Thomas v. First Federal Sav. Bank of Indiana

• Decision Date: 06 February 1987
• Docket Number: Civ. No. H84-716.
• Citation: 653 F. Supp. 1330
• Parties: James E. THOMAS, Rosie M. Thomas and the Northwest Indiana Open Housing Center, Inc., Plaintiffs, v. FIRST FEDERAL SAVINGS BANK OF INDIANA and Joseph Kurpis, a/k/a Rudy Kurpis, Defendants.
• Court: U.S. District Court — Northern District of Indiana

653 F. Supp. 1330

James E. THOMAS, Rosie M. Thomas and the Northwest Indiana Open Housing Center, Inc., Plaintiffs, v. FIRST FEDERAL SAVINGS BANK OF INDIANA and Joseph Kurpis, a/k/a Rudy Kurpis, Defendants.

Civ. No. H84-716.

United States District Court, N.D. Indiana, Hammond Division.

February 6, 1987.

COPYRIGHT MATERIAL OMITTED

Rosalind Parr, Albert Marshall, Jr., Gary, Ind., for plaintiffs.

Fred Cuppy, Kathryn D. Schmidt, Merrillville, Ind., Stephen Smith, Chicago, Ill., for defendants.

ORDER and MEMORANDUM OPINION

MOODY, District Judge.

On Tuesday, January 20, 1987, a bench trial commenced in this action brought by plaintiffs James and Rosie Thomas and the Northwest Indiana Open Housing Center, Inc. (the "Center") against defendant First Federal Savings Bank of Indiana ("First Federal") and Joseph Kurpis a/k/a Rudy Kurpis, a vice president and loan officer for First Federal. Both plaintiffs and defendants were represented by counsel throughout the trial in this case. On Wednesday, January 21, 1987, plaintiffs rested their case and defendants, immediately thereafter, moved for an involuntary dismissal pursuant to Fed.R.Civ.P. 41(b); the court took defendants' dismissal motion under advisement. On Thursday, January 23, 1987, after considering all the evidence and having determined the credibility of witnesses based on their respective demeanor and interests, the Court GRANTED defendants' 41(b) dismissal motion. The court now renders the following Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52(a).

I. Findings of Fact

Plaintiffs alleged that defendants discriminated against the Thomases based on their race and "red-lined" the neighborhood where the Thomases lived in violation of the Fair Housing Act, 42 U.S.C. §§ 3604 and 3605, the Civil Rights Act of 1866, 42 U.S.C. §§ 1981 and 1982, and the Equal Credit Opportunity Act, 15 U.S.C. §§ 1691, et seq.

Plaintiffs James and Rosie Thomas are black citizens of the United States residing in Gary, Indiana. The plaintiff Center is a not-for-profit corporation organized under the laws of Indiana and supported by private contributions, foundation grants and contracts with certain cities. The purpose of the organization is to further the goals of the Fair Housing Act and to promote equal opportunity in housing in northwest Indiana. The Center's activities include referral services, housing and financial counseling to minority homeseekers, investigation of complaints of housing discrimination and legal representation in actions involving discrimination.

Defendant First Federal is a mutual thrift institution chartered under section 5 of the Homeowners Loan Act of 1933, 12 U.S.C. §§ 1461 et seq. As such, First Federal is subject to the constitution and laws of the United States and to all rules, regulations and orders issued by the Federal Home Loan Bank Board ("Bank Board"). Defendant Rudy Kurpis is, and was at the time of the incidents herein, a vice president and loan officer for First Federal.

On March 29, 1984, James Thomas went to the main office of First Federal located at 545 Broadway, Gary, Indiana to apply for a loan with the intention of using the money to pay off a $6,000.00 balance owing on a conditional sales contract for the purchase of real estate property located at 742 Johnson Street, Gary, Indiana and to make some necessary repairs on that property. The 742 property is located next door to the Thomases' residence which is located at 756 Johnson Street, Gary, Indiana. Mr. Thomas met with Mr. Kurpis and, after one discussion, Thomas decided to apply for a second mortgage on his residence at 756 Johnson in the amount of $7,100.00.

A loan application was filled out by Kurpis with information provided by Thomas. Both James and Rosie Thomas were applicants for the loan and were to be liable under the mortgage note. Because the Thomases planned to use their home at 756 Johnson as collateral for the loan, Kurpis explained that First Federal required an appraisal of the property.

After the Thomases paid an application fee of $200.00, Kurpis informed them that a real estate appraiser would be sent to their home on a particular date. There was some confusion about the exact location and time of the scheduled appraisal and it was not until the third scheduling that the appraiser showed up.

