Semar v. Platte Valley Federal Sav. & Loan Ass'n

• Citation: 791 F.2d 699
• Decision Date: 07 July 1986
• Docket Number: Nos. 85-5619,85-5654,s. 85-5619
• Parties: J. Lawrence SEMAR and Sybil C. Semar, Plaintiffs-Appellants/Cross-Appellees, v. PLATTE VALLEY FEDERAL SAVINGS & LOAN ASSOCIATION, Defendant-Appellee/Cross- Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 699

791 F.2d 699

55 USLW 2037

J. Lawrence SEMAR and Sybil C. Semar, Plaintiffs-Appellants/Cross-Appellees, v. PLATTE VALLEY FEDERAL SAVINGS & LOAN ASSOCIATION,

Defendant-Appellee/Cross- Appellant.

Nos. 85-5619, 85-5654.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Feb. 5, 1986.

Decided June 6, 1986.

As Amended July 7, 1986.

Dennis H. Doss, Doss & Cavett, Newport Beach, Cal., for plaintiffs-appellants/cross-appellees.

John L. Fort and Ryan Hirota, Long Beach, Cal., for defendant-appellee/cross-appellant.

Appeal from the United States District Court for the Central District of California.

Before FLETCHER, FERGUSON, and NELSON, Circuit Judges.

FERGUSON, Circuit Judge:

Plaintiffs J. Lawrence Semar and Sybil C. Semar appeal the district court's calculation of the amount they owe defendant Platte Valley Federal Savings & Loan Association under a Truth in Lending Act ("TILA") loan rescission. They argue that the district court erred by including interest and other loan charges. They also appeal the district court's calculation of attorney's fees awarded to them.

Defendant Platte Valley cross-appeals the district court's grant of rescission and award of attorney's fees. Platte Valley argues that a purely technical violation of TILA does not require rescission. The appeals are consolidated.

We affirm the district court's grant of rescission of the loan and award of attorney's fees. We modify the amount the Semars owe Platte Valley and the attorney's fees award. We remand for determination of who should bear reasonable sales costs from the 1985 sale of the property.

I.

In 1982 the Semars sought a long-term loan to pay off a one-year second trust deed loan on their house. Before they began shopping for the loan, they asked Ali Malekzadeh for advice. ¹ Malekzadeh cautioned against accepting a loan with a prepayment penalty clause, contacted lenders for them, and recommended United Financial Services ("United") as a potential lender.

On July 6, 1982 the Semars applied with United for a second trust deed loan on their house to replace the second trust deed loan coming due. United brokered the loan through defendant Platte Valley. On July 15 or 16, United told the Semars that Platte Valley insisted on a prepayment penalty clause. Though dissatisfied, the Semars signed the loan documents on July 16. ²

TILA required that the documents state specifically the last date on which the Semars could rescind the loan agreement without penalty. 15 U.S.C. Sec. 1635(a); ³ 12 C.F.R. Sec. 226.23(b)(5). ⁴ TILA's "buyer's remorse" provision allows borrowers three business days to rescind, without penalty, a consumer loan that uses their principal dwelling as security. 15 U.S.C. Sec. 1635(a). TILA and its regulations, issued by the Federal Reserve System, 12 C.F.R. Secs. 226.1-.29 ("Reg Z"), require the lender to provide a form stating the specific date on which the three-day rescission period expires. 15 U.S.C. Sec. 1635(a); 12 C.F.R. Sec. 226.23(b)(5). If the lending institution omits the expiration date and fails to cure the omission by subsequently providing the information, the borrower may rescind the loan within three years after it was consummated. 15 U.S.C. Sec. 1635(f). ⁵

Platte Valley's form omitted the expiration date, ⁶ although it stated that the rescission right expired three business days after July 16. Platte Valley concedes this technical violation of TILA. The Semars contend they were entitled to rescind the loan agreement for up to three years because of this violation.

The loan documents also contained a discrepancy of $1,274.75 between the total charges listed on the disclosure statement required by the Truth in Lending Act ("Disclosure Statement") ($10,079.27) and the total charges listed on the Closing Statement ($11,354.02). The Disclosure Statement listed the amount the Semars were told the loan charges would be; the Closing Statements listed the amount actually charged. The Semars contend they are entitled to rescind because of the discrepancy, which they claim is "material." The district court found the discrepancy not material.

The Semars made thirteen payments, totaling $26,655.33, but stopped making payments in September 1983. Platte Valley recorded a Notice of Default on January 23, 1984. The Semars sent a Notice of Rescission February 15, 1984. Platte Valley initiated foreclosure proceedings and on May 10, 1984 recorded a Notice of Sale for May 31, 1984.

