In re Pinder

Citation83 BR 905
Decision Date24 March 1988
Docket NumberBankruptcy No. 87-00477S,Adv. No. 87-0694S.
PartiesIn re Jeneva V. PINDER, Debtor. Jeneva V. PINDER, Plaintiff, v. The LOMAS & NETTLETON COMPANY, Defendant.
CourtUnited States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

Steven P. Hershey, Community Legal Services, Inc., Philadelphia, Pa., for debtor/plaintiff.

David B. Comroe, Philadelphia, Pa., for defendant.

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

OPINION

DAVID A. SCHOLL, Bankruptcy Judge.

A. INTRODUCTION

The Debtor/Plaintiff in the present Adversary proceeding seeks recoupment against a Proof of Claim of Lomas & Nettleton Company (hereinafter referred to as "the Defendant") in the nature of statutory damages for violations of the federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. (hereinafter referred to as "TILA"). The Debtor alleges that she was not provided with disclosures required by TILA in connection with a residential mortgage. The original mortgagee and payee was the Secretary of Housing and Urban Development (hereinafter referred to as "HUD"). The mortgage was subsequently assigned to the Defendant herein. The Defendant maintains that it cannot be held liable for statutory damages since it is an assignee of a governmental agency which is exempt from civil liability under TILA. 15 U.S.C. § 1612(b).

The primary legal issue to be determined in this matter is whether a non-governmental assignee of an obligation can be liable for statutory damages under TILA when the Debtor could not recover against the original governmental assignor. Assuming that the assignee may be liable for such damages, there remains the factual issue of whether the Debtor did or did not receive the required disclosures in connection with her HUD mortgage. We hold here that the limitation of liability afforded to governmental agencies by § 1612(b) does not afford similar protection to subsequent non-governmental assignees. In addition, we find that the Debtor has established a violation of TILA, since her sworn testimony that she did not receive a TILA disclosure was uncontroverted by any evidence submitted by the Defendant.

B. PROCEDURAL HISTORY

The Debtor filed her Chapter 13 bankruptcy petition on February 2, 1987. On July 7, 1987, the Debtor filed a Proof of Claim on behalf of Lomas & Nettleton in the amount of $9,016.37.1 On July 22, 1987, Debtor filed an Adversary Complaint seeking recoupment against this Proof of Claim plus attorney's fees for alleged violations of TILA in connection with the Debtor's mortgage. On September 23, 1987, an Order was entered confirming the Debtor's Plan. On November 5, 1987, the Defendant presented for filing an "Amended Proof of Claim." See page 2 n. 1 supra. However, the validity of this Amended Proof of Claim is questionable, since it was not timely filed and was, in fact, filed after an Order was entered confirming Debtor's Plan. See Bankruptcy Rule (hereinafter referred to as "B.Rule") 3002(c).

The Debtor alleged in paragraph 16 of her Adversary Complaint that a TILA disclosure statement had been issued to her in connection with her mortgage as required by the Act.2 In paragraph 17, she alleged that the Defendant had violated the TILA and Regulations promulgated thereunder (Regulation Z, 12 C.F.R. § 226.1, et seq.) in connection with these disclosures. The Defendant denied the allegations of paragraph 16 stating that ". . . Defendant herein has no knowledge of or information to admit or deny this claim. Defendant is making a diligent effort to ascertain the facts." See Creditor's Answer to Debtor's Complaint. The Defendant maintained, through its Answer, that it could not be subject to liability as an assignee of HUD, the original mortgagee. The Debtor subsequently filed a Motion for leave to amend her Complaint which was granted by Order entered January 14, 1988. The Debtor's Amended Complaint states, at paragraph 16, that no disclosure statement had issued in connection with the transaction.

A hearing was held in this matter on December 8, 1987. The only witness to testify at that time was the Debtor. She testified that she obtained a mortgage with HUD in 1980 to finance the re-purchase of her home. The Debtor testified that she recalled her closing in 1980 and that she did not receive a TILA disclosure at that time.

Debtor testified that she received a "stack of papers" at her closing in 1980. While she did not remember the names of all of the papers that she had received, the Debtor testified that she has retained these papers in a safety deposit box since her closing. She further testified that, at the request of her attorney, she has searched through her papers and has failed to find a TILA disclosure statement. According to the Debtor, she also delivered all of these papers to her attorney who also found no disclosure statement among them.

