Rogers v. Assurance Mortgage Corp. CV-96-19-SD 03/13/97
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Barbara Rogers; Olive Kasouf
v. Civil No. 96-19-SD
Assurance Mortgage Corporation of America
O R D E R
This civil action arises from some allegedly improper
disclosures made by defendant Assurance Mortgage Corporation of
America (Assurance) in connection with a mortgage loan.
Plaintiffs Barbara Rogers and Olive Kasouf claim in their
complaint that Assurance violated the Truth in Lending Act
(TILA), 15 U.S.C. § 1601, et seg., and the New Hampshire Consumer
Protection Act, Revised Statutes Annotated (RSA) 358-A.
Plaintiffs seek statutory damages and actual damages under TILA,
among other remedies, but do not seek rescission.
Presently before the court is defendant's motion for summary
judgment, to which plaintiffs object.1
1The court has also reviewed the parties' supplemental memoranda. Background2
On November 14, 1994, plaintiffs applied to Assurance for a
mortgage loan to finance a house in Derry, New Hampshire, that
they were planning to purchase on December 9, the scheduled
closing date. When they applied for the loan, plaintiffs
specifically told Assurance that they wanted a fixed rate,
thirty-year mortgage with no prepayment penalty. At that time
one of Assurance's sales representatives told plaintiffs they
could receive a thirty-year mortgage at a 10.25 percent fixed
rate of interest.
On December 9 plaintiffs received a written disclosure of
the terms of the loan, indicating that it would be a thirty-year,
variable rate loan with no prepayment penalty. They also
received TILA disclosures indicating that the loan would be a
thirty-year mortgage with a variable rate and no prepayment
penalty. Plaintiffs informed the Assurance sales representative
that the terms offered were incorrect because of the variable
rate, and he agreed that a mistake had been made and that they
would get the terms they had reguested. On two more occasions,
December 15 and December 21, Assurance offered new terms that
2The facts in the Background section are taken from the complaint and are recited here for informational purposes only. The evidence relied upon by the court in deciding the summary judgment motion shall be presented in the Discussion section.
2 again were not what plaintiffs had been seeking. The sales
representative again told them that an error had been made and
that they would get the earlier-reguested terms.
At the date of closing, January 13, 1995, Assurance gave
plaintiffs new loan terms: the loan was to be at a variable rate
(starting at 9.9 percent) and had a balloon feature. Upset by
these new terms, plaintiffs telephoned Assurance and were told
they were better off with this loan than with the 10.25 percent
fixed rate and that they could refinance later. They were also
told the monthly payment would never exceed the disclosed amount
of $1,209.47.
Afraid they would lose the Derry house if they did not sign
the loan at the date of closing, plaintiffs signed the papers.3
They were only briefly shown the documents and were told that the
paperwork contained many errors. Assurance immediately took the
documents back from them and told them they would receive
corrected copies of said papers by mail at a later date.
When they received the papers, plaintiffs learned that the
note had a prepayment penalty and a variable rate of interest
capped at 18 percent. Six months after the closing, the rate
automatically went up three percentage points. At the time of
3Plaintiffs now assert by affidavit that they actually did not sign the papers at the time of closing, but instead signed a post-dated version at a later time.
3 filing of the instant action, plaintiffs' monthly payments had
risen as high as $1,255.65. In addition, plaintiffs had
discovered discrepancies between the TILA disclosure agreement
and the actual costs of borrowing the money as shown on the HUD-1
closing statement.
Discussion
1. Summary Judgment Standard
Summary judgment shall be ordered when "there is no genuine
issue as to any material fact and . . . the moving party is
entitled to a judgment as a matter of law." Rule 56(c), Fed. R.
Civ. P. Since the purpose of summary judgment is issue finding,
not issue determination, the court's function at this stage "'is
not [] to weigh the evidence and determine the truth of the
matter but to determine whether there is a genuine issue for
trial.'" Stone & Michaud Ins., Inc. v. Bank Five for Savings,
785 F. Supp. 1065, 1068 (D.N.H. 1992) (guoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
When the non-moving party bears the burden of persuasion at
trial, to avoid summary judgment he must make a "showing
sufficient to establish the existence of [the] element[s]
essential to [his] case." Celotex Corp. v. Catrett,, 477 U.S.
317, 322-23 (1986). It is not sufficient to "'rest upon mere
4 allegation[s] or denials of his pleading.'" LeBlanc v. Great Am.
Ins. C o ., 6 F.3d 836, 841 (1st Cir. 1993) (guoting Anderson,
supra, 477 U.S. at 256), cert, denied, ___ U.S. ___ , 114 S. C t .
