In re Ralls
| Decision Date | 24 February 1999 |
| Docket Number | Adversary No. 98-0461.,Bankruptcy No. 98-19117DAS |
| Citation | 230 BR 508 |
| Parties | In re Florence RALLS, Debtor. Florence Ralls, Plaintiff, v. Bank of New York, as Trustee Under Pooling and Servicing Agreement Dated August 31, 1995, Series 1995-B c/o TMS Mortgage, Inc., The Money Store Financial Co., Inc, and Edward Sparkman, Esquire, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
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Mary Jeffery, Philadelphia, PA, for debtor.
Brian H. Smith, Elkins Park, PA, for defendant.
Edward Sparkman, Philadelphia, PA, trustee.
Presently before us is the disposition of an adversary proceeding ("the Proceeding") instituted by FLORENCE RALLS ("the Debtor") against THE BANK OF NEW YORK ("BONY") as Trustee of and doing business of THE MONEY STORE FINANCIAL CO., INC. ("the Defendant")1 to rescind a consumer loan transaction pursuant to the federal Truth in Lending Act 15 U.S.C. § 1601, et seq. ("the TILA") and obtain a broad range of remedies as a result.
We hold that the Defendant did in fact commit material violations of the TILA justifying rescission in connection with the loan transaction issued by having the Debtor execute numerous documents which described a transaction which, while similar to the transaction's conception by the Debtor, was inconsistent with certain other documents and the only TILA disclosure statement given to the Debtor, the latter of which described terms less favorable then those understood by the Debtor. We further hold that the Defendant failed to present evidence which would support defenses under 15 U.S.C. §§ 1640(b) (correction of errors) or § 1640(c) (unintentional violations).
The Debtor's rather skimpy evidence suggests that the Defendant's assignor may have intended to cheat or deceive the Debtor in this transaction by attempting to enforce against her less favorable terms than the Debtor understood. However, the absence of actual proof of same causes us to refrain from ordering the harsh relief of compelling the Defendant to return the entire sum paid to it by Debtor to date. However, all other, more typical relief flowing from a valid but ignored TILA rescission will be granted, i.e., elimination of the security interest supporting a secured claim, reduction of the claim in certain respects, statutory damages for refusing the rescission, and attorneys' fees.
The Debtor filed the underlying individual Chapter 13 bankruptcy case on July 17, 1998. The instant Proceeding was filed on August 18, 1998, naming only the Defendant and the Trustee as defendants. The Proceeding was listed for trial on November 19, 1998, well prior to the initial scheduled confirmation hearing date of December 17, 1998.
On October 19, 1998, the Complaint was amended to add BONY as a party defendant. The Defendant responded with a motion to dismiss the Complaint filed on November 13, 1998. The motion to dismiss was based on 15 U.S.C. § 1635(f), which provides that a right to rescission expires if not asserted within three years from the transaction. The Defendant argued that the underlying transaction occurred on July 27, 1995, more than three years before the Proceeding was filed. In an Order of November 17, 1998, this motion was denied because the Complaint alleged that the Debtor's counsel had effected rescission by a letter of July 14, 1998, within three years from July 27, 1995. We noted that § 1635 makes no reference to when a suit based on 15 U.S.C. § 1635 must be commenced, citing Beach v. Ocwen Federal Bank, 523 U.S. 410, 118 S.Ct. 1408, 1412, 140 L.Ed.2d 566 (1998). We pointed out that, as long as an action seeking damages for failing to effect a rescission in response to a valid demand for same were filed within one year of the attempted rescission, it was timely under 15 U.S.C. § 1640(e). See, e.g., Reid v. Liberty Consumer Discount Co., 484 F.Supp. 435, 441 (E.D.Pa.1980); and In re Tucker, 74 B.R. 923, 932 (Bankr.E.D.Pa. 1987).
