In re Lewis, Bankruptcy No. 00-32042 (KJC).

• Decision Date: 25 March 2003
• Docket Number: Adversary No. 00-935.,Bankruptcy No. 00-32042 (KJC).
• Citation: 290 B.R. 541
• Parties: In re Helen LEWIS, Debtor. Helen Lewis, Plaintiff, v. Delta Funding Corporation and Bankers Trust Company of California, N.A., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

290 B.R. 541

In re Helen LEWIS, Debtor Helen Lewis, Plaintiff, v. Delta Funding Corporation and Bankers Trust Company of California, N.A., Defendants.

Bankruptcy No. 00-32042 (KJC).

Adversary No. 00-935.

United States Bankruptcy Court, E.D. Pennsylvania.

March 25, 2003.

COPYRIGHT MATERIAL OMITTED

Alan M. White, Philadelphia, PA, for Debtor.

Darryl J. Chimko, Rochester, MI, Stephen P. Doughty, Lyons, Doughty & Veldhuis, P.C., Mt. Laurel, NJ, Heidi R. Spivak, Mark J. Udren & Associates, Cherry Hill, NJ, for creditors.

MEMORANDUM OPINION¹

KEVIN J. CAREY, Bankruptcy Judge.

On December 11, 2002, Helen Lewis, a debtor in a case filed under chapter 13 of the Bankruptcy Code (the "Debtor"), filed an adversary proceeding to determine the validity, priority, and extent of the defendants' mortgage lien against the her residence. Currently before the Court is the Debtor's Motion for Summary Judgment.

BACKGROUND

On July 16, 1997, the Debtor entered into a loan transaction (the "Loan") with Eagle National Bank ("Eagle") by executing a balloon note in the principal amount of $44,250.00, secured by a mortgage against the Debtor's residence located at 8045 West Chester Pike, Upper Darby, PA. See Balloon Note and Mortgage, attached as Exhibits A and B to the Defendants' Mem. of Law. The Loan paid off an existing mortgage, a low-rate assistance loan from the Pennsylvania Housing Finance Agency, several credit card bills, and city water and tax bills. See HUD-1 Settlement Statement, attached as Exhibit B to the Debtor's Mem. of Law. The Debtor received $7,500.32 cash proceeds. Id. Anthony Jones ("Jones"), a mortgage loan broker, received a $3,097.50 broker fee, constituting 7% of the Loan amount. Id. The Loan was to be repaid in 179 installments of $523.96, with a final balloon payment of $39,885.02. See Federal Truth in Lending Disclosure Statement, attached as Exhibit C to Debtor's Mem. of Law.

On the same day as the Loan closing, Eagle assigned the mortgage to defendant Delta Funding Corporation ("Delta"). See Assignment of Mortgage, attached as Exhibit F to Debtor's Mem. of Law. Delta later assigned it to defendant Bankers Trust Company of California, N.A. ("Banker's Trust").² Id.

Bankers Trust obtained a foreclosure judgment against the Debtor in the Philadelphia County Court of Common Pleas on July 27, 2000. See Proof of Claim, attached as Exhibit D to Debtor's Mem. of Law. After the Debtor filed for bankruptcy protection on September 26, 2000, Delta filed a proof of claim demanding $54,190.81. Id. The Debtor filed an adversary complaint against the defendants, Delta and Bankers Trust (the "Defendants"), on December 11, 2000, asserting claims under the Truth in Lending Act, 15 U.S.C. § 1601, et seq. ("TILA"), the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639, et seq. ("HOEPA"), the Real Estate Settlement and Procedures Act,12 U.S.C. § 2601, et seq. ("RESPA"), Pennsylvania's Loan Interest and Protection Law, 41 Pa. Stat. § 502 (the "Usury Count"), and Pennsylvania's Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq. On February 22, 2002, the Debtor filed this Motion for Summary Judgment (the "Summary Judgment Motion"), together with a memorandum of law in support of the Summary Judgment Motion, on all but the Usury Count. On March 20, 2002, the Defendants filed a response and a memorandum of law in opposition to the Summary Judgment Motion. On April 11, 2002, the parties presented oral argument in support of their positions at a hearing before this Court.

For the reasons which follow, the Summary Judgment Motion will be denied as to Counts I and II, and granted, in part, as to Count IV.

