insurance claim and notified the Sagans that this would be applied to the loan balance unless the
Sagans contacted Option One. They did not do so, and Option One applied the proceeds to the
loan balance.

The Sagans filed this suit in late June 2003. Their complaint alleged that they were
entitled to rescind the loan because they did not receive the disclosures required by HOEPA.
Both sides have moved for summary judgment. For the reasons stated below, the Court denies
plaintiffs’ motion for summary judgment and grants defendants’ motion for summary judgment.

Discussion

HOEPA sets out special requirements for “high-cost” mortgage loans. See 15 U.S.C. §§
1602(aa) & 1639. A HOEPA loan is a mortgage loan secured by a consumer’s principal
dwelling, other than a loan made to finance the dwelling’s original construction or acquisition, in
which the loan’s annual percentage rate of interest exceeds ten percent, or the “total points and
fees” payable by the consumer at or before the closing exceeds the greater of eight percent of the
total loan amount or $400. 15 U.S.C. § 1602(aa)(1)(A) & (B). A lender that makes such a loan
is required to provide several specific disclosures not less than three business days before the
transaction is consummated. 15 U.S.C. § 1639(a) & (b). The statute contains several other
requirements and prohibitions that are not at issue in this case.

A lender that fails to make the required disclosures faces an extended period in which the
borrower can rescind the loan transaction under TILA. See 15 U.S.C. §§ 1639(j) & 1635(a).
Under normal circumstances, the rescission period is three days after the transaction is
consummated. But if the lender fails to make the required disclosures, the period extends until

three days after the disclosures are made, up to a maximum of three years. 15 U.S.C. § 1635(a)


“points and fees” for purposes of the HOEPA eight percent calculation includes “[aJll items
required to be disclosed under [12 C.F.R.] § 226.4(a) and 226.4(b),” except for certain items not
relevant in this case. 12 C.F.R. § 226.32(b)(1). Section 226.4(a) and (b) require disclosure of the
“finance charge.” That regulation provides that the “finance charge” includes fees charged by a
closing agent under the following circumstances:
(2) Special rule; closing agent charges. Fees charged by a third party that
conducts the loan closing (such as a settlement agent, attorney, or escrow or title

company) are finance charges only if the creditor:

(i) Requires the particular services for which the consumer is
charged;

(ii) Requires the imposition of the charge; or

(iii) Retains a portion of the third-party charge, to the extent of the portion
retained,

12 C.F.R. § 226.4(a)(2). The parties agree that the issue in this case is whether the creditor,
Option One, “require{d] the imposition” of the overnight courier charges. If so, the courtier
charges were part of the points and fees for purposes of HOEPA.

The Sagans actually paid three $15.00 overnight courier fees in connection with the
closing of their loan from Option One. Each of these fees was assessed by Indiana Title Network
Company, located in Crown Point, Indiana, which conducted the loan closing. See Kvachkoff
Affid. §{] 4 & 8. One of the courier fees was incurred to send Option One the loan package,
including the original closing documents. See id. {7 & 8. The parties agree that overnight
delivery of the loan package was required by Option One and that this particular $15.00 charge is
properly included in the “points and fees” for HOEPA purposes. See also id. 47.

The Sagans contend that a second $15.00 charge, incurred to send the payoff check from


income insurance, or debt-cancellation coverage (whether or not the debt-
cancellation coverage is insurance under applicable law) that provides for
cancellation of all or part of the consumer's liability in the event of the loss
of life, health, or income or in the case of accident, written in connection
with the credit transaction.
12 C.F.R. § 226.32(b)(1). The “items required to be disclosed under § 226.4(a) and 226.4(b),” as
referenced in § 226.32(a)(1)(i), consist of the various components of what § 226.4 includes in the
“finance charge.” See 12 C.F.R. § 226.4(a) & (b). The “items listed in § 226.4(c)(7),” as
referenced in § 226.32(b)(1)(iii), are described as follows:
(7)  Real-estate related fees. The following fees in a transaction secured by real
property or in a residential mortgage transaction, if the fees are bona fide and reasonable

in amount:

i) Fees for title examination, abstract of title, title insurance, property
survey, and similar purposes.

(ii) Fees for preparing loan-related documents, such as deeds, mortgages,
and reconveyance or settlement documents.

(iii) Notary and credit report fees.
(iv) Property appraisal fees or fees for inspections to assess the value or
condition of the property if the service is performed prior to closing,

including fees related to pest infestation or flood hazard determinations.

(v) Amounts required to be paid into escrow or trustee accounts if the
amounts would not otherwise be included in the finance charge.