An Answer to the Complaint was filed, as required, on November 18, 1998. At the parties' mutual request, we continued the trial to January 14, 1999, on a must-be-heard basis. We were unwilling to continue the Proceeding further due to our recognition that the confirmation hearing would be put off until after the Proceeding was tried, briefed, and decided. The confirmation hearing is now in fact scheduled on February 25, 1999. It is also important to note that, on December 14, 1998, the Defendant filed a Proof of Claim allegedly secured by a residential mortgage arising out of the July 27, 1995, transaction, reciting $43,855.67 as the principal amount of its indebtedness and $11,677.54 as arrearages.
A two-hour trial of the Proceeding was conducted on January 14, 1999. Testimony was adduced from the Debtor; Gilbert Castro, the Defendant's vice-president for regional sales; and, Regina Bolger, an employee of Gelt Financial, Inc. ("Gelt"), the Defendant's assignor, who is responsible for processing and closing Gelt's loan applications. However, Castro's attempts to testify regarding the loan transaction were properly objected to because he lacked personal knowledge of the transaction, was not the custodian of records, and could not authenticate any records that he had with him. Much of Bolger's proffered testimony was also disallowed on objection because she did not commence work for Gelt until 1996, a year after the transaction in question. Bolger was permitted to testify that Gelt had "purged" its file and hence had no documentation in hand regarding it. Although not herself employed in Gelt's "post closing department," she was permitted to testify as follows regarding that department's activities:
The Debtor testified that she and her apparently-estranged husband, David Ralls, are the owners of a single family home in Philadelphia, Pennsylvania at 5840 Angora Terrace ("the Home") where she resides. She testified that the Home is presently valued at $43,000. In summer 1995, the Debtor applied to a company known as Credit-Tech ("Tech") to assist her in obtaining a fifteen-year loan in the principal amount of $32,250 to consolidate her existing debts and make repairs to the Home. We note that the parties' Loan Application does indeed reference a loan in the amount of $32,250 at an interest rate of 14.990, although it also states that the contemplated loan would require 360 months or thirty years of payments.
With the understanding that she would receive a loan in the terms that she requested, the Debtor and later her husband appeared at the office of Gelt on July 27, 1995. At trial, the Debtor produced a package of papers which she allegedly received that date, which included the following:
One of the Balloon Notes, the Affidavit and Agreement, and the letter all state that the Debtor was obliged to make monthly payments of $451.15. However, the other Balloon Note provides for monthly payments of $407.53. The D/S indicates that 180 monthly installments of $407.53 at a yearly interest rate of 15.231 percent plus a single balloon payment of $29,536.19 are to be paid. None of the other documents indicate a payment amount or term. More comparative detail is provided in the TABLE and discussion at page 516 infra. The Debtor testified that she believed that she applied for and agreed to pay off the entire loan balance at $32,250 over a fifteen-year period, and that her monthly payments to accomplish this would be $451.15. She indicated that she had no idea that a large payment would be due at any time, stating that she was at that time totally unfamiliar with the meaning of the term "balloon payment."
The Debtor further testified that, several days after the transaction occurred, a Tech representative contacted her by telephone and asked her if she would like to have her monthly payments reduced to $407.53, instead of the $451.15 as agreed upon at settlement. Advised of no other changes in terms, the Debtor quite naturally agreed. Thereafter, on August 11, 1995, Gelt sent a letter in the same form as that given at settlement, stating that the new amount of the payments would be $407.53. No other documents were provided to her by Gelt at this time. Gelt then proceeded, on August 31, 1995, to assign the loan to the Defendant.
The Debtor commenced the $407.53 payments. However on February 1, 1997, she defaulted. Three months later, the Defendant filed a state-court foreclosure action against her. She failed to respond to the complaint, a default judgment was entered against her, and the Home was scheduled for sheriff's sale. On July 14, 1998, prior to the sale and just prior to the bankruptcy filing, the Debtor, by her counsel's letter, sought...
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