Norman Sage v. Freedom Mortgage Company

security dures. Social benefits remain insu-

lated from creditor claims and attachments to the vol-

except recipient extent

untarily Chapter submits them to 13 trus-

tee. For these reasons the order

district court is

AFFIRMED.

Bowen, Derrickson, West, Goldberg & Atlanta, Ga., Ralph Goldberg, for plaintiff- SAGE, Plaintiff-Appellant, Norman appellant. v. Ward, Ward, Aiken & Gregory A. Lewis Hassett, Atlanta, Ga., E. defendant-ap- for COMPANY, FREEDOM MORTGAGE pellee. Defendant-Appellee. No. 80-7717. Appeals,

United Court of States Eleventh Circuit. GODBOLD, Before Judge, Chief RO NEY, TJOFLAT, 19, FAY, VANCE, KRAV

May

ITCH, JOHNSON, HENDERSON, CLARK, Judges.* HATCHETT and Circuit VANCE, Judge: Circuit A panel summary this reversed a court judgment for the lender hold defendant1 itself bound fifth circuit’s deci sion in Pollock v. Corp., General Finance (5th Cir.1976), denied, 535 F.2d 295 cert. L.Ed.2d (1977).2 Applying panel Pollock held 129(a)(1) the lender violated section Act, Truth-in-Lending 15 U.S.C. 1639(a)(1) making disclosure of § proceeds net loan from other re quired permitted Sitting en disclosures.3 banc court has reconsidered correet- * Judges participate misleading Hill and optional Anderson did not of loan” constituted a dis- the consideration or decision Reg. 226.6(c). case. § closure violation Z misleading at 1212. The character of F.2d Cir.1982), (11th 1. 675 F.2d 1208 vacated phrase premise was based on the omit- rehearing decision en banc. proceeds” ted “net loan awas disclo- contrary Since now sure. reach a conclu- binding precedent 2. This decision was under respect sion with net holding Prichard, City our Bonner closure, premise on which we found the (en (11th Cir.1981) banc). second violation also fails. panel 3. also held under circum- phrase stances use of case