1398 (1994). Rather, to establish a trial-worthy issue, there
must be enough competent evidence "to enable a finding favorable
to the non-moving party." Id. at 842 (citations omitted).
In determining whether summary judgment is appropriate, the
court construes the evidence and draws all justifiable inferences
in the non-moving party's favor. Anderson, supra, 477 U.S. at
255.
2. Court I— TILA
"The Truth in Lending Act has the broad purpose of promoting
'the informed use of credit' by assuring 'meaningful disclosure
of credit terms' to consumers." Ford Motor Credit Co. v.
Milhollin, 444 U.S. 555, 559 (1980) (guoting 15 U.S.C. § 1601).
TILA reguires that certain disclosures be made before credit
is extended. See 15 U.S.C. § 1638 (b) (1) . Such disclosures
include, inter alia, the "amount financed" (the amount of credit
of which the consumer has actual use), the "finance charge,"4 as
The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as
5 well as explanations of these terms and of any late charges which
may be imposed. 15 U.S.C. § 1638(a). Also required is
disclosure of the finance charge expressed as an "annual
percentage rate." 15 U.S.C. § 1638(a)(4). The disclosures must
be meaningful, but need not include so much information as to
overload the senses or to create confusion. See Bizier v. Globe
Fin. Servs., 654 F.2d 1, 4 (1st Cir. 1981).
When interpreting TILA, courts must liberally construe its
provisions in favor of borrowers. See Bizier v. Globe Financial
Servs., 654 F.2d 1, 3 (1st Cir. 1981). This is because the Act,
as originally enacted, was "intended to balance scales thought to
be weighted in favor of lenders." Id. In light of this original
purpose, courts generally require a strict, technical adherence
to the requirements set forth in TILA and its implementing
regulations. See, e.g., Purtle v. Eldridge Auto Sales, Inc., 91
F.3d 797, 800-02 (6th Cir. 1996); Cowen v. Bank United of Texas,
FSB, 70 F.3d 937, 941 (7th Cir. 1995); Fairley v. Turan-Folev
Imports, Inc., 65 F.3d 475, 479 (5th Cir. 1995); Hernandez v.
Vidmar Buick Co., 910 F. Supp. 422, 425 (N.D. 111. 1996); cf.
Ritter v. Durand Chevrolet, Inc., 945 F. Supp. 381, 384 (D. Mass.
an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.
12 C.F.R. § 226.4 (a) .
6 1996) (under TILA, "liability will flow from even minute
deviations from the requirements of the statute and the
regulations promulgated under it" (quotations omitted)). Such
scrutiny is required even if a violation caused the borrower no
harm. See, e.g., Cowen, supra, 70 F.3d at 940 .5 Finally, such
an approach is particularly appropriate where, as here, a
plaintiff seeks an award of statutory damages, which TILA, 15
U.S.C. § 1640(a), caps at $1,000. See Purtle, supra, 91 F.3d at
801-02 (discussing "technical adherence" in the context of a
claim for statutory damages).
According to plaintiffs, defendant failed to provide
meaningful disclosures at the operative time, January 13, 1995,6
in compliance with TILA. By affidavit, plaintiff Barbara Rogers
states that Assurance showed her and plaintiff Olive Kasouf the
TILA disclosures and the HUD-1 document, but did not give them
copies of the documents at the January 13 closing. Instead,
5The court pauses to note here that recent developments have counseled against applying such a liberal approach to all cases brought under TILA. Thus, Congress has tightened this consumer- friendly approach to TILA in some respects that will be discussed infra.
Regulation Z clarifies that the timing of the disclosures should be before "consummation of the transaction." 12 C.F.R. § 226.17(b). Plaintiffs assert, and defendant does not appear to dispute, that defendant was obligated to provide the requisite disclosures on January 13, 1995, the date of signing of the promissory note and the mortgage deed to the property.
7 Assurance informed them that because the documents contained
errors, a corrected version would be mailed out at a later
date. Rogers further states that they were only "briefly" shown
the documents at the closing and that plaintiffs did not sign
them until a month later when they received documents dated
January 13, 1995, in the mail. In addition, plaintiffs point out
that the signed disclosures indicate that the figures are
"estimates" and that defendant had previously sent them many
written disclosures by mail that contained incorrect terms and
created confusion.
Congress delegated expansive authority to the Federal
Reserve Board "to elaborate and expand" the laws regulating
commerce in credit. Ford Motor Credit Co., supra, 444 U.S. at
555-56. Pursuant to that responsibility, the Board promulgated
Regulation Z, 12 C.F.R. Part 226 (1979); thus, interpretation of
TILA reguires an initial examination of both TILA and
Regulation Z. See id. at 556.
