Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-02787/USCOURTS-caed-2_09-cv-02787-1/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 15:1601 Truth in Lending

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

TONY AND YVONNE MARTINEZ, )

)

Plaintiffs, ) 2:09-cv-02787-GEB-CMK

)

v. ) ORDER DENYING PLAINTIFFS’

) MOTION FOR AN ORDER ISSUING

WACHOVIA MORTGAGE, FSB, WORLD ) A PRELIMINARY INJUNCTION

SAVINGS BANK, INC., WORLD SAVINGS )

BANK FSB and DOES 1 through 10, )

inclusive, )

)

Defendants. )

)

Plaintiffs move for a preliminary injunction (“motion”) in

which they seek to prevent Defendants from conducting a “trustee’s

sale on [their] home,” “now scheduled for March 15, 2010.” (Not of

Mot. 1). “Defendant Wachovia Mortgage (“Wachovia”), a division of

Wells Fargo Bank, N.A., formerly known as Wachovia Mortgage FSB, which

was formerly known as World Savings Bank, FSB,” represents all

Defendants in this case and opposes the motion. Wachovia extended the

date for the trustee sale to March 15, 2010, to provide Plaintiffs

with time to file the motion. (Mot. 9:1-2). The motion was heard on

March 8, 2010. For the reasons stated below, Plaintiffs’ motion is

DENIED.

I. BACKGROUND

At oral argument on the motion, Plaintiffs clarified that

the only basis on which they seek to prevent Defendants from

conducting a trustee’s sale on their home is the rescission claim in

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their complaint, alleged under the Truth In Lending Act (“TILA”). 

Plaintiffs argue they are entitled to rescind their loan because

“[t]he Truth and Lending Disclosure [(“TILD”)] provided indicated a

payment of $2306.57 at 7.2% interest,” which would be applied to both

principal and interest,” yet Plaintiffs’ initial $2,306.57 monthly

payment "figure is actually based on an interest of 2.75% which is not

“true or accurate” since "a payment at the rate of 7.2% . . . would

[have been a] larger figure." (Yvonne Martinez Decl. ¶¶ 4,5 Ex. 2 to

Mot; Mot. 7:10-14.) 

Plaintiffs argue because of this failure to disclose that

Plaintiffs’ initial $2,306.57 monthly payment "figure is actually

based on an interest of 2.75% rather than "a payment at the rate of

7.2%, they are entitled to a three year period within which to rescind

the loan under 15 U.S.C. § 1635(a) and (f). (Mot. 14:14-24). 

Plaintiffs assert that Exhibit 3 attached to their motion is their

rescission letter dated April 21, 2009, which they sent to Wachovia. 

(Id. 15:19-27, Yvonne Martinez Decl. ¶ 6, Martinez Ex. 3). Plaintiffs

argue because of the April 21 rescission letter, Wachovia’s security

interest in Plaintiff’s residence became null and void and therefore

the trustee’s sale cannot proceed. (Id.) 

II. LEGAL STANDARD

“A plaintiff seeking a preliminary injunction must establish

that he is likely to succeed on the merits, that he is likely to

suffer irreparable harm in the absence of preliminary relief, that the

balance of equities tips in his favor, and that an injunction is in

the public interest.” Am. Trucking Ass'n v. City of Los Angeles, 559

F.3d 1046, 1052 (9th Cir. 2009) (quoting and citing 

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Winter v. Natural Resources Defense Council, 129 S.Ct. 365, 374

(2008)). 

Plaintiffs request that judicial notice be taken 

of four “articles concerning the World Savings Pick a Payment Loan,”

which show the various options available under the payment plans. 

(Request for Judicial Notice 1-2). Plaintiffs argue “the first

option, most commonly selected by borrowers under this scheme,

involves paying less than the interest being accumulated, typically

125 percent of the initial loan balance[,]” which “‘recast[s]’ [the

loan] to reflect full amortization of the loan for its remaining term”

and “causes a huge increase in the required monthly payments . . . .” 

(Mot. 8:11-21). 

Defendants object to this judicial notice request, arguing

that the request does not seek to have “the [C]ourt take notice of any

particular ‘adjudicative facts,’ so the request should be denied on

that ground alone.” (Defs.’ Obj. 1:26-28). Defendants also argue that

in the first article, the “CBS News Article[,]” “the fact . . . that

there is a sharp increase in residential foreclosures in California”

does “not have any bearing on this particular lawsuit,” and

“[e]verything else in the article is either irrelevant or else neither

a generally known fact nor one that would be capable of determination

by resort to any source whose accuracy could not be reasonably

questioned.” (Id. 2:2-8). Further, Wachovia objects to judicial

notice being taken of the “Mandrigues lawsuit,” discussed in the

second and third articles, and of the “Paul Bishop” lawsuit, discussed

in fourth article, arguing these lawsuits have been “hotly” and

“vigorously contested” and “nothing has been proven one way or

another.” (Id. 2:9-20). 

