Pinchot v. Charter One Bank, F.S.B.Pinchot v. Charter One Bank, F.S.B.
{¶ 1} In July 1997, plaintiff-appellee Michael J. Pinchot obtained a loan from defendant-appellant Charter One Bank, F.S.B. (“Charter One”). The loan was evidenced by a promissory note and secured by a mortgage lien on Pinchot’s residence in Parma, Ohio. At all relevant times, Charter One was a federal savings association organized under the Home Owners’ Loan Act (“HOLA”) (originally, the Home Owners’ Loan Act of 1933), Section 1461 et seq., Title 12, U.S.Code.
{¶ 2} Pinchot fully satisfied his mortgage on December 31, 1998. Charter One, through an agent subsidiary corporation, recorded the fact of the satisfaction in the Cuyahoga County Recorder’s Office on April 27, 1999, which was 117 days after the satisfaction. Pinchot brought this action on behalf of himself and a class of persons similarly situated pursuant to
{¶ 3} Charter One moved for summary judgment on grounds that
{¶ 4} Finding that federal law does not preempt the application of
{¶ 5} The cause is now before this court pursuant to the allowance of a discretionary appeal.
{¶ 6} We are asked to decide whether Section 560.2, Title 12, C.F.R. preempts the application of
{¶ 7} The HOLA grew out of the Great Depression of the 1930s. It was “intended ‘to provide emergency relief with respect to home mortgage indebtedness’ at a time when as many as half of all home loans in the country were in default. H.R. Conf. Rep. No. 210, 73d Cong., 1st Sess., 1 (1933). Local institutions that had previously supplied funds to finance homes had ceased doing business or had discontinued such long-term loans, so that more than half the counties in the country, containing almost one-fifth of the total population, were without home financing institutions.
{¶ 8} “In order to ameliorate these conditions, Congress enacted the HOLA, ‘a radical and comprehensive response to the inadequacies of the existing state systems.’ Conference of Federal Sav. & Loan Assns. v. Stein,
{¶ 10} In 1989, the HOLA was amended by the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), which dissolved the FHLBB and transferred its powers and duties to the OTS. Under the FIRREA, the director of OTS was given the same plenary power to prescribe regulations for carrying out the HOLA that was formerly entrusted to the FHLBB. See Sections 1462a(b)(2) and 1464(a), Title 12, U.S.Code.
{¶ 11} Effective October 30, 1996, OTS promulgated Section 560.2, Title 12, C.F.R., which declares preemption of state lending regulations:
{¶ 12} “(a) Occupation of field. * * * To enhance safety and soundness and to enable federal savings associations to conduct their operations in accordance with best practices (by efficiently delivering low-cost credit to the public free from undue regulatory duplication and burden), OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section or § 560.110 of this part. For purposes of this section, ‘state law1 includes any state statute, regulation, ruling, order or judicial decision.
{¶ 13} “(bj Illustrative examples. Except as provided in § 560.110 of this part, the types of state laws preempted by paragraph (a) of this section include, without limitation, state laws purporting to impose requirements regarding:
{¶ 14} * *
{¶ 15} “(4) The terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan;
{¶ 16} “(5) Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees;
{¶ 18} “(10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages;
{¶ 19} “* * *
{¶ 20} “(c) State laws that are not preempted. State laws of the following types are not preempted to the extent that they only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of paragraph (a) of this section:
{¶ 21} “(1) Contract and commercial law;
{¶ 22} “(2) Real property law;
{¶ 23} “* * *
{¶ 24} “(6) Any other law that OTS, upon review, finds:
{¶ 25} “(i) Furthers a vital state interest; and
{¶ 26} “(ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a) of this section.”
{¶ 27} In its policy guidelines, the OTS suggests that courts utilize the following paradigm to determine whether a law is preempted by Section 560.2:
{¶ 28} “When analyzing the status of state laws under § 560.2, the first step will be to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption.” 61 F.R. 50951, 50966-50967.
{¶ 29} The parties have raised a number of arguments that concern the appropriate method of analysis in this case. Since these arguments revolve around the validity and proper application of the above guideline, we will deal with them first.
