OPINION
EMIL F. GOLDHABER, Chief Judge:
The multiplicity of issues brought forth by a debtor’s objection to a creditor’s proof of claim centers around the debtor’s contention that the claim should be reduced because the creditor (1) violated the Federal Truth-In-Lending Act, (“the TILA”), 15 U.S.C. 1601 (1976) et seq., (2) expended costs and attorney’s fees in an improperly brought foreclosure proceeding and (3) exacted attorneys’ fees in excess of the amount allowed in the mortgage agreement. For the reasons stated below, we find that the state foreclosure proceeding was properly brought, attorney’s fees were limited to the amount specified in the mortgage agreement but the claim will be reduced due to a violation of the TILA.
The facts of this case are as follows:
In 1980 the debtor borrowed funds from the Central Mortgage Company (“Central”) to finance the purchase of a home, in exchange for which the debtor granted Central a mortgage on the property which was insured by the Federal Housing Administration (“FHA”). The mortgage agreement contained a cap of 5% on attorney’s fees for proceedings related to default. When the documents were exchanged, the debtor received a disclosure statement which indicated that the total finance charge on the loan was $14,196.36 but that figure did not include the cost of mortgage insurance which was exacted at a rate of $3.21 per month.
Three years later, after apparently suffering financial hardship, the debtor defaulted on her mortgage payments. She subsequently filed a petition for the repayment of her debts under chapter 13 of the Bankruptcy Code (“the Code”) and the state action was automatically stayed by 11 U.S.C. § 362(a). Central filed a proof of claim for $3,619.76 which included the ar-rearages due on the mortgage plus costs
and $1,040.80 for attorney’s fees. The unpaid principal balance is currently $7,291.90.
The debtor duly objected to the proof of claim, (1) maintaining that the costs of the foreclosure proceeding should be excluded because the action was not properly brought under HUD guidelines for mortgage foreclosure, (2) asserting violations of the TILA that would allow the debtor to recoup $1,000.00 of the claimed amount, plus attorney’s fees, and (3) claiming a reduction in attorney’s fees to the 5% cap specified in the mortgage.
We will begin our discussion with the TILA, a federal statute which regulates the terms and conditions of consumer credit. Its congressionally declared purpose is to assure the informed use of credit through a meaningful disclosure of credit terms so that consumers may more readily compare different financing options and costs. 15 U.S.C. § 1640.
In Re DiCianno,
58 B.R. 810 (Bankr.E.D.Pa.1986). For all loans which fall within its purview, the TILA requires a creditor to issue the debtor a disclosure statement summarizing certain information found in the loan documents. The information which must be disclosed is defined in the TILA and Regulation Z, 12 C.F.R. § 226.1 et seq. “Enforcement is achieved in part by a system of strict liability in favor of the consumers who have secured financing when the standards [of disclosure] have not been met.”
Thomka v. A.Z. Chevrolet, Inc.,
619 F.2d 246, 248 (3rd Cir.1980). There are only two exceptions to the strict liability standard; either the error must be rectified in writing within fifteen days of discovery, 15 U.S.C. § 1640(b), or the error must be an unintentional, bona fide error, 15 U.S.C. § 1640(c).
Thomka,
619 F.2d at 248. This second exception has been construed to mean “clerical error”.
Thomka,
619 F.2d at 250. Central has not contended that either of these exceptions are applicable here.
Upon a creditor’s failure to make necessary disclosures, the TILA provides a debt- or with several remedies among which is an award of actual damages, attorney’s fees and an additional award of up to $1,000.00. 15 U.S.C. § 1640(a).
Under § 1640(a)(1)
and (a)(3) actual damages, attorney’s fees and costs may be awarded in any successful action to enforce liability under the TILA or in any case in which a party has a right of rescission under the TILA. In an individual action, rather than a class action, the aggrieved party is also eligible under § 1640(a)(2)(A)(i) for twice the amount of the finance charge of the loan — but in an amount not less than $100 nor more than $1,000.00 — if the violation is of the type specified in the statutory language following § 1640(a)(3). § 1640(a). An award under § 1640(a)(2)(A)(i) may be predicated on,
inter alia,
violations of 15 U.S.C. § 1635 or 15 U.S.C. § 1638(a)(3), (a)(4), (a)(5), (a)(6) or (a)(9) plus § 1638(a)(2) (insofar as it requires a disclosure of the “amount financed”). Section 1638(a)(3) requires that the disclosure statement reveal:
(3) The “finance charge”, not itemized, using that term.