LEGAL STANDARD

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c), made applicable to this adversary proceeding by Fed. R. Bankr.P. 7056. In a motion for summary judgment, the moving party "always bears the initial responsibility of informing the ... court of the basis for its motion, and identifying those portions of `the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

Once the moving party has made a proper motion for summary judgment, the burden shifts to the non-moving party, pursuant to Rule 56(e), which states, "[w]hen a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed R. Civ. P. 56(e); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The party opposing the motion "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. 1348.

Before a court will find that a dispute about a material fact is genuine, there must be sufficient evidence upon which a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court must view the facts and draw inferences in a light most favorable to the non-moving party. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513-14. "[W]here the non-moving party's evidence contradicts the movant's, then the non-movant's must be taken as true." Pastore v. Bell Tel. Co., 24 F.3d 508, 512 (3d Cir.1994). It is not the role of the judge to weigh the evidence or to evaluate its credibility, but to determine "whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

DISCUSSION

1. Count I-TILA and HOEPA Violations.

A creditor in a consumer credit transaction, other than an open end credit plan, is required to make certain disclosures under TILA before credit is extended. 15 U.S.C. § 1638(a), (b). The creditor must also provide additional disclosures for mortgages subject to HOEPA "not less than 3 business days prior to consummation of the transaction." 15 U.S.C. § 1639(b)(1).³ The early disclosures required by HOEPA are set forth 12 C.F.R. § 226.32(c).⁴

In her Motion for Summary Judgment, the Debtor claims that Eagle failed to comply with the HOEPA disclosure requirements.⁵ More specifically, the Debtor argues that, although she received a HOEPA disclosure statement more than three business days prior to the loan closing, the disclosure statement was insufficient because: (1) it did not disclose that the transaction included a balloon payment, (2) it disclosed a "note rate" in addition to the required annual percentage rate, and (3) it listed a "loan amount" that was greater than the amount that was actually financed. See Ex. A to Debtor's Mem. of Law.

(a) The balloon payment.

First, the Debtor claims that the balloon payment should have been disclosed on the HOEPA disclosure statement pursuant to 12 C.F.R. § 226.32(c)(3), which now provides, in part, as follows:

(c) Disclosures. In addition to other disclosures required by this part, in a mortgage subject to this section, the creditor shall disclose the following in conspicuous type size:

....

(3) Regular payment; balloon payment. The amount of the regular monthly (or other periodic) payment and the amount of any balloon payment. The regular payment disclosed under this paragraph shall be treated as accurate if it is based on an amount borrowed that is deemed accurate and is disclosed under paragraph (c)(5) of this section.

12 C.F.R. § 226.32(c)(3)(2003). The prior version of 12 C.F.R. § 226.32(c)(3) provided:

(c) Disclosures. In addition to other disclosure required by this part, in a mortgage subject to this section the creditor shall disclose the following:

....

(3) Regular payment. The amount of the regular monthly (or other periodic) payment.

12 C.F.R. § 226.32(c)(3)(1995). On March 6, 1997, the Federal Reserve Board published a Final Rule revising the official staff commentary to Regulation Z which, inter alia, added a paragraph to the commentary for § 226.32 advising that balloon payments must be disclosed on the HOEPA early disclosure statement. 62 Fed.Reg.10193, 10198 (March 6, 1997)(the "1997 Revisions"). Although the 1997 Revisions were effective on February 28, 1997, compliance was optional until October 1, 1997. Id. at 10193.⁶ The Debtor's loan transaction occurred on July 16, 1997. The Debtor admits that, at the time of the subject loan transaction, § 226.32 did not specifically require disclosure of balloon payments.

The Debtor argues, however, that the 1997 Revisions did not replace any existing language in the statute or regulation regarding balloon payments and, therefore, the new paragraph added to the Official Staff Commentary for § 226.32 was not a change to the prior law, but a clarification of existing law. The Debtor also argues that the only reasonable interpretation of 12 C.F.R. § 226.32(c)(3) requires disclosure of a balloon payment because, otherwise, a consumer would be misled into believing that the regular monthly payments would fully amortize the loan. Debtor's Mem. of Law, p. 6.

To support her argument, the Debtor relies upon Clay v. Johnson, 264 F.3d 744, 749 (7th Cir.2001), in which the Seventh Circuit Court of Appeals determined that the final version of a comment...