Bartlett v. COM'L FEDERAL S. & L. ASS'N, OF OMAHA

Decision Date24 June 1977
Docket NumberCiv. No. 75-0-423.
PartiesJames J. BARTLETT, Plaintiff, v. COMMERCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION, OF OMAHA, NEBRASKA, a Federal Savings and Loan Association, Defendant.
CourtU.S. District Court — District of Nebraska

David J. Lanphier and Richard Shinners, Omaha, Neb., for plaintiff.

William A. Tintsman, Omaha, Neb., for defendant.

MEMORANDUM AND ORDER

DENNEY, District Judge.

This matter is before the Court upon the parties' cross-motions for summary judgment Filings # 14 and # 18. The action concerns a loan extended by the defendant to the plaintiff in October, 1974, for the purchase of the plaintiff's residence, secured by a first mortgage on the property in favor of the defendant. The plaintiff alleges five separate violations of the Truth-in-Lending sections of the Consumer Credit Protection Act the Act, 15 U.S.C. § 1601 et seq. and Regulation Z, 12 C.F.R. § 226.1 et seq.

15 U.S.C. § 1639 requires the disclosure in connection with consumer loans other than "open end credit plans"1 of specific terms and charges for the extension of credit. 12 C.F.R. § 226.8 contains the implementing regulations by the Federal Reserve Board for this portion of the Act.

The transaction is evidenced by the following documents Filing # 1: A. the defendant's disclosure statement, B. the mortgage note executed by the plaintiff, as the borrower, to secure the loan, C. the mortgage loan commitment, D. the borrower's loan settlement statement and E. the mortgage agreement.

The plaintiff, in his second cause of action, alleges that the defendant's disclosure statement fails to set forth "a clear identification of the property to which the security interest relates" as required by 12 C.F.R. § 226.8(b)(5).2

The disclosure statement recites the address of the real property securing the loan and further states that "the documents executed in connection with this transaction cover all after-acquired property ..." The plaintiff asserts that this after-acquired property clause conflicts with state law, inaccurately describes the security interest and confuses borrowers.

Neb.Rev.Stat. § 9-204(4)(b) (Reissue 1971) of the Uniform Commercial Code as adopted in Nebraska restricts the scope of security interests which purport to cover after-acquired property. The section states that

(4) No security interest attaches under an after-acquired property clause . .
(b) to consumer goods other than accessions . . . when given as additional security unless the debtor acquires rights in them within ten days after the secured party gives value.

Under this provision, an interest in after-acquired property may reach consumer goods acquired by the debtor within ten days of the credit transaction; while such goods other than accessions acquired by the debtor thereafter are not subject to the lender's security interest.

The defendant contends that by use of the language "all after-acquired property" it did not seek or intend to take a security interest in any personal property or consumer goods. Instead, the defendant urges that when read in context, the language covers only additions, improvements or fixtures subsequently added to the mortgaged premises. In its brief, the defendant concedes that the phrase used is perhaps imprecise, but denies that borrowers would be confused.

Courts considering the question in the context of chattel mortgages have consistently ruled that disclosure of an after-acquired property clause without further explanation of the ten day limitation on personal property subject to the security interest misleads and confuses borrowers in violation of 12 C.F.R. § 226.6(c) and fails to comply with 12 C.F.R. § 226.8(b)(5), which calls for a "clear identification of the property" securing the loan. Emphasis added. See Pollock v. Gen. Fin. Corp., 535 F.2d 295, 299 (5th Cir. 1976); aff'd on Rehearing, 552 F.2d 1142, 1144-45 (5th Cir. 1977); Tinsman v. Moline Beneficial Fin. Co., 531 F.2d 815, 818-19 (7th Cir. 1976); Ecenrode v. Household Fin. Corp. of S. Dover, 422 F.Supp. 1327, 1330-31 (D.Del.1976); Willis v. Town Fin. Corp. of Atlanta, 416 F.Supp. 10, 11-13 (N.D.Ga.1976); Sneed v. Beneficial Fin. Co. of Hawaii, 410 F.Supp. 1135, 1138-45 (D.Hawaii 1976); In re Dunne, 407 F.Supp. 308, 310-11 (D.R.I.1976); Woods v. Beneficial Fin. Co. of Eugene, 395 F.Supp. 9, 14-15 (D.Or.1975); Johnson v. Assoc. Fin., Inc., 369 F.Supp. 1121, 1122-23 (S.D.Ill. 1974); Kenney v. Landis Fin. Group, Inc., 349 F.Supp. 939, 950-51 (N.D.Iowa 1972). See also the opinion by Chief Judge Warren K. Urbom of this District in Ballew v. Assoc. Fin. Serv. Co. of Neb., Inc., Civ.No. 75-L-119 (D.Neb.12/28/76), in which the court stated,

The defendant argues that the financing statement confers no rights on the parties. That, however, does not lessen the attempt to mislead and confuse the borrower. I find that such clause violates § 226.6(c) of Regulation Z. Id. at 16.

Even if the Court were to agree with the defendant that in the context of a real estate mortgage and the disclosure notice read as a whole, the language "all after-acquired property" is unlikely to be understood as encompassing household goods, automobiles or other personal property, there is certainly no clear identification of the additional collateral the security interest is intended to cover. "Describing a security interest where there is none" has been held to be "additional and misleading information." Ives v. W. T. Grant Co., 522 F.2d 749, 761 (2nd Cir. 1975).3 By the defendant's own admission, the language used is inaccurate. Partial summary judgment will therefore be entered in favor of the plaintiff in his second cause of action.