15 U.S.C. § 1638(a)(3). The “finance charge” is defined as including the “[premium or other charge for any guarantee or insurance protecting the creditor against the obligor’s default or other credit loss.” 15 U.S.C. § 1605(a)(5).
In certain instances the cost of the insurance need not be included in the “amount financed” under exclusions found at 15 U.S.C. § 1605(b).
Applying this authority to the case before us, it is clear that Central did not include the cost of the mortgage insurance in calculating the “finance charge.” This is a prima facie violation of § 1638(a)(3) due to the language of
§ 1605(a).
Central has failed to meet any of the conditions for excluding the cost of the mortgage insurance in calculating the “finance charge” as is allowable under § 1605(b).
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OPINION
EMIL F. GOLDHABER, Chief Judge:
The multiplicity of issues brought forth by a debtor’s objection to a creditor’s proof of claim centers around the debtor’s contention that the claim should be reduced because the creditor (1) violated the Federal Truth-In-Lending Act, (“the TILA”), 15 U.S.C. 1601 (1976) et seq., (2) expended costs and attorney’s fees in an improperly brought foreclosure proceeding and (3) exacted attorneys’ fees in excess of the amount allowed in the mortgage agreement. For the reasons stated below, we find that the state foreclosure proceeding was properly brought, attorney’s fees were limited to the amount specified in the mortgage agreement but the claim will be reduced due to a violation of the TILA.
The facts of this case are as follows:
In 1980 the debtor borrowed funds from the Central Mortgage Company (“Central”) to finance the purchase of a home, in exchange for which the debtor granted Central a mortgage on the property which was insured by the Federal Housing Administration (“FHA”). The mortgage agreement contained a cap of 5% on attorney’s fees for proceedings related to default. When the documents were exchanged, the debtor received a disclosure statement which indicated that the total finance charge on the loan was $14,196.36 but that figure did not include the cost of mortgage insurance which was exacted at a rate of $3.21 per month.
Three years later, after apparently suffering financial hardship, the debtor defaulted on her mortgage payments. She subsequently filed a petition for the repayment of her debts under chapter 13 of the Bankruptcy Code (“the Code”) and the state action was automatically stayed by 11 U.S.C. § 362(a). Central filed a proof of claim for $3,619.76 which included the ar-rearages due on the mortgage plus costs
and $1,040.80 for attorney’s fees. The unpaid principal balance is currently $7,291.90.
The debtor duly objected to the proof of claim, (1) maintaining that the costs of the foreclosure proceeding should be excluded because the action was not properly brought under HUD guidelines for mortgage foreclosure, (2) asserting violations of the TILA that would allow the debtor to recoup $1,000.00 of the claimed amount, plus attorney’s fees, and (3) claiming a reduction in attorney’s fees to the 5% cap specified in the mortgage.
We will begin our discussion with the TILA, a federal statute which regulates the terms and conditions of consumer credit. Its congressionally declared purpose is to assure the informed use of credit through a meaningful disclosure of credit terms so that consumers may more readily compare different financing options and costs. 15 U.S.C. § 1640.
In Re DiCianno,
58 B.R. 810 (Bankr.E.D.Pa.1986). For all loans which fall within its purview, the TILA requires a creditor to issue the debtor a disclosure statement summarizing certain information found in the loan documents. The information which must be disclosed is defined in the TILA and Regulation Z, 12 C.F.R. § 226.1 et seq. “Enforcement is achieved in part by a system of strict liability in favor of the consumers who have secured financing when the standards [of disclosure] have not been met.”
Thomka v. A.Z. Chevrolet, Inc.,
619 F.2d 246, 248 (3rd Cir.1980). There are only two exceptions to the strict liability standard; either the error must be rectified in writing within fifteen days of discovery, 15 U.S.C. § 1640(b), or the error must be an unintentional, bona fide error, 15 U.S.C. § 1640(c).
