In re Buckles
| Citation | 189 BR 752 |
| Decision Date | 04 December 1995 |
| Docket Number | Bankruptcy No. 3-91-3253. Adv. No. 3-91-155. |
| Parties | In re Gladys M. BUCKLES, Debtor. THORP LOAN AND THRIFT CO., d/b/a ITT Financial Services, Plaintiff, v. Gladys M. BUCKLES, Defendant. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Minnesota |
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James A. Lee, Southern Minnesota Regional Legal Service, Inc., Minneapolis, MN, for defendant.
Daniel W. Stauner, Stein & Moore, P.A., St. Paul, MN, for plaintiff.
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER FOR JUDGMENT
This adversary proceeding came on before the Court for trial. The Plaintiff ("ITT") appeared by its attorney, Daniel W. Stauner. The Defendant ("the Debtor") appeared personally and by her attorney, James A. Lee, Southern Minnesota Regional Legal Services. Upon the evidence adduced at trial, counsel's pre-and post-trial briefs and argument, and the other files, records, and proceedings herein, the Court makes the following decision.
This is an adversary proceeding for certain declaratory, legal, and equitable relief. It arises out of two disbursements of funds that ITT made to the Debtor in 1990. The threshold issues are whether ITT violated the Truth-In-Lending Act, 15 U.S.C. §§ 1601 et seq., or the Minnesota Regulated Loan Act, MINN.STAT. c. 56, in the transaction(s) between the parties. The outcome of these issues will determine whether the Debtor had the right to rescind the transaction(s); whether, in consequence of that rescission, she is entitled to have ITT's mortgage against her homestead real estate satisfied of record; whether any such rescission should be conditioned upon her tender to Plaintiff of the amount she borrowed; and whether, independent of the rescission-related issues, the Debtor is entitled to an award of statutory damages from ITT. The joinder of these issues in the context of the Debtor's bankruptcy case, after the discharge of her legal indebtedness to ITT, presents a case of first impression in this District.
In early January, 1990, the Debtor made a telephone call to ITT's Roseville, Minnesota office to inquire about obtaining a loan. She had purchased a house on the East Side of St. Paul in August, 1989, with proceeds from the eminent domain condemnation of her previous home, and she needed funds to clear up legal and financial problems she had with it.1 She also was thinking about buying furniture and/or appliances. She wanted to obtain a minimum of $1,000.00, so she could pay off at least the most pressing of the debts related to the house2 and, possibly, buy some furniture.
The Debtor had obtained a small loan or loans from ITT some years before. She asked the ITT employee who answered the call whether she could get a loan secured by a mortgage against her house. The employee asked her whether she owned her house, and whether there was any mortgage against it. After the Debtor answered these questions, the employee made an appointment for her.
As a result of these contacts,3 ITT considered a credit application for the Debtor's benefit. An ITT employee named Paul Napoli completed this application in its entirety with information taken from the Debtor over the telephone, with information from a credit report for the Debtor, and with later telephone verifications on specific debt-entries from her past creditors. The Debtor never signed this application. In a box at the top of its first page that is entitled "Amount Applied For" is the figure "$3000.00," which is crossed out and replaced by the figure "$600.00" just below it. Under one of its final sections, entitled "Manager Analysis, Summary, Instruction for Closing," it has the handwritten notation "Sol H.E. OK."
As Marla Wiebolt, ITT's assistant manager, testified, this signified a decision by a Mr. Miller, ITT's branch manager, that Wiebolt should proceed to solicit the Debtor for a "home equity loan" — that is, a substantial loan secured by a mortgage against her house. Miller dated and signed the application as of January 23, 1990. The application recited that the Debtor had only one outstanding debt, other than the homestead-related debts she hoped to pay with the proceeds of the loan — a charge account with the J.C. Penney Company, with a balance of $368.00. The Debtor had not made a payment on this account for at least a year, but had not been dunned for payment on it. She had disclosed its existence in response to a question by Napoli.
During the course of an appointment on January 24, 1990, Wiebolt asked the Debtor whether she had the funds to pay for an appraisal of her homestead. The Debtor answered that she did not. She and Wiebolt also discussed the outstanding debt to the J.C. Penney Company. The Debtor never asked Wiebolt for a loan to enable her to pay off this debt.