1520 Act a of light grant rule of Ford The contains broad author- the Pollock ness of 555, Milhollin, 444 Credit Co. Motor ity pre- to the Federal Reserve Board to 790, (1980). 22 We 63 L.Ed.2d 100 S.Ct. to out the Act’s regulations carry scribe the rule is in conclude that Pollock now Z, Regulation 15 1604. purposes. § U.S.C. error, in precedent decline to follow it as 226, promulgated 12 which was C.F.R. § circuit, and affirm the district court. pursuant grant authority to that of court held that section The Pollock that the statement require not disclosure three 1639(a)4 required disclosure of differ- proceeds separate net as a contain loan items, (1) cash to the amount of ent regulation re- pertinent part item. (the on behalf “net loan debtor or his quires of disclosure ceeds”), (2) individually charges itemized credit, (1) excluding amount part are of the credit extended but not (e) paragraph set in of this items forth part charge, (3) and the total of the finance section, will be to the custom- paid which (the first two items “amount fi- person to or for account another on at er his nanced”). 535 F.2d 298. behalf, including charges, all his individu- a This case involved real estate transac- itemized, which are included in the ally charges Here referred to tion. the itemized but which are amount credit extended 1639(a), in subsection two of section expenses usually thought charge, using were “clos- part not the finance costs,” out ing paid were of other funds and term “amount financed.” a part were not of the credit extended. As 226.8(d)(1). implementing 12 C.F.R. § consequence proceeds” the “net loan and 1639(a) thereby designed section the board fortuitously equal the “amount financed” combining a its sub- the same number. disclosure state- The Pollock held that sections. court reflected the amount fi- correctly ment be in portion regulation of the must read have separate listing nanced but did not 1639(a) to light require section proceeds.” panel of the “net loan held proceeds. labeled disclosure of net loan lender’s failure that the to list net loan regulation its The board has construed misleading as a item was contrary interpretations5 the Act. and violated in its staff e.g., See, pertinent provisions 1639(a) (FRB) 4. The as then 5. Federal Reserve Board Staff § 1162, excerpted in [1974— Opinion in effect were as follows: Letter No. Special 1977 Releases Transfer Con Binder] Any (a) making creditor loan a consumer 31,555 (CCH) (1977); sumer Credit Guide ¶ extending or otherwise in a consumer credit 1123, excerpted Opinion Letter No. FRB Staff transaction which is neither a consumer Special in Bind Releases Transfer [1974-1977 open credit sale nor under an end consumer (CCH) 31,473 Credit Guide Consumer er] plan ¶ shall of the disclose each follow- 982, Opinion ex (1976); FRB Letter No. Staff items, applicable: the extent cerpted Special in Releases Trans [1974-1977 (1) The credit of which the obli- (CCH) fer Consumer Credit Guide gor Binder] will have actual which is or 31,321 (1976). Cf. FRB Official Staff Inter ¶ will be to him or his account or to FC-0155, excerpted in pretation No. 12 C.F.R. another on his behalf. app. (1982) (allowing 226 terms for (2) at 816 individually § All unpaid unpaid balance balance of cash in and. which are included the amount of credit price to be omitted where the part combined one extended but which are not identical); In charge. are FRB Official Staff amounts finance FC-0114, excerpted in 12 terpretation (3) No. total amount be financed (“§ 226.8(d)(1) app. para- at 774 sum of § the amounts referred to in C.F.R. compo graph plus require a creditor to itemize in does not amounts referred to remaining paragraph (2)). parts of the amount after ex nent cluding Repealed Lending Simplification all are Truth financed”); Act, 96-221, charge the amount and Reform Pub.L. VI finance No. Title from FC-0110, 168, Interpretation 614(d)(1), (1980). No. 94 Stat. The re- FRB Official Staff § excerpted app. peal years 770-71 § C.F.R. at was made effective two and six 226.8(d)(1) contemplates (“§ existence of some months after March Pub.L. No. 97-110, requires specific figure no ... Title III Stat. total § [but] used”). terminology required that argued weight and it so before the court as amicus a much different rejected The court given. curiae Pollock. 981. quality Appel- 653 F.2d at position holding board’s lee Company Freedom argues was beyond as construed board panel Pollock court in this power under board’s the statute. 535 F.2d apply case failed to the Milhollin standard reviewing implementation the board’s 1639(a). section panel A Unit B of the fifth circuit recent- v. ly concluded in Smathers Fulton Federal perceived there to be a poten- board Association, Savings and Loan 977 653 F.2d overlap tial or for conflict between the (5th Cir.1981), that portion another of the 1639(a)(1) visions of subsections opinion longer regarded Pollock could no 1639(a)(2). example An illustrates the basis as binding precedent light in the typical of the board’s concern. In a real Supreme intervening in opinion Court’s estate transaction variety closing a costs Milhollin, Ford Motor Credit Co. v. U.S. are out frequently paid mortgage 790, 555, 100 S.Ct. 63 L.Ed.2d 22 A loan proceeds. expenses These such as title portion language the Milhollin relied on premiums, premiums, insurance credit life was as follows: expenses, surveying recording fees and the especially And deference is in appropriate paid like are often third be- persons on process interpreting the Truth in half borrower/purchaser. of the are They Lending Act and Regulation Z. Unless not part charge. finance The board irrational, Reserve demonstrably Federal suggested expenses that of this nature opinions Board staff the Act construing 1639(a)(1) came within section they because Regulation dispositive should be for part were of “the amount of credit of which several reasons. the obligor will have the actual use” but repeated gen- The Court has often “to paid which will be his another on proposition respect eral that considerable they behalf.” Similarly were includable interpretation given is due “the stat- 1639(a)(2) within section they [a] because were charged ute the officers or agency charges which are included agency’s with its An administration.” part extended credit but “not regulations construction its own has charge.” reject- finance The Pollock court regarded been especially due re- Regulation ed the contention Z board’s spect. acquiescence This traditional in response was a permissible potential is expertise particularly administrative It it conflict. concluded that was more TILA, apt under because Federal Re- the language reasonable construe of sub- serve played pivotal Board has role in section one so that it not include did setting statutory] machinery mo- [the covered subsection two. 535 ” tion ... . we emphasized As Mourn- F.2d at 298. Service, v. Family Publications approach might court’s Pollock well S.Ct. L.Ed.2d [93 318] have implementa- been more reasonable (1973), Congress delegated broad adminis- approach tion than of the statute lawmaking power trative to the Federal That, however, is board elected. it Reserve "Board when framed TILA. question. only ques- Under Milhollin the The Act is best construed those who tion before us is whether the board’s dis- gave it regula- substance in promulgating charge authority of its under 15 broad tions thereunder. demonstrably 1604 was irrational U.S.C. § (citations 444 U.S. at at 797 provided when it that disclosures under sub- omitted) (footnote omitted) (emphasis add- 1639(a) be We con- sections of combined. ed) (quoted Smathers, 980). clude that we make a determination cannot court irrationality. Smathers concluded that al- of demonstrable We there- given we though previously pertinent provision had fore deference hold opinions, Federal Reserve staff Milhollin Z Regulation is valid and must open credit nor under an conflicting net consumer sale and that effect plan of Pollock shall disclose end consumer proceeds disclosure items, following to the extent reaching this result each of the cannot stand. applicable: with the seventh circuit agree now question light reexamined of credit of which (1) The amount Union, Pridegon Gates Credit Milhollin. the actual obligor will have Cir.1982). (7th It follows 683 F.2d will be to him or which is or of the district court judgment person on his his account or to another summary judgment for the de- granting behalf. affirmed.

