Houston v. Atlanta Federal Sav. & Loan Ass'n

• Decision Date: 16 April 1976
• Docket Number: Civ. A. No. 74-119.
• Citation: 414 F. Supp. 851
• Parties: Andrew M. HOUSTON, Jr. and Constance M. Houston v. ATLANTA FEDERAL SAVINGS & LOAN ASSOCIATION.
• Court: U.S. District Court — Northern District of Georgia

414 F. Supp. 851

Andrew M. HOUSTON, Jr. and Constance M. Houston v. ATLANTA FEDERAL SAVINGS & LOAN ASSOCIATION.

Civ. A. No. 74-119.

United States District Court, N. D. Georgia, Atlanta Division.

April 16, 1976.

COPYRIGHT MATERIAL OMITTED

J. Stephen Clifford, G. W. Florence, Jr., Atlanta, Ga., for plaintiffs.

B. L. Johnson, Mitchell, Clarke, Pate & Anderson, Atlanta, Ga., for defendant.

ORDER

RICHARD C. FREEMAN, District Judge.

This is an action brought pursuant to the Truth-in-Lending provisions of the Federal Consumer Credit Protection Act, 15 U.S.C. § 1601, et seq. (hereinafter Truth-in-Lending Act) and Regulation Z, 12 C.F.R. § 226.1, et seq., promulgated pursuant thereto. The action was referred to a Bankruptcy Judge, acting as Special Master, who recommended entering judgment for defendant. The action is presently before the court on plaintiffs' objections to this recommendation. Plaintiff argues that the Special Master erred in concluding that defendant did not violate the Truth-in-Lending Act by improper disclosure of (1) the conditions under which a "late charge" for untimely payment of loan proceeds may be imposed; (2) the components of the amount financed; (3) the identity of the property subject to the security interest; and (4) the address of the defendant. These objections will be discussed seriatim.¹

Before proceeding to the merits of this action, some preliminary comments are warranted. In the first instance, it should be noted that this court disagrees with the Special Master's conclusion on remand that the party opposing the objections filed, if any, to the report of the Special Master need not file a brief or other document indicating opposition to the objections. See Paer v. Aetna Finance Co., Civil Action No. 74-1142 (N.D.Ga. May 14, 1975). Although this court generally rules upon unobjected to recommendations without further action by the parties, Rule 53(e)(2) provides that "application to the court for action upon the report and upon objections thereto shall be by motion and upon notice as prescribed in Rule 6(d)." (emphasis added). In this district, all "motions" must be accompanied by memoranda of law citing supporting authorities, Local Court Rule 91.1; and failure to file a brief or other document in response to the motion indicates that the motion is unopposed. Local Rule 91.2. Moreover, this court does not approve of the practice of incorporating by reference briefs filed before the Special Master as part of the objections presented to this court. If the parties rely generally upon all briefs and documents previously filed in the action in supporting or objecting to the Special Master's report, that report will effectively be lowered to the level of a mere amicus brief. Finally, although the reports of the Special Masters in this district are generally entitled to great deference and may constitute persuasive authority on a particular legal point, unapproved, or even summarily approved recommendations do not establish the law of this district on that point. If the parties seek to rely on the reasoning in a particular recommendation, the applicable portions of the recommendation should be made a part of the record in the instant case. E. g., Anthony v. Community Loan and Investment Corp., Civil Action No. 74-1602 (N.D.Ga. June 13, 1975); see Wimberly v. American Finance System of Decatur, Inc., Civil Action No. 74-1541 (N.D.Ga. June 12, 1975). This court would normally defer ruling on the issues sub judice pending the parties compliance with the above directions; however, on review of the questions presented, the court has determined that the issues presented are sufficiently clear to preclude the need for additional briefs.²

