Lindenberg v. First Federal Sav. and Loan Ass'n, Civ. A. No. C80-983A.
| Decision Date | 08 December 1981 |
| Docket Number | Civ. A. No. C80-983A. |
| Citation | 528 F. Supp. 440 |
| Parties | Gerald J. LINDENBERG, David M. Green and Ouida S. Green, on behalf of themselves and all other persons similarly situated, Plaintiffs, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION and Fulton Federal Savings and Loan Association, on behalf of themselves and all other federal savings and loan associations similarly situated, Defendants. |
| Court | U.S. District Court — Northern District of Georgia |
Joseph Lefkoff, Jerry L. Sims, Lefkoff, Pike, Fox & Sims, P.C., Atlanta, Ga., for plaintiffs.
Trammell E. Vickery, James A. Gilbert, Hansell, Post, Brandon & Dorsey, Henry M. Hatcher, Jr., Thomas Hal Clarke, Paul H. Anderson, Mitchell, Clarke, Pate, Anderson & Wimberly, Atlanta, Ga., for defendants.
High interest rates and an uncertain economy over the past several years have lead to well publicized strains on the housing market. This is one of a growing number of cases around the country challenging the home mortgage lending practices of federally chartered banks and thrift institutions during this unsettled period.1
Plaintiffs in this action are home purchasers, defendants are mortgagees of the purchased properties. On February 2, 1981, the court granted the defendants' motions for summary judgment on the causes of action based on the Georgia Assumption Statute, Ga.Code Ann. § 67-3002, contained in Counts II, III and V of the plaintiffs' amended complaint. 90 F.R.D. 255 (N.D. Ga.1981). On May 26, 1981, the court denied the plaintiffs' motion for reconsideration of the summary judgment order. Id.
The case is presently before the court on cross-motions for partial summary judgment on the plaintiffs' allegations of usury, contained in Count IV of the amended complaint. Although the background of the case has been given in the court's prior orders it bears a summary repetition.
On March 30, 1977, defendant First Federal Savings and Loan Association ("First Federal") made a residential purchase loan to Mr. and Mrs. Perry Childers. The loan was evidenced by a note, providing for interest at the rate of 8.75% per annum, and was secured by a deed to secure debt to the residence. At the time, the maximum lawful interest rate on home loans was 9% under Georgia law.
Shortly thereafter, the Childers sold the property to Charleen Ernst who assumed the loan. On December 31, 1979, Ernst sold the property to the plaintiff, Gerald Lindenberg. Pursuant to the sale, First Federal, Ernst and Lindenberg entered into a Loan Modification and Assumption Agreement ("the Lindenberg Loan Modification") whereby First Federal released Ernst from future liability on the loan, and Lindenberg agreed to assume the loan at an increased interest rate of 10.75%.
In a similar series of transactions, on March 9, 1979, defendant Fulton Federal Savings & Loan Association ("Fulton Federal") made a residential purchase loan to Mr. and Mrs. Horace Smith. The loan was evidenced by a promissory note providing for interest at the rate of 9.75% per annum, and was secured by a deed to secure debt on the residence. At the time, the maximum lawful interest rate on home loans was 10% under Georgia law.
On May 8, 1980, the Smiths sold the property to plaintiffs David M. and Ouida S. Green. Pursuant to the sale, Fulton Federal the Smiths and the Greens entered into a Loan Modification and Assumption Agreement ("the Green Loan Modification") whereby Fulton Federal released the Smiths from future liability on the loan, and the Greens agreed to assume the loan at an increased interest rate of 12%.
In both the Lindenberg and Green loan modifications no new note or security deed was signed.
The plaintiffs contend that the usury limitations applicable to the loan modifications in this case are the limits which were in effect at the time the loans were originally made, rather than the limits in effect at the time of the modifications. Accordingly, they claim that the loan modifications are usurious.
Plaintiffs begin with the proposition, not contested by the defendants, that the applicable usury limitation in effect in the place, and at the time, a loan is made, remains the applicable limitation throughout the life of the loan, without regard to whether usury limits are subsequently changed. Ga.Code Ann. § 57-106; Lankford v. Holton, 187 Ga. 94, 200 S.E. 243 (1938). See also Layton v. Liberty Loans of Waycross, 152 Ga.App. 504, 263 S.E.2d 167 (1979). However the parties disagree sharply as to what the origination dates of the loans to the plaintiffs were.