{¶ 30} Pinchot contends that the OTS’s suggested method of analysis is inconsistent with the regulation. He points out that the guideline was “never published as a regulation” and argues that the first two sentences of “the above language * * * can’t be right because then there could never be a 12 C.F.R. 560.2(c) exception to preemption.” Pinchot essentially reasons that the guideline forbids a state law covered under paragraph (b) to escape preemption under paragraph (c). But, according to the regulation, he argues, a state law described in paragraph (b) can escape preemption by fitting into one of the exceptions
{¶ 31} While the OTS guidelines are “not [to be] treated in the same manner as binding regulations,”
{¶ 32} Pinchot also claims that there is a general presumption against the federal invasion of core state functions. Thus, any preemption analysis must begin with the assumption that the historic police powers of the states are not to be superseded by federal law, especially in areas traditionally governed by state law, such as the security of titles to real estate.
{¶ 33} The cases upon which Pinchot relies do establish a general presumption against federal preemption. But they also reveal that the presumption is designed to protect the states against unintended federal encroachment on their traditional authority. The presumption against preemption is just that — a presumption — and it does not apply where the clear and manifest purpose of the statute or, in this case, regulation is to the contrary. Thus, when the examined federal law contains an express preemption clause, as is the case with Section 560.2, the question of state-law displacement depends in the first instance not upon any presumption but upon the text of that clause. See Minton v. Honda of Am. Mfg., Inc. (1997),
{¶ 34} On the other hand, we also reject Charter One’s contention that in determining “whether recording a mortgage satisfaction falls within one of the
{¶ 35} As a final matter pertaining to the application of the guideline, Charter One maintains that the court of appeals “conducted] its analysis backwards.” In other words, “[r]ather than beginning its analysis with Paragraphs (a) and (b) of the regulation, as the OTS intended, the court of appeals first decided, under Paragraph (c), that in its view
{¶ 36} This argument, though strongly urged as a ground for reversal, is unavailing. The court of appeals separately considered Charter One’s claim that “the recording statute is included as part of loan ‘servicing’ under Section 560.2(b)(10), Title 12, C.F.R. and thus is expressly and irrefutably preempted.” The court specifically rejected this argument, finding that “[t]he recording of real property transactions cannot be described as merely loan servicing” and that “the recording statute is unlike any of the other lending regulations discussed in Section 560.2(b).” The court then concluded that
{¶ 37} Having decided that both the OTS’s guideline and the court of appeals’ approach are consistent with the regulation, we now proceed to consider in the first instance whether
{¶ 38} In support of this contention, Charter One argues, “The undisputed evidence in this case establishes that the recording of a mortgage satisfaction is either a loan ‘servicing’ or loan ‘origination’ function. Indeed, all five of the experts in this case — three of whom testified on behalf of plaintiff — testified that the recording of a mortgage satisfaction is a loan servicing or loan origination function.” (Emphasis sic.)
{¶ 39} It is axiomatic, however, that preemption, particularly under the HOLA and its implementing regulations, is a question of law. See Washington Mut. Bank, F.A. v. Superior Court of Los Angeles Cty. (2002),
{¶ 40} As for legal authority that the recording of a mortgage satisfaction can be properly classified as loan or mortgage origination, Charter One offers none. We reject out of hand any definition of loan or mortgage “origination” that would encompass an activity that necessarily occurs after the debt is satisfied.