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Wachovia also requests that judicial notice be taken of two

printouts from the California Department of Real Estate’s website

showing that both Plaintiffs are licensed California real estate

brokers. Plaintiffs did not object to this request.

Facts properly subject to judicial notice are those that are 

“not subject to reasonable dispute in that [they are] either (1)

generally known within the territorial jurisdiction of the trial court

or (2) capable of accurate and ready determination by resort to

sources whose accuracy cannot reasonably be questioned.” FED. R. EVID.

201(b). 

Plaintiffs’ request that judicial notice be taken of the

four articles is denied since the articles are not from “sources whose

accuracy cannot reasonably be questioned.” FED.R.EVID. 201. 

Wachovia’s request that judicial notice be taken of the website print

outs concerning each Plaintiffs’ real estate broker licenses is

granted. The information in these printouts is not disputed and is

“capable of determination” since it is from the California Department

of Real Estate website, a “source[] whose accuracy cannot reasonably

be questioned.” New Mexico ex rel. Richardson v. BLM, 565 F.3d 683,

702 n. 22 (10th Cir. 2009)(taking judicial notice of data on web sites

of government agencies). 

III. ANALYSIS

A. Likelihood of Success on the Merits

1. TILA

Plaintiffs argue their TILA loan rescission claim

has merit since “Defendants failed to disclose in a clearly

understandable manner the interest rate upon which Plaintiff[s]’

monthly payments were based.” (Mot. 13:20-23.) Plaintiffs argue under

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12 C.F.R. § 226.17 “disclosures mu[st] be presented in a way that does

not obscure the relationship of the terms to each other.” (Id. 13:23-

24.) Plaintiffs also argue Defendants violated TILA by failing “to

disclose that the payment cap associated with the loan was guaranteed

to cause negative amortization if Plaintiff[s] complied with the

payment schedule provided by Defendants,” citing 12 C.F.R. § 226.19

and 12 C.F.R. § 226.17 as support for this proposition. (Id. 13:25-

27). Plaintiffs also contend “Defendant[s] materially and

significantly misrepresented the loan costs finance charges and

[annual percentage rate (“APR”)] to Plaintiff[s].” (Id. 14:25-27.) 

The TILD Plaintiffs attach to their motion as Exhibit 1

shows a payment schedule beginning on January 15, 2008, with a monthly

payment of $2306.57 for each month in 2008, the amount of which

increases thereafter each year. (Martinez Ex. 1). Plaintiffs argue

Defendants failed to show the negative amortization feature of the

loan, since the TILD does not “disclose the correct amounts of

payments of the life of the loan [to satisfy the 7.2% interest rate

disclosed in the Note] and . . . [the TILD does not] reveal the

negative amortization if the least payment is constantly made." (Id.

7:22-24; Yvonne Martinez Decl. ¶ 4, Martinez Ex. 1). 

Plaintiffs also attach the Note dated November 14, 2007 to

their motion as Exhibit 2. The Note states in section 2 “this Note

begins and it continues until December 15, 2010[.] During this

Modification Period, I will pay interest at the fixed yearly rate of

7,200%[.]” (Martinez Ex. 2.) Section 4(B) of the Note shows that

Plaintiffs selected the amount of $2,306.57 as their initial monthly

payments, and were informed this amount “may not be sufficient to pay

the entire amount of interest accruing on the unpaid Principal

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balance.” (Id.) Plaintiffs contend the language in the Note stating

"[e]ach of my initial monthly payments . . . in the amount of 

$2306.57," which “was selected by me from a range of initial payment

amounts approved by Lender and [which] may not be sufficient to pay

the entire amount of interest accruing on the unpaid Principal

balance," was deficient to warn them that the loan would in fact

negatively amortize as a result of the monthly payment Plaintiffs’ 

selected. (Id. 8:4-7)(emphasis in Plaintiffs’ Mot.) Plaintiffs argue

“an emphatic ‘will not' [was necessary to] be sufficient to be

truthful." (Id. 8:8-10.) Plaintiffs assert because of these

deficiencies in the TILD and the Note, they "were led to believe that

the loan was fully amortizing at the stated rate and payment amount,

[and] that their payments would reduce the balance of the loan and

increase their equity." (Id. 7:14-16.) Plaintiff Yvonne Martinez

declares she signed the Note “with the understanding that the payments

would be applied to both principal and interest.” (Yvonne Martinez

Decl. ¶ 5.) Plaintiffs argue that instead “the payment amount stated

was a negative amortization payment for the first ten years and was

based on the completely undisclosed rate." (Mot. 7:17-19). Plaintiffs

contend, consequently, the "non[-]disclosed rate has resulted in a

$54,000 increase in total indebtedness on the loan." (Id. 8:22-23.)

