Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 07-11247--Bernard A. Friedman, District Judge.
The opinion of the court was delivered by: Rogers, Circuit Judge.
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
Before: MOORE and ROGERS, Circuit Judges; HOOD, District Judge.*fn1
When Donald and Elizabeth Molosky paid off their home mortgage early, they were charged a $30 "payoff statement fee" and a $14 "recording fee" in connection with the prepayment. They sued in federal court challenging the imposition of these fees as violations of the mortgage contract, of various Michigan laws, and of the federal Real Estate Settlement Procedures Act (RESPA). The district court dismissed the suit in its entirety on the grounds that all of the state-law claims were preempted by the federal Home Owners' Loan Act (HOLA), and that the allegations failed to state a claim under RESPA. One of the contract-based claims was not preempted by HOLA, however, and requires a remand for further consideration. The other claims were all properly dismissed, although we dispose of some of the state-law claims on the ground of failure to state a claim rather than on federal preemption.
The Moloskys obtained a home loan secured by a mortgage from the Bank of Ann Arbor. The note included a paragraph labeled "Borrower's Right to Prepay" that included the following sentence: "I may make a full Prepayment or partial Prepayments without paying a Prepayment charge." The mortgage included a paragraph labeled "Release" that included the following sentence: "Lender may charge Borrower a fee for releasing this Security Instrument, but only if the fee is paid to a third party for services rendered and the charging of the fee is permitted under Applicable Law." Defendant Washington Mutual later acquired servicing rights for the note.
The Moloskys paid off their note before its maturity. Washington Mutual charged them a $30 "payoff statement fee" and a $14 "recording fee" in connection with the prepayment. The Moloskys brought a class action in the court below alleging that the two fees violated three Michigan state statutes and the RESPA, 12 U.S.C. § 2601 et seq., and that the fees also constituted a breach of contract. Washington Mutual responded by filing a motion to dismiss, arguing that the state law and contract claims were preempted by the HOLA, 12 U.S.C. § 1461 et seq., and that the Moloskys failed to state a claim under RESPA.
After some proceedings described in greater detail below, the district court held that all of the Moloskys' state-law claims, including the breach of contract claim, were "expressly preempted by 12 C.F.R. § 560.2(b)(5) and (b)(12)," regulations implementing HOLA, because the claims "are based on the allegation that defendant collected improper 'loan-related fees' or prepayment charges." The district court held that "[s]tate law simply may not regulate such matters" in the face of the Office of Thrift Supervision's clear intent to occupy the field, and so the claims were preempted under HOLA. The district court dismissed the RESPA claim for two independent reasons, one of which was that the payoff statement fee was not a "settlement service" within the meaning of 12 U.S.C. § 2607. Following an unsuccessful motion for reconsideration, the Moloskys bring this timely appeal.
II. Michigan Usury Act claim
The district court properly dismissed the Moloskys' claim under the Michigan Usury Act as preempted by HOLA. Preemption claims under the Home Owners' Loan Act are governed by the implementing regulations of the Office of Thrift Supervision (OTS).*fn2 The Moloskys' claim based on the Michigan Usury Act, M.C.L. § 438.31, is preempted according to the explicit terms of 12 C.F.R. § 560.2(b). The Michigan law, which prohibits among other things the charging of certain types of prepayment fees, is the type of state law explicitly listed as preempted in § 560.2(b), which extends preemption to "state laws purporting to impose requirements regarding . . . (5) Loan- related fees, including . . . prepayment penalties, servicing fees, and overlimit fees."
Congress gave the OTS broad authority under HOLA "to provide for the organization, incorporation, examination, operation, and regulation of associations to be known as Federal savings associations . . . giving primary consideration of the best practices of thrift institutions in the United States." 12 U.S.C. § 1464(a). The Supreme Court has found this power to be very broad, and exclusive: "Congress plainly envisioned that federal savings and loans would be governed by what the [OTS]--not any particular State--deemed to be the 'best practices.'" Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 161 (1982). Pursuant to this grant, the OTS has issued regulations that assert its authority "to promulgate regulations that preempt state laws affecting the operations of federal savings associations" and that are intended to "occup[y] the entire field of lending regulation for federal savings associations." 12 C.F.R. § 560.2(a). To that end, the OTS has laid out a system of regulation "so pervasive as to leave no room for state regulatory control." Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir. 2008) (internal citation omitted). Moreover, there is no presumption against preemption here; the state regulations are intruding into an area of law with "a history of significant federal presence." United States v. Locke, 529 U.S. 89, 108 (2000); see also Wimbush v. Wyeth, 619 F.3d 632, 642 (6th Cir. 2010).
