In re Bell
| Decision Date | 14 April 2004 |
| Docket Number | Adversary No. 01-392 KJC.,Bankruptcy No. 01-14420 KJC. |
| Citation | 309 B.R. 139 |
| Parties | In re Maxine B. BELL, Debtor. Maxine B. Bell, and Edward Sparkman, Trustee, Plaintiffs, v. Parkway Mortgage, Inc., and Stephen Flacco, t/a Wharton Investments Network, Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
David A. Scholl, Law Office of David A. Scholl, Newtown Square, PA, for Debtor/Plaintiff.
Alan C. Gershenson, Paul H. Schieber, Blank, Rome, Comisky & McCauley, Philadelphia, PA, Anthony M. Pugliese, Madden, Madden & Del Duca, Haddonfield, NJ, for Defendants.
On May 30, 2001, Maxine B. Bell (the "Debtor") and the chapter 13 trustee Edward Sparkman (together, the "Plaintiffs") filed a complaint against Parkway Mortgage, Inc. ("Parkway") and Stephen Flacco, t/a Wharton Mortgage Investments ("Wharton") asserting claims in connection with an alleged predatory loan transaction that occurred on June 30, 1999 (the "Closing Date"). The Debtor filed an amended complaint on February 5, 2002 (the "Amended Complaint"), as permitted by an amended pre-trial order dated January 22, 2002. The Amended Complaint asserts four counts against the defendants as follows:
• Count I seeks rescission of the loan transaction, statutory damages and attorney fees against Parkway for violations of the Home Ownership Equity Protection Act, 15 U.S.C. § 1639(a) et seq. ("HOEPA") and the Truth in Lending Act, 15 U.S.C. § 1601 et seq., ("TILA");
• Count II seeks an order invalidating the mortgage (see Ex. D-3, the "Mortgage") dated June 30, 1999 given by the Debtor to Parkway as security for the Balloon Note (see Ex. P-1) for failure to obtain a proper notarization;
• Count III seeks statutory and punitive damages and attorney fees against Parkway and Wharton, jointly and severally, based upon Wharton's fraudulent conduct, breach of fiduciary duty to the Debtor and violation of the Pennsylvania Credit Services Act, 73 P.S. § 2188(c)(2); and
• Count IV seeks treble damages and attorney fees against Parkway and Wharton, jointly and severally, for their violations of the Pennsylvania Home Improvement Finance Act, 73 P.S. § 500-101 et seq. ("HIFA") and the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq., ("CPL").
On February 7, 2002, Parkway filed an answer to the Amended Complaint, including a cross-claim against Wharton.2 On February 11, 2002, Wharton filed an answer to the Amended Complaint, including a cross-claim against Parkway.3 The parties filed a Joint Pre-Trial Statement on March 20, 2003 (the "JPS"), which was amended by Wharton on March 27, 2003. Trial was held on April 3, 2003 and, thereafter, the parties each filed proposed findings of fact and conclusions of law.
The Debtor is a high school graduate, who attended more than three years of college courses at Temple University. (Tr. at 47-48).4 She has worked for the Social Security Administration for twenty years. (Tr. at 7). The Debtor owns real property located at 1619 Olive Street, Philadelphia, PA (the "Property"). The Debtor responded to a newspaper advertisement offering the possibility of free home improvements. (Tr. at 6). A few months later, she began to get telephone solicitations from an individual named "Vince" regarding home repair work, and she believes he obtained information about her based upon her response to the advertisement, since her phone number is unlisted.5 (Tr. at 6-7). She agreed to make an appointment with him at her home. (Tr. at 8). They discussed various work that she needed done on the house and agreed that Vince would try to provide financing and a contractor so that she could have approximately $8,000 to $8,500 worth of improvements made to the walls of her Property. (Tr. at 8-9). The Debtor understood from the beginning that Vince was a broker and not a contractor. (Tr. at 48).
Vince asked the Debtor to make a list of her monthly bills and then suggested that he could consolidate her monthly payments by trying to obtain financing that would include the home repair loan, refinance of two mortgages she had on the Property and payment of some of the Debtor's other bills. (Tr. at 14). In their discussions, she told him that the new mortgage payments should be approximately $450 to $470 per month, and the duration of the loan should be no more than 15 years. (Tr. at 15-16). Vince said that interest would be at "market rate." (Tr. at 16). There were no discussions about a balloon payment. (Id.). The only person she spoke to in connection with obtaining a loan was Vince. (Tr. at 11).
On June 30, 1999, Vince brought a number of documents to the Debtor's residence for her to sign. (Tr. at 11). Although the Debtor's daughter was home at the time, only the Debtor and Vince were present when she signed the documents. (Tr. at 13). Vince briefly explained the papers that he asked her to sign, so she didn't look at them or question them because she trusted that "he was handling everything for [her]." (Tr. at 59-60).
