In re Strong
| Decision Date | 31 August 2004 |
| Docket Number | Adversary No. 02-0626.,Bankruptcy No. 01-35854F. |
| Citation | 356 B.R. 121 |
| Parties | In re Albert STRONG and Deborah Strong, Debtors. Albert Strong and Deborah Strong, Plaintiffs, v. Option One Mortgage Corporation d/b/a H & R Block Mortgage, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Zachary Perlick, Philadelphia, PA, for Debtors/Plaintiffs.
The above-captioned chapter 13 debtors, Albert and Deborah Strong, have filed an adversary proceeding against Option One Mortgage Corporation d/b/a H & R Block Mortgage ("Option One"). The plaintiffs claim that a loan transaction they entered into with this defendant in May 1999 violated the federal Truth in Lending Act (TILA), the federal Home Ownership and Equity Protection Act (HOE PA), the federal Equal Credit Opportunity Act (ECOA), Pennsylvania's Act 6 of 1974 (Act 6), and Pennsylvania's Unfair Trade Practices and Consumer Protection Law (UTPCPL). They also assert that the loan agreement is unconscionable as a matter of Pennsylvania common law. In this proceeding they seek to disallow the secured claim that Option One has filed in their bankruptcy case. They also seek damages in the amount of $379,792.24.1
Option One answered the complaint and maintains that its loan agreement complied fully with federal and state statutes, as well as common law. Alternatively, it contends that if there were any violations of federal law, such violations fell within permitted statutory tolerances, thereby precluding the assessment of any liability. As a result, the defendant seeks judgment in its favor and the allowance of its secured proof of claim.
By prior order, the plaintiffs' ECOA and Act 6 claims were dismissed in favor of the defendant. Thereafter, trial on the remaining four counts was held and the proceeding is now ripe for disposition.
Upon consideration of the testimony and documents offered in evidence, I make the following findings of fact:2
1. The plaintiffs are a husband and wife who reside at 1534 South 53rd Street, Philadelphia, Pennsylvania 19143. This property originally was purchased in 1968 or 1969 by Albert Strong's mother. 1 N.T. at 190. Mr. Strong inherited the realty when his mother died in 1984. Id. Upon his inheritance, the realty was titled in his name only. He and Mrs. Strong moved into the property in 1992. Id. at 190.
2. The plaintiffs are employed in the housekeeping departments of medical facilities and have been so for the past six years. Id at 49, 154. Mr. Strong served for 12 years in the military, including 8 years stationed overseas. Id. at 190-91.
3. In the Spring of 1999, the plaintiffs decided to renovate their kitchen.
4. The plaintiffs obtained a $10,000 estimate from a contractor for this remodeling project.
5. Around that time, Mrs. Strong received a mailing from H & R Block Mortgage advertising home improvement loans. Id. at 52. Thereafter, on April 13, 1999, Mrs. Strong telephoned the defendant at its location in Tampa, Florida. In that telephone call, she informed defendant's employee that she was interested in a $ 10,000 loan for a kitchen remodeling project. Id. at 53.
6. In April 1999, the defendant did not offer loans as low as $10,000. Id. at 211.
7. The defendant's conversation log discloses four entries on April 13, 1999. Ex. D-1, Tab 1.3 The first entry states that Mrs. Strong telephoned and requested to refinance her mortgage. Id. It is unlikely that Mrs. Strong made such a request and more likely that the defendant treated the loan query as such.
8. On July 14, 1998, the plaintiffs entered into a mortgage agreement with ContiMortgage Corporation in the amount of $40,800. Ex. P-16. This mortgage agreement refinanced a prior mortgage loan that the plaintiffs had with Parkway Mortgage, Inc. ("Parkway") 1 N.T. at 87; Ex. Tab-34.4 The plaintiffs primarily sought this loan to finance a $5,000 vacation. 1 N.T. at 88, 140-41, 191-92.
9. On or before April 20, 1999, an employee of the defendant telephoned Mrs. Strong and obtained certain information from her in connection with a possible loan offer.
10. On April 20, 1999, Mrs. Strong faxed copies of the plaintiffs' pay stubs and W-2 forms to the defendant in Florida, using a fax machine at a commercial copying center. 1 N.T. at 54-55; Ex. P-4.
11. On April 21, 1999, the defendant prepared a "loan proposal summary." Ex. Tab-4. The plaintiffs would be considered for a $56,000 loan that would refinance their existing home mortgage and provide them with approximately $11,000 in cash. Id. This proposal was based upon an estimated real estate value of $70,000. Ex. Tab-5.5
12. By cover letter dated April 22, 1999, H & It Block Mortgage mailed to the plaintiffs the following documents: a truth in lending disclosure statement (reflecting, inter alia, an amount financed in excess of $52,000); a good faith estimate of settlement costs; an application disclosure ( an appraisal fee of $350); a servicing disclosure statement; an adjustable mortgage interest rate disclosure; and two unsigned borrower authorization forms (one for each plaintiff) allowing the defendant to obtain financial information from third parties. Ex. Tab-6.