fendant should be individually All the amount of which are included in AFFIRMED. which are not credit extended but charge. finance CLARK, Judge, with whom Circuit to be financed (3) The total amount HATCHETT, Judge, joins, dissent- Circuit the amounts referred to in sum of ing: the amounts re- paragraph plus holding I that a lender is not dissent. (2)). paragraph ferred to in required to disclose to a borrower amount of “net cash in fist” —the sum the company

borrower walks out of the finance added). 1639(a) (emphasis 15 U.S.C. sec. majority deprives with —the consumers in the three states of this circuit from know- Regulation The Federal Reserve Board ing meaningful the most disclosure mandat- (d) nonsale credit. Loans other by Congress Truth-in-Lending ed extension of credit the case of a loan or regrettably Act. The decision is reached sale, in addition to which is not basis, any logically without reasoned unless to be disclosed under the items permit one concludes that it is reasonable section, (b) of this the follow- paragraph ignore the Federal Reserve a clear Board items, applicable, shall Congress. analyze prob- mandate of To closed: lem, statute, one must look at the the Board credit, excluding The amount of regulation, the financial disclosure state- (e) set of this paragraph items forth ment furnished Freedom section, which will be the custom- case, and the disclosure statement er or for his account to another on have been furnished. should behalf, including his all individu- itemized, which are included in the ally

The Statute amount of credit extended but which are Section 1639. Consumer loans not un- charge, using of the finance open plans Required der end credit term financed.” — disclosures creditor 226.8(d)(1) added). (emphasis C.F.R. sec. (a) Any making creditor a consumer loan or extending otherwise consumer The Financial Disclosure Statement credit in a Freedom transaction which is neither a Furnished FREEDOM MORTGAGE

DISCLOSURE STATEMENT REQUIRED (cid:127) LAW BY FEDERAL RESERVE FEDERAL REGULATION Z Bo,row,!rl Sage Norman A. Loon No. 12 ______ 4-19248_ FINANCE CHARGE on this transaction will begin to accrue on the date ol disbursement of funds which is estimated to he June 26 . 197 9___ \ AMOUNT OF LOAN 40,000.00 in this transaction is $ 10.75 %. .bearing interest at (a)(1) must figures paragraphs Financial Disclosure Statement financed, which in up the amount Congress add to by Mandated $38,658.38. regula- The Board this case is for Actual Use of Borrower