The pertinent regulation states.
The creditor shall make the disclosures reguired by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the disclosures reguired under § 226.18.
12 C.F.R. § 226.17(a) (footnotes omitted). When considered as a whole, plaintiffs' evidence raises a
genuine issue of material fact regarding whether Assurance
provided plaintiffs with meaningful disclosures before extending
them credit. The evidence indicates that Assurance may have
violated several of the provisions of Regulation Z, including,
inter alia, the reguirements that disclosure be before the
extension of credit, see 12 C.F.R. § 226.17(b), and that
disclosure be "in a form that the consumer may keep," see 12
C.F.R. § 226.17(a). In addition, as the necessary information
likely was known to Assurance, its provision of estimates may
have violated 12 C.F.R. § 226.17(c), which provides that
estimates should be given when necessary information is unknown
to the creditor.
Admittedly, the issue of whether a violation occurred is a
close one in these circumstances. Plaintiffs in their objection
do depart somewhat from the facts they stated in the complaint,
particularly the allegation that they signed the TILA disclosure
form at closing. However, even assuming that plaintiffs did sign
a version of the TILA disclosure form at the time of closing, the
court agrees with plaintiffs that defendant should not have taken
back that form and mailed another one to plaintiffs several weeks
later. Moreover, the defendant has not submitted any evidence in
rebuttal on this issue. When the reguirements of TILA are construed liberally in favor of plaintiffs, who undoubtedly did
not possess the degree of knowledge and experience in lending
transactions possessed by defendant, the court cannot find that
defendant is entitled to summary judgment on the issue of its
compliance with TILA and Regulation Z. A reasonable jury could
find that plaintiffs were not given the type of "clear and
conspicuous" disclosure mandated by TILA.
Plaintiffs also assert that Assurance violated TILA by
understating the finance charge on the TILA disclosure form.
Analysis of this claim reguires consideration of recent
amendments to TILA.
In 1995 Congress amended TILA by adding section 1649,
entitled "Certain limitations on liability." See TILA, 15 U.S.C.
§ 1601, et seg., as amended by Pub. L. No. 104-29, § 4(a), 109
Stat. 273, and Pub. L. No. 104-208, § 2107(a), 101 Stat. 3009-
(codified at 15 U.S.C. § 1649 (Supp. 1997)). 7 With the
addition of these amendments. Congress hoped to reduce the high
7Although the alleged violative conduct occurred before the effective date of the amendments, September 30, 1996, the amendments clearly apply to this case nonetheless. Congress provided that section 1649(a) (the section applicable to the case at bar) shall not apply to individual actions filed before June 1, 1995. 15 U.S.C. § 1649(b). The court interprets this clause to mean that the amendments are to be retroactively applied to actions filed on or after June 1, 1995. Since the case at bar gualifies as such an action, the amendments are applicable.
10 number of class action lawsuits brought to redress technical
errors in the disclosure requirements. See Cavaliere v.
Margaretten & Co., 1996 WL 571178, at *1-2 (D. Conn. 1996); H.R.
Rep. No. 104-193, at 256-257 (1995). Congress viewed the
amendments as a means of providing "a greater tolerance for
'honest mistakes that result in technical violations,' thus
providing 'greater certainty for lenders without eliminating the
substantive protection available to consumers.'" Cavaliere,
supra, 1996 WL 571178, at *2 (quoting 141 C o n g . R e g . S14566) .
The new amendments provide for a $200 tolerance. A court
may treat any disclosure relating to the finance charge as
accurate if the amount disclosed as the finance charge does not
differ from the actual finance charge by more than $200. See 15
U.S.C. § 1649(a)(3)(A). Consequently, a creditor will have no
civil liability with respect to any such disclosure. Id.
Plaintiffs claim that the $200 tolerance was exceeded
because the finance charge was understated with respect to
several fees. For the purposes of this analysis, the relevant
fees are the document preparation fee (listed in the TILA
disclosure form as $165), the underwriting document preparation
fee (disclosed as $200), and the processing fee (disclosed as
$300). The court will address each fee seriatim.
Document preparation fees that are not loan related are
11 normally excluded from the calculation of the finance charge by
virtue of 12 C.F.R. § 226.4(c)(7)(11). This section provides,
§ 226.4 Finance charge.
(c) Charges excluded from the finance charge. The following charges are not finance charges:
(7) The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:
(ii) Fees for preparing deeds, mortgages, and reconveyance, settlement, and similar documents.
