Michigan district court rejects magistrate recommendation for dismissal of class action re refusal of reaffirmed mortgage to send statements

A class action suit was filed against PNC Bank alleging violations of the Truth in Lending Act and Real Estate Settlement Procedures Act for failing to send ongoing monthly statements during and after the  chapter 7 bankruptcy case despite the HELOC being reaffirmed.  Polonowski v. Pnc Bank, N.A., 2021 U.S. Dist. LEXIS 187910, 2021 WL 4476996 (W. D. Mich, 30 Sept 2021).  The magistrate judge issued a report and recommendation granting PNC’s request to dismiss the case, but the District court rejected the recommendation.

The chapter 7 was filed in June 2018, and the HELOC reaffirmed in November 2018. The discharge was then also obtained in November 2018.  PNC has failed to send statements since at least May 2019 and appears to have continued through the decision in September 2021.  Counsel for Debtor notified PNC twice of it’s failure to send statements but PNC refused to recommence sending statements.

Under TILA the HELOC constitutes an open end consumer credit plan per 15 U.S.C. §1637.  Subsection (b) of such section requires a statement for each billing cycle unless sending such statements would violate federal law.  12 C.F.R. §1026.5(b)(2)(i) (‘Regulation Z’).  The automatic stay of 11 U.S.C. 362 prohibits certain acts as to property of the estate or debtor, but per 11 U.S.C. 362(c)(1) the stay expires when the case is closed or a discharge is granted or denied.  As the discharge had been granted, even though the case had not yet been closed, the stay under §362(c) had expired.

RESPA applies to federally related mortgage loans, 12 U.S.C. §2605(e).  The statute defines these to include a loan secured by a lien on residential property designed principally for the occupancy of up to four families.  Regulation X, 12 C.F.R. §1024.31 excludes open-end lines of credit such as HELOC’s from loans subject to this requirement.  The Magistrate recommended dismissing the count based on this exclusion.  The plaintiffs contended that the regulation impermissibly narrowed the scope of the statute, and that such regulation must fail as conflicting with the statute.  The District Court agreed with this argument, finding that the HELOC at issue was within the scope of RESPA.

The court also rejected PNC’s arguments that it’s act or omission was taken in good faith, finding that such defenses are affirmative defenses which must be plead and proven per 15 U.S.C. 1640(f); and that PNC did not show that a defense exists that legally defeats the claim for relief.

The District Court rejected the magistrate’s recommendation and denied the motion to dismiss the case.