The Bank of N.Y. v. Parnell

• Decision Date: 14 January 2011
• Docket Number: No. 2010–C–0435.,2010–C–0435.
• Citation: 56 So.3d 160
• Parties: The BANK OF NEW YORK, Acting Solely in its Capacity as Trustee for EQCC Trust 2001–2v.Kathleen Johnson PARNELL.
• Court: Louisiana Supreme Court

56 So.3d 160

The BANK OF NEW YORK, Acting Solely in its Capacity as Trustee for EQCC Trust 2001–2

v.Kathleen Johnson PARNELL.

No. 2010–C–0435.

Supreme Court of Louisiana.

Nov. 30, 2010.Opinion on Rehearing Jan. 14, 2011.

McGlinchey Stafford, OLLC, Baton Rouge, LA by Anthony Joseph Rollo, Jr., Michael H. Rubin, Robert D. Sheesley, Juston Michael O'Brien, Eric James Simonson, for Aplicant.Pascal F. Calogero, Jr., Patrick D. Breeden, P. Michael Doherty Breeden, III, for Respondent.Nina F. Simon, Counsel for Responsible Lending, Amicus Curiae.WEIMER, Justice.¹

[2010-0435 (La. 1] This matter is before the court for a determination of whether the court of appeal erred in finding that a yield spread premium paid by the lender to a mortgage broker is part of the “total points and fees payable by the consumer at or before closing” within the meaning of 15 U.S.C. § 1602(aa)(1)(B) of the Home Ownership and Equity Protection Act. For reasons that follow, we conclude that the appellate court legally erred in finding that a lender-paid yield spread premium constitutes points and fees. Accordingly, we reverse the court of appeal's decision on that issue and reinstate the judgment of the trial court.

FACTUAL AND PROCEDURAL BACKGROUND

On May 9, 2001, Kathleen Johnson Parnell (Parnell) executed an adjustable rate promissory note in the amount of $63,200 at an initial yearly interest rate of 12.65 percent. This note was secured by a mortgage on Parnell's home. The HUD–1 [2010-0435 (La. 2] Settlement Statement prepared in connection with the closing of the loan reveals that the lender paid the mortgage broker a yield spread premium (YSP) ² in the amount of $1,264. The YSP was “(P.O.C.)” or paid outside closing.

In a notice dated June 19, 2003, Parnell invoked her right to rescind the security interest under the Truth in Lending Act.³ In the notice, she indicated that her loan is governed by the Home Ownership and Equity Protection Act (HOEPA) because the points and fees charged in connection with her loan exceeded eight percent of the total loan amount. Claiming she had not been given the disclosures required by HOEPA, she sought rescission of the mortgage on her home. See 15 U.S.C. § 1639(A)(1); 12 C.F.R. § 226.32(c). Accordingly, she demanded that the lender take all actions necessary or appropriate to reflect the termination of the security interest and return all of the money she had paid in connection with the loan. She further informed the lender that it would be liable for actual and statutory damages pursuant to 15 U.S.C. § 1640(a), together with attorney fees and costs, if it failed to comply with her requests.

Beginning in September 2003, Parnell allegedly failed to make monthly installment payments that became due on her loan. Parnell's requests in her June 19, 2003 letter were denied by the lender in a letter dated September 24, 2003, because her loan did not meet the threshold requirement of HOEPA as the total amount of points and fees was only 6.7 percent. Installment payments remitted by Parnell after that date were returned to her pending the resolution of the matter.

[2010-0435 (La. 3] The Bank of New York, acting solely in its capacity as Trustee for EQCC Trust 2001–2 (Bank), filed a petition for executory process on April 16, 2004, seeking to seize and sell Parnell's home in light of her alleged failure to make installment payments on her promissory note that were due in September 2003 and afterwards. A writ of seizure and sale was issued on April 19, 2004, and the property was constructively seized.

On May 17, 2004, Parnell filed a “Petition for an Order Suspending the Seizure and Sale Order and/or Preliminary Injunction and/or Permanent Injunction and/or for Damages and/or for the Return of the Seized Properties” in the Bank's executory process proceedings, alleging among other matters a violation of HOEPA for failing to provide statutorily-required disclosures.⁴

The property was not sold, and Parnell was never dispossessed of the property. The loan, evidenced by the note and secured by the mortgage, was paid in full on June 26, 2006, from insurance proceeds following Hurricane Katrina. A notice of mortgage cancellation was filed on or about October 5, 2006.

On September 11, 2008, the Bank filed a motion for summary judgment, seeking the dismissal of all of the claims asserted in Parnell's petition. In relevant part, the Bank urged that Parnell's loan was not subject to HOEPA since the YSP paid by the lender is not included in the points and fees calculation. Parnell opposed the Bank's motion contending that the YSP was ultimately paid by her over the life [2010-0435 (La. 4] of the loan and that “all compensation paid to mortgage brokers” constitute “points and fees” ⁵ under HOEPA.

