United Companies Lending Corp. v. McGehee

• Decision Date: 11 October 1996
• Citation: 686 So.2d 1171
• Parties: UNITED COMPANIES LENDING CORPORATION v. Michael McGEHEE, et al. 1941234.
• Court: Alabama Supreme Court

Page 1171

686 So.2d 1171

UNITED COMPANIES LENDING CORPORATION v. Michael McGEHEE, et al.

1941234.

Supreme Court of Alabama.

Oct. 11, 1996.

Rehearing Denied Dec. 6, 1996.

M. Christian King of Lightfoot, Franklin & White, L.L.C., Birmingham, John N. Leach, Jr. of Helmsing, Lyons, Sims & Leach, P.C., Mobile, for Appellant.

Royce A. Ray III and George W. Finkbohner III of Finkbohner & Lawler, L.L.C., Mobile, for Appellees.

Robert E. Sasser, Dorothy W. Littleton and Michael B. O'Connor of Sasser & Littleton, P.C., Montgomery, for Amicus Curiae Mortgage Bankers Association of Alabama, Inc.

Bruce J. Downey III of Capell, Howard, Knabe & Cobbs, Montgomery, for Amicus Curiae Southern Community Bankers.

Palmer C. Hamilton, George A. LeMaistre, Jr. and A. Carson I. Nicolson of Miller, Hamilton, Snider & Odom, L.L.C., Mobile, for Amicus Curiae Federal National Mortgage Association.

H. Hampton Boles and Michael L. Edwards of Balch & Bingham, Birmingham, for Amicus Curiae Alabama Bankers Association.

Scott Corscadden, Deputy Atty. Gen., for Amicus Curiae Alabama State Banking Department.

Leah O. Taylor of Taylor & Taylor, Birmingham, for Amicus Curiae Alabama Trial Lawyers Association, in support of Appellees.

On Application for Rehearing

PER CURIAM.

The opinion of March 22, 1996, is withdrawn, and the following opinion is substituted.

Pursuant to Rule 5, Ala. R.App. P., this Court granted defendant United Companies Lending Corporation ("UCLC") permission to appeal from an interlocutory order denying its motion for a summary judgment and entering a partial summary judgment for the plaintiffs, Michael and Joyce McGehee. By entering the partial summary judgment, the circuit court disallowed UCLC'S defense by which it seeks to establish that § 5-19-31(a), Ala.Code 1975, exempts it from the consumer protection provisions known as the Mini-Code, § 5-19-1 to -31, Ala.Code 1975--in particular, the 5% limit on discount points imposed by § 5-19-4(g). The issue, as narrowed on rehearing, is whether a mortgagee that is not approved to make National Housing Act loans in Alabama comes within the provision of § 5-19-31(a) that "The provisions of this chapter ... shall not apply to any loan ... involving an interest in real property ... where the creditor is a lending institution which is an approved mortgagee under the provisions of the National Housing Act." ¹

In June 1991, UCLC made a loan to the McGehees and took a mortgage on their home as security. The McGehees borrowed $31,827.76; in determining the amount the McGehees were to repay, UCLC added to that amount $2,972.24 in prepaid finance charges. Of the prepaid finance charges, $2,779.24 was imposed as a "loan fee," which is a nonrefundable mortgage origination fee within the meaning of "points" as that term is used in § 5-19-4(g), see Smith v. First Family Financial Services, Inc., 626 So.2d 1266 (Ala.1993). This amount of points is approximately 8% of the amount financed. ²

Section 5-19-4(g) provides:

"Notwithstanding the provisions of this or any other section of this chapter, a creditor may, pursuant to contract, in a consumer loan or consumer credit sale secured by an interest in real property, charge and collect points in an amount not to exceed five percent of the original principal balance in the case of a closed-end loan or credit sale, or five percent of the total line of credit in the case of an open-end credit plan. Points may be paid in cash at the time of the loan or credit sale, or may be deducted from the proceeds and included in the original principal balance. Points shall be in addition to all other charges and are fully earned on the date of the loan or credit sale and may be excluded from the finance charge for the purpose of computing the finance charge refund."

(Emphasis added.)

Section 5-19-31(a) provides:

"The provisions of this chapter, except the provisions of subdivision (1) of Section 5-19-1 and Section 5-19-3, shall not apply to any loan, forbearance, credit sale, lease, or other transaction involving an interest in real property or the sale, lease, or mortgage of an interest in real property, where the creditor is a lending institution which is an approved mortgagee under the provisions of the National Housing Act or is exempt from licensing under this chapter, or to any other loan, forbearance, credit sale, lease, or other transaction that is not a consumer transaction or to any transaction by a trust institution as defined in Section 5-12A-1(1), in its capacity as a fiduciary under any plan or agreement qualified under 26 USC 401(a) or defined by 5 USC 8437, 26 USC 403(b) or 26 USC 457 or a trust exempt under 26 USC 501."