12 C.F.R. § 226.4(c)(7).
Prepaid interest totaling $412.20 was withheld from the Sagans’ loan. It is undisputed
that this amount is deducted from the loan proceeds in determining the “total loan amount.”
Option One contends that the “total points and fees” included the following items:

$4,529.00  Broker’s fee
70.00 ‘Tax service fee



& (f).

The Sagans contend the longer period applies to them because Option One failed to make
the disclosures required under HOEPA. It is undisputed that Option One did not provide
HOEPA disclosures, and thus the issue is whether it was required to do so. Because the annual
percentage rate on the loan did not exceed ten percent, the case turns on whether the points and
fees exceeded eight percent of the total loan amount.

In evaluating each side’s motion for summary judgment, the Court views the facts in the
light most favorable to the non-moving party, drawing reasonable inferences in that party’s favor,
and inquires whether the moving party has shown that there is no genuine issue of material fact
and that it is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477
USS. 242, 255 (1986); Fed. R. Civ. P. 56(c).

Option One loaned the Sagans $66,500. The “total loan amount” is determined by
deducting prepaid interest and “total points and fees” from the principal amount of the loan.

See 12 C-F.R. Pt. 226, Supp. I, par. 32(a)(1)(ii). The term “points and fees” is defined as follows
in the regulations governing HOEPA:

(1) [PJoints and fees means:

(i) All items required to be disclosed under § 226.4(a) and 226.4(b), except
interest or the time-price differential;

ii) All compensation paid to mortgage brokers;

(iii) All items listed in § 226.4(c)(7) (other than amounts held for future
payment of taxes) unless the charge is reasonable, the creditor receives no
direct or indirect compensation in connection with the charge, and the
charge is not paid to an affiliate of the creditor; and

(iv) Premiums or other charges for credit life, accident, health, or loss-of-


assigned was the right to collect payments. See Pltfs’ Summ. Judg. Ex. A, “Notice of
Assignment, Sale or Transfer of Servicing Rights.” Though Option One did collect the
prepayment penalty, it did so on behalf of BNC Mortgage and then disbursed that amount to
BNC. See Esparza Affid. { 7.

The Sagans argue that the appraisal and title insurance charges charged by Option One
were not reasonable and thus are included in the calculation of “points and fees.” See 12 C.F.R.
§§ 226.32(b)(1) & 226.4(c)(7). Their argument, however, is largely predicated on the contention
the Court has just rejected, namely the claim that Option One was the assignee of the prior loan.
The Sagans say that because the property had just been appraised and title insurance had been
obtained less than a year earlier in connection with the BNC Mortgage loan, it was unreasonable
for Option One to reappraise the property and obtain new title insurance in connection with the
loan in this case. The Court likely would reject this argument even were the Sagans correct that
Option One was the assignee of the prior loan as TILA defines that term. Any number of events
could have occurred in the intervening months that could have imposed encumbrances on the
property or affected its value, and thus it could not have been unreasonable for Option One to
obtain new title insurance and have the property reappraised. But more importantly, the Court
has already concluded that there is no evidence that Option One owned the prior loan or that it
did anything other than collect payments as a servicer. Because Option One was making a loan
on the property for the first time, no reasonable fact finder could determine that it was
unreasonable to obtain title insurance and an appraisal. (The Sagans do not argue that the
particular charges for these items were too high.)

This brings us finally to the disputed $15.00 overnight courier fee. As indicated earlier,


Migate Onder Foye(0002)
65 UY : United States District Court, Northern District of Illinois

Name of igned Jud: Sitting Judge if Oth

aenge Magistrate Judge Matthew F. Kennelly than Assigned Judge

CASE NUMBER 03 C 4557 DATE 7/26/2004
CASE Sagan vs, Option One mortgage Corp.
TITLE

[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintitf, and (b) state briefly the nature
of the motion being presented.]

MOTION:

DOCKET ENTRY:

() oO Filed motion of [ use listing in “Motion” box above.]

(2) a Brief in support of motion due

(3) o Answer brief to motion due___. Reply to answer brief due____

(4) Oo Ruling/Hearingon___setfor___at

(5) oO Status hearing{held/continued to] [set for/re-set for]on__——sset for at

(6) oO Pretrial conference(held/continued to] (set for/re-set for]on___—ssetfor_ at.
(7) Oo Trial[set for/re-set for] on __at

(8) o [Bench/Jury trial] [Hearing] held/continued to___at

(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

GFRCP4(m) OLocal Rule 41.1 CFRCP41(a)(1) C)FRCP41(a)(2).

qo) (Other docket entry] For the reasons set forth on the attached Memorandum Opinion and Order,
the Court grants defendants’ motion for summary judgment (28-1) and denies plaintiffs’ motion for
summary judgment (21-1). Defendants’ motion to modify rescission procedures is terminated as moot
(9-1). The Clerk is directed to enter judgment in favor of the defendants.

dl) [For further detail see order attached to the original minute order.]

