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),

, 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,

(D.N.H. 1992) (guoting Anderson v.

Liberty Lobby, Inc.,

(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,,

(1986). It is not sufficient to "'rest upon mere

4 allegation[s] or denials of his pleading.'" LeBlanc v. Great Am.

Ins. C o .,

(1st Cir. 1993) (guoting

), 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.

.

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,

(1980) (guoting

).

TILA reguires that certain disclosures be made before credit

is extended. See

(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

4

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.

(a). Also required is

disclosure of the finance charge expressed as an "annual

percentage rate."

(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.,

(1st Cir. 1981).

When interpreting TILA, courts must liberally construe its

provisions in favor of borrowers. See Bizier v. Globe Financial

Servs.,

(1st Cir. 1981). This is because the Act,

as originally enacted, was "intended to balance scales thought to

be weighted in favor of lenders."

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.,

(6th Cir. 1996); Cowen v. Bank United of Texas,

FSB,

(7th Cir. 1995); Fairley v. Turan-Folev

Imports, Inc.,

(5th Cir. 1995); Hernandez v.

Vidmar Buick Co.,

(N.D. 111. 1996); cf.

Ritter v. Durand Chevrolet, Inc.,

(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.

(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.,

.5 Finally, such

an approach is particularly appropriate where, as here, a

plaintiff seeks an award of statutory damages, which TILA,

(a), caps at $1,000. See

(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."

(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,

. 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

.

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.

(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

(b), and that

disclosure be "in a form that the consumer may keep," see

(a). In addition, as the necessary information

likely was known to Assurance, its provision of estimates may

have violated

(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,

, et seg., as amended by

(a),

, and

(a),

-

(codified at

(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.

(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.,

, 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,

, 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

(a)(3)(A). Consequently, a creditor will have no

civil liability with respect to any such disclosure.

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

(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; . . . .

. 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

defendant is entitled to summary judgment on this issue.

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

2(a), (b) (1), (c)- (e) , 3(a),

, 272 (codified at

(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

(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.

16