The action sub judice involves a loan covering plaintiff's residence consisting of a "First Mortgage Real Estate Note" in the amount of $44,900.00 secured by a first mortgage on the property in favor of defendant. The "total of payments" over the thirty year term of the loan is disclosed as $113,025.60, consisting of a finance charge of $69,039.60 and an amount financed disclosed as $43,986.00. Although it is unusual for a Truth-in-Lending action to involve sums of this magnitude, actions concerning security interests on residential property are not at all unusual. Most of these actions, however, involve second mortgages and so-called "home improvement" contracts, which are subject to the rescission provisions of 15 U.S.C. § 1635. E. g., Sellers v. Wollman, 510 F.2d 119 (5th Cir. 1975); Palmer v. Wilson, 502 F.2d 860 (9th Cir. 1974); Pedro v. Pacific Plan of California, 393 F.Supp. 315 (N.D.Cal.1975). Because "the creation or retention of a first lien against a dwelling to finance the acquisition of that dwelling", 15 U.S.C. § 1635(e), is specifically excepted from the rescission provisions of the Act, the issue in the instant case is whether plaintiffs may recover statutory damages and/or attorney's fees on account of the purported violations in issue. On the other hand, first mortgages, with a few exceptions, see note 3 infra, are not otherwise excluded from coverage under the Truth-in-Lending Act; and this court agrees with plaintiffs that deficiencies in a disclosure statement issued in mortgage transactions should generally be treated on an equal footing with any other consumer loan transaction. Cf. Atchison v. The Citizens & Southern National Bank, Civil Action No. 16568 (N.D.Ga. Dec. 13, 1972). Thus, although the courts have noted the difficulties attendant upon "efforts to bring order from this veritable chaos of technical language in the Truth-in-Lending Act," Jones v. Community Loan & Investment Corp., 526 F.2d 642, 648 n. 12 (5th Cir. 1976), it is nevertheless clear in either the normal consumer loan or the mortgage loan context that "Congress did not intend creditors to escape liability where only technical violations were involved." Pennino v. Morris Kirschman & Co., Inc., 526 F.2d 367, 370 (5th Cir. 1976). Accord Powers v. Sims and Levin Realtors, 396 F.Supp. 12, 20 (E.D.Va. 1975) (mortgage loan).³

The first "technical" violation raised by plaintiffs in their objections to the Special Master's report concerns the following disclosure contained on the Truth-in-Lending disclosure statement provided as part of the loan transaction, see Appendix "A": "If the monthly installments are not paid when due, a late charge in the amount of 4% of the total required monthly payment will be charged." Plaintiffs point out that the express terms of the mortgage note conflict with this disclosure, since the note provides that "any installment . . . due hereunder, or under the terms of said Security Deed, not . . . paid when due . . shall be subject to a "late charge" of four percent (4%) of the aggregate installment when paid more than 15 days after the due date thereof." See Appendix "B" (emphasis added). Plaintiffs argue that the conflict between the disclosure statement and the note with respect to accrual of liability for the 4% "late charge" is misleading and confusing in violation of Regulation Z, 12 C.F.R. § 226.6(c), which provides in relevant part as follows: "At the creditor's option, additional information or explanations may be supplied with any disclosure required . . . but none shall be stated, utilized, or placed so as to mislead or confuse the customer . . .." This court agrees.⁴

In considering this issue, the Special Master noted the absence of controlling authority on this point, ruling in effect that any violation with respect to the late charge disclosure was not actionable since violations may not be predicated on the general expression of purpose and intent found in Section 102 of the Act, 15 U.S.C. § 1601. Assuming arguendo that the broad language in this section, in and of itself, may not be used as a predicate for affirmative relief under the Act, the courts nevertheless often cite this section as a predicate for imposing liability for "technical" violations arising from other sections of the Act or of Regulation Z. E.g., Powers v. Sims and Levin Realtors, supra. See Thomas v. Myers-Dickson Furniture Co., 479 F.2d 740 (5th Cir. 1973). The "confusing and misleading" section of Regulation Z is effectively a "catch-all" for all violations not specifically fitting within a particular category. In fact, it may effectively be argued that the Truth-in-Lending regulations themselves give rise to such "confusing" disclosure statements that all such statements are per se violative of 12 C.F.R. § 226.6(c). Certainly the requirements of the Act have proved confusing to the courts; however, as noted above, difficulties with technical application of the act have not precluded imposition of liability for "confusing" disclosures. E. g., Pedro v. Pacific Plan of California, supra. This court has previously ruled that a disclosure statement which informs the consumer that the creditor claims a right he does not actually possess is "confusing and misleading" and constitutes a Truth-in-Lending violation. E. g., Gilbert v. Southern Discount Co., Civil Action No. 74-1417 (N.D.Ga. July 22, 1975) (failure to disclose limitation on an "after acquired property clause"). Accord, Wimberly v. Aetna Finance Co., Civil Action No. 74-1505 (N.D.Ga. March 31, 1975); Forrester v. Century Finance Co., Civil Action No. 74-859 (N.D.Ga. Nov. 29, 1974) (Henderson, J.); Kenney v. Landis Financial Group, Inc., 349 F.Supp. 939 (N.D.Iowa 1972). In the instant case, it makes no difference that the "grace period" afforded the consumer for payment of a loan installment is conferred by contract rather than by law; for it is clear that defendant herein may not collect the 4% late charge upon failure to pay the installment "when due." The disclosure statement, purporting to confer a non-existent right to immediately collect the late charge conflicts with the terms of the note, is thus confusing and misleading, and violates the Act. The court rejects the Special Master's...