TILA, HOEPA claims fail in Pennsylvania reissue rate case

Posted on October 13, 2008. Filed under: Case Law, Foreclosure Defense, Truth in Lending Act | Tags: , , |

A Pennsylvania homeowner filed suit against a lender that charged her a basic title insurance premium rate although she qualified for a discounted refinance transaction rate. Asserting claims under TILA and HOEPA, the homeowner argued that the difference between the rates was excessive and must be included in the calculation of points and fees. The court found that the lender did not know about the homeowner’s prior title insurance policy and that she did not provide evidence of the prior policy at the time of closing.
(9/6/2006)
 
 
In re Margaret Fields v. Option One Mortgage Corp., et al. (U.S. District Court, Eastern District of Pennsylvania, Case No. 06-1753)

A Pennsylvania homeowner filed suit against a lender that charged her a basic title insurance premium rate although she qualified for a discounted refinance transaction rate. Asserting claims under TILA and HOEPA, the homeowner argued that the difference between the rates was excessive and must be included in the calculation of points and fees. The court found that the lender did not know about the homeowner’s prior title insurance policy and that she did not provide evidence of the prior policy at the time of closing.

In January 2002, Margaret Fields obtained an $83,000 loan from Option One Mortgage Corp. to refinance two outstanding mortgages on her home in Philadelphia. Approximately 18 months later, Fields stopped making monthly payments because she could not afford them.

In August 2003, Fields filed a petition  for Chapter 13 bankruptcy under the Truth in Lending Act (TILA) and the Homeownership Equity Protection Act of 1994 (HOEPA) to rescind the Option One loan and seek damages and attorney’s fees. Option One charged Fields the basic rate of $756.75 for title insurance as provided by the Manual of Title Insurance Rating Bureau of Pennsylvania.

Fields contended that instead, she should have been charged the refinance rate of $544.86 and that the difference between the basic and refinance rates is unreasonable and must be added to the calculation of points and fees. When the difference of $211.89 was added to the points and fees, the sum exceeded percent of the loan.

Because Option One did not make appropriate HOEPA disclosures, Fields maintained she was entitled to rescind the loan agreement and recover damages. Option One countered that even though Fields had purchased title insurance in connection with her prior mortgage loans from Mellon and Commercial Credit and may otherwise have been eligible for the refinance rate, she did not provide any evidence of that prior insurance at the time of closing.

At trial, the parties stipulated that $5,947 in fees charged to Fields were properly included in the points and fees calculation. Fields argued that the title insurance fee, the hazard insurance premium and the notary fee should also be included. The bankruptcy court added $13 of the notary fee to the points and fees number but declined to include the title insurance fee and the hazard insurance premium. It found insufficient evidence to support a finding that the defendant knew or should have known that Fields qualified for the lower insurance rate at the time of the transaction and that Fields bore the burden of production on the question.

The bankruptcy court further found the evidence before it did not support a finding that Option One knew or should have known about Fields’ unaltered fee simple ownership status of the property, that the title to the collateral had been previously insured or that in January 2002, title to the real property was identical to the ownership of record at the time of the prior insurance policies.

Fields appealed.

In July, the U.S. District Court for the Eastern District of Pennsylvania affirmed the orders of the bankruptcy court.

First, the court found that the bankruptcy court did not clearly err when it found Option One did not know of Fields’ prior title insurance or that the lender should have known about it because she could not remember any substantive details of any relevant loan transaction and the record did not reveal that Fields produced any evidence of her prior title insurance at the time of the closing.

Furthermore, the documents present at the closing did not conclusively prove that the property in question had been insured for the requisite period, the court found.

The court also found that the bankruptcy court did not err when it held that the basic title insurance fee was reasonable in its entirety and refused to include any portion of it in the points and fees calculation.

“To be reasonable, a service must actually have been performed for the fee,” the court pointed out. “The record demonstrates that the service of insuring title was actually performed for the fee in question.”

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