Postow v. Oriental Building Association

• Decision Date: 14 March 1975
• Docket Number: Civ. A. No. 2017-73.
• Parties: Elliot POSTOW and Joan L. Postow, Plaintiffs, v. ORIENTAL BUILDING ASSOCIATION, Defendant.
• Court: U.S. District Court — District of Columbia

390 F. Supp. 1130

Elliot POSTOW and Joan L. Postow, Plaintiffs, v. ORIENTAL BUILDING ASSOCIATION, Defendant.

Civ. A. No. 2017-73.

United States District Court, District of Columbia.

March 14, 1975.

Benny L. Kass, Washington, D.C., for plaintiffs.

Thomas S. Jackson, Washington, D. C., for defendant.

MEMORANDUM AND ORDER

WILLIAM B. JONES, District Judge.

This action involves purported violations of the Consumer Credit Protection Act (hereinafter "Act"), 15 U.S.C. § 1601 et seq., and Regulation Z,¹ in connection with the financing of real property. In essence, the complaint alleges that defendant wrongfully failed to disclose the cost of the owner's title insurance which it required as a condition of issuing a mortgage loan and, furthermore, that defendant wrongfully failed to make timely Truth in Lending disclosures. The matter is presently before the Court on defendant's motion for summary judgment and plaintiffs' motion and application for class action determination.

In August, 1972, plaintiffs entered into a sales contract to purchase a house in Rockville, Maryland. This contract was contingent upon plaintiffs obtaining a first deed of trust purchase money mortgage. On or about September 19, 1972, defendant, by means of a "Commitment Letter," approved plaintiffs' application for a loan. This letter set forth, inter alia, the following terms and conditions. Defendant agreed to lend plaintiffs the principal amount of $27,300 at 7% interest secured by a first deed of trust on the property. A mortgagee's title insurance policy issued by a title insurance company acceptable to the defendant was required. Furthermore, the "commitment and consummation of the loan transaction" was made contingent upon plaintiffs paying the principal in cash for the security property at the time of settlement. Finally, plaintiffs were required to pay a "stand-by fee" of $305.00 which would be forfeited if the loan was not consummated within the time parameters set forth in the agreement (November 6, 1972 to January 26, 1973). On September 26, 1972, plaintiffs acknowledged receipt of a copy of the commitment letter, accepted its terms and conditions, agreed, acknowledged and affirmed that the agreement was executed by them prior to the execution of the contract of indebtedness, and remitted the $305.00 stand-by fee. Plaintiffs' acceptance and remittance were received by defendant on September 28, 1972.

On November 8, 1972, approximately one hour prior to the actual settlement proceeding, plaintiffs met with a representative of defendant. At that time, defendant provided plaintiffs with a Truth in Lending disclosure statement which indicated an annual percentage rate of 7% per annum and a charge of $194.50 for title insurance premiums which was included in the amount financed but not in the "finance charge." It was at this time that plaintiffs were informed, allegedly for the first time, that defendant would require them to purchase owner's title insurance as a condition of closing the loan. Plaintiffs expressed a desire to forego this coverage but defendant's representative insisted that it was required by defendant. Plaintiffs therefore, after consulting with their counsel, purchased the additional coverage, indicating on the "Notice to Purchaser of Right to Obtain Owner's Title Insurance Policy"² that it was desired "insofar as it is required by the lender, Oriental Building Association." Plaintiffs' Exhibit F to the Complaint; Affidavit of Wendell B. Tascher, President of defendant Oriental Building Association, dated September 10, 1974. Settlement was subsequently effected at the offices of District-Realty Title Insurance Corporation in the District of Columbia.

Section 106(e) of the Act, 15 U.S.C. § 1605(e), provides:

The following items, when charged in connection with any extension of credit secured by an interest in real property, shall not be included in the computation of the finance charge with respect to that transaction:

(1) Fees or premiums for title examination, title insurance or similar purposes.

* * * * * *

Section 226.4(e) of Regulation Z additionally requires that the charges be "bona fide, reasonable in amount, and not for purpose of circumvention or evasion of this part." 12 C.F.R. § 226.4(e) (1974). Count I of the complaint alleges that the references to "title insurance" relate solely to mortgagee's, not owner's, title insurance and, accordingly, that defendant wrongfully failed to disclose the premium cost as part of the finance charge. In addition, this count of the complaint alleges that defendant, in requiring plaintiffs to purchase owner's title insurance, violated Maryland law, Ann.Code Md. Article 48A, § 486-1, which requires certain disclosures with respect to title insurance, and § 228(a) and (b), which proscribes "tie-in" arrangements between lenders and insurers. Thus, it is alleged that the insurance premiums were not "bona fide" and did not, therefore, fall within the exclusionary provision of 12 C.F.R. § 226.4(e) (1974). Count II of the complaint relates to the timing of the required disclosures.