Wachovia counters that “the documents attached to the

Declaration of its attorney Christopher A. Carr (“Carr Decl.”) [as

Exhibits] show that Wachovia informed [P]laintiffs precisely what sort

of loan they were getting.” (Opp’n 2:20-21.) Wachovia argues that the

Note, which Wachovia submitted as Exhibit 1, “shows in Article 2 on

Page 1 that the interest rate for the first three years was 7.2%.”

(Id. 2:22-23, Wachovia Ex. 1.) Further, Wachovia argues Plaintiffs

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have conflated the payment rate with the interest rate and asserts

that “[t]he payment rate, as contrasted with the interest rate, is set

forth in Article 4(B) on Page 2” of Exhibit 1 as $2,306.57. (Id. 2:24-

25, Wachovia Ex. 1). 

Wachovia also argues Plaintiffs’ contention the language in 

the Note that loan payments “may not be sufficient to pay the entire

amount of interest accruing” is inapposite since the “Deferred

Interest Acknowledgment,” attached as Exhibit 5 to Wachovia’s

Opposition, “which was signed by both [P]laintiffs [on November 14,

2007,] eliminates any purported doubt as to what would definitely

happen if the minimum payment was chosen in any particular month.” 

(Id. 3:5-8; Wachovia Ex. 5.) Wachovia argues that the top of the

“Deferred Interest Acknowledgment,” which contains information on

payment options, including the minimum payment option, advises

Plaintiffs “in bold type . . . about the consequences of making a

minimum payment.” (Id. 3:6-7.) Wachovia asserts that “in the

paragraph numbered ‘(3)’. . . the following language appears [:]

‘Minimum Payment This is the smallest amount you are allowed to pay. 

If you choose this option and the payment is lower than then interest

due, you will incur deferred interest which will be added to the

principal balance of your loan.” (Id. 3:9-13) (emphasis added by

Wachovia). Wachovia contends Plaintiffs “were further advised of the

advantages and disadvantages of the respective choices for a payment”

since “the last sentence on that page clearly advises that it would be

beneficial to pay more than the minimum payment;” and “on the second

page, at the end of the first paragraph, [P]laintiffs were again told

they could avoid any negative amortization by making a payment higher

than the minimum payment.” (Id. 3:14-16).

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Plaintiffs stopped making their $2306.57 monthly mortgage

payments, and foreclosure proceedings were instituted. 

15 U.S.C. § 1635[(a)] governs the borrower's right

under TILA to rescind a ‘consumer credit

transaction . . . in which a security interest 

. . . is or will be retained or acquired in any

property which is used as the principal dwelling of

the person to whom credit is extended.’ Under this

section, the borrower has a right to rescind ‘until

midnight of the third business day following the

consummation of the transaction or the delivery of

the information and rescission forms required under

this section together with a statement containing

the material disclosures required under this

subchapter, whichever is later.’ Until the lender

makes all required ‘material disclosures,’

therefore, the three-day time rescission period

does not begin to run. . . . Even where the lender

has not provided the disclosures necessary to

trigger the three-day rescission period, however,

[under 15 U.S.C. § 1635(f)] the right to rescind

‘expire[s] three years after the date of

consummation of the transaction or upon the sale of

the property, whichever occurs first.’

Demarest v. Quick Loan Funding, Inc., No. CV09-01687 MMM (SSx), 2009

WL 940377 at *4 (C.D.Cal. 2009)(internal citations omitted)(emphasis

added). The essence of Plaintiffs' argument is that TILA required

Defendants to disclose the interest rate applicable to Plaintiffs’

initially selected monthly mortgage payment, since it was less than

the disclosed interest rate; and that the failure to make this

disclosure prevented Plaintiffs from knowing the monthly payment they

selected was insufficient to pay their loan interest and part of the

principal. Plaintiffs’ argument reveals the disclosure to which they

contend they were entitled concerns the risk of negative amortization.

[C]ases analyzing § 226.23(a)(3)'s materiality

provisions universally hold that a plaintiff is not

"entitled to rescind his loan transaction due to

defendants' alleged failure to disclose the risk of

negative amortization." See Chetal v. American Home

Mortg., No. C-09-02727-CRB, 2009 WL 2612312

(N.D.Cal. Aug. 24, 2009) ("Plaintiff has not

demonstrated that the loan papers failed to

disclose the loan's negative amortization potential

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[ . . . ] Plaintiff cites to no cases in which

similar disclosures have been found inadequate.");

Jordan v. Paul Fin., LLC, --- F.Supp.2d ----, 2009

WL 1941561 (N.D.Cal.2009) ("Plaintiff is not

entitled to rescind his loan transaction due to

defendants' alleged failure to disclose the risk of

negative amortization."); [Mandrigues, 2009 WL

160213] ("[E]ven if Plaintiffs were to succeed in

showing that Defendants failed to provide adequate

disclosures of negative amortization, it appears

that this failure would not trigger a right of

rescission."); see also McCutcheon v. America's

Servicing Co., 560 F.3d 143, 150, n. 6 (3rd Cir.