Plaintiffs assert that the disclosed $165 document preparation
fee, which was itemized under the heading "Itemization of Amount
Financed," should have been included in the finance charge
because the fee is not reasonable or bona fide as reguired by
section 226.4(c)(7). To support that the document preparation
fee was reasonable, defendant submitted an affidavit of one of
its vice presidents of lending. See Affidavit of Jerami A.
Marshal (attached to defendant's motion). He states that the
document preparation fee is distinct from the "underwriting
document preparation fee" and that it includes
the cost of the document preparation, which includes reviewing documents prior to release to the closing agent, re-verifying the employment, coordinating the documents for closing with the closing agent, reviewing the HUD-1 settlement statement, forwarding documents to the closing agent, and, in this case, relate to documentation
12 prepared by Ford Consumer Finance Company, Inc. who is an investor to whom Assurance sells loans.
Marshal Affidavit 5 15. Plaintiffs argue that the closing was
scheduled and canceled four times before being held finally on
January 13, 1995, and surmise they were charged for revisions and
corrections caused by the freguent changing of dates.
Plaintiffs' argument fails for the simple reason that they have
failed to produce any evidence to support their contention; they
offer only their own deductions and conclusory assertions in
place of the type of evidence reguired to withstand a motion for
summary judgment. There is no evidence that the charge even
reflects the costs, if any, incurred by the freguent changing of
dates. Even assuming arguendo that evidence of same existed,
plaintiffs have produced no competent evidence that the fees were
unreasonable. The disclosed $165 fee was thus correctly excluded
from the finance charge, and the finance charge cannot be found
to have been understated by this amount. Accordingly, the
defendant is entitled to summary judgment on this issue.
Plaintiffs next claim that the $200 tolerance was exceeded
because the underwriting document preparation fee was listed in
the TILA disclosure form under both the "Amount Financed" column
and the "Prepaid Finance Charge" column. The 1996 amendments to
TILA provide in relevant part.
13 § 1649. Certain limitations on liability.
(a) Limitations on Liability For any closed end consumer credit transaction that is secured by real property or a dwelling, that is subject to this subchapter, and that is consummated before September 30, 1995, a creditor . . . shall have no civil, administrative, or criminal liability under this subchapter for, and a consumer shall have no extended rescission rights under section 1635(f) of this title with respect to-- (1) the creditor's treatment, for disclosure purposes of--
(B) fees described in section 1605(e) (2) and (5) of this title; . . . .
15 U.S.C. § 1649. The fees described in § 1605(e) (2) are "[f]ees
for preparation of loan-related documents."8 Accordingly, under
the express terms of the 1996 amendments to TILA, defendant
cannot be held liable for failing to accurately disclose the
"underwriting document preparation fee," which is a loan-related
document preparation fee. The court finds and rules that
Lastly, plaintiffs assert that the processing fee (disclosed
on the TILA disclosure form as $300) was not included in the
finance charge, and thus the finance charge was understated by
$300. Defendant submitted evidence that the $300 processing fee
8This section also provides that such fees are exempted from the computation of the finance charge in extensions of credit secured by an interest in real property. See Pub. L. No. 104-29 §§ 2(a), (b) (1), (c)- (e) , 3(a), 198 Stat. 271, 272 (codified at 15 U.S.C. § 1604(e)(2) (Supp. 1997)).
14 is a fee charged to cover the processing of a loan and provides a
list of seven services covered by the fee. See Marshal Affidavit
at 5 19. Marshal further states that the $300 fee was included
in the TILA disclosure form under the finance charge at the line
entitled "Other Prepaid Finance Charges," which lists an amount
of $522.50. Despite plaintiffs' assertions to the contrary, they
fail to submit competent evidence to rebut defendant's evidence
and withstand summary judgment.9 Accordingly, the court finds
and rules that the $300 processing fee was included within the
disclosed finance charge, and thus there is no discrepancy
between that fee and the actual fee, listed in the HUD-1 as $300.
Defendant is thus entitled to summary judgment on this issue as
well.
Conclusion
For the reasons stated above, the court grants in part
defendant's motion for summary judgment (document 6). The
9The court further notes that, being loan related, the processing fee cannot serve as the basis for defendant's liability. See 15 U.S.C. § 1649(a) (1) (B) .
15 plaintiffs may go forward with their TILA claim, but only to the
extent not inconsistent with this order.
SO ORDERED.
Shane Devine, Senior Judge United States District Court
March 13, 1997
cc: Peter S. Wright, Jr., Esg. R. James Steiner, Esg.