Both counts allege violations of § 129 of the Act, 15 U.S.C. § 1639, and the regulations promulgated pursuant thereto. Compensatory as well as injunctive relief is sought.

A. DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

1. COUNT I OF THE COMPLAINT

Section 106(e) of the Act, 15 U.S.C. § 1605(e), excludes fees or premiums for title insurance from the computation of a finance charge in connection with any extention of credit secured by an interest in real property. It is plaintiffs' first allegation in Count I of the complaint that this exclusion should be construed to relate solely to mortgagee's title insurance and not to owner's title insurance. Plaintiffs have failed to direct the Court's attention to any specific language in the Act, the Act's legislative history, or Regulation Z which supports such a narrow, restrictive interpretation. The Court's own investigation has likewise failed to disclose evidence supportive of such a construction.

In Addison v. Holly Hill Fruit Products, Inc., 322 U.S. 607, 64 S.Ct. 1215, 88 L.Ed. 1488 (1944), reh'g denied, 323 U.S. 809, 65 S.Ct. 27, 89 L.Ed. 645 (1944), the Supreme Court was called upon to construe a portion of the Fair Labor Standards Act exempting certain agricultural laborers within "the area of production" from the provisions of that Act. The action of the Administrator of the Wage and Hour Bureau, Department of Labor, which purported not only to designate territorial bounds for purposes of exemption but also to except establishments from such exemption according to the number of workers employed, was challenged. In overruling the Administrator's interpretation, the Court, per Frankfurter, J., stated:

For the ultimate question is what has Congress commanded, when it has given no clue to its intentions except familiar English words and no hint by the draftsmen of the words that they meant to use them in any but an ordinary sense. The idea which is now sought to be read into the grant by Congress to the Administrator to define `the area of production' beyond the plain geographic implications of that phrase is not so complicated nor is English speech so poor that words were not easily available to express the idea or at least to suggest it. After all, legislation when not expressed in technical terms is addressed to the common run of men and is therefore to be understood according to the sense of the thing, as the ordinary man has a right to rely on ordinary words addressed to him.

Id. 322 U.S. at 617-618, 64 S.Ct. at 1221. That language, while obviously written in a different factual context, is nevertheless relevant here. "Title insurance," as it is generally understood, does not take on such a restrictive connotation as plaintiffs urge. It has been defined as:

Insurance against loss or damage resulting from defects or failure of title to a particular parcel of realty, or from the enforcement of liens existing against it at the time of the insurance. This form of insurance is taken out by a purchaser of property or one loaning money on a mortgage. . . .

Black's Law Dictionary 944 (4th ed. 1968); see also Webster's Third New International Dictionary 2400 (3d ed. 1963) (no distinction made between mortgagee's and owner's title insurance). The term "title insurance" is not so complicated "nor is English speech so poor that words were not easily available to express the idea plaintiffs assert or at least to suggest it." Addison v. Holly Hill Fruit Products, Inc., supra. Accordingly, defendant is entitled to summary judgment and Count I of the complaint shall be dismissed insofar as it alleges liability grounded upon a construction of "title insurance" which restricts the meaning of that phrase solely to mortgagee's title insurance.

The second theory of the complaint's first count also relates to the Act's exclusion of title fees or premiums from the computation of a finance charge in connection with any extension of credit secured by an interest in real property. This second theory is predicated upon the added requirement of Regulation Z that the charges, to be excludable, must be "bona fide, reasonable in amount, and not for purpose of circumvention or evasion of this part." 12 C.F.R. § 226.4(e) (1974). In their complaint, plaintiffs allege that the charges for title insurance were not bona fide because they were imposed in violation of Maryland law. Plaintiffs, however, have subsequently failed to substantiate in any manner these allegations of unlawful conduct. To the contrary, plaintiffs' own Exhibit F, attached to the complaint and entitled "Notice To Purchaser of Right to Obtain Owner's Title Insurance Policy," which was executed by plaintiffs at settlement on November 8, 1972, demonstrates compliance with Ann.Code Md. Art. 48A, § 486-1. With respect to the alleged violation of Ann. Code Md. Art. 48A, § 228(a) and (b), it is the...