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TILA and MA Law

Author: LegalEase Solutions

Q1. Would the fact that, 1) mortgage broker did not conduct this transaction through his employer mortgage broker company, and 2) used his own name and license, and 3) this being the first transaction using Broker’s name except him from the creditor definition of TILA and MA law?

No case law or statutory interpretations were found to support such a proposition. Although the lender, Winchester GSK Trust, did not extend more than five transactions secured by a dwelling in the preceding calendar, the Tso mortgage was allegedly subject to the requirements of 209 CMR 32.32 (HOEPA) and as such only one credit extension through a mortgage broker was all that was required. (209 Code Mass.Regs. § 32.02(1) provides a definition substantially the same as its federal counterpart. “A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of 209 CMR 32.32) more than 25 times (or more than five times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of 209 CMR 32.32 or one or more such credit extensions through a mortgage broker.”).

A “mortgage broker” subject to the licensing requirement of c. 255E is specifically described as “any person who for compensation or gain, or in the expectation of compensation or gain, directly or indirectly negotiates, places, assists in placement, finds or offers to negotiate, place, assist in placement or find mortgage loans on residential property for others” (emphasis added). G.L. c. 255E, § 1. Meredith & Grew, Inc. v. Worcester Lincoln, 831 N.E.2d 940, 64 Mass. App. Ct. 142 (MA, 2005).

The results of an “all jurisdiction” case law search only turned up cases where the borrower attempted to sue a third party to the transaction like the mortgage broker instead of the lender or a party that referred borrower to particular lender. In re Dawson, 411 B.R. 1 (Bankr. D.C., 2008). (Wilson v. Homecomings Fin. Network, Inc., 407 F.Supp.2d 893, 896 (N.D.Ohio 2005); Viernes v. Executive Mortgage, Inc., 372 F.Supp.2d 576, 580-82 (D.Haw.2004) (discussing TILA’s definition of “creditor” and concluding that the defendant mortgage broker was not a creditor within the meaning of TILA because broker did not regularly extend consumer credit and was not the person to whom obligation was initially payable). These cases rejected plaintiff arguments that mortgage broker can be considered a “creditor” under TILA or other relevant statutes when these mortgage brokers did not regularly extend credit and were not the party to whom obligation was initially payable.

Further, no support/guidance was found on whether a mortgage broker who just started (received license a week before transaction) would be exempt from being considered a mortgage broker under the relevant statute.

Q2.  Is the serving of Chapter 93A notice on the attorney for the borrowers and not on the lender fatal to borrower’s rescission claim?

Chapter 93 A section 9(3) requires that at least thirty days prior to the filing of any such action, a written demand for relief, identifying the claimant and reasonably describing the unfair or deceptive act or practice relied upon and the injury suffered, shall be mailed or delivered to any prospective respondent.

Before bringing suit under that statute, a plaintiff must mail to any prospective respondent a “written demand for relief, identifying the claimant and reasonably describing the unfair or deceptive act or practice relied upon.” This notification must be furnished no fewer than thirty days prior to the filing of suit. Id.

The statutory notice requirement is not merely a procedural nicety, but, rather, “a prerequisite to suit.” Entrialgo v. Twin City Dodge, Inc., 368 Mass. 812, 333 N.E.2d 202, 204 (1975). Failure to send such a letter requires dismissal of the claim. See Spilios v. Cohen, 38 Mass. App. Ct. 338, 342 (1995)

Plaintiffs alleging violations of chapter 93A must also assert affirmatively in the complaint that they complied with the statute’s notice requirement. See Rodi v. Southern New Eng. Sch. of Law, 389 F.3d 5, 19 (1st Cir. 2004) (explaining that the chapter 93A demand requirement “must be alleged in the plaintiff’s complaint.”). A failure to send the required demand letter is thus fatal to a claim brought under § 9. See, e.g., City of Boston v. Aetna Life Ins. Co., 399 Mass. 569, 574 (1987). It was found in Murphy v. Bank of Am., N.A. (D. Mass., 2012), that the complaint failed to meet that requirement. “There is no allegation in the complaint that plaintiffs ever served defendant with a written demand under chapter 93A. Indeed, plaintiffs have not contested this point.”

