(CN) – Two elderly women who claim they were the victims of oppressive home loans had state-law claims of negligence and elder abuse dismissed by a federal judge in Los Angeles, because the claims are pre-empted by federal law.
Josephine Otero and Norma Cosio, 75 and 76 years old respectively, held reverse mortgages in their homes. In August 2007 they decided to refinance their reverse mortgages into “pick a pay” option adjustable rate mortgages (ARM).
Otero and Cosio made their decisions after meeting with Sandra Simental. Otero first met Simental at a talk held at a senior citizen’s club. During the talk, Simental advised her audience that refinancing was better than having a reverse mortgage. After this initial presentation, Otero arranged a second meeting with Simental in Otero’s home.
Cosio was present at this second meeting. At this meeting, Simental convinced plaintiffs to refinance their loans. At the end of the meeting Simental requested that plaintiffs pay her a fee for arranging the new loans. Otero and Cosio then wrote Simental checks for $14,680 and $13,000 respectively.
After this meeting Simental brought Helen Sevillano to meet with plaintiffs in Otero’s home. Simental and Sevillano both worked for a company called GoldenNet. According to the complaint, GoldenNet acted as dual agent for plaintiffs and the lender, Wachovia. Juan Midolo completed the loan transactions by finishing the applications for plaintiffs. While doing so, Midolo allegedly provided false information about plaintiffs’ monthly incomes.
Ultimately Otero entered into a $330,000 refinance loan with Wachovia, while Cosio entered into a loan valued at $325,000. Some time after the loan transactions were complete, Simental allegedly provided plaintiffs with only one copy of the notice of right to cancel.
The crux of plaintiffs’ complaint is that as a result of these loans, they lost money and their homes have been encumbered by “oppressive” loans. Additionally, plaintiffs claim that equity in their homes has been lost.
Plaintiffs’ state court lawsuit lists five causes of action, including violations of the Truth In Lending Act and state law claims for financial elder abuse and negligence. Defendants removed the case to federal court, and then Wachovia filed a motion to dismiss. In the alternative, Wachovia argued that plaintiffs’ elder abuse and negligence claims were preempted by the Home Owners Loan Act (HOLA).
U.S. District Judge Philip Gutierrez partially granted the motion.
“Recently in Silvas v. E*Trade Mortg. Corp. the Ninth Circuit set forth the analysis that district courts should follow in evaluating whether a state law is preempted under the regulation. First, a court must determine whether the type of law in question is listed in § 560.2 [a regulation covering federal savings associations promulgated by the Office of Thrift Supervision]. If so, the analysis ends because the law is preempted. However, if the law is not covered the court must ask whether the law affects lending.
“Consistent with Silvas, the court first determines if the Elder Abuse and Dependent Civil Protection Act and California’s negligence law are the types of state law contemplated under § 560.2 It is Wachovia’s position that plaintiffs’ claims fall within at least three of the illustrative examples provided in § 560.2(b).
“Like California’s unfair competition law, California’s Elder Abuse and Dependent Civil Protection Act and negligence law, on their face, do not appear to pertain to the lending practices of federal savings association However, when the laws are analyzed in relation to the particular circumstances of this case, it becomes much more apparent that as applied they impose requirements on Wachovia that are already imposed on it by HOLA. Consequently they are preempted.
“This court recognizes that HOLA does not totally displace all state law. However, where as here a plaintiff alleges conduct that touches upon a defendant’s lending practices the court believes that Congress’ intent to preempt state laws can be inferred.”
Plaintiff is represented by Charles Evans at Legal Aid Foundtion of Los Angeles. Defendant is represented by Christopher Carr at Anglin Flewelling et al.