The pertinent issue presented by the Bank's motion for summary judgment was whether the YSP is included in HOEPA's “points and fees” calculation. See 15 U.S.C. § 1602(aa)(1)(B) & (aa)(4). Relying on Schuetz v. Banc One Mortgage Corporation, 292 F.3d 1004 (9th Cir.2002), cert. denied, 537 U.S. 1171, 123 S.Ct. 994, 154 L.Ed.2d 913 (2003), the Bank urged that the YSP is a payment by a lender to a mortgage broker for obtaining a loan at an interest rate above the minimum interest rate approved by a lender for a particular loan. Although the consumer may ultimately be responsible for payment of the YSP in terms of the payment of a higher interest rate, such payment occurs over the life of the loan; therefore, the Bank urged that the YSP was not payable by the consumer at or before the closing.

Following the hearing on the Bank's motion, the trial court found that the YSP paid by the lender to the mortgage broker outside of closing is not included in HOEPA's “point and fees” calculation because it was not paid or payable by Parnell at the time of closing. The trial court noted that the YSP was not factored into the principal amount loaned to Parnell. Rather, the YSP resulted from a separate agreement between the broker and the lender because of a higher interest rate, which could have been declined by Parnell. She could have sought financing through another entity. Therefore, the Bank's motion for summary judgment was granted, and Parnell's petition was dismissed with prejudice.⁶ From that judgment, Parnell appealed.

[2010-0435 (La. 5] Concerning her challenge of the trial court's ruling on the HOEPA claim, ⁷ the appellate court found that the applicable phrase in 15 U.S.C. § 1602(aa)(1)(B) was subject to two interpretations—one favoring the consumer and one favoring the lender. Bank of New York v. Parnell, 09–439, p. 11 (La.App. 5 Cir. 1/26/10), 32 So.3d 877, 885. Noting that it had adopted a consumer-oriented view to HOEPA and a related regulation, Regulation Z, in Zeno v. Colonial Mortgage and Loan Corp., 08–246 (La.App. 5 Cir. 11/25/08), 4 So.3d 93, writ not considered, 09–0005 (La.3/6/09), 3 So.3d 473,⁸ and relying on the federal cases that had ruled in favor of the consumer on this issue,⁹ the appellate court found that the term “payable” should be interpreted as meaning legally enforceable or obligated to pay rather than paid. See Bank of New York, 09–439 at 13–14, 32 So.3d at 886. Finding that Parnell was legally obligated to pay the yield spread amount at or before closing by means of her obligation to pay a higher rate of interest through the life of the loan, the appellate court determined that the YSP should be included in HOEPA's points and fees calculation. With the inclusion of the YSP in the calculation, the total points and fees exceeded eight percent of the total loan amount; therefore, Parnell's loan was subject to the disclosure requirements of HOEPA. Accordingly, that portion of the trial court's judgment granting summary judgment as to Parnell's HOEPA claim was reversed, and the case was remanded to the trial court for consideration of Parnell's [2010-0435 (La. 6] HOEPA and wrongful seizure claims.¹⁰ See Bank of New York, 09–439 at 14, 37, 32 So.3d at 886–87, 900.

The Bank then filed a writ application with this court contending that the appellate court erred as a matter of law in its interpretation of 15 U.S.C. § 1602(aa)(1)(B) by construing the phrase “total points and fees payable by the consumer at or before closing” to include a YSP paid by the lender to a mortgage broker outside of closing such that Parnell's mortgage would be subject to HOEPA.

DISCUSSION

The Truth in Lending Act (TILA) was enacted in 1968. Its declared purpose 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 [or her] and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices”. 15 U.S.C. § 1601(a); Beach v. Ocwen Federal Bank, 523 U.S. 410, 412, 118 S.Ct. 1408, 1409–10, 140 L.Ed.2d 566 (1998). Accordingly, TILA requires creditors to provide borrowers with clear and accurate disclosures of terms addressing matters such as finance charges, annual percentage rates of interest, and the borrower's rights. Beach, 523 U.S. at 412, 118 S.Ct. at 1410; see 15 U.S.C. §§ 1631, 1632, 1635, 1638.

HOEPA is an amendment to TILA, enacted in 1994 in response to increasing reports of abusive practices in home mortgage lending. Cooper v. First Gov't Mortgage and Investors Corp., 238 F.Supp.2d 50, 54 (D.D.C.2002). At its core, HOEPA “creates a special class of regulated loans that are made at higher interest rates or with excessive costs and fees.” [2010-0435 (La. 7] In re Community Bank of Northern Virginia, 418 F.3d 277, 304 (3d Cir.2005). “As such, Congress has determined that HOEPA loans are subject to special disclosure requirements above and beyond the disclosure requirements of TILA, and the statute imposes liability (upon creditors and assignees of creditors making such loans) in instances where material disclosures compliant with HOEPA are not...