Nelson v. Nationwide Mortg. Corp., Civ. A. No. 84-54.

• Decision Date: 16 April 1987
• Docket Number: Civ. A. No. 84-54.
• Parties: Alice C. NELSON, Plaintiff, v. NATIONWIDE MORTGAGE CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of Columbia

659 F. Supp. 611

Alice C. NELSON, Plaintiff, v. NATIONWIDE MORTGAGE CORPORATION, et al., Defendants.

Civ. A. No. 84-54.

United States District Court, District of Columbia.

April 16, 1987.

Leonard L. McCants, Tilman L. Gerald, Silver Spring, Md., for plaintiff.

Robert Rekaitis, Theodore A. Howard, Washington, D.C., for Boddie and Slocum.

Ronald L. Early, Bethesda, Md., for Family Federal Sav. & Loan Assn.

MEMORANDUM OPINION

STANLEY S. HARRIS, District Judge.

This matter is before the Court on a number of pending motions. At issue are defendant J. Michael Slocum's motion to dismiss the complaint and motion to dismiss the cross-claim of defendant Family Federal Savings & Loan Association (Family Federal), motions by plaintiff Alice C. Nelson and Family Federal for entry of default judgments against defendants Nationwide Mortgage Corporation (Nationwide), Norman C. Tillette, and Roland Butler, Nelson's objection to Magistrate Arthur L. Burnett's denial of class certification, summary judgment motions by Slocum and Family Federal, and Nelson's motion to amend her complaint.

Background

In 1980, Alice Nelson, a resident of the District of Columbia, purchased a parcel of real estate located in Washington, D.C. (hereinafter referred to as 1210 G Street) with the intention of renovating the property and using it as a source of rental income. In an effort to obtain the funds necessary to renovate, Nelson sought, unsuccessfully, loans from a number of financial institutions. She also became acquainted with Roland Butler, a mortgage broker for Nationwide Mortgage Corporation, a Virginia corporation with its principal place of business in Virginia. According to Nelson, Butler assured her that through Nationwide she could obtain a 15% "business loan" for virtually any amount of money she needed. She claims that neither Butler, nor anyone from Nationwide with whom she later had contact, ever explained to her the significance of characterizing her loan as a "business loan." Nelson subsequently submitted a loan application to Nationwide.

Nelson alleges that after executing the loan application, Butler contacted her on several occasions during which he advised her that her loan would initially be structured as a one-year loan, with monthly payments of interest only and with the principal amount due at the end of twelve months. When Nelson expressed reservations about the short repayment period, Butler allegedly assured her that within three to four months of settlement the loan would be refinanced, at no charge to her, to a long-term Federal Housing Administration (FHA) loan. Nelson paid Butler $40 for a credit check and $100 for an appraisal. The 1210 G Street property was appraised at $93,000.

Nelson also met Norman Tillette, Nationwide's president, at Nationwide's offices in Virginia. She alleges that Tillette reiterated Butler's promises that she would obtain a short-term business loan that later would be converted into a long-term loan. Nelson asserts that neither Tillette nor Butler inquired into her intended use of the loan proceeds. She also contends that Tillette encouraged her to submit the title to her personal residence for review, claiming that she could become rich borrowing from Nationwide.

In July of 1981, Butler notified Nelson that her loan had been approved and that she could receive the proceeds at Nationwide's offices. Butler drove Nelson to the loan settlement meeting. She claims that during the drive to Nationwide's offices, she asked Butler if she needed to have an attorney present, and was told that it would be unnecessary because there was "a settlement company" located next door to Nationwide. The settlement meeting took place at the law offices of Ruttenberg, Phelps and Slocum, where defendant J. Michael Slocum was a partner.

Nelson met Slocum for the first time at the settlement, which Butler and Tillette also attended. Nelson alleges that she was presented with a promissory note, a deed of trust, a "settlement statement," three affidavits regarding the business purpose of the loan, a Truth-in-Lending disclosure statement, and a "waiver of right of rescission" form, all for the first time. She claims that she was never told that she had a right to have an attorney present, and that Slocum "gave the impression" that he was acting "to represent the interests of all parties."