{¶ 41} In support of its alternate contention that the recording of a mortgage satisfaction is a loan-servicing function, Charter One asserts that “the OTS has itself issued two opinion letters that make clear that state laws purporting to regulate a federal lender’s handling of a mortgage payoff statement are preempted by 560.2(b).” Specifically, these opinions involve bank fees that are charged for the preparation and faxing of payoff or demand statements. A payoff or demand statement is a recitation of all outstanding amounts on an existing mortgage, including principal and accrued interest as of a specific date and the per diem interest charges accruing after that date. The OTS considers these charges to be “loan-related fees” under the coverage of Section 560.2(b)(5). See
{¶ 42} In addition, Charter One asserts that “two recent decisions based on closely analogous facts demonstrate that
{¶ 43} These decisions are not only distinguishable for the reason that they have nothing to do with the issue of mortgage-servicing under Section 560.2(b)(10), but they actually draw on certain principles that are ultimately incompatible with Charter One’s position. In 2000 OTS Op. No. P-2000-6 (Apr. 21, 2000),
{¶ 44} Similarly, in a 1995 memorandum opinion,
{¶ 45} “We have found no evidence that the OTS lending regulations were intended to preempt state laws requiring lenders to collect loan-related taxes from borrowers. * * * [Sjtate tax collection laws are different in kind from the types of state laws intended to be preempted by the lending regulations. [However,] [t]he provisions of the [Georgia Residential] Mortgage Act that attempt to impose requirements regarding escrow accounts, disclosure, advertising, books and records, registration, and lender fees [all of which are listed in
{¶ 46} These decisions underscore that
{¶ 47} Charter One also cites the Comptroller’s Handbook published by the Office of the Comptroller of the Currency (“OCC”), which regulates national banks, as evidence that the recordation of a mortgage satisfaction is a servicing function for purposes of
{¶ 48} However, the fact that the Comptroller’s Handbook places the recordation of mortgage satisfactions in the category of loan servicing for purposes of ensuring effectiveness of banking operations is of no consequence to whether the activity is covered under
{¶ 49} We conclude, therefore, that
{¶ 50} Pinchot informs us that while all 50 states have some type of law pertaining to the recording of mortgage satisfactions, “[t]he OTS has never said mortgage satisfaction [recording] statutes are preempted.” Pinchot also asserts that “neither the OTS nor any other federal authority has passed any laws or regulations governing [the recording of] mortgagfe] * * * satisfactions.” Yet, as stated in
{¶ 51} The failure on the part of OTS to regulate or specifically preempt a particular type of state law is neither determinative nor even probative of regulatory intent. “Where, as here, the agency administering the federal act has expressed its intention to occupy the entire field of lending regulations for federal savings associations * * * there is no need to find a specific regulation on point.” Washington Mut. Bank, supra,
{¶ 52} “However, this does not mean that every state law having any conceivable connection to the lending operations of federal savings associations is preempted.” May 10, 1995 OTS Memorandum Opinion, supra. See, also, Washington Mut. Bank, supra,
{¶ 53} The only case cited by the parties that has any direct bearing on this issue is Konynenbelt v. Flagstar Bank, F.S.B. (2000),
{¶ 54} “A mortgagee or his personal representative, successor or assign, within 90 days after a mortgage has been paid or otherwise satisfied and discharged, shall prepare and file a discharge thereof with the register of deeds for the county where the mortgaged property is located and pay the fee for recording the discharge.”
{¶ 55} In ruling against preemption, the Michigan Court of Appeals concluded that the OTS did not really occupy the entire field of lending for federal thrifts, despite its stated intention to the contrary. But the court’s conclusion in this regard, as Charter One puts it, was “not necessary to its decision.” Regardless of whether the OTS’s occupation of the field of lending is complete, it has not purported to occupy nonlending-related areas or to preempt state laws having no connection to lending. Thus, no matter how the conceptual interplay among the three divisions in
{¶ 56} Since we have now determined that
{¶ 57} According to Charter One, “The costs associated with compliance with state recording statutes, standing alone, have more than an incidental effect on the lending operations of Charter One,” which “has mortgages in 46 states.” Charter One argues that
{¶ 58} We find it exceedingly difficult to take these arguments seriously, however, since Charter One not only undertook to complete the recording process in this case subject to a provision in the mortgage agreement requiring Pinchot to pay “any recordation costs,” but actually informs us that its corporate subsidiary that records mortgage satisfactions “devotes substantial resources to its efforts to comply with Ohio’s recording statute and the recording statutes of other states.” Short of finding that Charter One has itself chosen to act in contravention of the best practices of federal thrifts, we agree with the court of appeals that “
{¶ 59} Finally, Charter One maintains that “even if
{¶ 60} Based on all of the foregoing, we hold that
{¶ 61} Accordingly, the judgment of the court of appeals is hereby affirmed, and the cause is remanded to the trial court for further proceedings.
Judgment affirmed and cause remanded.
Notes
. As a matter of jurisdiction, Pinchot contends that the court should dismiss this appeal because the ■ Attorney General was not notified of a constitutional challenge as required by
. {¶ a}
{¶ b} “(B) Within ninety days from the date of the satisfaction of a residential mortgage, the mortgagee shall record the fact of the satisfaction in the appropriate county recorder’s office and pay any fees required for the recording. The mortgagee may, by contract with the mortgagor, recover the cost of the fees required for the recording of the satisfaction by the county recorder.
{¶ c} “(C) If the mortgagee fails to comply with division (B) of this section, the mortgagor may recover, in a civil action, damages of two hundred fifty dollars. This division does not preclude or affect any other legal remedies that may be available to the mortgagor.