Porter, In re

• Decision Date: 16 April 1992
• Docket Number: No. 91-1719,MID-PENN,91-1719
• Citation: 961 F.2d 1066
• Parties: Bankr. L. Rep. P 74,544 In re Rosetta PORTER, Debtor. Rosetta PORTER, Appellee, v.CONSUMER DISCOUNT CO.; Mid-Penn National Co. Mid-Penn Consumer Discount Co., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 1066

961 F.2d 1066

Bankr. L. Rep. P 74,544

In re Rosetta PORTER, Debtor Rosetta PORTER, Appellee, v. MID-PENN CONSUMER DISCOUNT CO.; Mid-Penn National Co Mid-Penn Consumer Discount Co., Appellant.

No. 91-1719.

United States Court of Appeals Third Circuit.

Argued Feb. 4, 1992.

Decided April 16, 1992.

Arthur J. Matusow (argued), Wissow, Odza, Steckiw & Gindhart, Philadelphia, Pa., for appellant.

Paul A. Brooks (argued), Community Legal Services, Inc., Philadelphia, Pa., for appellee.

Before: BECKER and ROTH, Circuit Judges, and McCUNE, District Judge ^*.

OPINION OF THE COURT

BECKER, Circuit Judge.

Appellee Rosetta Porter, a debtor in bankruptcy, brought this adversary action in the Bankruptcy Court for the Eastern District of Pennsylvania against appellant Mid-Penn Consumer Discount Co. ("Consumer") under the Truth in Lending Act ("TILA"), 15 U.S.C.A. §§ 1635 and 1640 (West 1982 and 1991 Supp). Porter claims that that Consumer failed to honor her request to rescind a 1987 loan that was secured by a mortgage on her home. TILA and its implementing regulations normally allow borrowers three days to rescind, but they require lenders to provide a clear and conspicuous disclosure of rescission rights, and they extend the borrower's right to rescind to three years if the lender's disclosure is insufficient. 15 U.S.C.A. §§ 1635(a), (f); 12 C.F.R. § 226.23(a)(3) (1991). Porter claims that Consumer failed to disclose clearly the effects of rescission, and that her 1990 request for rescission was therefore timely and should have been honored under 15 U.S.C.A. § 1635(b). In addition to rescission, she seeks actual and statutory damages and attorney's fees under 15 U.S.C.A. § 1640 for Consumer's failure to effect the rescission.

The only issue before us is whether Consumer's notice clearly apprised Porter of her rescission rights. As a threshold matter, Porter takes the position that the 1987 transaction was a "refinancing" that was partially exempt from rescission by virtue of 15 U.S.C.A. § 1635(e)(2) and 12 C.F.R. § 226.23(f)(2). That is, she claims that her statutory right of rescission extended only to moneys newly advanced, and not to debt carried over from an earlier 1986 loan from Consumer. At the time of the loan, however, Consumer gave Porter the standard H-8 form notice designed by the Board of Governors of the Federal Reserve System ("the Board") for "general" usage (typically for new loans), rather than the H-9 form notice specifically designed for "refinancings" or some other notice specially designed for her transaction. The H-8 informs the borrower that he or she may rescind "this transaction," while the H-9 states that the borrower may rescind only moneys newly advanced in the "refinancing." Porter contends that the H-8 could be read to say that she had the right to rescind her entire loan (both new- and old-money portions), and therefore Consumer's notice was defective because it did not clearly apprise her that she had the statutory right to rescind the new-money portion alone.

The bankruptcy court agreed with Consumer, however, that the transaction was not a "refinancing," that Porter therefore

                did have the statutory right to rescind both old and new moneys, and that Consumer therefore did not violate TILA by giving her the H-8 notice.  122 B.R. 933.   On appeal, the district court reversed and remanded for determination of proper remedies, 129 B.R. 397, holding that the transaction was a partially exempt "refinancing" and therefore the H-8 was an inadequate notice because it inaccurately suggested that Porter had the right to rescind the whole loan.   For the reasons that follow, we will affirm
                

I. FACTS AND PROCEDURAL HISTORY

Three loan transactions are relevant to this case. Porter first obtained a loan from Consumer in 1986, and, as part of that transaction, Consumer took a mortgage on Porter's home, or "principal dwelling" in TILA terminology. On May 18, 1987, Porter entered into another loan transaction with Consumer. At that time, Porter still had slightly over $1000 remaining outstanding on her 1986 loan, and by the terms of the 1987 agreement, Consumer was to pay off Porter's account and lend her additional money (approximately $2100 to pay off a loan from another consumer loan company named Fleet and and approximately $500 for Porter herself). ¹

