In re Fidler

• Decision Date: 30 June 1997
• Docket Number: Bankruptcy No. 96-10678-WCH,Adversary No. 96-1270.
• Citation: 210 BR 411
• Parties: In re John W. FIDLER and Helen M. Fidler, Debtors John W. FIDLER and Helen M. Fidler, Plaintiffs v. CENTRAL COOPERATIVE BANK, Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

210 B.R. 411 (1997)

In re John W. FIDLER and Helen M. Fidler, Debtors John W. FIDLER and Helen M. Fidler, Plaintiffs v. CENTRAL COOPERATIVE BANK, Defendant.

Bankruptcy No. 96-10678-WCH, Adversary No. 96-1270.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

June 30, 1997.

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Paul D. Gallese, Chuster, Sawyer & Brewster, P.A., Newton, MA, for Central Co-op. Bank.

John F. Cullen, Cullen & Cullen, Boston, MA, for debtors.

DECISION

WILLIAM C. HILLMAN, Bankruptcy Judge.

I. Introduction

Plaintiffs John W. Fidler and Helen M. Fidler (the "Fidlers") brought this adversary proceeding against Defendant, Central Cooperative Bank ("Central") seeking, inter alia, a declaration that the secured claim asserted by Central is void and unenforceable. The matter before the Court is Central's Motion for Summary Judgment which is supported by affidavits. The Fidlers filed an objection to Central's motion and moved to strike the affidavit of John M. Evans ("Evans") attached to and incorporated by reference in Central's motion. I held a hearing on March 10, 1997 and took both the motion for summary judgment and the motion to strike under advisement. The following material facts are not in dispute, except as specifically noted below.

II. Procedural and Factual Background

On January 24, 1980, the Fidlers purchased real property located at 6 Cross Street, Charlestown, Massachusetts (the "Property"). It is their primary dwelling. In December 1983, they refinanced the Property, borrowing $32,500 from Central,¹ secured by a first mortgage. In May 1986,² the Fidlers refinanced the 1983 loan. In that transaction, the Fidlers borrowed $42,000 from Central and granted a replacement mortgage in that amount. In March 1987, the Fidlers obtained an additional loan of $35,500 from Bedford Mortgage Corp. ("Bedford") which was secured by a second mortgage on the Property.

In August 1987, the Fidlers entered into negotiations with Central to refinance the mortgages on the Property. By letter dated September 16, 1987 (the "Rate Letter"), Central advised the Fidlers that it was "agreeable" to fund an $80,000 loan on the following terms:³

Term: 30 years Type: 3 year adjustable Rate: 9.50%

The Rate Letter further provided that the Fidlers could "secure the rate" until November 1, 1987 by paying Central $400 on or before September 23, 1987. On September 21, 1987, the Fidlers paid $400 to Central to secure an interest rate of 9.5% for their loan.⁴

By letter dated September 22, 1987, Central confirmed that the Fidlers had "locked in" the 9.5% rate and asked them to complete certain "verification forms" and to pay an "application fee" of $275. Enclosed with the letter were a Federal Truth-In-Lending Disclosure Statement ("September TILA Statement") and a Good Faith Estimate of Settlement Costs. The September TILA Statement indicated that the annual percentage rate and finance charge for the loan were 11.07% and $198,991.32, respectively.

The Fidlers contend that shortly thereafter they notified Central that both documents erroneously reflected an interest rate for their loan of 9.75% rather than 9.5%. In addition, they contend that an unidentified employee at Central told them that they would receive a corrected truth-in-lending statement and estimate of settlement costs upon payment of the application fee to Central. The Fidlers further allege that the employee instructed them to sign the September TILA Statement to avoid "slowing down the process." On September 23, 1987, the Fidlers signed the September TILA Statement and paid $275 to Central.

On September 30, 1987, Central requested that the Fidlers execute a loan application which had been typed by a Central employee. At that time, the Fidlers allege that they requested a corrected truth-in-lending statement from Central. They further contend that a Central employee instructed them to sign the loan application and told them that Central would issue them a new truth-in-lending statement after the bank received their signed application.

On October 7, 1987, Central issued the Fidlers a Mortgage Loan Commitment (the "Commitment Letter"). The Commitment Letter advised the Fidlers that their loan application was approved, subject to certain conditions. In addition, the Commitment Letter indicated the annual percentage rate for the transaction was 11.16%.