Credit Available avail- has the amount credit lumped tion To the the house, seller of with all which able to the borrower an to the holder of but the amount credit are included in mortgage existing first charge. of the finance part which are not and the as the seller means a lender’s phrase charges” “all case may necessary costs legitimate charges All loan, fi- excepted but from the included the amount make the extended but 1605(b)-(e). sec. 15 U.S.C. charge by nance are not of finance (See 1). note charge1 fur- disclosure statement financial Initial Escrow Deposit $405.46 conforms with neither Fees/ Inspection nished Freedom 33.00 Amor. Sch. it nor the because statute Assign Fee/ money sum of reflect what 22.50 Tax Svc. Fee as the result the trans- borrower received Fed. Fees 348.50 Exp./Atty Clear Title Ins. Co. 105.00 $37,332.92 (the action, circled in this case Accurate 75.00 Surveyors “The Financial Disclosure State- Good Ins. Co. 196.00 Hands Congress”). regu- ment Mandated Ga. Tax Collector— lation, having no break- although Intangible Taxes 120.00 Ct.— Clerk of Superior statute, can be down as required 20,00 Recording the borrower be require construed to 1,325.46 $ the net amount informed of Total $38,658.38 to another and that all him in his behalf up to the amount financed. items add form, the bor- With Freedom Referring statute, first section make calculations order rower must 1639(a), that paragraph (1) one notes money by amount of determine the exact statute requires the amount result which he as a of the is benefited obligor credit of which the will the have transaction. actual use: the amount “which or will be is purpose the paid majority to him or for his account or another The misunderstands to modification the con- Paragraph (a)(3) on his behalf.” of behind the Board’s of gressional the that the The Board determined requires statute total of the statute.2 226.4(e) (1979) (4) notarizing applicable 1. 12 sec. deeds and other C.F.R. is Fees for here since this is a real estate It documents. loan. (5) Appraisal fees. vides: (6) reports. Credit (e) charges, property Excludable real following charges transactions. The in con- regulation, which has 2. The confusion transaction, any property nection with real interpretative required let- the Board to issue fide, provided they are bona reasonable in meaning, trying explain ters its stems from to amount, purpose and not for the of circum- individually phrase “including charges, all the part, or evasion of this not be vention shall itemized, in of are included the amount which charge respect included in the finance to with phrase subject is This to two credit extended.” may that transaction: interpretations. “including” The word examination, (1) premiums charges Fees or for title read to that the individualized mean title, insurance, credit,” title abstract or similar components the are of the “amount required purposes property subject and for related being the If that is latter the clause. surveys. so, synony- phrase of credit” the “amount is deeds, (2) preparation phrase Fees for settle- “amount financed.” I do mous with the statements, give interpretation regulation or other ment documents. to the this (3) requires attributing required placed paid to be Amounts or sense because common phrase identity escrow trustee “amount of into an account for future $37,332.92 taxes, credit,” insurance, water, (the payments case circled and in this meaning sewer, regulation amount). that the as land rents. I read and subject and borrowers would be con- case lenders seminal on this is Pol lock v. Finance Corp., General 535 F.2d 295 by charges” pursuant fused “all made (5th Cir.1976), denied, cert. 434 U.S. paragraph (a)(2) pay- of the statute and speak In L.Ed.2d paragraph (a)(1) ments under the relationship of the the between statute account borrower or to another per- of the regulation, and the the court said: son on In the brief his behalf. amicus filed 1639(a) These three subsections of sec. case, an points example this counsel clearly the three require disclosure of dif- property or credit insurance which could be A (1) ferent items. creditor must disclose said to be to another for the benefit given the cash amount of to the debtor or under, the paragraph (a)(1) borrower behalf, on the debtor’s the which be an item could classified as “all itemized, and individually the Thus, charges” paragraph (a)(2). under the total of the above two amounts. As the Board, regulations, prescribed in its apparent, statement makes the expenditures lender could itemize all only General Finance satisfied last 1639(a). two subsections sec. made lender by the which when added to statement informed the debtor also money amount of furnished the borrow- the total amount financed was $171.36. (the er amount) equals circled “amount However, the statement failed to disclose financed.” order to reach total that the of the loan amount was $155.28. financed,” equals the “amount all of the Although debtor could have deter- sums must amongst and mined by the amount of the loan items listed must be included amount of simple procedure arithmetic subtract- money (the furnished borrower circled ing the total insurance from the amount). majority excuses the lender financed, total amount we determine that case, in this and all lenders the three the statute not require a consumer circuit, states covered this from being perform function, and that obligated to inform a borrower of the creditor’s failure to disclose the money amount of which receiving. he is 1639(a)(1). item sec. violated case, majority require fails to (footnote omitted). 298-99 Pol- $37,332.92 (the closure sum circled lock has been followed a number of other amount). cases.3 amount) of credit” circled is choice between these two alternate inter- components pretations, though confusing, fig- one of the not crucial of the all-inclusive is my opinion reading case. ure in this Under either of the “amount financed.” Under this in- regulation, terpretation, we are left with the funda- regulation written as accords problem: being required mental lenders are not Board, interpreted with the statute. As to inform borrowers of the of credit of however, as followed Freedom Mort- they will have actual mandat- gage case, does not re- ed the statute. quire explicit disclosure of the “amount of (the amount). credit” See, circled e.g., v. Barbieri Commercial Credit Loans, Inc., (5th 1979), 596 F.2d 660 Cir. where interpretation regu The alternate is that the the court said: equates lation “amount of credit” with contrary, permitting If we had held to the and it as financed” defines the sum of only creditor to disclose the total amount proceeds the net to the borrower cir financed the and itemized finance amount) charges. cled and the itemized by judicial we would have fiat out of written interpretation, regulation Under this the express provision the statute the of section not, written, comport as with the statute. This 1639(a)(1) requiring the disclosure of interpretation Pridegon