Consumer was to satisfy the 1986 mortgage and to take a new mortgage. Consumer immediately sent the new (1987) mortgage to Philadelphia City Hall for recording, which occurred on May 22, 1987, just one day after the expiration of the three-day "cooling off" period during which TILA requires that lenders allow consumers to change their minds and rescind their loans, 15 U.S.C.A. § 1635(a). ² Consumer did not satisfy the 1986 mortgage immediately, however. It waited until May 27, 1987, several days after the expiration of the three-day rescission period, to execute a satisfaction piece for the 1986 mortgage. Thus Consumer held two mortgages on Porter's home for a brief time.

When the 1987 loan was signed, and in an attempt to comply with 15 U.S.C.A. § 1635(a), Consumer furnished Porter a notice of her right to rescind that was substantively identical to the Board's "Rescission Model Form (General)." That form is commonly known as the H-8 form because it is the eighth entry in Appendix H to the Board's Truth-in-Lending regulations ("Regulation Z"), 12 C.F.R. part 226, reprinted in full at 15 U.S.C.A. following § 1700 (West 1982 & Supp.1991). Consumer's notice did not advise Porter that two mortgages would be temporarily held simultaneously, nor did it in any other way mention the 1986 loan or the effect of the 1986 loan on Porter's rescission rights.

The front side of the notice that Porter received in 1987 read (with handwritten portions in curly braces):

NOTICE OF RIGHT TO CANCEL

CUSTOMER NAME(S): DATE OF CONTRACT OR LOAN

(Rosetta Porter) (5/18/87)

CONTRACT OR LOAN NUMBER

(104150)

Your Right to Cancel:

You are entering into a transaction that will result in a (mortgage/lien/security interest) (on/in) your home. You have a legal right under federal law to cancel this transaction, without cost, within three business days from whichever of the following events occurs last:

(1) the date of the transaction, which is {5/18/87}; or

(2) the date you received your Truth in Lending disclosures; or

(3) the date your received this notice of your right to cancel.

How to Cancel:

If you decide to cancel this transaction, you may do so by notifying us in writing at

MID-PENN CONSUMER DISCOUNT CO.

21 S. 12th ST., PHILADELPHIA, PA 19107

PHONE: 563-1300

You may use any written statement that is signed and dated by you and states your intention to cancel, and or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights.

If you cancel by mail or telegram, you must send the notice no later than midnight of {5/21/87} (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel in some other way, it must be delivered to the above address no later than that time.

I WISH TO CANCEL

______________________

Consumer's Signature

_______

Date

The undersigned customer(s) acknowledge receipt of two copies of this notice on this date {5/18/87}

{Rosetta Porter}

(Customer's Signature)

See reverse side for important information about your right to cancel.

The reverse side of the form read:

EFFECT OF CANCELLATION

If you cancel the transaction, the (mortgage/lien/security interest) is also cancelled. Within 20 calendar days after we receive your notice, we must take the steps necessary to reflect the fact that the (mortgage/lien/security interest) (on/in) your home has been cancelled, and we must return to you any money or property you have given to us or to anyone else in connection with this transaction.

You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the creditor. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation.

Porter acknowledged receiving these notices, but she did not elect to rescind her loan within the three-day statutory period.

Porter made payments on the 1987 loan, but on April 8, 1988 she took out a loan with Mid-Penn National Co. ("National"), a company affiliated with Consumer. ³ The 1988 transaction was structured similarly to the 1987 transaction. National agreed to pay off the mortgage loan to Consumer and also advanced Porter approximately $2600 in new money (again roughly $2100 to repay a loan to Fleet and $500 for Porter herself). Once again, a new security interest was taken and the old (1987) mortgage satisfied, and for a short period the Mid-Penn companies (again) held two mortgages. National's mortgage associated with the 1988 loan was recorded on April 13, 1988, and on April 14, 1988 Consumer executed a satisfaction piece for the 1987 loan, although that satisfaction piece was not recorded until April 26, 1988. As part of the 1988 loan transaction, National provided Porter with a notice essentially identical to the H-8 with which Consumer had provided her in 1987. ⁴ Again, Porter did not rescind within the allotted three-day period.

Porter apparently made over $4000 in payments on the 1988 loan, but on March 28, 1990, she filed a petition for relief under Chapter 13 of the Bankruptcy Code. On or about May 10, 1990, Porter sent Consumer and National notices by which she demanded, pursuant to 15 U.S.C.A. § 1635(b), that Consumer rescind the 1987 transaction and...