The refinancing transaction closed on October 21, 1987. At the closing, Fidlers executed an Indexed Adjustable Rate Mortgage Note ("Note") in the principal amount of $80,000 and granted Central a first mortgage on the Property ("Mortgage"). The initial contract rate of interest for the Note was 9.5%. The Note also provided for automatic adjustments to this initial contract rate every three years during the term of the loan. In addition, the Note provided in relevant part that:

Not less than thirty (30) nor more than (60) days prior to each Adjustment Date, the Borrower will receive a written notice (the "Adjustment Notice" specifying (i) the interest rate at which this Note will be continued and an explanation of any rate adjustment, (ii) the monthly installment to be paid until the next Adjustment Date as calculated by the interest rate applicable for such period, and such other information as may be required from time to time under applicable laws or regulations.

At the closing, the Fidlers contend that a secretary from Central's closing attorney's office presented them with another truth-in-lending statement (the "October TILA Statement"). The October TILA Statement indicated that the annual percentage rate and finance charge for the loan for the were 11.43% and $210,249.90, respectively. The Fidlers further allege that the secretary instructed them to sign but not date the October TILA Statement. In addition, they contend that Central did not furnish them with a copy of the October TILA Statement at the closing.

Pursuant to the terms of the Note, the interest rate applicable to the loan was adjusted in 1990 and 1993. The Fidlers contend that Central failed to provide them with an Adjustment Notice prior to the 1990 interest rate adjustment.

The Fidlers defaulted on a number of payments under the Note and on September 1, 1995 entered into negotiations with Central's Collection Manager, Daniel Berberian ("Berberian"), regarding a forbearance agreement. Berberian requested that the Fidlers furnish Central with a workout proposal and their federal income tax returns for 1993 and 1994. On September 5, 1995, however, counsel for Central sent the Fidlers a Notice of Intent to Foreclose.

On September 25, 1995, the Fidlers sent Central a demand letter pursuant to the Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A (" Demand Letter"). In the Demand Letter, the Fidlers requested reimbursements and credits in connection with their loan payments to Central and their obligations under the Note. Subsequently, on November 30, 1995, the Fidlers sent Central a notice purporting to rescind the 1987 loan transaction with Central pursuant to the federal Truth-in-Lending Act, 15 U.S.C. §§ 1601-1667 ("TILA") and the Massachusetts Consumer Cost Disclosure Act, Mass. Gen. Laws ch. 140D, §§ 1-35 ("CCCDA" and the "Rescission Notice," respectively). In the Rescission Notice, the Fidlers demanded that Central, inter alia, return all interest and principal payments paid under the Note from December 1; 1987 to July 1, 1995 and take all steps necessary to terminate the Mortgage.

On January 31, 1996, the Fidlers commenced a case under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § 101, et seq. and filed their Chapter 13 Plan. On March 14, 1996, Central filed an Amended Proof of Claim for a secured claim in the amount of $89,633.08. On March 25, 1997, Central filed an opposition to the Fidlers' plan contending that the plan did not provide for full payment of its secured claim. On April 1, 1996, Central moved for relief from stay to foreclose its mortgage on the Property. The Fidlers filed a response to Central's objection to their plan and an opposition to Central's motion for relief from stay in which they contend, inter alia, that they effectively rescinded Central's mortgage on the Property pursuant to TILA and CCCDA. The hearings on Central's objection to the Fidlers' plan and motion for relief from stay were continued with the consent of the parties until resolution of the Fidlers' defenses under TILA and CCCDA.

On June 4, 1996, the Fidlers commenced the present adversary proceeding by filing an "Adversary Complaint to Determine Validity And/Or Extent of Secured Claim" (the "Complaint"). In their Complaint, the Fidlers allege that Central violated TILA and CCCDA.⁵ Specifically, they complain that:

1) The September TILA Statement understated, inter alia, the finance charge, annual percentage rate and payment schedule for the loan;

2) Central failed to make appropriate disclosures regarding the circumstances under which the interest rate for the loan could increase;

3) Central failed to notify them prior to the loan closing of increases in the index applicable to interest rate adjustments under the Note;

4) Central failed to make appropriate truth-in-lending disclosures prior to the 1990 interest rate adjustment; and

5) Central failed to furnish them with certain "mathematical calculations" prescribed under Massachusetts law in connection with the interest rate adjustments in 1990 and 1993.

In addition, the Fidlers allege that Central's misrepresentations regarding the terms and conditions of the 1987 transaction and conduct in connection with workout negotiations in 1995 constitute "unfair and deceptive acts or practices" within the meaning of Mass. Gen. Laws. ch. 93A, § 2 and support common law claims for intentional misrepresentation, negligence and unconscionability. Through the Complaint the Fidlers seek the following relief: 1) a declaration that the 1987...