In re Brown

• Decision Date: 07 November 1989
• Docket Number: Bankruptcy No. 89-10978S,Adv. No. 89-0484S.
• Parties: In re Elizabeth Marie BROWN, Debtor. Elizabeth Marie BROWN and Edward R. Sparkman, Trustee, Plaintiffs, v. CREDITHRIFT OF AMERICA CONSUMER DISCOUNT CO., Defendant.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

106 B.R. 852 (1989)

In re Elizabeth Marie BROWN, Debtor Elizabeth Marie BROWN and Edward R. Sparkman, Trustee, Plaintiffs, v. CREDITHRIFT OF AMERICA CONSUMER DISCOUNT CO., Defendant.

Bankruptcy No. 89-10978S, Adv. No. 89-0484S.

United States Bankruptcy Court, E.D. Pennsylvania.

November 7, 1989.

Susan L. DeJarnatt, Community Legal Services, Inc., Philadelphia, Pa., for debtor/plaintiff.

Edward Sparkman, Philadelphia, Pa., Standing Chapter 13 Trustee and plaintiff.

William M. Marutani, Dilworth, Paxson, Kalish & Kauffman, Philadelphia, Pa., for defendant.

Max A. Wernick, Dallas, Tex., David B. Comroe, Philadelphia, Pa., for Lomas Mortg. USA.

Andrew L. Markowitz, Lahaska, Pa., for Chrysler First Consumer Discount Co.

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

A. INTRODUCTION.

In 1980, Congress, in certain respects, eased the burdens of disclosure placed upon creditors by the federal Truth-in-Lending Act of 1968, 15 U.S.C. § 1601, et seq. (hereinafter "the TILA"), by enactment of the Truth-in-Lending Simplification and Reform Act, P.L. No. 96-221, Title VI. Thereafter, amendments which had the same effect of reducing certain aspects of the creditor's disclosure burdens were made to the TILA Regulations, 12 C.F.R. § 226.1 et seq., known as Regulation Z (hereinafter "Reg. Z"). These amendments were apparently all that were considered necessary by Congress to remedy any inequities in favor of consumers arising from litigation under the TILA as originally enacted. Therefore, we believe that it is incumbent upon courts to preserve the concept which has been well-established since the enactment of the original TILA that the full remedies provided by the TILA must be accorded to consumers subjected to even technical violations of that Act. This is particularly true when Congress has reduced the technical burdens of disclosure by "simplifying" same.

The instant proceeding requires us to consider the principles set forth in the foregoing paragraph. It involves a claim of a rather technical violation of a provision of the new Reg. Z which itself "simplified" the prior law. However, the particular violation alleged — an attempt to exclude from the disclosed finance charge in the transaction the official fee for the recording, by a finance company, of an assignment of a mortgage taken by the original creditor — appears to us to be a violation under the specific wording of "simplified" Reg. Z. Therefore, we conclude that the creditor under-disclosed the finance charge and became subject to the rather harsh consequences of a valid rescission which the creditor refused to honor. The creditor is hence left with an unsecured claim reduced to $1,566.15 and a liability of $1,000 to the Debtor plus attorneys' fees for her counsel for failing to honor her valid rescission.

B. PROCEDURAL HISTORY.

The Debtor, ELIZABETH MARIE BROWN, filed a voluntary petition for relief under Chapter 13 of title 11, United States Code, on March 16, 1989. Since filing her petition, the Debtor has filed four (4) separate adversarial proceedings against her several secured creditors. Two of these actions have invoked 11 U.S.C. §§ 506(a), (d), and recoupment claims under TILA in attempting to reduce the asserted secured claims of these creditors against her.¹ The third of these proceedings, which was settled by an approval of a Stipulation of September 8, 1989, effected elimination of the secured claim entirely by invocation of the rescission sections of the TILA, 15 U.S.C. § 1635, and its accompanying provision of Reg. Z, 12 C.F.R. § 226.23.²

The need to resolve these proceedings has caused us to continue the confirmation hearing in the main case until November 21, 1989. Since the two § 506 recoupment proceedings are not listed for trial until December 5, 1989, a further postponement of the confirmation is regretfully necessary. We shall, however, use our best efforts to bring the pre-confirmation administration of this case to a prompt conclusion by December 5, 1989, through the medium of our accompanying Order.

This particular adversary proceeding was filed by the Debtor against CREDITHRIFT OF AMERICA CONSUMER DISCOUNT CO. (hereinafter referred to as "Credithrift") on June 2, 1989. The Complaint asserted Counts under both § 506 (Count I) and the rescission sections of the TILA and Reg. Z (Count II). The Debtor advises that a ruling in her favor on the TILA rescission aspect of her Complaint will render consideration of the § 506 aspect of it unnecessary because Credithrift's entire lien against her property would then be invalidated.