No notices required, advised in open court. Document

. Number
No notices required. b
umber of notices

1214
zy |

deputy incials

Notices mailed by judge’s staff.

Notitied counse! by telephone.

Y | Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge.
jo

dae ied notice
courtroom rh Ud C2 pp h

OR deputy’s Pend $2 Wap 3902
initials

Leos a Date/tinje.teceived in
| * Teiitkall Cretk's Office mating deputy initials



assessed — is insufficient to create a genuine issue of fact regarding whether Option One required
the fee: the fact that Option One understood the fee would be charged does not mean that it
asked or insisted that it be charged.
Conclusion
For the reasons stated above, the Court grants defendants’ motion for summary judgment
[docket # 28-1] and denies plaintiffs’ motion for summary judgment [docket # 21-1].
Defendants’ motion to modify rescission procedures is terminated as moot [docket # 9-1]. The

Clerk is directed to enter judgment in favor of the defendants.

Date: July 26, 2004 Wb CLL,

MATTHEW F. KENNELLY
United States District Judge

ll


the loan proceeds by overnight delivery to Option One, was also required by Option One and thus
must be included in the HOEPA points and fees. But in responding to Option One’s summary
judgment motion, the Sagans admitted each of the following propositions:

12. Option One only required overnight delivery of the closed loan
package. Hurley Aff. {J 9, 16; Kvachkoff Aff. { 7.

13. Option One did not require the other two deliveries for which
overnight courier fees were charged by Indiana Title. Hurley Aff. {] 10, 16;
Kvachkoff Aff. 7.

14, The closing instructions by Option One to Indiana Title state that
the “closed loan package [is] to be returned to lender 24 hours after signing
documents.” Exhibit G.

15. There are no instructions pertaining to the other two deliveries for
which overnight fees were assessed by Indiana Title. Hurley Aff. {{] 9-10; Exhibit
G.

16. Indiana Title chose on its own accord, based on its own practices
and procedures, to make the other two deliveries by overnight courier and to
assess a fee for these deliveries. Hurley Aff. { 10-12; Kvachkoff Aff. [§ 7-9.

17. The closing instructions for the Mortgage Loan were presented to
and signed by Plaintiffs as the June 6, 2000 closing. Hurley Aff. | 5; Kvachkoff
Aff. 95; Exhibit G; Plaintiffs’ Responses to Request to Admit { 7.

18. | Option One did not receive any portion of the courier fees imposed
by Indiana Title in connection with the Mortgage Loan. Hurley Aff. 13;
Kvachkoff Aff. {| 8; Exhibit F.

See Dfdts’ Jt. 56.1(a)(3) Statement of Facts {| 12;18; Pltfs’ Resp. to Dfdts’ Jt. Statement of Facts
4 12-18 (stating that each one of the quoted propositions is “undisputed”). The Sagans’
admissions of these facts preclude them from contending that the second $15.00 fee was required

by Option One. And even if they had not done so, their evidence — primarily a draft closing

statement prepared by Option One that included the second courier fee as a charge that would be

10


50.00 Funding fee
12.00 Flood certification fee
210.00 — Closing fee
15.00 Overnight courier fee
$4,886.00 Total points and fees

If Option One is correct, then the “total loan amount” for HOEPA purposes would be $61,201.80
($66,500.00, less $412.20, less $4,886.00). The “total points and fees” of $4,886.00 amount to
7.98% of $61,201.80. Thus if Option One is correct in its calculation of total points and fees,
HOEPA disclosures were not required.

The Sagans challenge Option One’s calculation. They contend that the prepayment
penalty of $2,053.44 on the prior loan, the appraisal fee of $275.00, the $376.00 title insurance
fee, and a second $15.00 overnight courier fee each should be considered as part of the total
points and fees. If the Sagans are correct with regard to any one of these charges, Option One is
not entitled to summary judgment, and the Sagans may be entitled to summary judgment.

The Sagans’ argument regarding the prepayment penalty on the prior loan is predicated
on their contention that Option One was the lender on the prior Joan and thus received the
prepayment penalty. But the Sagans have no evidence to support that contention. Though
Option One collected payments on the prior loan, it did so as a servicer of the loan, not as an
assignee. A servicer is an entity responsible for receiving scheduled periodic payments from the
borrower, see 12 U.S.C. § 2605(i)(2) & (3) (cross-referenced in 15 U.S.C. § 1641(f)(3)), but it is
not considered an assignee of the loan for purposes of TILA (of which HOEPA is a part) “unless

the servicer is or was the owner of the obligation.” 15 U.S.C. § 1641(f)(1). The document that

