Bishop v. Quicken Loans, Inc., 2010 WL 3522128 (S.D.W.Va.). In December 2006, Originator Defendant approached Plaintiffs relative to refinancing their mortgage. Based on an alleged inflated appraisal of their home, Plaintiffs obtained an Option Adjustable Rate Mortgage (the “ARM Note”) in the amount of $133,600. Originator Defendant did not inform Plaintiffs that the interest accruing on the ARM Note would exceed their minimum scheduled payments, such that their loan balance might increase from month to month. At some point thereafter, the ARM Note was transferred to defendant Assignee Defendant.
Thereafter, Plaintiffs instituted an action alleging, inter alia, Count I, Unconscionable Contract and Count II, Illegal Loan against Originator Defendant and Assignee Defendant. Count I alleges that the ARM Note was induced by unconscionable conduct, in violation of the West Virginia Consumer Credit and Protection Act (“WVCCPA”), W. Va. Code § 46A-1-101, et seq. Count II alleges that Originator Defendant and Assignee Defendant provided plaintiffs with a loan that exceeded the market value of the property, in violation of the West Virginia Residential Mortgage Lender, Broker and Servicer Act (“Residential Mortgage Act”), W. Va. Code § 31-17-1, et seq. Under each count, Plaintiffs seek actual damages, a civil penalty, and a declaration that the ARM Note is void and unenforceable. In its motion to dismiss, Assignee Defendant asserts three justifications for dismissing Counts I and II.
First, Assignee Defendant contended that both the WVCCPA and the Residential Mortgage Act are silent as to the liability of a subsequent holder of a consumer loan for the actions of the loan's originator. From this silence, Assignee Defendant infers that a subsequent holder of a consumer loan may never be liable for the original lender's wrongdoing. Accordingly, Assignee Defendant concluded that Counts I and II must be dismissed for failure to state a claim upon which relief can be granted. However, the Bishop Court held that general principles of West Virginia assignment law support the conclusion that Assignee Defendant stepped into the shoes of Originator Defendant, thereby acquiring Originator Defendant's interest, subject to all claims and defenses existing at the time of the assignment.
Next, Assignee Defendant asserted that, even if liability can be imposed on a subsequent holder of a consumer loan for the actions of the loan's originator, dismissal of Counts I and II is nonetheless warranted because it is insulated from liability under the holder-in-due-course doctrine. However, the Bishop Court held that Assignee Defendant's contention in this regard must be rejected, for Plaintiffs raised questions about Assignee Defendant's entitlement to status as a holder in due course. Specifically, Plaintiffs alleged that Assignee Defendant “was in a continuing business relationship with Originator Defendant with regard to the origination and collection of [the ARM Note].” The Bishop Court, held that under West Virginia law, a general business relationship between a payee and an assignee of an instrument may be sufficient, in itself, to deny the purchaser protected status. Accordingly, the Bishop Court denied Assignee Defendant's motion to dismiss Counts I and II of Plaintiffs’ Complaint.