Haugen v. Western Federal Sav. and Loan Ass'n of Denver

• Decision Date: 03 August 1982
• Docket Number: No. 81SC191,81SC191
• Citation: 649 P.2d 323
• Parties: Raymond H. HAUGEN and Lois Haugen, Petitioners, v. WESTERN FEDERAL SAVINGS AND LOAN ASSOCIATION OF DENVER, Respondents.
• Court: Colorado Supreme Court

Page 323

649 P.2d 323

Raymond H. HAUGEN and Lois Haugen, Petitioners, v. WESTERN FEDERAL SAVINGS AND LOAN ASSOCIATION OF DENVER, Respondents.

No. 81SC191.

Supreme Court of Colorado, En Banc.

Aug. 3, 1982.

Robert A. Lehman, Denver, for petitioners.

Ann E. Fox, Janene B. Duthie, Robert V. Stailey, Terry L. Christopher, Denver, for respondents.

Joseph A. Davies, Curtis W. Shortridge, Denver, Attorneys for amicus curiae Joseph A. Davies, P. C.

R. Dale Tooley, Dist. Atty., Brooke Wunnicke, Chief Appellate Deputy Dist. Atty., Denver, for The People of the State of Colorado ex rel. Dale Tooley, Dist. Atty. in and for the Second Judicial Dist.

Fairfield & Woods, Patrick F. Kenney, Rocco A. Dodson, Denver, for amicus curiae Midland Federal Sav. and Loan Ass'n.

J. D. MacFarlane, Atty. Gen., Richard F. Hennessey, Deputy Atty. Gen., Mary J. Mullarkey, Sol. Gen., Marshall A. Snider, First Asst. Atty. Gen., Denver, for amicus curiae J. D. MacFarlane, Atty. Gen.

Harvey Simon, John E. Gunther, Washington, D. C., for amicus curiae Federal Home Loan Bank Bd.; Thomas P. Vartanian, Ralph W. Christy, Washington, D. C., of counsel.

Calkins, Kramer, Grimshaw & Harring, Victor L. Wallace, II, James S. Bailey, Jr., Thomas T. Tornow, Denver, for amicus curiae Sav. and Loan League of Colorado, Inc. ROVIRA, Justice.

We granted certiorari to review a decision of the Colorado Court of Appeals which affirmed the district court. Haugen v. Western Federal Savings and Loan Association, 633 P.2d 497 (Colo.App.1981). We affirm.

The facts of this case are not in dispute and will be briefly stated. In 1977 Richard and Joan Larson (Larsons) executed a promissory note for the benefit of Western Federal Savings and Loan Association (Western), a federally chartered savings and loan association, in the principal amount of $46,000 with interest at the rate of 8.75% per annum. The note was secured by a deed of trust encumbering residential property. The deed of trust contained a due-on-sale provision that allowed Western to accelerate the unpaid balance of the note upon sale of the property. ¹

In 1979 Raymond H. and Lois Haugen (Haugens) purchased the property from the Larsons. In lieu of declaring the promissory note due and payable under the due-on-sale clause, Western submitted an Assumption and Modification Agreement to the closing agent conducting the transfer of the property. The Agreement increased the interest rate on the promissory note to 11% per annum and was signed by the Haugens and Western. The day after the closing, the Haugens asked that the interest rate on the note be adjusted to 9.75% per annum, relying on section 38-30-165(1)(b), C.R.S.1973 (1981 Supp.) to support their request.

Western refused, claiming that as a federally chartered savings and loan association it was authorized by regulation ² issued by the Home Loan Bank Board (Board) to invoke the due-on-sale clause and that the regulation preempted state law, particularly the interest limitation found in section 38-30-165(1)(b), C.R.S.1973 (1981 Supp.).

The Haugens filed suit against Western, alleging that Western was bound by the provisions of section 38-30-165(1)(b), C.R.S.1973 (1981 Supp.), and thus was prohibited from increasing the interest rate on their promissory note by more than 1% per annum. Western filed a motion for summary judgment contending that there were no disputed issues of fact and it was entitled to judgment as a matter of law.

The trial court granted the defendant's motion, holding that federal regulations permitting federally chartered savings and loan associations to use "due-on-sale" clauses in their mortgage contracts preempted state restrictions set out in section 38-30-165, C.R.S.1973 (1981 Supp.). ³

The court of appeals, in affirming, held that the Home Owners Loan Act of 1933 (HOLA), 12 U.S.C. § 1464(a) (1976 & Supp. IV 1980), delegated to the Board the power to regulate federal savings and loan associations. Further, it held that regulations enacted by the Board precluded the application of Colorado's statutory 1% interest rate increase ceiling on mortgage assumptions to federally chartered savings and loan associations.

I.

Little benefit would be derived from an extended discussion or consideration of the arguments put forward by both parties since the issue in controversy has recently been decided by the United States Supreme Court.

In Fidelity Federal Savings & Loan Association v. de la Cuesta, --- U.S. ----, 102 S.Ct. 3014, 72 L.Ed.2d ---- (1982), the Court held that a regulation of the Federal Home Loan Bank Board ⁴ permitting federal savings and loan associations to use "due-on-sale" ⁵ clauses in their mortgage contracts preempted any restrictions imposed by state law on the exercise of these clauses.

In Fidelity Federal, supra, the borrower had given Fidelity Federal a deed of trust which contained a due-on-sale clause. On the transfer of the property, Fidelity Federal gave notice of its intent to enforce the due-on-sale clause, but agreed to consent to the transfer if the purchaser agreed to increase the interest rate on the loan secured by the property to the then prevailing market rate. The purchasers refused to accept this condition, and Fidelity Federal then exercised its option to accelerate the loan. When the loan was not paid, Fidelity Federal instituted a nonjudicial foreclosure proceeding.

The purchasers filed suit, seeking a judicial declaration that the due-on-sale clause was not enforceable unless Fidelity Federal first showed that the transfer had harmed its security interest. They also sought an injunction against any foreclosure proceedings based on the due-on-sale clause.

The trial court granted Fidelity Federal's motion for summary judgment, holding that the federal government had preempted regulation of federally chartered savings and loan associations. The California Court of Appeal for the Fourth Appellate District reversed that judgment. de la Cuesta...