13. Although the plaintiffs deny receiving these documents, I find it more likely that they did receive them. The April 22nd cover letter requested that the plaintiffs sign and return the unsigned borrower authorization forms. The defendant's files contain copies of the signed authorization forms dated April 27, 1999, with a fax date on the top of April 30, 1999. Ex. Tab-15.6
14. On or about April 23, 1999, the defendant engaged General American Corporation ("GAC") to arrange for the appraisal of the plaintiffs' home. Ex. Tab-16. This service request was confirmed on April 26, 1999 by GAC. Id.
15. On May 3, 1999, an appraisal report was completed valuing the plaintiffs' home at $66,000 as of April 30, 1999. Ex. Tab-18. This report was sent to the defendant on May 3, 1999. Ex. Tab-17. The cost of the appraisal was $350, and the defendant paid that sum to GAC on June 11, 1999. Ex. Tab-21.
16. GAC is in the business of arranging for appraisals, title searches and loan closings for lenders. 1 N.T. at 314. In this instance, when the defendant requested appraisal services from GAC, the latter contracted with a qualified local appraiser known to GAC, Tech Review Limited, to actually perform the appraisal.
17. A portion of the $350 fee paid by the defendant to GAC was retained by GAC. GAC paid the balance to the local appraiser. Id. at 317.
18. The average cost for appraisal management services in April 1999 in the Philadelphia region was 8300 to 8350 per appraisal. Id. The average cost for obtaining an appraisal of single-family residential property in the Philadelphia region in April 1999 — without the use of an appraisal management firm — was only $250 to $275. Id. at 35.
19. After May 3, 1999, Mrs. Strong received a phone call from the defendant in which she was informed that her loan had been approved. Id. at 59, No loan terms — such as the amount of the loan, the monthly payments or the cash proceeds — were discussed during this conversation. Id. An appointment was made for someone to travel to the plaintiffs' home on May 12, 1999 for a loan closing.
20. On or after May 3, 1999, the defendant received a title insurance commitment from GAC. Ex. Tab-22. This commitment disclosed, inter alia: that Mr. Strong was the sole owner of the realty; that Parkway Mortgage Inc. and ContiMortgage held recorded mortgages against the property, which mortgage liens would be excepted from title coverage unless "GAC [obtains] a copy of a properly executed satisfaction of mortgage"; and that certain water and sewer taxes were assessed against the property. Id. The commitment report also noted: "In order to receive a reissue rate for title insurance, GAC requires a copy of the schedule A and B from the previous title insurance policy be faxed to our office." Id. at 1.
21. On May 10, 1999, the defendant requested that GAC arrange for a loan closing in the plaintiffs' home on May 12, 1999 at 7 P.M. Ex. Tab-20. This request noted that the loan amount would be $52,800, With a settlement fee of $350, recording fees of $32 per document, title insurance kfeeof $546.75, an endorsement fee of $100, a courier fee of $15 and a satisfaction fee of $32. Id.
22. GAC arranged for title insurance to be issued by American Pioneer Title Insurance Company for a premium of $546.75. Ex. Tab-23.
23. The eligibilities and rates for title insurance premiums and endorsements are submitted by the Title Insurance Rating Bureau of Pennsylvania to the Pennsylvania Insurance Department for approval. The state-approved eligibilities and rates for title insurance premiums are set forth in the Rate Manual of the Title Insurance Rating Bureau of Pennsylvania (the "Title Insurance Rate Manual"). The basic rate for title insurance on a $52,800 loan is $546.75. The reissue rate for title insurance on a $52,800 loan is $492.08. The refinance rate for title insurance on a $52,800 loan is $393.66. Ex. P-34 ¶¶ 5.3, 5.6, 5.20.
24. The Title Insurance Rate Manual, Ex. P-34, provides:
¶ 5.3: A purchaser of a title insurance policy shall be entitled to purchase this coverage at the reissue rate if the real property to be insured is identical to or is part of real property insured 10 years immediately prior to the date the insured transaction closes when evidence of the earlier policy is produced notwithstanding the amount of coverage provided by the prior policy; and
¶ 5.6: When a refinance or substitution loan is made within 3 years from the date of closing of a previously insured mortgage or fee interest and the premises to be insured are identical to or part of the real property previously insured and there has been no change in the fee simple ownership, this Charge shall be 80% of the reissue rate.
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