advances, the terms for which are described in the documents."
First, the description is confusing and misleading because it may be interpreted to cover all personal property currently located at the address listed. The mortgage documents reveal that no such security interest was granted.
Second, the description appears to disclose a security interest in after-acquired personal property. It is not unlikely that the plaintiffs would interpret the disclosure to encompass after-acquired personal property in light of the type of loan they requested. They had applied for a home improvement loan, and not a loan with which to purchase the property. The mortgage in this case, however, applies only to the specific property designated in the mortgage instrument, 3337 N. "H" Street. The disclosure, as stated, is misleading. The disclosure statement provided to the plaintiffs contained a material violation of the Act because it contained no clear identification of the collateral the security interest was intended to cover. See Bartlett v. Commercial Fed. Sav. & Loan Ass'n, 433 F. Supp. 284, 286-87 (D. Neb. 1977). Plaintiffs therefore had a continuing right to rescind the agreement.
If a creditor fails to comply with the Act's requirements, it may be liable for a penalty of twice the finance charge, up to a maximum of $1,000, plus attorney's fees and costs. 15 U.S.C. § 1640. The statutory penalty is applicable to violations of the Act's rescission requirements found in 15 U.S.C. § 1635. This right to damages, however, is subject to a one-year limitations period, which starts from the date of the occurrence of the violation. Id. § 1640(e). Defendant received plaintiffs' rescission letter on May 22, 1982. When defendant failed to respond to the rescission notice within the period set forth in § 1635, i.e., by June 1, 1982, the defendant violated the Act. Since plaintiffs filed this action on July 13, 1982, their claim for damages is timely.
Defendant is liable for statutory damages under § 1640 of the Act for its failure to respond to plaintiffs' rescission notice. The defendant will be assessed the maximum statutory penalty of $1,000, because the finance charge involved here is $3,624.48. Defendant will also be liable for plaintiffs' costs and for reasonable attorney's fees. See 15 U.S.C. § 1640(a)(3). Plaintiffs here have requested that they each be awarded the maximum statutory penalty. In consideration of the 1982 amendments to the Act and all the circumstances of this case, I conclude that one award of $1,000 is appropriate.
When an obligor validly exercises his right to rescind under the Act, he is not liable for any finance or other charge, and any security interest he has given becomes void. 15 U.S.C. § 1635(b). When the creditor receives notice of the rescission, it is obliged to return any downpayment or other payments it received from the borrower, and to take the action necessary to reflect the termination of the security interest. Id. Upon performance of the creditor's obligations, the borrower is required to return to the creditor the property he received or its reasonable value. Id.
Plaintiffs are no longer liable for the finance charge of $3,624.48. Plaintiffs had paid the defendant $1,916.23 prior to their rescission. This amount must be credited against the amount financed of $4,500. Plaintiffs submit that the remainder of their indebtedness should be forfeited by the defendant because it failed to fulfill its statutory obligation and terminate the security interest in plaintiffs' property. Such a ruling would contravene the legislative purposes of § 1635. The statutory procedures for rescission were designed to restore the parties to the status quo ante. Mitchell v. Security Inv. Corp. of Palm Beaches, 464 F. Supp. 650 (D. Fla. 1979). Additionally, rescission is an equitable remedy and the court may condition it upon the borrower's return of the monies advanced by the lender. Palmer v. Wilson, 502 F.2d 860, 862 (9th Cir. 1974). Accordingly, plaintiffs must tender to the defendant the funds defendant advanced to them upon the termination of the security interest by the defendant and the defendant's return of any monies paid by the plaintiffs.
An appropriate order will be entered.
NOW, June 29, 1983, upon consideration of the parties' cross-motions for summary judgment, the memoranda submitted in support thereof, and for the reasons stated in the accompanying memorandum, IT IS ORDERED that:
1. Defendant's motion for summary judgment is DENIED.
2. Plaintiffs' motion for summary judgment is GRANTED, IN PART:
(a) The loan transaction dated October 24, 1979, was validly rescinded on May 21, 1982;
(b) The defendant shall pay to the plaintiffs $1,000 in statutory penalties within twenty (20) days from the date of this order.
3. The parties shall meet and prepare a proposed final order which reflects, in light of the rescission, the final disposition of the monies involved in this case. This proposed order shall be submitted to chambers not later than fifteen (15) days from the date of this order.
4. Plaintiffs shall submit, not later than ten (10) days from the date of this order, full and complete affidavits reflecting their attorneys' fees and costs. Defendant may respond within five (5) days.
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