A Pennsylvania homeowner claimed a bank gave her false or misleading information about estimated taxes and closing costs. She relied on that information when accepting a loan offer. She later learned the actual estimated taxes and closing costs were significantly higher. However, at that point she was contractually obligated. She sued the bank for fraud/misrepresentation, negligent misrepresentation and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law. The bank asked a magistrate judge to dismiss the charges.
The case is Yaneve Fonge v. Huntington National Bank (Civil Action No. 22-332. United States District Court, W.D. Pennsylvania).
The facts
In March of 2021, Huntington National Bank’s predecessor in interest, TCF National Bank (TCF) pre-approved Yaneve Fonge for a mortgage loan on a home in Allegheny County, Pa. Fonge, a first-time homebuyer, began discussions in April 2021 regarding the purchase of a home with Betty Downing, a TCF senior loan officer and vice president of mortgage lending.
Downing told Fonge her monthly taxes and insurance would be $144. When Fonge questioned the accuracy of that figure by stating that she had seen higher taxes on Zillow, Downing told Fonge she should not trust what she saw on Zillow and that her figures were accurate. On or about May 1, 2021, Fonge placed an offer on the property and entered into an agreement to purchase it.
Later that month, TCF provided Fonge with written initial disclosures, which provided the same estimate of taxes and insurance of $144 per month. The initial disclosures estimated that the closing costs would be $9,888..
Fonge said she was formally approved for mortgage loan based upon the estimates provided in the disclosures. On June 14, 2021, HNB, the successor in interest to TCF, provided Fonge with a closing disclosure statement which stated that the estimated taxes and insurance would be $757.93 per month (an increase of $613.93 per month or $221,014.80 over the 30-year term of the loan) and the closing costs would be $15,857.51 (an increase of $5,969.51).
At that point Fonge alleges that she was legally bound to purchase the property and the closing proceeded as scheduled on June 21, 2021.
In her lawsuit, Fonge alleges Huntington provided her with false or misleading information orally and in its initial disclosures, including the estimated taxes and closing costs that she would owe, on which she relied when accepting a mortgage loan offer. Her amended complaint alleges claims of fraud/misrepresentation, negligent misrepresentation and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.
The ruling
Huntington contends Fonge’s claims are preempted by federal law, specifically, the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). The bank asserted express and conflict preemption. Express preemption applies where Congress, through a statute’s express language, declares its intent to displace state law. Conflict preemption nullifies state law inasmuch as it conflicts with federal law, either where compliance with both laws is impossible or where state law erects an “obstacle to the accomplishment and execution of the full purposes and objectives of Congress.”
U.S. Magistrate Judge Patricia Dodge wrote, “Huntington notes that both TILA and RESPA include provisions regarding their preemptive effect. However, both statutes provide that preemption applies only where there is an actual inconsistency between their provisions and state law, ‘and then only to the extent of the inconsistency.’”
“TILA regulations provide that ‘if an escrow account will be established,’ creditors must disclose ‘an estimate of the amount of taxes and insurance, including any mortgage insurance or any functional equivalent, payable with each period payment,’” the judge continued. “According to [Huntington] TILA expressly permits creditors to make revisions to good-faith estimates, including where the revision results in an increase in payment amount. However, the regulation is more specific than Huntington acknowledges. It allows for revised estimates in ‘changed circumstances,’ which are defined as ‘an extraordinary event beyond the control of any interested party,’ ‘information specific to the consumer or transaction that the creditor relied upon ... and that was inaccurate or changed after the disclosures were provided’ or ‘new information specific to the consumer or transaction that the creditor did not rely on when providing the original disclosures.’ Huntington has not argued that its revisions relate to any of these provisions.”
Although the bank noted in its argument that the federally approved disclosure form specifically advises prospective borrowers that tax amounts “can increase,” the judge said that language appears to be ambiguous.
“In this case, Fonge does not base her claims on TILA violations or cite any subject matter that is explicitly preempted by a section of TILA,” Dodge wrote. “Moreover, Fonge’s claims are based on oral representations made to her before the initial disclosures were provided to her, and TILA does not apply to oral disclosures.”
The bank also contends Fonge failed to plead that the bank made actual misrepresentations, as opposed to estimates, or that she reasonably relied on them.
“While [Huntington] contends that Fonge has failed to allege the misrepresentations with specificity, the amended complaint clearly alleges that [the bank] provided her with estimates of taxes and insurance and closing costs that were unreasonably low. Huntington also argues that Fonge did not ‘reasonably’ rely on the estimates, both because she questioned the estimate she was given and because the information was available on public websites,” Dodge ruled. “However, according to the amended complaint, Fonge relied on what Downing told her, particularly after Downing told Fonge to ignore the information she saw on Zillow. A determination of whether this reliance was reasonable is beyond the scope of a motion to dismiss. Whether it was reasonable of Fonge to rely on the representations of a ‘senior loan officer and vice president of mortgage lending,’ who allegedly indicated that she knew more about the subject than Fonge, a first-time homebuyer, or an internet website, is yet to be determined. Nor has [the bank] pointed to any authority to support the argument that, because certain information may be publicly available, Fonge could not reasonably rely on what Downing told her. Therefore, Huntington’s contention that Fonge failed to state with specificity the allegedly misrepresentations or sufficient facts relating to reasonable reliance is without merit.”
On the issue of dismissing Fonge’s claims of misrepresentation and fraud under Pennsylvania’s gist of action doctrine, the judge wrote:
“Fonge relies upon oral representations made prior to the signing of the loan agreement. Huntington contends that the document contains an integration clause that would preclude her from relying on pre-contractual representation. …However, the mortgage loan contract is not part of the record. Therefore, a determination regarding this issue cannot be made at this time. In addition, the bank has not raised this argument with respect to Fonge’s UTPCPL claim. Therefore, Huntington’s gist of the action argument is denied without prejudice to renew after the development of a full record.”