(Emphasis added.) ³

The McGehees filed an action against UCLC alleging, in pertinent part:

"54. On or around June 21, 1991, the Defendants falsely represented to Plaintiffs that Defendant United Companies Lending Corporation is an approved mortgagee under the National Housing Act and further that Defendant UCLC is not governed by the provisions of Alabama's consumer protection law, Alabama Code § 5-19-1 et seq., commonly known as the 'Mini-Code.' Said representations were false, and at the time of the McGehee loan transaction Defendants knew that they were false and made them with the purpose of deceiving Plaintiffs and inducing Plaintiffs into entering into an unlawful loan transaction. The McGehee transaction was not made pursuant to the National Housing Act and was and is not a National Housing Act loan. On June 21, 1991, the date of the McGehee loan transaction made the basis of this lawsuit, Defendant United Companies Lending Corporation was not an approved mortgagee under the terms of the National Housing Act, and Defendants knew that Defendant UCLC's branch office at 857-A Downtowner Boulevard, Mobile, Alabama 36609, was not an approved branch under the National Housing Act. Many months prior to June 21, 1991, the date of the loan transaction made the basis of this lawsuit, Defendants ceased making any National Housing Act loans, and were not making any National Housing Act loans in Alabama or elsewhere at any time material to the instant action. Defendants never applied for nor received National Housing Act Mortgagee approval status for Defendant UCLC's branch office located at 857-A Downtowner Boulevard, Mobile, Alabama, 36609 "55. Defendants also falsely represented to Plaintiffs in the McGehee transaction that Defendant UCLC could lawfully charge points in excess of 5% of the original principal balance of the McGehee loan. Defendants further falsely represented to Plaintiffs during the loan closing on June 21, 1991 that everything regarding the McGehee transaction would be 'okay.' Said representations of material facts regarding the McGehee loan transaction were false and Defendants knew that they were false at the time of the McGehee transaction, and Plaintiffs justifiably relied upon said misrepresentations in entering into the loan made the basis of this lawsuit.

"56. Defendants intentionally concealed material facts from Plaintiffs about the McGehee loan transaction which Defendants had a duty to disclose to Plaintiffs. Specifically, Defendants failed to tell Plaintiffs that Defendant UCLC was in fact not an approved mortgagee under the National Housing Act, that Plaintiffs were and are in fact entitled to the protection of Alabama's consumer protection law known as the 'Mini-Code', and further that Defendant UCLC had no right to charge and/or collect 'points' from Plaintiffs in an amount in excess of 5% of the original principal balance of the McGehee loan.

"57. The aforesaid actions by Defendants constitute conscious and deliberate oppression, fraud, wantonness, and/or malice perpetrated upon the Plaintiffs. Neither of the Plaintiffs knew or through reasonable diligence could have known of the fraudulent, unlawful and wrongful conduct and activities perpetrated upon them described herein until Plaintiffs were informed of said wrongful conduct of Defendants herein on or around the latter part of August or the first part of September, 1993 by the undersigned counsel for the Plaintiffs. Plaintiffs are uneducated, unsophisticated, do not have high school diplomas, and did not realize until late August or September of 1993 that the loan made the basis of the McGehee transaction violated Alabama Code § 5-19-4(g). Defendants misled Plaintiffs and concealed the fraud and other wrongful conduct perpetrated upon Plaintiffs described herein by forcing Plaintiffs to sign the piece of paper attached hereto as Exhibit D entitled 'Acknowledgement by Applicant for Real Estate Loan.' Defendants falsely represented to Plaintiffs in Exhibit D that Defendant UCLC is not governed by Alabama Code § 5-19-4(g) to keep Plaintiffs from discovering the fraud and other wrongs perpetrated upon them."

UCLC raised as a defense and as a ground for summary judgment the exemption stated in § 5-19-31(a). The McGehees responded with a motion for summary judgment in their favor as to UCLC's exemption defense. The circuit court denied UCLC's motion and granted the McGehees' motion. This Court allowed an appeal pursuant to Rule 5, Ala. R.App. P.

The Department of Housing and Urban Development ("HUD") has promulgated regulations to effectuate the provisions of the National Housing Act ("NHA"). See 24 C.F.R. Part 202 (1994); Part 202 consists of §§ 202.1 through 202.20. Section 202.11(a) reads, in pertinent part:

"(a) Approval. (1) A mortgagee may be approved for participation in the mortgage insurance programs authorized by the National Housing Act ... upon filing a request for approval on a form prescribed by the Secretary and signed by the applicant.... Approval of the application by the Secretary shall constitute:

"(i) The Secretary's agreement that the mortgagee shall be considered an approved mortgagee except as otherwise ordered by the Mortgagee Review Board, or an officer or subdivision of the Department of...