is the followed v. (i.e., of credit made available to debtor the Union, (7th Gates 182 Credit F.2d Cir. the total amount financed the itemized less 1982), regula where the court stated that the charges). Congress If finance had intended tion, 226.8(d)(1), “only requires sec. the disclo per- the than debtor rather the creditor 1639(a)(2) (3)” sure listed in sections and subtraction, form the would not task it interpre statute. at 191. Under this 1639(a)(1) have included section stat- tation, the Freedom statement com case, however, although ute. we al- ports regulation. with the simple low the to be debtor burdened with of Pollock cannot is un disclosure opinion holds that it majority stand. the net a lender to disclose necessary for by 15 sec. required as U.S.C. 1521-1522). (at pp. conceptually required by 1639(a)(1) and as Ford Motor Co. majority reads sec. found in 12 C.F.R. regulation

the Board Milhollin, 444 U.S. S.Ct. giant majority makes this 226.8(d)(1). to reach its (1980), broadly too L.Ed.2d 22 man congressional step obliterating the Federal Reserve Board conclusion that regulation Congress and then duly adopted modify date and the Board can a statute its own construing orders interpretive its issue board has construed by saying “[t]he that vitiates the in a manner regulations staff inter contrary to the in its Milhol- language act. The congressional let pretation,” citing opinion certain staff light considered in lin must be 5). at 1520-1521 pp. ters. and n. Without reasoning of the and the facts of that case being explicit, majority holds that Milhollin, Supreme Court Court. by issuing reg Board can rewrite the statute the bor- a claim had under consideration ulations, regulations and then if the are not rower: clear, 2), inter (see note the Board can issue compre- were that acceleration clauses that eliminate the clear pretative letters prescrip- general statutory hended the statute. Congress intent of set out in “default, disclose tion that a creditor shall legal support majority As cites Smath payable in or similar delinquency, Savings Federal and Loan ers v. Fulton payments,” late 15 U.S.C. the event of Association, Cir.1981), (5th 653 F.2d 977 1638(a)(9), 1639(a)(7), and were sections where the court had under consideration provision Regula- within the included question “the whether disclosure state requiring tion Z have used the word ‘will’ in ment should “amount, computing or method ‘may’ security stead of interest amount, default, delinquency, or any ” after-acquired property .... 563 F.2d at in the event of charges payable similar case, holding 979. In for the in that lender 226.8(b)(4) payments,” late CFR sec. that use “will” court stated word “may” and that the word was not essential 559, 100 63 L.Ed.2d at light of a permissible, particularly was Supreme at 27. The Court reached interpret Federal Reserve Board letter so accelera reasonable conclusion “[a]n next regulation. majority a Board equated cannot with a ‘de tion clause states: “The court concluded that Smathers fault, charg[e],’ or similar sub delinquency, although previously had deference under 15 sections ject to disclosure U.S.C. opinions, to Federal Reserve staff Milhollin 1639(a)(7), sec. 226. 1638(a)(9), CFR weight of a much different Milhollin, 8(b)(4).” In the Court reasoned: quality given,” and concludes: that the issue of accelera- conclude [W]e only question Under Milhollin the before governed by is not clear tion disclosure us discharge is whether the board’s of its regulation, in the statute or expression authority broad under 15 sec. 1604 U.S.C. appropriate and that it is to defer to demonstrably was irrational when it Federal Reserve Board and staff in deter- issue is mining what resolution of vided that disclosures under subsections truth-in-lending enact- implied by 1639(a) be combined. We conclude ments. that we cannot make a determination of irrationality. demonstrable We therefore 560, 100 at 63 L.Ed.2d pertinent Regu- provision

hold under consideration in at 28. The statute Z is valid effect re give expression by lation and must be this case does clear “the to the borrower of conflicting quiring and that the net loan calculation, ignore that the disclosure made in we sec- tion and conclude arithmetic do not Instead, satisfactory. 1639(a)(1). speak tion this case is required by F.2d at 662. form of the disclosure that sec- obligor amount of credit of which the will

have the actual use.”

Congress was with respect not silent lender inform a money being the sum of loaned.

borrower

Because Congress mandated the full disclo-

sure the amount of credit of which the

borrower would actual I have the

sent. Jr., KAZANZAS, Plaintiff-Appel-

Leon G.

lant, Cross-Appellee, CO.,

WALT DISNEY WORLD a Delaware

Corporation Florida, doing business

Defendant-Appellee, Cross-Appellant.

No. 81-6238.

United of Appeals, States Court

Eleventh Circuit. 19, 1983.

May P.A.,

Gurney, Gurney Handley, & Ronald III, Hardy, Orlando, Harrop, L. W. Marvin Fla., plaintiff-appellant, cross-appellee.

Case Details

Case Name: Norman Sage v. Freedom Mortgage Company

Court Name: Court of Appeals for the Eleventh Circuit

Date Published: May 19, 1983

Citation: 704 F.2d 1519

Docket Number: 80-7717

Court Abbreviation: 11th Cir.