In re Walker

Decision Date05 May 1999
Docket NumberAdversary No. 98 A 00783.,Bankruptcy No. 98 B 39289
Citation232 BR 725
PartiesIn re Margie WALKER, Debtor. Margie Walker, Plaintiff, v. Contimortgage, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Illinois

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Ira J. Rheingold, Mary Welsh, Legal Assistance Fdtn. of Chicago, Chicago, IL, for Plaintiff.

Ira Nevel, Chicago, IL, for Defendant.

Craig Phelps, Chicago, IL, Chapter 13 Trustee.

MEMORANDUM OPINION ON CONTIMORTGAGE CORPORATION'S MOTION FOR SUMMARY JUDGMENT

JACK B. SCHMETTERER, Bankruptcy Judge.

This Adversary case relates to the bankruptcy petition filed by plaintiff-debtor Margie Walker ("Walker") under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. Walker's Amended Complaint to Determine Validity and/or Extent of Secured Claim ("Complaint") is pleaded in two counts against the defendant Contimortgage Corporation ("Conti").

Walker's first Count alleges that Investaid Corporation ("Investaid"), Conti's predecessor in interest, violated the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., by taking a security interest in Walker's principal place of residence and not properly disclosing the actual amount financed in the Truth and Lending Statement provided to Walker.

Walker's second Count alleges that Investaid violated the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq., by paying a provider of settlement services a referral fee or kickback on Walker's loan. Walker contends that as Investaid's assignee Conti is now liable for the alleged violations. 15 U.S.C. § 1641.

Walker seeks a declaration that Walker has validly rescinded the transaction, a declaration that any mortgages held by Conti on Walker's property are void and unenforceable, a determination that Conti has no allowed secured claim and no allowed unsecured claim in Walker's bankruptcy case, an award to Walker of $2,000 in statutory damages for Conti's alleged failure to rescind, recoupment of $2,000 for Conti's disclosure violation pursuant to the TILA, 15 U.S.C. § 1640, an order that Conti return all money paid to it in connection with the transaction, an award to Walker of three times the amount paid for Conti's settlement services pursuant to RESPA, 12 U.S.C. § 2607, and an award to Walker of costs pursuant to the TILA, 15 U.S.C. § 1640 and RESPA, 12 U.S.C. § 2607(d)(5).

Conti has moved for summary judgment. For reasons stated below, the motion is denied as to both the TILA Count I and RESPA Count II.

Undisputed Facts

The parties filed statements of undisputed facts under Local Bankruptcy Rule 402(M) and 402(N). The movant's 402(M) statement did not comply with Local Rules because it failed to refer to supporting materials on which each statement relies, and the supporting affidavit did not attach copies of documents referred to. Nonetheless, Plaintiff's 402(N) response admitted many statements, and her own undisputed 402(N) statements supply additional facts which were not disputed.

The following facts appear from the foregoing to be undisputed:

On April 28, 1995, Walker and Investaid entered into a mortgage transaction. Conti is Investaid's successor in interest and is currently the holder of the mortgage. The principal amount of the transaction was $63,750.00. The Truth in Lending Statement provided to Walker disclosed that the Amount Financed was $63,296.25. Included in the Amount Financed was a mortgage broker fee of $4,462.50 paid to Advanta Plus Mortgage ("Advanta"). In addition to this fee, Investaid paid Advanta a yield spread premium of $1,912.50. Walker alleges that this payment is a kickback in violation of 12 U.S.C. § 2607 of RESPA.

On July 18, 1996, when Walker fell behind on her mortgage, Conti filed a foreclosure action against her home in the Circuit Court of Cook County (No. 96 CH 7578). While that case was pending, on September 24, 1996, Walker filed a Chapter 13 petition (No. 96 B 25130). Conti filed a proof of claim in that bankruptcy; Walker did not file an objection. That bankruptcy case was eventually dismissed on July 31, 1997. Conti alleges that the plan was confirmed. There is, however, an Order Dismissing Case which does not indicate that the plan was ever confirmed but instead indicates that the hearing on confirmation was concluded. Thus, Walker's proposed Chapter 13 plan was never confirmed.