Contrary to the Moloskys' claims, HOLA preemption is applicable in situations where, as here, a federal savings association did not originate the loan but instead later serviced it. The grant of power to the OTS is very broad, and through 12 C.F.R. § 560.2 it has elected to make use of that breadth. State laws that propose to regulate a federal organization's lending activities, or affect them in a more than incidental way, are preempted. The situation before us is precisely the sort to fit the OTS's purview. The Moloskys are protesting the legality of payoff statement fees and recording fees, fees charged to them by Washington Mutual, a federal savings and loan association. The claim is predicated on the actions of Washington Mutual that occurred after the loan was transferred, and so are premised on the argument that state laws should regulate Washington Mutual's actions. The valid OTS regulation clearly preempts such suits.
The Moloskys' argument against this conclusion, predicated on one paragraph of an OTS opinion letter and several cases from the 1980s and 1990s, is unconvincing. The state court and federal district court cases predate the current version of OTS regulation on preemption, which is far broader and more detailed than any of its predecessors, making their analysis largely inapplicable. The OTS opinion letter, somewhat ambiguous, appears to require that a loan originator be a federal savings association in order to be exempt from state requirements dealing with origination. See Re Preemption of Georgia Fair Lending Act, OTS Op. Letter (Jan. 21, 2003) at 4 (available at http://www.ots.treas.gov/_files/56301.pdf). It does not follow that when a federal savings association services a loan previously originated by a state bank that the federal savings association is subject to state requirements regarding servicing.
This is not a situation like that distinguished in In re Ocwen Loan Servicing, 491 F.3d 638 (7th Cir. 2007), where "state law purported to forbid servicing or prescribe the terms of the assignment." Id. at 645. The Moloskys are not contesting that Washington Mutual was legally allowed to service the loan, but rather that Washington Mutual's servicing violated state law.
III. Contract claim on the payoff statement fee
However, the Moloskys' breach of contract claim with regard to the payoff statement fee is not preempted by HOLA. The contract provision in question is a paragraph labeled "Borrower's Right to Prepay" that included the following sentence: "I may make a full Prepayment or partial Prepayments without paying a Prepayment charge." Neither this term of the contract nor the state contract law that applies to it is one of the types of state law listed as preempted in 12 C.F.R. § 560.2(b), not least because the contract provision, although enforceable under state law, is imposed by the contracting party upon itself. The Supreme Court distinguished contract terms stipulated by a regulated party in just this way in a case involving federal preemption of airline regulation, noting the "distinction between what the State dictates and what the airline itself undertakes confines courts, in breach-of-contract actions, to the parties' bargain, with no enlargement or enhancement based on state laws or policies external to the agreement." American Airlines, Inc., v. Wolens, 513 U.S. 219, 233 (1995). Section 560.2(a) does generally provide for the preemption of "state laws purporting to regulate or otherwise affect [federal savings association] credit activities," but this broad preemption is explicitly limited by § 560.2(c), which excepts "Contract and commercial law" from preemption "to the extent that [such state laws] only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of paragraph (a)."
To hold Washington Mutual to the terms of its contract with the Moloskys is consistent with the purposes of the OTS's regulation. The Seventh Circuit's analysis in this regard is persuasive:
[W]e read subsection (c) to mean that OTS's assertion of plenary regulatory authority does not deprive persons harmed by the wrongful acts of savings and loan associations of their basic state common-law- type remedies. Suppose an S & L signs a mortgage agreement with a homeowner that specifies an annual interest rate of 6 percent and a year later bills the homeowner at a rate of 10 percent and when the homeowner refuses to pay institutes foreclosure proceedings. It would be surprising for a federal regulation to forbid the homeowner's state to give the homeowner a defense based on the mortgagee's breach of contract. Or if the mortgagee (or a servicer like Ocwen) fraudulently represents to the mortgagor that it will forgive a default, and then forecloses, it would be surprising for a federal regulation to bar a suit for fraud. Some federal laws do create such bars, notably ERISA, see ...