filed: April 16, 1992; As Corrected July 9, 1992.
On Appeal from the United States District Court for the Eastern District of Pennsylvania. (Dist. Ct. Civil No. 91-01144; Bankruptcy No. 90-11361 S; Bankr. Ct. Adv. No. 90-0641 S)
Before: Becker and Roth, Circuit Judges, and McCUNE, District Judge*fn*
Appellee Rosetta Porter, a debtor in bankruptcy, brought this adversary action in the Bankruptcy Court for the Eastern District of Pennsylvania against appellant Mid-Penn Consumer Discount Co. ("Consumer") under the Truth in Lending Act ("TILA"), 15 USCA §§ 1635 and 1640 (West 1982 and 1991 Supp.). Porter claims that that Consumer failed to honor her request to rescind a 1987 loan that was secured by a mortgage on her home. TILA and its implementing regulations normally allow borrowers three days to rescind, but they require lenders to provide a clear and conspicuous disclosure of rescission rights, and they extend the borrower's right to rescind to three years if the lender's disclosure is insufficient. 15 USCA §§ 1635(a),(f); 12 C.F.R. § 226.23(a)(3) (1991). Porter claims that Consumer failed to disclose clearly the effects of rescission, and that her 1990 request for rescission was therefore timely and should have been honored under 15 USCA § 1635(b). In addition to rescission, she seeks actual and statutory damages and attorney's fees under 15 USCA § 1640 for Consumer's failure to effect the rescission.
The only issue before us is whether Consumer's notice clearly apprised Porter of her rescission rights. As a threshold matter, Porter takes the position that the 1987 transaction was a "refinancing" that was partially exempt from rescission by virtue of 15 USCA § 1635(e)(2) and 12 C.F.R. § 226.23(f)(2). That is, she claims that her statutory right of rescission extended only to moneys newly advanced, and not to debt carried over from an earlier 1986 loan from Consumer. At the time of the loan, however, Consumer gave Porter the standard H-8 form notice designed by the Board of Governors of the Federal Reserve System ("the Board") for "general" usage (typically for new loans), rather than the H-9 form notice specifically designed for "refinancings" or some other notice specially designed for her transaction. The H-8 informs the borrower that he or she may rescind "this transaction," while the H-9 states that the borrower may rescind only moneys newly advanced in the "refinancing." Porter contends that the H-8 could be read to say that she had the right to rescind her entire loan (both new- and old-money portions), and therefore Consumer's notice was defective because it did not clearly apprise her that she had the statutory right to rescind the new-money portion alone.
The bankruptcy court agreed with Consumer, however, that the transaction was not a "refinancing," that Porter therefore did have the statutory right to rescind both old and new moneys, and that Consumer therefore did not violate TILA by giving her the H-8 notice. On appeal, the district court reversed and remanded for determination of proper remedies, holding that the transaction was a partially exempt "refinancing" and therefore the H-8 was an inadequate notice because it inaccurately suggested that Porter had the right to rescind the whole loan. For the reasons that follow, we will affirm.
I. FACTS AND PROCEDURAL HISTORY
Three loan transactions are relevant to this case. Porter first obtained a loan from Consumer in 1986, and, as part of that transaction, Consumer took a mortgage on Porter's home, or "principal dwelling" in TILA terminology. On May 18, 1987, Porter entered into another loan transaction with Consumer. At that time, Porter still had slightly over $1000 remaining outstanding on her 1986 loan, and by the terms of the 1987 agreement, Consumer was to pay off Porter's account and lend her additional money (approximately $2100 to pay off a loan from another consumer loan company named Fleet and and approximately $500 for Porter herself).*fn1
Consumer was to satisfy the 1986 mortgage and to take a new mortgage. Consumer immediately sent the new (1987) mortgage to Philadelphia City Hall for recording, which occurred on May 22, 1987, just one day after the expiration of the three-day "cooling off" period during which TILA requires that lenders allow consumers to change their minds and rescind their loans, 15 USCA § 1635(a).*fn2 Consumer did not satisfy the 1986 mortgage immediately, however. It waited until May 27, 1987, several days after the expiration of the three-day rescission period, to execute a satisfaction piece for the 1986 mortgage. Thus Consumer held two mortgages on Porter's home for a brief time.
When the 1987 loan was signed, and in an attempt to comply with 15 USCA § 1635(a), Consumer furnished Porter a notice of her right to rescind that was substantively identical to the Board's "Rescission Model Form (General)." That form is commonly known as the H-8 form because it is the eighth entry in Appendix H to the Board's Truth-in-Lending regulations ("Regulation Z"), 12 C.F.R. part 226, reprinted in full at 15 USCA following § 1700 (West 1982 & Supp. 1991). Consumer's notice did not advise Porter that two mortgages would be temporarily held simultaneously, nor did it in any other way mention the 1986 loan or the effect of the 1986 loan on Porter's rescission rights.
The front side of the notice that Porter received in 1987 read (with handwritten portions in curly braces):
NOTICE OF RIGHT TO CANCEL
CUSTOMER NAME(S): DATE OF CONTRACT OR LOAN
(Rosetta Porter) (5/18/87)
You are entering into a transaction that will result in a (mortgage/lien/security interest) (on/in) your home. You have a legal right under federal law to cancel this transaction, without cost, within three business days from whichever of the following events occurs last:
(1) the date of the transaction, which is (5/18/87); or
(2) the date you received your Truth in Lending disclosures; or
(3) the date your received this notice of your right to cancel.
If you decide to cancel this transaction, you may do so by notifying us in writing at
MID-PENN CONSUMER DISCOUNT CO.
21 S. 12th ST., PHILADELPHIA, PA 19107
You may use any written statement that is signed and dated by you and states your intention to cancel, and or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of (5/21/87) (or midnight of the third business day following the latest of the three events listed above). If you send or deliver your written notice to cancel in some other way, ...