Thomka,
619 F.2d at 248. This second exception has been construed to mean “clerical error”.
Thomka,
619 F.2d at 250. Central has not contended that either of these exceptions are applicable here.
Upon a creditor’s failure to make necessary disclosures, the TILA provides a debt- or with several remedies among which is an award of actual damages, attorney’s fees and an additional award of up to $1,000.00. 15 U.S.C. § 1640(a).
Under § 1640(a)(1)
and (a)(3) actual damages, attorney’s fees and costs may be awarded in any successful action to enforce liability under the TILA or in any case in which a party has a right of rescission under the TILA. In an individual action, rather than a class action, the aggrieved party is also eligible under § 1640(a)(2)(A)(i) for twice the amount of the finance charge of the loan — but in an amount not less than $100 nor more than $1,000.00 — if the violation is of the type specified in the statutory language following § 1640(a)(3). § 1640(a). An award under § 1640(a)(2)(A)(i) may be predicated on,
inter alia,
violations of 15 U.S.C. § 1635 or 15 U.S.C. § 1638(a)(3), (a)(4), (a)(5), (a)(6) or (a)(9) plus § 1638(a)(2) (insofar as it requires a disclosure of the “amount financed”). Section 1638(a)(3) requires that the disclosure statement reveal:
(3) The “finance charge”, not itemized, using that term.
15 U.S.C. § 1638(a)(3). The “finance charge” is defined as including the “[premium or other charge for any guarantee or insurance protecting the creditor against the obligor’s default or other credit loss.” 15 U.S.C. § 1605(a)(5).
In certain instances the cost of the insurance need not be included in the “amount financed” under exclusions found at 15 U.S.C. § 1605(b).
Applying this authority to the case before us, it is clear that Central did not include the cost of the mortgage insurance in calculating the “finance charge.” This is a prima facie violation of § 1638(a)(3) due to the language of
§ 1605(a).
Central has failed to meet any of the conditions for excluding the cost of the mortgage insurance in calculating the “finance charge” as is allowable under § 1605(b). Due to this violation, Central is liable for twice the amount of the true finance charge (subject to the upper limit of $1,000.00) under § 1640(a)(2)(A)(i) and for costs and attorney’s fees under § 1640(a)(3). Since the finance charge is over $500.00, the debtor is entitled to re-coupment in the amount of $1,000.00, plus attorney’s fees and costs. No actual damages have been proven under § 1640(a)(1).
The debtor’s second objection is to the inclusion in the proof of claim of costs and attorney’s fees expended for the state foreclosure proceeding. She contends that Central failed to comply with HUD regulations in foreclosing on the mortgage. However, it has been established that HUD regulations on federally insured private mortgages were recommendations only and not prerequisites for the institution of foreclosure proceedings.
Encarnacion Hernandez v. Prudential Mortgage Corp.,
553 F.2d 241 (1st Cir.1977). Thus, there is no legal basis for excluding Central’s claim for costs and attorney’s fees expended on the foreclosure.
Perhaps anticipating the lack of legal precedent for declaring the foreclosure improper, the debtor further requests us to invoke an equitable remedy. We see no basis for that type of relief and we will accordingly deny the request.
The debtor’s last objection is on the allowance of attorney’s fees in excess of the 5% of the unpaid principal balance as specified in the mortgage agreement. The allowance of attorney’s fees in a proof of claim is primarily accomplished through 11 U.S.C. § 506(b) of the Code which states:
(b) To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of -this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided under the agreement under which such claim arose.
11 U.S.C. § 506(b). Under this provision the allowance of attorney’s fees is governed by the agreement between the parties and should be strictly construed.
In Re Tolan,
41 B.R. 751, 753 (Bankr.M.D.Tenn.1984),
In Re Cosby,
33 B.R. 949 (Bankr.E.D.Pa.1983). The mortgage agreement at issue limits the mortgagee’s recovery of attorney’s fees to 5% of the principal debt, which in the instant case amounts to $364.59.
In summary, Central sought in the proof of claim,
inter alia,
attorney’s fees in the amount of $1,040.80, but we will reduce this sum by $676.21 in order to meet the cap of $364.59. We will also grant the debtor’s request for a reduction of the creditor’s proof of claim of $1,000.00 due to recoupment on the TILA violation and thus reduce the claim by a total of $1,676.21. We will also set a hearing to determine the amount of attorney’s fees to be awarded to the debtor under the TILA. We will enter an appropriate order.