After a court-approved extension of time to file its response, Credithrift filed an Answer to the Complaint on July 18, 1989. The trial was continued three times before it was scheduled on September 28, 1989. On that date, the parties agreed to submit the matter by filing (1) A Stipulation of Facts which would constitute the record by October 2, 1989; and (2) Briefs in support of their positions by October 2, 1989 (the Debtor), and October 23, 1989 (Credithrift). The Briefs were timely filed, although the Stipulation of Facts was filed on October 3, 1989, and a Supplemental Stipulation of Facts was not filed until October 12, 1989. The following recitation of facts is taken from the Stipulation of Facts and exhibits thereto provided by the parties.

C. UNDERLYING FACTS.

The genesis of the Debtor's obligation to Credithrift was a contract between Philadelphia Builders & Remodeling Co. (hereinafter referred to as "Builders") and the Debtor dated August 24, 1985 (hereinafter the "Agreement"), which was subsequently assigned to Credithrift. Pursuant to the Agreement, the Debtor agreed to purchase, and Builders agreed to provide on credit, certain repairs to the Debtor's home, situated at 5614 Pemberton Street, Philadelphia, Pennsylvania 19142, including supplying a steel door and eight (8) windows, and labor to install same. As security for the credit provided, Builders took a mortgage on the Debtor's home. The $3,355 alleged "amount financed" was to be paid, in addition to a disclosed finance charge of $1,341.20, in sixty (60) installments of $78.27, totalling payments of $4,696.20.

We infer that the Agreement was a form supplied by Credithrift because the Agreement, though between Builders and the Debtor, was embossed with Credithrift's name in the top lefthand corner. On the third page of the Agreement, in a box separate from the other provisions of the Agreement, is an assignment of Builders' rights under the Agreement to Credithrift. The Debtor is not a party to the assignment, which is signed only by Builders. The assignment is accompanied by a conspicuous notation which clearly states that the assignment "is not part of the Buyer's Debtor's agreement." Obviously, Builders used Credithrift's form credit agrement to close its transaction with the Debtor with the intention, from the beginning, of transferring its interests in the Agreement to Credithrift.

Among the fees charged to the Debtor, excluded from the "finance charge" in the transaction and included instead in the "amount financed," was an item referenced on the Agreement as "AMOUNTS PAID TO OTHERS ON YOUR BEHALF . . . TO PUBLIC OFFICIALS $60.00." Although the Agreement does not break down this item any further, Credithrift now states that this item includes three separate charges: $20.00 for Builders' recording of the mortgage on the Debtor's principal residence; $25.00 for recording the assignment of the mortgage from Builders to Credithrift; and $15.00 which is being held in reserve to pay for the ultimate satisfaction of the mortgage.

At the same time that the Debtor and Builders entered into the Agreement, the Debtor was given a "Notice of Cancellation" informing her of her right to cancel the transaction with Builders. See 15 U.S.C. § 1635, 12 C.F.R. § 226.23. Credithrift's name did not appear on the Notice of Cancellation. Also, on August 24, 1985, the Debtor received a "Notice of Right to Cancel" which, in greater detail than the Notice of Cancellation, again explained to the Debtor her right to cancel the transaction and the procedure for doing so. Builders was listed as the "creditor/lender" on the Notice of Right to Cancel.

On October 24, 1985, the Debtor signed a Certificate of Completion stating that all goods and services required to be supplied under the Agreement by Builders were in fact satisfactorily supplied and that she had not exercised her right to rescind the Agreement. Builders simultaneously executed a Contractor's Certificate stating that all goods and services were provided as required and that the Debtor had received notice of her right to rescind the Agreement and had chosen not to do so.

Although the Agreement contains what appears to be a contemporaneous assignment of the Agreement and the mortgage to Credithrift by Builders, a separate Assignment of Mortgage, dated October 24, 1985, was executed by Builders in favor of Credithrift assigning Builder's mortgage on the Debtor's residence to Credithrift. On November 21, 1985, the mortgage as well as the assignment of the mortgage were recorded in the Philadelphia County Recorder of Deeds Office. The fees for filing these documents, as indicated above, were $20.00 for the mortgage and $25.00 for the mortgage assignment.

By letter dated August 10, 1988, the Debtor, through her counsel, sent a notice to Credithrift rescinding the credit transaction. The Debtor's demand for rescission was based upon Credithrift's alleged failure to provide the Debtor with "all of the material disclosures required by TILA, including but not limited to inaccurate disclosures of the Finance Charges and Amount Financed." By a second letter to Credithrift dated August 25, 1988, Debtor's counsel explained that "the charge for recording the assignment of the mortgage should have been included in the Finance Charge rather than the Amount Financed in the TILA disclosure materials...