Bartlett v. COM'L FEDERAL S. & L. ASS'N, OF OMAHA
Decision Date | 24 June 1977 |
Docket Number | Civ. No. 75-0-423. |
Parties | James J. BARTLETT, Plaintiff, v. COMMERCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION, OF OMAHA, NEBRASKA, a Federal Savings and Loan Association, Defendant. |
Court | U.S. District Court — District of Nebraska |
David J. Lanphier and Richard Shinners, Omaha, Neb., for plaintiff.
William A. Tintsman, Omaha, Neb., for defendant.
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.
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.
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 loan disclosure statement does not mention this provision for acceleration of the debt upon sale of the mortgaged premises.
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).
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....
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