At that third appointment, Mr. Thomas met Mr. Beckham who was employed by First Federal for 25 years as its in-house and chief appraiser. Beckham was deceased at the time of trial. Thomas testified that he showed Beckham the entire house and pointed out to him the many renovations and improvements that the Thomases had made to their home. Among the many repairs and renovations listed by Thomas were: an alarm system ($1,400.00); kitchen improvements ($3,000.00, materials alone); new thermal picture window, 18' × 15' ($1,000.00); storm windows throughout the house ($1,500.00); a new roof ($1,800.00); and a newly constructed addition to the den ($15,000.00).¹ After completing the tour of the house, Mr. Thomas testified that Beckham told him that if the house were located anywhere else it would be worth $100,000.00 and that the Thomases should have no problem getting the $7,100.00 loan.

Approximately two to three weeks after Beckham had visited their residence, the Thomases had not heard from First Federal on the status of their loan application. Rosie Thomas called Kurpis and was informed that their loan application had been denied because their loan-to-value ratio had exceeded First Federal's guidelines. Kurpis further explained that there was no reason for the loan application to go before First Federal's loan committee for additional review because it would be denied on the basis of the loan-to-value ratio.

The Thomases had a first mortgage on their home at 756 Johnson of approximately $17,000.00 and they were requesting a second mortgage of $7,100.00. The total mortgage debt, had the loan been approved, would have been $24,100.00. Beckham appraised the 756 Johnson property at $22,000.00. When comparing the total mortgage debt, $24,100.00, to the appraised value of the property, $22,000.00, the loan-to-value ratio ($24,100.00 divided by $22,000.00) was over 105%. First Federal's guidelines for loan approval required that the loan-to-value ratio be 80% or less.

The Thomases received an "adverse action" letter from First Federal, dated June 26, 1984, signed by Rudolph Kurpis, which stated that the reason their application had been denied was that the "value of Property ratio to Mtg., 1st & 2nd. exceeded 105% Policy is 80%." Prior to receiving the written notice, James Thomas also called Kurpis and requested an explanation for the loan denial. After Kurpis explained the consequences of the loan-to-value ratio, Thomas then asked for a refund of the $200.00 application fee. Thomas went to First Federal and picked up a check for $133.00. A note was attached to the check stating that the refund represented the application fee minus expenses for a credit check and the appraisal of the house. The note further indicated that had the application gone to the loan committee the entire application fee would have been forfeited.

Both James and Rosie Thomas testified that they had no further communication with defendants after they received their refund check. The Thomases never contacted First Federal or Rudy Kurpis in an attempt to get a more detailed explanation of the loan-to-value ratio. They both admitted at trial that they did not fully understand the significance of the ratio.

At trial, plaintiffs offered the testimony of another real estate appraiser, George Wilkes, who appraised the value of their home at 756 Johnson. Wilkes testified that he had been in the real estate appraisal business, in northwest Indiana, for over 13 years. However, he admitted that he was not a registered member of any recognized society of appraisers. Wilkes appraised the Thomases' home on January 10, 1987, at $40,000.00; he testified that this evaluation was based on 1984 criteria. Wilkes explained that he appraised the property by looking back at the conditions of the house, the housing market, and comparable houses in 1984.

In an effort to explain the substantial difference between his appraisal and that of Mr. Beckham, Wilkes offered his personal critique of Beckham's appraisal. In going over Beckham's appraisal, Wilkes was limited to the four corners of the appraisal document and was not permitted to speculate as to Beckham's subjective evaluations.

Wilkes testified that there are essentially three "accepted" methods used by appraisers: (1) cost approach; (2) market sales approach; and (3) income approach. Wilkes explained that the income approach was seldom used for single family dwellings. Wilkes briefly described the cost approach as computing the original purchase price minus any depreciation plus the appreciated land value. The market sales approach, perhaps the most commonly employed method, involves a comparison between the subject property and "comparable" pieces of property, usually three in number. Wilkes stated that the primary considerations in selecting comparable properties are the date of sale (usually within six months of the subject property), similarity of structure and size, and the physical proximity to the subject property (usually within the same neighborhood).

After deciding upon the comparables, an appraiser will make adjustments in the price of the subject property in comparison to the comparable, depending on whether the subject property is deemed superior or inferior to the comparable. For example, if a comparable has central air conditioning and the subject property does not, the comparable is deemed superior to the subject property and a negative adjustment should be made in the selling price of the comparable in order to arrive at an estimated value of the subject property.

Throughout his testimony, Wilkes repeatedly stated that...