The plaintiff's fifth cause of action asserts that the disclosure notice "does not accurately describe the terms of payment as required by 12 C.F.R. § 226.8(b)(3)," in that it fails to "disclose that full payment is due upon resale of the residence." The mortgage document provides that in the event of default, which includes "(d) ... any change in the ownership of the real estate mortgaged herein by sale, either outright or by land contract, or by assignment of any interest thereon or otherwise,"

then the whole indebtedness hereby secured shall, at the option of Commercial, immediately become due and payable without further notice, and the amount due under said note and any other note for additional advances made shall, from the date of the exercise of said option, bear interest at the maximum legal rate per annum, and this mortgage may then be foreclosed to satisfy the amount due on said note, and any other note for additional advances, together with all sums paid by Commercial for insurance, taxes, assessments and abstract extension charges, with interest thereon from the date of payment at the maximum legal rate.

The loan disclosure statement does not mention this provision for acceleration of the debt upon sale of the mortgaged premises.

12 C.F.R. § 226.8(b)(3) requires disclosure of "the number, amount and due dates or periods" of "scheduled" payments and the "sum" or "total of payments," i. e.,

the number, amount and due dates or periods of payments scheduled to repay the indebtedness ....

Emphasis added.

As acceleration of the unpaid balance of the loan can occur only upon "default" as defined in the mortgage instrument, clearly the right to accelerate the obligation is not a "scheduled" payment within the meaning of 12 C.F.R. § 226.8(b)(3).

However, such acceleration or "due on sale" clauses have been discussed as possible "default" charges within 12 C.F.R. § 226.8(b)(4). Section 226.8(b)(4) requires disclosure of

the amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments.

Emphasis added.

There is considerable controversy concerning whether a right to accelerate the debt in the event of default is a "default, delinquency, or similar charge" within the meaning of this provision.

In Garza v. Chicago Health Clubs, Inc., 347 F.Supp. 955, 959 (N.D.Ill.1972), the court defined "charge" as "obligation," "claim" or "pecuniary burden." In light of these definitions and the purposes of the Act "to inform consumers of credit costs and terms so they can effectively choose between sources of credit," the court construed the right to accelerate the balance of a debt as a "charge" within 12 C.F.R. § 226.8(b)(4).

The court in Kessler v. Assoc. Fin. Serv. Co. of Hawaii, 405 F.Supp. 122, 123-26 (D.Hawaii 1975), adopted the similar view that a "charge" refers to "any pecuniary burden or payment assessed by the lender upon default." Id. at 126. Therefore, the lender's right upon default to require immediate payment of all installments must be set forth in the disclosure statement.

In Woods v. Beneficial Fin. Co. of Eugene, supra, 395 F.Supp. at 15-16, the court decided that so long as no additional total financial cost is imposed, the right to accelerate the entire amount due is not a "default, delinquency or similar charge." However, a lender must disclose such a right in order to comply with the underlying policy of the Act to require "meaningful disclosure," 15 U.S.C. § 1601.

In the Ninth Circuit, acceleration charges must be disclosed. See LaGrone v. Johnson, 534 F.2d 1360, 1362 (9th Cir. 1976); Clausen v. Beneficial Fin. Co. of Berkeley, 423 F.Supp. 985, 988-89 (N.D.Cal.1976).

In contrast to these decisions, the Fifth Circuit Court of Appeals has recently decided that "neither an acceleration clause nor the lender's rebate policy with respect to acceleration clauses must be disclosed under the Truth-in-Lending Act." McDaniel v. Fulton Nat. Bank of Atlanta, 543 F.2d 568, 569 (5th Cir. 1976), citing Martin v. Comm'l Sec. Co., Inc., 539 F.2d 521 (5th Cir. 1976). In Martin v. Comm'l Sec. Co., supra, 539 F.2d at 526-29, the Fifth Circuit ruled that a creditor's right to accelerate the maturity date of a loan is not a "charge" but a contractual remedy, i....

To continue reading

Request your trial
11 cases
  • Garza v. Allied Finance Co.
    • United States
    • Court of Appeals of Texas. Court of Civil Appeals of Texas
    • April 20, 1978
    ...motion for summary judgment. See Ives v. W. T. Grant Company, 522 F.2d 749 (2nd Cir. 1975); Bartlett v. Commercial Federal Savings & Loan Association of Omaha, Nebraska, 433 F.Supp. 284 (D.Neb.1977); McDonald v. Savoy, 501 S.W.2d 400 (Tex.Civ.App. San Antonio 1973, no writ). The disclosure ......
  • Shroder v. Suburban Coastal Corp.
    • United States
    • U.S. District Court — Southern District of Florida
    • September 29, 1982
    ...disclosed. The only authority cited by the parties interpreting and applying § 226.8(b)(6) of Regulation Z is Bartlett v. Commercial Federal Savings, 433 F.Supp. 284 (D.Neb.1977). In Bartlett the Court The Court finds that the defendant has adequately disclosed "any penalty charge that may ......
  • Hodge v. Paoli Memorial Hospital
    • United States
    • U.S. District Court — Eastern District of Pennsylvania
    • June 24, 1977
    ...... presented in these cases is whether the receipt of federal funds under the Hill-Burton Act, 42 U.S.C. § 291 et seq.,1 ......
  • In re Samsa
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania
    • April 27, 1988
    ...Reid v. Liberty Consumer Discount Co. of Pennsylvania, 484 F.Supp. 435 (E.D.Pa.1980); Bartlett v. Commercial Federal Savings and Loan Association of Omaha, 433 F.Supp. 284 (D.Neb.1977); see also Griggs v. Provident Consumer Discount Co., 680 F.2d 927 (3d Cir.1982), vacated, 459 U.S. 56, 103......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT