Karakus v. Wells Fargo Bank, N.A.
941 F. Supp. 2d 318
E.D.N.Y2013Background
- Karakuses refinanced their Staten Island home in 2006 with two Wells Fargo loans: a $265,000 mortgage refinancing loan and a $210,000 home equity loan.
- The refinancing financed the old loan balance ($53,841.86) and created a new loan with a balloon potential; title remained secured by the home.
- Closing occurred after multiple discussions; the borrowers did not read the documents, and NRC notices were provided using NRC Form H-8 instead of H-9.
- Wells Fargo later assigned the refinancing loan to Deutsche Bank in 2009, which then sued to foreclose; the Karakuses sued Wells Fargo in 2009 in this action.
- The Karakuses seek rescission under TILA and damages, and seek to add Deutsche Bank as a defendant; Wells Fargo moves to dismiss; the court allows joining Deutsche Bank for the refinancing loan TILA claim.
- The court grants in part the Karakuses’ cross-motion (joining Deutsche Bank) and denies Wells Fargo’s dismissal, with the TILA claim remaining against Deutsche Bank for the refinancing loan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TILA rescission was properly alleged regarding the refinancing loan | Karakuses contend H-8 was defective, so rescission should be available and disclosures were not clear. | Wells Fargo argues NRC form variability is permissible and substantial similarity suffices; form used was technically acceptable. | TILA rescission claim survives against Deutsche Bank; amendments allowed to expand the TILA pleading. |
| Whether TILA damages claims are time-barred | Damages claims should be timely under TILA as part of ongoing misdisclosures. | Damages claims arising from the 2006 closing are time-barred under 15 U.S.C. § 1640(e). | TILA damages claims are time-barred; damages portion dismissed; rescission claim survives against Deutsche Bank. |
| Whether CROA claims against Wells Fargo survive | Wells Fargo engaged in misrepresentations in loan origination; CROA applies to credit repair-like acts. | Bank status excludes CROA; no “credit repair organization” liability; no applicable breach. | CROA claim dismissed; Wells Fargo granted motion to dismiss CROA claims. |
| Whether DPA claims survive | Wells Fargo engaged in deceptive practices affecting broad consumer base; damages alleged. | No consumer-oriented deception; alleged acts not materially misleading; lack of injury link. | DPA claims dismissed; amended claims to include Wells Fargo’s broader scheme denied. |
| Whether Deutsche Bank should be joined as a party | Deutsche Bank owns the refinanced loan and should be joined to provide complete relief. | Join could be prejudicial or unnecessary; but Deutsche Bank is indispensable for lien removal and relief. | Deutsche Bank joined as defendant; cross-motion granted to the extent of joining Deutsche Bank; Wells Fargo dismissed from refinancing claim and Deutsche Bank named for TILA claim. |
Key Cases Cited
- Porter v. Mid-Penn Consumer Disc. Co., 961 F.2d 1066 (3d Cir.1992) (H-8 vs H-9 distinctions affect disclosure clarity)
- Handy v. Anchor Mortgage Corp., 464 F.3d 760 (7th Cir.2006) (two NRC forms can create confusion; need clear disclosure)
- Santos-Rodríguez v. Doral Mortgage Corp., 485 F.3d 12 (1st Cir.2007) (same-lender H-8 form may be adequate but not decisive)
- Gambardella v. G. Fox & Co., 716 F.2d 104 (2d Cir.1983) (TILA requires meaningful, not perfect, disclosures)
- Turner v. General Motors Acceptance Corp., 180 F.3d 451 (2d Cir.1999) (TILA requires meaningful disclosure, not quantity)
- King v. Long Beach Mortg. Co., 672 F.Supp.2d 238 (D.Mass.2009) (three-year rescission extension only if notice/disclosures not delivered)
- Watkins v. SunTrust Mortg., Inc., 663 F.3d 232 (4th Cir.2011) (H-8 modification; regulation 1604(b) context; not controlling here)
- Kahraman v. Countrywide Home Loans, Inc., 886 F.Supp.2d 114 (E.D.N.Y.2012) (distinguishes cases on H-8 vs H-9 and TILA remedies)
- Hayrioglu v. Granite Capital Funding, LLC, 794 F.Supp.2d 405 (E.D.N.Y.2011) (DPA claims require consumer-oriented deception; not satisfied here)
- Patterson v. Somerset Investors Corp., 96 A.D.3d 817 (N.Y. App. Div.2d Dep’t 2012) (considers consumer reliance and DPA causation)