made Option One the servicer demonstrates that it did not own the earlier debt; all that was



not been given, the Sagans’ letter said, their right to rescind the loan transaction, which otherwise
would have expired three days after the transaction, remained open. See 15 U.S.C. § 1639()).
The letter also stated that the Sagans were “poor and unsophisticated consumers” with a $700 per
month income and that the loan had been made without regard to their ability to pay, purportedly
in violation of 15 U.S.C. § 1639(h), which prohibits lenders from engaging in a practice of
making HOEPA-covered mortgages without regard to the borrowers’ ability to repay. Counsel
asserted in the letter that the security interest granted by the mortgage was rendered void by the
rescission, and he requested that Option One “return to [the Sagans] all monies paid and to take
action necessary or appropriate to reflect termination of the security interest.” Dfdts’ Summ.
Judg. Ex. J.

Option One responded with a letter dated April 11, 2002 stating that the points and fees
on the loan had not exceeded 8% of the total loan amount, Dfdts’ Summ. Judg. Ex. K. The
calculation by which Option One reached this conclusion was set out in the letter. The letter also
stated that contrary to the claim in the Sagans’ letter, their loan application had disclosed an
income of $3500 per month.

On February 21, 2003, the Sagans’ home caught fire, resulting in extensive damage. (The
record does not disclose how the Sagans were still living in the house so long after entry of the
foreclosure judgment, but that does not affect the matters the Court must decide in this case.)
They remained in the house and tried to raise money for repairs. A claim was made under their
homeowner’s insurance policy. As the mortgagee, Option One was designated on the policy as
co-insured, and it was entitled to apply the proceeds of the insurance claim to the outstanding

balance on the loan. Option One obtained a check for just over $34,000 in settlement of the


Settlement charges!
$4,529.00  Broker’s fee (to Illiana Mortgage)
275.00 Appraisal fee
70.00 Tax service fee (to Option One)
50.00 Funding fee (to Option One)
12.00 Flood certification fee (to Option One)
412.30 Interest on loan for June 2000
210.00 — Closing fee (to Indiana Title Network Co.)
50.00 Title search (to Indiana Title Network Co.)
376.00 Title insurance (to Indiana Title Network Co.)
140.00 “EPA, LOC, COMP & ARM END” (to Indiana Title Network Co.)
45.00 Overnight courier fee (3 x $15.00) (to Indiana Title Network Co.)
23.00 Wire fee (to Indiana Title Network Co.)
55.00 Recording fees
$ 6,247.30 Total settlement charges
The remainder of the loan proceeds, $9,231.42, was disbursed to the Sagans. See Dfdts’ Summ.
Judg. Ex. F (RESPA statement).
The loan was assigned to a trust for which Wachovia Bank serves as trustee. The Sagans
made only one payment on the Option One loan and then defaulted. Wachovia Bank filed a
foreclosure suit in Indiana state court in December 2000, and a judgment of foreclosure was
entered on April 23, 2001.
On March 22, 2002, the Sagans, acting through counsel, sent Option One a letter
purporting to rescind the loan transaction pursuant to the Truth in Lending Act, 15 U.S.C. §
1635. The letter stated that the points and fees on the loan had exceeded 8% of the total Joan

amount, and thus the Sagans were entitled to have received the additional disclosures required by

the Home Owners Equity Protection Act, 15 U.S.C. § 1639(a)(1). Because these disclosures had

' “Settlement charges” is the term used on the RESPA statement executed in connection
with the closing of the loan from Option One.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

CANDE SAGAN and SHERRY SAGAN,

vs.

OPTION ONE MORTGAGE CORP. and
WACHOVIA BANK, N.A.,, f/k/a FIRST
UNION NATIONAL BANK,

EASTERN DIVISION

Plaintiffs,

Case No. 03 C 4557 DOCKETED

)
)
)
) JUL 2 7 2004
)
)
)
)
)

Defendants.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Candy and Sherry Sagan, who live in Hammond, Indiana in a home they inherited,

obtained a mortgage loan from BNC Mortgage, Inc. in 1999 to finance repairs on their home and

payment of back taxes. BNC assigned the servicing of the loan to Option One Mortgage Corp.

See Pitfs’ Summ. Judg. Ex. A, “Notice of Assignment, Sale or Transfer of Servicing Rights.”

The Sagans defaulted on their loan payments and went to a mortgage broker to attempt to

refinance. An application was submitted to Option One, which made a $66,500 mortgage loan to

the Sagans in June 2000. The loan was closed by Indiana Title Network Company. The loan

proceeds were disbursed as follows:

Disbursed to others

$49,939.38
636.21
445.69

$51,021.28

Payoff former loan
Property taxes
Held for last payment owed on former loan

Total disbursed

7