "creditor" make certain disclosures to
the debtor in a covered transaction, 15 U.S.C. § 1631(a) (2006), but these requirements
only apply to the initial lender, not a party to whom the creditor's rights are later
assigned, a party called the assignee. The Truth in Lending Act specifically provides that
the "creditor," which has these disclosure duties, is limited to the person or entity "to
whom the debt arising from the consumer credit transaction is initially payable on the
face of the indebtedness." (Emphasis added.) 15 U.S.C. § 1602(f) (2006).

The Act has a separate provision providing liability for an assignee. So long as the
assignment occurs through a voluntary transaction, the assignee has liability only for
violations that are "apparent on the face of the disclosure statement." 15 U.S.C.
§§ 1641(a), (e)(1)(A) (2006). Our case turns, then, on whether any Truth in Lending Act
violation was apparent on the face of the disclosure statement given to the Easthams at
closing.

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The Easthams contend that it should have been apparent to Wells Fargo that the
disclosure statement wasn't given to the Easthams 3 days before closing; without citation
to any statutory provisions, the Easthams contend that the Act required that the disclosure
statement be given to the Easthams at least 3 days before closing. Since the disclosure
statement was dated the same day as the loan agreement and mortgage, the Easthams
contend that it was obvious from the face of the document that the lender had violated its
disclosure requirements.

The Easthams' argument breaks down when we review the statutory provisions
because there is no requirement in all cases that the final disclosure document be given to
the borrower 3 days before closing. If the requirement doesn't exist in all cases, then a
violation wouldn't be apparent even if the face of the disclosure document suggested that
there might be a violation: an assignee has no "duty to seek out additional information
before it makes its own decision . . . to accept the assignment with the protection afforded
by § 1641(a)." Taylor v. Quality Hyundai, Inc., 150 F.3d 689, 694 (7th Cir. 1998). This is
because Congress has plainly determined through the statutory language that the violation
must be "apparent on the face of the disclosure statement" itself, not something disclosed
only by information determined from the face of the document plus investigation. See
Taylor, 150 F.3d at 694-95.

Congress has made this quite clear by defining what is "apparent on the face of the
disclosure statement." For consumer credit transactions secured by a home mortgage, "a
violation is apparent on the face of the disclosure statement" only if "the disclosure can
be determined to be incomplete or inaccurate by a comparison among the disclosure
statement, any itemization of the amount financed, the note, or any other disclosure of
disbursement" or "the disclosure statement does not use the terms or format required to

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be used by" the Truth in Lending Act. 15 U.S.C. § 1641(e)(2). The Easthams have not
suggested that the disclosure could be determined inaccurate merely by comparison to
other documents; nor have they suggested that the document failed to comply with legal
requirements for its terms or format.

Instead, the Easthams' claim is premised on their assertion that the original lender
had to provide the disclosure statement at least 3 days before the transaction closed. But
that's not a requirement in all transactions covered by the Truth in Lending Act. The
disclosures must be made before the credit is extended and where, as here, the loan is
secured by the debtor's residence, the creditor must also give the debtor good-faith
estimates of the disclosures no later than 3 days after receipt of the credit application. 15
U.S.C. §§ 1638(b)(1), (b)(2) (2006). The final disclosures must be given when the
transaction occurs. 15 U.S.C. § 1638(b)(2). A further disclosure requirement kicks in no
later than 3 days before the transaction only if the interest rate set out in the good-faith
estimate is no longer accurate. 15 U.S.C. § 1638(b); Regulation Z, 12 C.F.R.
226.19(a)(2)(ii) (2010). This is presumably the requirement the Easthams are referring to,
although they have not provided a citation to such a requirement in their appellate briefs.

Wells Fargo had no way to know from the face of the disclosure statement or any
other documents referenced in 15 U.S.C. § 1641(e)(2) whether the interest rate in the
final disclosure document differed from what had been provided in the good-faith
estimate. That knowledge could only come through investigation of facts beyond what
Congress has defined as those that are apparent on the face of the disclosure statement.
Without that knowledge, Wells Fargo had no reason to know that the original lender may
have violated the Truth in Lending Act by providing the disclosure statement on the same
day as the transaction closing. Accordingly, Wells Fargo, as the assignee, has no liability
for such a violation. See Crowe v. Joliet Dodge, 2001 WL 811655, at *5 (N.D. Ill. 2001)

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(unpublished opinion) (assignee is not liable for potential violation regarding timing of
the furnishing of disclosure statement because such a violation is not apparent on the face
of the disclosure statement).

The Easthams cite one other part of the Truth in Lending Act, 15 U.S.C. §
1641(d), which they claim subjects an assignee to any claim that could have been brought
against the creditor. The Easthams fail to note that this liability is limited and applies only
to "a mortgage referred to in section 1602(aa)" of the Act. Those are high-interest-rate
mortgages in which "the annual percentage rate at the consummation of the transaction
will exceed by more than 10 percentage points the yield on Treasury securities having
comparable periods of maturity" or in which total "points and fees payable by the
consumer at or before closing" exceed specified limits. 15 U.S.C. § 1602(aa)(1). The
Easthams have not presented any factual basis to suggest that this is a high-interest-rate
mortgage covered by section 1602(aa), which leaves the general rule for assignee
liability—in which there is no liability for the initial lender's violations unless they are
apparent on the face of the disclosure statement.

The judgment of the district court is therefore affirmed.