The Debtor admitted that her signature appears on the Federal Truth-in-Lending Disclosure Statement (Ex. D-1), Notice of Right to Cancel (Ex. D-2), and Mortgage (Ex. D-3), but she maintains that a lot of the papers Vince gave her to sign had blank spaces. (Tr. at 15-22). Steven Sacks, the notary on the Mortgage, was not present at signing. (Tr. at 22-23). The Debtor testified that she did not sign the HUD-1 Settlement Statement dated June 30, 1999. (Ex. D-4; Tr. at 23). She testified that she signed the second page of the Balloon Note, but claimed she signed it without ever seeing the first page, which contains the repayment terms, or the third page addendum, which sets forth a prepayment penalty. (Ex. P-1; Tr. at 56-57). She did not receive copies of any of the signed documents on June 30, 1999, but received copies later, when Vince returned with checks for her. (Tr. at 20, 55).
The Truth-in-Lending Disclosure Statement provides that the Debtor's payment schedule for the loan consisted of 179 payments of $599.84 each starting August 4, 1999 and one final payment of $53,960.54 on July 4, 2014. (Ex. D-1).
After June 30, 1999, Vince sent Steven Sacks to the Debtor's home to perform the home repairs. (Tr. at 30). The Debtor never entered into a written contract with the contractor. (Tr. at 11). The parties relied upon the written description and estimate prepared by Vince. (Id.). Mr. Sacks' workers performed home repair services for about three or four weeks, but the Debtor called Vince constantly during that time to complain about the poor quality of the work being done. (Id.). The Debtor offered into evidence photographs of the problems caused by the workers (Exs.D-12(a) to D-12(j), Tr. at 32-36).
A few weeks after June 30, 1999, Vince returned to the Debtor's house to give her four checks (Ex. D-4A; Tr. at 25). The first check, no. 6858, in the amount of $1,800 was used to make her first three loan payments. (Tr. at 38). The Debtor testified that when Vince brought her the checks representing the cash proceeds, she saw the statement from Parkway indicating that the monthly payment was $599 and told Vince it was more than what she had agreed to pay. (Tr. at 54-55). Vince told the Debtor that he had put aside $1,800 for the first three months of payments on the Parkway loan and, after she made those "good faith" payments, he assured her that he would find another loan to replace the Parkway loan that had a lower monthly payment. (Tr. at 17-18, 54-56).
The second check, no. 6859, in the amount of $8,000, was for the home improvement work. (Tr. at 38). The Debtor testified that the signature that appears on the back of check no. 6859, above the signature of the contractor, is not hers. (Id.). The third check, no. 6860, in the amount of $251, was used to pay for insurance. (Tr. at 39-40; Ex. P-5). The fourth check, no. 6861, in the amount of $3,726.53, represented the cash proceeds that the Debtor received and deposited into her account, along with the check for $1,800. (Tr. at 40, 76-77).
The Debtor made 15 monthly payments to Parkway. (Tr. at 44). On January 12, 2001, the Debtor's counsel sent a letter to Parkway electing to rescind the loan transaction pursuant to TILA. (JPS, ¶ II.2; Ex. D-5). Parkway's counsel responded by letter dated February 12, 2001, disputing the Debtor's right to rescind. (JPS, ¶ II.3; Ex. D-6). On March 27, 2001, the Debtor filed a voluntary petition under chapter 13 of the United States Bankruptcy Code. The Debtor commenced this adversary proceeding on May 30, 2001. On or about July 12, 2002, Key Home Equity Service, Parkway's assignee, filed a proof of claim in the Debtor's bankruptcy case in the amount of $66,783.04. (Ex. D-7).
In Count I of the Amended Complaint, the Debtor claims that the subject loan transaction was a closed-end consumer financing transaction within the scope of HOEPA and TILA, and that she was not provided with the disclosures required by the statutes. (Compl.¶¶ 22-23). As a result, the Debtor claims that she is entitled to rescind the loan. (Id.).
In 1968, Congress enacted TILA to govern the terms and conditions of consumer credit by requiring lenders to disclose certain details about loan fees and costs. In re Crisomia, 2002 WL 31202722, at *3 (Bankr.E.D.Pa. Sept.13, 2002). Congress intended TILA to assure a meaningful disclosure of credit terms so consumers are not misled about the costs of financing. Id. To that end, TILA, which is implemented by "Regulation Z," 12 C.F.R. Part 226,6 "requires creditors to disclose the cost of credit as a dollar amount" (the "finance charge") and as an annual percentage rate (the "APR"). Uniformity in...
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