After this discussion, Wiebolt proceeded to tape-record4 a discussion that opened with Wiebolt's commitment to give the Debtor a check to pay off the J.C. Penney Company debt, "a check for the appraisal of $195," and a small check to the Debtor "for about $200." She then told the Debtor how ITT would amortize a loan to pay for these items; got the Debtor to agree to purchase credit life insurance for the transaction; and guided the Debtor through the completion of a personal financial statement on ITT's form. She then explained the completed numerical entries on a document entitled "Disclosure Statement, Note and Security Agreement,"5 which the Debtor then signed.
This document recites the "Amount Financed" as $806.55. In a section entitled "Itemization of the Amount Financed," the document discloses the "Amount Financed" was to be disbursed in a manner described as follows:
"Amount given to you
the Debtor directly" $232.43
"CUSTOMER" 195.00
"CUST AND JC PENNEYS" 368.00
"Credit Life" 11.12
The disbursement of $195.00 denominated as "CUSTOMER" was for the fee charged by a professional appraiser chosen by ITT to evaluate the Debtor's homestead. The disbursement denominated as "CUST AND JC PENNEYS" was made to enable the Debtor to pay off this pre-existing debt. As Wiebolt testified, ITT induced the Debtor to agree to obtaining this component of the advance; the Debtor did not ask for it, and had never contemplated receiving it. Wiebolt testified that ITT did this pursuant to an internal policy, so the Debtor would not have other, past-due debts owing when the time came for her to begin payments to ITT. She also testified that ITT was "trying to improve the Debtor's creditworthiness" by doing so, but she admitted that ITT was not seeking to improve her creditworthiness just so she could obtain the small advance of funds on January 24, 1990.
The document goes on to recite the "Finance Charge" payable by the Debtor as $423.39, with the "Total of Payments" of $1,229.94 to be made over 36 months via a first installment of $39.94 and 35 others of $34.00 per month.
At the end of the tape-recorded closing, the Debtor expressed her wish to get a larger advance of funds. Wiebolt's response was "Yeah, yeah." When the Debtor left ITT's office, she took a check payable to her in the sum of $232.43, and one made payable jointly to her and the J.C. Penney Company for $368.00. She used the latter check to pay off her account with that creditor, and used the former check for household purposes — as she testified, "groceries, mostly."
After the Debtor left, Wiebolt retained an appraiser to evaluate the Debtor's house; she also ordered title insurance for the purposes of a mortgage against the house, in favor of ITT. Later the same day, a real estate appraiser came to the Debtor's house and conducted a brief physical inspection of it. After leaving a written copy of his conclusion as to value, the appraiser left. Though he never mentioned ITT during his visit, he was the professional that Wiebolt had retained.
Several weeks later, the Debtor called ITT to inquire about the mortgage-secured loan she had originally requested. After several subsequent telephone calls to Wiebolt, she made another appointment. When the Debtor appeared for the appointment on February 20, 1990, she and Wiebolt went through another colloquy that was tape-recorded.6 They again went over the question of credit life insurance, and then reviewed the completed numerical entries on another "Disclosure Statement, Note, and Security Agreement," which the Debtor then executed.
This document stated the "Amount Financed" as $6,707.66. Under the section "Itemization of the Amount Financed," the document discloses that the loan proceeds were to be disbursed as follows:
"Amount given to you directly" $3,886.80
"Amount paid on your account" 817.15
"Insurance Company
Title Insurance 102.25
Credit Life" 155.07
"Public Officials (filing/recording
fees)" 75.64
"CUST AND DICK DELISLE" 1483.00
"CUST AND JAY MCNABB" 160.00
"JAY MCNABB" 27.75
"BAL OF ATTY FEE PAID BY
ITT" 7.25
Right below these entries, this section contains the notation:
"APPRAISAL FEE PD IN PREVIOUS LOAN"
Jay McNabb is an attorney. The two line-entries identified with his name represent disbursements from the advance made to the Debtor to compensate him for preparing a mortgage instrument ($27.75)7 and an instrument to release the Debtor's house from the Barclay Square Properties judgment lien ($160.00).8 ITT applied the sum designated as "Amount paid on your account" to discharge the Debtor's remaining obligation on the January 24, 1990 advance.
After this discussion, Wiebolt told the Debtor that "per the State of Minnesota, we are required to give you a three day right to cancel . . ." She briefly...
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