2009) (same).

Reagan v. Aurora Loan Services, Inc, No. 1:09-CV-00839-OWW-DLB, 2009

WL 3789997 at *8 (E.D. Cal. Nov. 10, 2009).

Courts have explained that when a loan contains a

variable rate feature, TILA mandates two sets of

disclosures: those set forth in 12 C.F.R. §

226.19(b)(1)-(2), which require disclosures with

respect to negative amortization, and those set

forth in 226.18(f) (2), which require two

statements prior to consummation of the loan

transaction: (1) “that the transaction contains a

variable-rate feature;” and (2) “that variable-rate

disclosures have been provided earlier.” . . . Only

the second set of disclosures are considered

‘material disclosures’ which, if not provided

before consummation of the transaction, will

trigger the extended rescission period. Failure to

provide the first set of variable-rate disclosures,

while still a violation of the statute, ‘may

subject [the lender] to other sanctions, but it

will not extend the rescission period granted to

the consumer.’

Mandrigues, 2009 WL 160213 at *5 (emphasis added). Plaintiffs have not

alleged they did not receive the second set of material disclosures

under 12 C.F.R. § 226.18(f)(2).

Lastly, Plaintiffs make the conclusory argument that

"Defendant[s] materially and significantly misrepresented the loan

costs finance charges and [annual percentage rate ("APR")] to

Plaintiff[s]." (Mot. 14:25-27.) The TILD, however, shows 7.322% is

the Annual Percentage Rate, $1,003,937.36 is the Finance Charge,

$557,938.35 is the amount Financed, and $1,561,875.71 is the Total of

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Payments (“The amount you will have paid after you have made all

payments as scheduled.”). (Martinez Ex. 1.) In light of these

disclosures, Plaintiffs have not shown their conclusory argument

concerning loan costs finance charges and annual percentage rate

constitutes a viable claim. 

Accordingly, Plaintiffs have not shown they are likely to

succeed on the merits of their TILA rescission claim.

B. Irreparable Harm

Plaintiffs argue they “will suffer irreparable harm if

Defendants are permitted to persist with their efforts to sell

Plaintiff[s’] property at the scheduled trustee’s sale” because they

would lose their home and their right to rescission once the house is

sold. (Mot. 11:7-28). Christopher Carr of Wachovia declares that

“Wachovia has not received a mortgage payment for well over a year,”

and as of . . . February 18, the arrearage[] [is] in the amount of

$39,013.67, with monthly payments presently at $2,306.59, per the loan

. . . .” (Carr Decl. ¶ 3, Ex. 6).

“Clearly, loss of a home is a serious injury. However, the

record suggests that [Plaintiffs] sought a loan beyond [their]

financial means . . . . Such resulting harm does not alone entitle

[them] to injunctive relief.” Alcaraz v. Wachovia Mortgage FSB, 592

F.Supp.2d 1296, 1301-02 (E.D. Cal. 2009). 

C. Balance of Equities and Public Interest

Plaintiffs also argue that the balance of equities tips in 

their favor. They contend a preliminary injunction “will do nothing

more than preserve [the] status quo [of Plaintiff[s] controlling

[their] home, while Defendants possess a security interest in it[,]”

yet if “Defendants sell the property at a the [t]rustee’s sale,”

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Plaintiffs “will lose title to their home, causing them significant

and irreparable damage” and “Defendants’ position would be virtually

unchanged.” (Mot. 12:10-16).

Plaintiffs have failed to show that the balance of equities

tips in their favor. Plaintiffs are behind on their loan payments 

and have not shown they can satisfy their sizeable debt. Nor have

they shown they have a likelihood of success on the merits of their

claim. Under the circumstances, the balance of equities does not tip

in their favor.

Lastly, Plaintiffs have not shown that a preliminary 

injunction would serve the public interest. Unlike other cases, where

“[t]he public interest is served by affording homeowners the

opportunity to pursue facially valid claims before their home is

sold,” here Plaintiffs have not shown that their TILA rescission claim

is valid. Zinni v. M & I Marshall, No. CV-09-2035-PHX-FJM, 2010 WL

537723 at *2 (D.Ariz. February 12, 2010)(emphasis added).

IV. CONCLUSION

For the stated reasons Plaintiffs have failed to satisfy the 

requirements for a preliminary injunction. Therefore, Plaintiffs’

motion is DENIED.

Dated: March 10, 2010

 

GARLAND E. BURRELL, JR.

United States District Judge

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