The plaintiffs argue that because they merely assumed liability for loans previously made to other parties that the controlling origination date of the loan to them is the same as the origination date of the loan to their grantors. The heart of each plaintiff's position is that despite any modification in the terms of their loan, there was only one loan and hence, only one origination date.
The defendants concur that the debts for which the plaintiffs agreed to become liable came into existence only once — when the plaintiffs' grantors first purchased their properties. However, the defendants maintain that the origination date of the loans to the plaintiffs could only be at the time of the modification agreements. Defendants also contend that any state usury issue presented by this case is preempted by Pub. L.No.96-161, § 105, 93 Stat. 1233 (1979).
In support of their claims that there were single loans, each with one origination date, the plaintiffs refer to the text of the loan documents and modification agreements as well as the procedures used in effecting modifications. The plaintiffs place greatest emphasis on covenant 24 of the deeds to secure debt.2 This covenant provides that: Fulton Federal's loan modification agreement also provides that the assumption is not a novation.
Further, both modification agreements provide that plaintiffs assume and agree to abide by all provisions of the original obligations, that the modifications only relate to interest, and that the lenders will transfer the indebtedness from the name of the seller to that of the buyer. Finally, the plaintiffs point to the fact that no new money was advanced, that no new notes were signed and that no new deeds to secure debt were executed.
The plaintiffs' most compelling argument concerns the meaning of covenant 24. According to the plaintiffs, the fact that the loan assumptions were not novations has a simple effect: As a matter of law, since the loan assumptions were not new loans, the old loans continued in effect until the expiration of their 30-year term. The plaintiffs contend that covenant 24 was inserted by the defendants for the purpose of their protecting their security interest. The plaintiffs maintain that in the absence of covenant 24, the loan modifications could be found to be novations, and that the defendants' security interest would be jeopardized. They conclude that the defendants cannot accept the benefits of the covenant for the purpose of protecting their security, but ignore the covenant or construe it away as boilerplate, when the plaintiffs assert its provisions for their benefit.
It is elementary that on a motion for summary judgment the moving party bears the burden of showing both the absence of a genuine issue as to any material fact and that judgment is warranted as a matter of law. Also, the evidence on the motion must be construed in favor of the party opposing the motion, and the opposing party must receive the benefit of all favorable inferences that can be drawn from the evidence.
The court has carefully considered the plaintiffs arguments. However, even taking all facts in a light most favorable to the plaintiffs, and drawing all inferences that can reasonably be drawn in their favor, the court concludes as a matter of law, that the defendants have not charged a usurious rate of interest. Accordingly, for the reasons set forth below, the plaintiffs motion for summary judgment is DENIED and the defendants' motion for summary judgment is GRANTED.
The plaintiffs pose a dilemma for the defendants and the court. They argue that if the modifications in the instant case are new contracts, for valid consideration, and establish a new origination date for usury, then there must have been novations which destroyed the defendants' security interests in the mortgage property. Conversely, if there were no novations, the relevant origination dates were the same as those of plaintiffs' grantors.
The dilemma plaintiffs assert is false. There are middle cases between the two extremes of a novation, extinguishing the old contract and its security in its entirety, and an assumption of liability, that merely adds a new party as principal debtor with no changes in the origination date or other terms. Compare cases on novations or assumptions, e.g., Knight v. First Federal Savings & Loan, 151 Ga.App. 447, 260 S.E.2d 511 (1979) (novation occurred) and Chewning v. Huebner, 142 Ga.App. 112, 235 S.E.2d 573 (1977) (novation occurred) and Cowart v. Smith, 78 Ga.App. 1941, 50 S.E.2d 863 (1948) () with cases on modifications, e.g., Williams v. Rowe Banking Co., 205 Ga. 770, 55 S.E.2d 123 (1949) () and Contractors Management Corp. v. McDowell-Kelley, Inc., 136 Ga.App. 1164, 220 S.E.2d 473 (1975) (modification). See also Ga.Code Ann. 20-119.
There are a host of doctrines which justify and explain how, once a contract is made between certain parties, either the contract, or the parties which it binds may be changed. These doctrines, including novation and assumption, as well as modification,...
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