On May 10, 1984, the Semars filed an action in federal district court for rescission under TILA. The district court preliminarily enjoined foreclosure on the Semars' house. The Semars filed for bankruptcy in October 1984, and the bankruptcy court ordered them to make monthly payments of $1,350.00 to Platte Valley. The Semars made two payments, totaling $2,700.00, by December 1984. They again defaulted. Thus, the total of the Semars' payments to Platte Valley was $29,355.33. Because the Semars could make no more payments, they agreed to the sale of their home. The district court dissolved its preliminary injunction, and the home was sold in early 1985 for $170,000.00. The district court placed the proceeds in an escrow account.

Before deciding whether rescission was proper, the district court asked the parties each to calculate the amount the Semars would owe Platte Valley if the court granted rescission. Under a TILA rescission, the security interest is dissolved, the lender returns the borrower's payments, and the borrower returns the loan proceeds, less any "finance or other charge." 15 U.S.C. Sec. 1635(b). ⁷

The Semars suggested a formula of the loan amount ($134,000.00) less all payments made ($29,355.33) less the loan expenses ($11,354.02) ⁸ less the civil penalty the district court would award against Platte Valley for violating TILA ($1,000.00), or $92,290.65. Platte Valley suggested a formula of the principal due ($131,649.70) plus accrued interest at 16.875% ($16,291.62) plus late charges ($1,771.40) plus foreclosure expenses ($1,046.15), or $150,758.87. This amount also happens to be what the Semars would have owed if the district court had not granted rescission but instead accelerated the loan.

The district court granted rescission, and used a formula of $147,941.32, ⁹ plus prospective interest from March 1984 at 13%, less a loan fee ($4,170.00) less mortgage insurance premiums ($78.16) less escrow fees ($421.50) less the civil penalty ($1,000.00), or $142,271.66 plus interest. In addition, the district court ordered that Platte Valley be reimbursed the expenses of the 1985 sale of the property. We agree with the Semars that this ruling should be remanded for consideration of the reasonableness of the sale costs and who should bear the costs. The district court ruled that the Semars were entitled to what was left of the $170,000 after Platte Valley received the $142,271.66 plus interest and the expenses for the sale of the house. The district court also awarded attorney's fees to the Semars at $100 an hour, lower than the $135 an hour rate that the Semars requested. Platte Valley did not contest the hourly rate requested by the Semars.

The Semars timely appeal the district court's calculation of the amount they owe Platte Valley and the hourly rate for attorney's fees. Platte Valley timely cross-appeals the order granting rescission and the award of attorney's fees. ¹⁰

II.

The Semars allege two grounds for rescission: the technical TILA violation of omitting the expiration date of their rescission right, and the "material" discrepancy between the total charges listed on the Disclosure Statement and the Closing Statement.

We review de novo the grant of rescission because it is based on statutory interpretation. Southeast Alaska Conservation Council, Inc. v. Watson, 697 F.2d 1305, 1309 (9th Cir.1983). We agree with the district court that the TILA violation entitled the Semars to rescission. We do not reach the issue of whether the discrepancy was sufficiently "material" to constitute another ground for rescission.

TILA and Reg Z contain detailed disclosure requirements for consumer loans. ¹¹ A lender's violation of TILA allows the borrower to rescind a consumer loan secured by the borrower's primary dwelling. 15 U.S.C. Sec. 1635(a). Technical or minor violations of TILA or Reg Z, as well as major violations, impose liability on the creditor and entitle the borrower to rescind. "To insure that the consumer is protected ... [TILA and Reg Z must] be absolutely complied with and strictly enforced." Mars v. Spartanburg Chrysler Plymouth, Inc., 713 F.2d 65, 67 (4th Cir.1983) (holding that technical violation, even if merely a "minor variation in language and type size" from TILA requirements, imposes liability); see also Huff v. Stewart-Gwinn Furniture Co., 713 F.2d 67, 69 (4th Cir.1983) (minor violations of TILA and Reg Z impose liability even if, as creditor alleged, consumer "was not misled and was given a meaningful and correct disclosure of crucial credit terms").

Reg Z "makes clear that failure to fill in the expiration date of the rescission form is a violation of the TILA." Williamson v. Lafferty, 698 F.2d 767, 768-69 (5th Cir.1983). ¹² Williamson held that the omission of the expiration date, though a purely technical violation of TILA, entitled the plaintiff to rescind the loan agreement for up to three years, without regard to whether the omission was material. Id. at 768; see also Aquino v. Public Finance Consumer Discount Co., 606 F.Supp. 504, 507 (E.D.Pa.1985) (omission of expiration date of rescission right gives borrower right to rescind loan).

The Semars argue that Williamson supports their right to rescind the loan for up to three years after it was consummated. Platte Valley concedes the technical violation of TILA, but urges this court to distinguish cases like Williamson, because of their more sympathetic facts, ¹³ and to establish equitable discretion to vary the terms of...