That the sending of the demand letter is a prerequisite to the filing of the action is consistent with ch. 93A’s provision that a claim may be asserted under ch. 93A § 9 only “by way of original complaint, counterclaim, cross-claim, or third-party action . . . .” Mass. Gen. Law ch. 93A § 9(3A) (Ligotti v. Provident Life & Cas. Ins. Co. (W.D. N.Y. 2011).

In Cimon v. Gaffney, the court held that plaintiff’s ch. 93A claim was barred where record established plaintiff sent pre-suit demand notice to only one of two defendants. Cimon v. Gaffney, 401 F.3d 1, 6-7 (1st Cir. 2005). In 2003, Ralph Cimon (“Ralph”), who had purchased a disability insurance policy from Guardian Life Insurance Company of America (“Guardian”), sued Guardian and Christopher Gaffney (“Gaffney”), the Guardian agent who had sold him the policy, after Guardian terminated his policy due to his failure to make a timely premium payment. In October of 2001, Ralph became disabled. On November 16, 2001, Jean called Guardian and learned that the policy had been cancelled. On November 27, 2001, Ralph sent a letter to Guardian requesting that the policy be reinstated and giving notice that he intended to file a claim pursuant to Mass. Gen. Laws ch. 93A, § 24 if Guardian refused his request. Ralph also sent Guardian a check for the unpaid premiums. Guardian refused to reinstate the policy. As a result, in October 2003, Ralph sued Guardian and Gaffney in Maine, claiming that he was entitled to damages because the two “breached numerous duties of care” they owed to him under the policy in connection with their failure to ensure that premium notices were sent to his correct address. In addition, Ralph alleged that he was entitled to recover under Mass. Gen. Laws ch. 93A, § 2 for Guardian and Gaffney’s refusal to settle his claim and reinstate the policy. Ralph also asserted that the two breached the policy, and should be estopped from terminating the policy, due to their failure to send premium notices to his correct address.

In Dean v. Compass Receivables Mgmt. Corp., 148 F.Supp.2d, 116 (D. Mass. 2001), the court stated: “Attachment of the Demand Letter to the complaint thus serves as proof of compliance with that section.” Id. at 117-18. See Spring v. Geriatric Authority of Holyoke, 394 Mass. 274, 287 (1985) (existence of demand letter must be alleged and proved). “An adequate demand letter is a jurisdictional prerequisite to any claim brought under ch. 93A by a consumer plaintiff.” Manning v. State Farm Ins. Co., 1997 Mass. App. Div. 184, 1997 WL 672056 at *2 (Mass. App. Div. Oct. 24, 1997) (citing Thorpe v. Mutual of Omaha Insurance Co., 984 F.2d 541, 544 (1st Cir. 1993)). In re Feeley, Case No. 06-13582-JNF (Bankr.Mass. 4/13/2010) (Bankr.Mass., 2010).

Where a demand letter is statutorily insufficient, the c. 93A claim must be dismissed. Tallent v. Liberty Mutual Insurance Company, 19 Mass. L. Rptr. No. 20, 460 (MA 4/25/2005), 19 Mass. L. Rptr. No. 20, 460 (MA, 2005).

The countervailing facts in the case before us is that although Plaintiff demand letter was not sent to Defendant but its counsel, demand letter does identify the defendant as Winchester GSK Trust. Secondly, Defendants responded to the demand letter with a settlement offer. In Tarpey v. Crescent Ridge Dairy, Inc., 713 N.E.2d 975, 47 Mass.App.Ct. 380 (Mass. App. Ct., 1999), the issue with the demand letter involved the lack of a dollar amount demanded. The Court found that this issue was not decisive as the letter was otherwise comprehensive and detailed and pointed to Defendant’s submission of an offer in response to the demand letter.