Walker did not file an answer or an appearance in the state foreclosure action. Consequently, on September 25, 1997, the state court entered a default judgment of foreclosure and order of sale against Walker. Walker was given by the state court order until December 25, 1997, to redeem the property. Walker did not redeem and on December 23, 1997, she filed this second Chapter 13 petition. Therefore the foreclosure sale was never held. Conti filed its proof of claim in this bankruptcy based on the judgment.

The Pleadings

Related to this second bankruptcy, Walker filed the instant Adversary Complaint alleging that the documents prepared and executed for her mortgage transaction violated the TILA and the RESPA. In response, Conti has moved for Summary Judgment premised on three arguments: (1) that Walker's current claims are compulsory counterclaims that should have been raised in the first bankruptcy proceeding against the Conti claims, (2) that 11 U.S.C. § 1325(a) gives Walker's first bankruptcy a res judicata effect as to the TILA and RESPA claims, and (3) that the state court judgment of foreclosure bars Walker's claims by res judicata or collateral estoppel.

Jurisdiction

Jurisdiction lies under 28 U.S.C. § 1334(b) and the matter is referred here under General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This case is a core proceeding under 28 U.S.C. § 157(b)(2)(K) because it attacks Conti's asserted mortgage lien. Venue is appropriate under 28 U.S.C. § 1409(a)

Standard For Motion of Summary Judgment

Summary judgment motions are governed by Fed.R.Civ.P. 56(c) made applicable to bankruptcy proceedings by Fed. R. Bankr.P. 7056. Summary judgment should be granted if 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 a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986).

Summary judgment is granted to avoid unnecessary trials when there is no genuine issue of material fact in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986).

The burden is on the moving party to show that no genuine issue of material fact exists and that judgment in its favor should be granted as a matter of law. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. The court should draw all inferences in the light most favorable to the non-moving party. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513-14; Matsushita, 475 U.S. at 586, 106 S.Ct. at 1355-56.

Discussion

The declared purpose of the TILA, originally enacted in 1968, 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 uniformed use of credit against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601(a); Beach v. Ocwen Fed. Bank, 523 U.S. 410, 118 S.Ct. 1408, 140 L.Ed.2d 566 (1998). Accordingly, the Act requires creditors to make various conspicuously displayed "material disclosures" in the granting of consumer credit. The required material disclosures include items such as finance charges, annual percentage rates of interest, total number of payments, and the borrower's rights. Id. Failure to satisfy the TILA disclosure requirements subjects a lender to criminal penalties for noncompliance (see § 1611) as well as to statutory and actual damages traceable to a lender's failure to make the requisite disclosures. See § 1640. Assignees can be held liable for the conduct of assignors. See § 1641. Section 1640 provides that an action for such damages may be brought by the borrower or the borrower may assert the right to damages "as a defense by recoupment or set-off" in a collection action. Moreover, the Act also authorizes a borrower, whose loan is secured with his "principal dwelling" and who had been denied the requisite disclosures, to rescind the loan transaction entirely. The right to damages and rescission is subject to certain time limits imposed by the statute.

The declared purpose of RESPA is inter alia to "effect certain changes in the settlement process for residential real estate that will result ... in the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services." 12 U.S.C. § 2601. A violation of the Act subjects parties to criminal fines or imprisonment or civil damages amounting to three times the amount of any charge paid for such settlement service. 12 U.S.C. § 2607.

The TILA and the RESPA Claims Were Not Compulsory Counterclaims

Conti argues that Walker had an obligation under Fed.R.Civ.P. 13(a) (Fed. R. Bankr.P. 7013) in her first bankruptcy to bring as a compulsory counterclaim to Conti's claim her assertions under TILA and RESPA. Conti argues in this regard that the TILA and RESPA claims arose out of the subject note and mortgage that existed at the filing of Walker's last bankruptcy case.

Fed.R.Civ.P. 13(a) states in part:

A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party\'s claim and does not require for
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