The Debtor indicated that she understood a TILA disclosure statement to be a "finance paper" which states the amount of the mortgage, the mortgage payments, and the amount of interest being paid in connection with the mortgage. According to the Debtor, her attorney had described the TILA disclosure statement to her when she searched her papers. The Debtor testified that she had received a TILA disclosure statement from First Pennsylvania Bank when she originally purchased her house in September, 1968.3 She further testified that she did not receive a settlement sheet at the 1980 closing.

Counsel for the Defendant, while presenting no witnesses or documentary evidence, indicated that his client and HUD had searched for but were unable to locate a disclosure statement. He further indicated that his client did not know if a disclosure statement was given or not. Rather, the Defendant maintained that it could not be subject to civil liability as assignee of a federal agency and that it was irrelevant whether such disclosures were in fact given.

C. FINDINGS OF FACT

1. On December 5, 1980, the Debtor entered into a mortgage with HUD to finance the repurchase of her home.

2. HUD is a "department or agency of the United States."

3. The Debtor's mortgage was assigned to the Defendant, a private non-governmental company, on October 9, 1985.

4. The Debtor has searched the papers that she received in connection with her HUD mortgage and has failed to locate a TILA disclosure statement.

5. The Debtor testified that a TILA disclosure statement was a "finance paper" which stated the amount of the mortgage, the mortgage payments, and the amount of interest charged in connection with her mortgage. She further testified that her attorney had described a TILA disclosure statement to her.

6. The Debtor's testimony indicated significant uncertainty regarding the nature of a TILA disclosure.

7. The Defendant failed to produce any TILA disclosure or any other evidence indicating that such disclosures were made.

8. The Debtor's testimony was credible, but leaves some uncertainty as to whether she received the disclosure statement.

9. Since the Defendant produced no evidence that the Debtor received a TILA disclosure statement, to offset the Debtor's inconclusive but definite statements that she did not receive such a statement, we find that no such statement was in fact received by the Debtor.

D. CONCLUSIONS OF LAW

1. § 1612(a) of TILA does not exempt governmental agencies from providing TILA disclosures.

2. The limitations of liability afforded to governmental agencies by TILA § 1612(b) do not apply to subsequent non-governmental assignees.

3. The Defendant, as a non-governmental assignee, may be subject to TILA penalties which would not be available against HUD.

4. The Defendant had a burden of producing some evidence that a TILA disclosure statement was provided to the Debtor to rebut the testimony of the Debtor that she did not receive such a statement, which burden it failed to meet.

E. DISCUSSION
I. § 1612(a) of TILA Does Not Exempt Governmental Agencies From Providing TILA Disclosures

The TILA was enacted to promote the informed use of credit by consumers through disclosure of the terms and cost of credit. See 1968 U.S.CODE CONG. AND ADMIN.NEWS 1962-2030; Mourning v. Family Publications Service, Inc., 411 U.S. 356, 363-369, 93 S.Ct. 1652, 1657-1661, 36 L.Ed.2d 318 (1973); Werts v. Federal Nat'l Mortgage Ass'n, 48 B.R. 980, 982 (E.D.Pa.1985); and In re Russell, 72 B.R. 855, 861-62 (Bankr.E.D.Pa.1987). The stated purpose of the legislation is to ". . . assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601(a). To effectuate this goal, the Act and federal regulations promulgated thereunder (Regulation Z) require certain disclosures to be made clearly and conspicuously in a written form that the consumer may keep. 15 U.S.C. §§ 1631, 1632; 12 C.F.R. § 226.17(a)(1).

At issue in this matter is Section 113 of the Act, as amended, 15 U.S.C. § 1612(b), which provides that

. . . . .
(b) No civil or criminal penalty provided under this subchapter for any violation therof may be imposed upon the United States or any department or agency thereof, or upon any State or political subdivision therof, or any agency of any State or political subdivision.

It is clear that if HUD had retained the mortgage in this case, that Plaintiff would be unable to obtain statutory money damages against HUD for its failure to provide disclosures required by the Act. See In re Caster, 77 B.R. 8, 14 (Bankr.E.D.Pa.1987). The Defendant argues that, since money damages could not be obtained against HUD, they cannot be obtained against it either as a subsequent assignee of HUD.

We must initially consider the nature of the § 1612(b) exemption provided to governmental agencies. In our view, § 1612(b) does not exempt a...

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