Nelson concedes that based on two years of secretarial training she recognized much of the terminology, but claims that she had no understanding of the forms' legal significance. She claims that Slocum moved through the terms of the loan very quickly, making no effort to explain their significance. Nelson alleges that she questioned the fact that although the amount borrowed was $72,800, $14,560 had been deducted from the proceeds as a "Discount to Nationwide," and another $5,096 had been deducted as a brokerage fee to Butler, leaving less than $52,000 in net proceeds. She claims that both Slocum and Butler reassured her that these charges were reasonable in light of the imminent long-term refinancing of the loan. According to Nelson, both Butler and Tillette had told her previously that refinancing would entail no additional charges. By her calculations, Nelson now estimates that the effect of the discount and brokerage fee, when added to the stated interest rate of 15%, was to impose an effective interest rate of over 40%.

Nelson also signed affidavits stating that the loan proceeds were to be used for business purposes. She claims that Slocum had her write, in her own handwriting, language that he had printed on a separate piece of paper. She further alleges that neither Slocum nor Butler ever attempted to determine the actual anticipated use of the funds. Nelson also completed a waiver of her right to rescission, claiming again that she wrote out what Slocum directed her to write. She claims that Slocum told her that signing the waiver, in which she attested to having "a bona fide immediate business financial emergency," would enable her to receive the funds immediately, rather than three days later. According to Nelson, Slocum did not explain the legal significance of waiving her right to rescission. Finally, plaintiff alleges that Slocum had her endorse an additional settlement form which included a deduction for an unpaid water bill that was not reflected on the primary settlement statement.

Shortly after the settlement, Family Federal, a Virginia savings and loan, formally acquired Nelson's loan from Nationwide. Nelson alleges that Family Federal acted as a "silent partner" in all of Nationwide's lending transactions, agreeing in advance to purchase Nationwide's loans upon execution. She claims that Nationwide lacked the funds to act as a lending institution, and therefore it relied on Family Federal to assume the loans immediately and provide the funds necessary for initial disbursement. According to Nelson, she was informed at the settlement that all interest payments should be made directly to Family Federal.

Nelson did not use the loan proceeds to improve the 1210 G Street property. Instead, she paid off a prior one-year loan, made additional investments, and improved other properties. Although Nelson claims that she repeatedly contacted Nationwide to inquire about the expected long-term refinancing of her loan, no such conversion ever occurred. Nevertheless, on December 10, 1981, Nelson borrowed again from Nationwide, this time to finance her purchase of a property in northeast Washington, D.C. (hereinafter referred to as 1209 F Street). This second loan was for $45,000.

The settlement for the second loan was, by Nelson's account, quite similar to the meeting for the first. Nelson executed a promissory note, deed of trust, settlement statement, and affidavits of business purpose. Unlike the first loan, the second loan included a $454 deduction for purchase of a one-year life insurance policy, but did not include a brokerage fee deduction.

Nelson continued to request long-term refinancing. She alleges that Tillette and Butler continued to stall, at first claiming that the delay was due to a backlog at the FHA, and later claiming that they needed copies of her two most recent income tax returns. Eventually, Tillette admitted that long-term refinancing was not available, but allegedly offered a three-year loan at 18% with monthly payments of interest only. Nelson apparently declined this offer, and also failed to arrange refinancing through another lender. She alleges that in order to avoid foreclosure, she was forced to sell the 1210 G Street property at a substantial loss. Nelson paid all twelve monthly payments on the second loan, and then made "extension fee payments" to Family Federal until November of 1983, when she obtained refinancing from another institution.

Nelson commenced this lawsuit on January 6, 1984, naming Nationwide, Tillette, Butler, Slocum, and Family Federal as defendants. The complaint includes a count of fraud directed against all defendants, a claim under the District of Columbia Consumer Protection Procedures Act directed against Nationwide and Family Federal, and a legal malpractice claim directed against Slocum. Family Federal cross-claims against the other named defendants, alleging that Family Federal was fraudulently or negligently induced to acquire the Nelson loans, with no knowledge of the circumstances under which the loans were made.

Tillette and Butler are presently incarcerated. Both were convicted of federal fraud and conspiracy violations in a criminal prosecution arising from Nationwide's lending practices. Nationwide has ceased doing business. Tillette, Butler, and Nationwide have failed to respond to either the complaint or the cross-claim, and defaults against them have been entered by the Clerk of the Court. Thus, the only defendants actively participating in this matter are Slocum and Family Federal.

Discussion

I. Motion To Amend

Nelson moves to...