Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-1_08-cv-00011/USCOURTS-almd-1_08-cv-00011-1/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 15:1601 Truth in Lending

---

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, SOUTHERN DIVISION

CHERYL HALL FRAZIER, )

individually and on behalf )

of a class of similarly )

situated persons, )

)

Plaintiff, )

) CIVIL ACTION NO.

v. ) 1:08cv11-MHT

) (WO) 

ACCREDITED HOME LENDERS, )

INC., d/b/a Home Funds )

Direct, )

)

Defendant. )

OPINION

Plaintiff Cheryl Hall Frazier filed this lawsuit on

behalf of herself and a class of similarly situated

persons against defendant Accredited Home Lenders, Inc.,

doing business as Home Funds Direct. Frazier asserts

that Accredited improperly understated the finance charge

on credit it extended to her, in violation of the Truth

in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and

that it failed to comply with additional disclosure

requirements under the Home Ownership and Equity

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Protection Act ("HOEPA"), 15 U.S.C. § 1639. Frazier

seeks to rescind the transaction and thus void

Accredited's interest in her home, and to recover

damages. 

Before the court is Accredited's motion for summary

judgment, which is granted for the reasons that follow.

SUMMARY-JUDGMENT STANDARD

Summary judgment is appropriate "if the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and

that the moving party is entitled to a judgment as a

matter of law." Fed. R. Civ. P. 56(c). Under Rule 56,

the court must view the admissible evidence in the light

most favorable to the non-moving party and draw all

reasonable inferences in favor of that party. Matsushita

Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.

574, 587 (1986).

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BACKGROUND

On March 25, 2005, Frazier closed on a $ 56,000 loan,

secured by a mortgage on her home, with Accredited.

Swafford & Hayes Settlement Services, a settlement

company that is not a party to this action, closed the

loan. Frazier was provided with a “Truth in Lending

Disclosure Statement,” a “Good Faith Estimate,” and a

“HUD Settlement Statement.” These documents, which are

required by TILA, listed various charges associated with

her loan. Frazier later came to believe that certain

charges were excessive and improperly excluded from the

disclosed finance charge, resulting in an understatement

of the finance charge. 

On November 1, 2006, Frazier sent a letter to

Accredited seeking to rescind her loan, relying on her

assertion that the finance charge was not properly

disclosed. Accredited did not honor or otherwise respond

to her rescission notice, and she filed this lawsuit.

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 1. Official staff interpretations of Regulation Z are

dispositive unless “demonstrably irrational.” Ford Motor

Credit Co. v. Milhollin, 444 U.S. 555, 565-67 (1980).

4

DISCUSSION

TILA and its implementing regulation, 12 C.F.R.

§ 226.1 et seq. (“Regulation Z”), require lenders to

provide certain written disclosures to borrowers before

closing; lenders must clearly and conspicuously disclose

the ‘amount financed,’ which is the net amount of money

lent to the borrower, Official Staff Interpretation, 12

C.F.R. Pt. 226, Supp. I at 226.18(b)(2) n. 1.,1

 and the

‘finance charge,’ which is the borrower’s cost of

obtaining that money, including interest. 15 U.S.C.

§ 1605(a). TILA’s purpose is "to assure a meaningful

disclosure of credit terms so that the consumer will be

able to compare more readily the various credit terms

available to him and avoid the uninformed use of credit."

15 U.S.C. § 1601(a). HOEPA is an amendment to TILA that

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requires lenders to make additional disclosures on ‘high

cost’ loans. 15 U.S.C. § 1639. 

Frazier takes issue with the finance charge disclosed

to her, contending that several charges were improperly

excluded from the calculation of the finance charge.

Frazier’s first claim is that, because of these improper

exclusions, the finance charge on her loan was

understated in violation of TILA and she was entitled to

rescind the transaction. Second, Frazier claims that

Accredited again violated TILA when it refused to honor

her rescission notice. Third, Frazier asserts that, when

calculated correctly, the finance charge places the loan

within HOEPA's definition of a ‘high cost’ loan that

required Accredited to make certain additional

disclosures. Frazier contends that she is entitled to

damages for both TILA violations as well as the HOEPA

violation.

Accredited denies that it improperly excluded any

fees from the finance charge. Accredited contends that

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2. Because Frazier’s claims fail on the merits, the

court does not address Accredited’s contention that her

claim for damages for understatement of the finance

charge is untimely.

6

the disclosures it made were accurate, complete, and in

compliance with both TILA and HOEPA. It further argues

that, to the extent that the finance charge was

inaccurately understated, any such inaccuracy falls

within TILA’s safe harbor and outside the bounds of

HOEPA's definition of high-cost loans. 

I. TILA violations

A. TILA claim for 

understatement of finance charge 

The dispositive question is how to calculate properly

the finance charge for Frazier's loan.2

 Unsurprisingly,

the parties disagree as to which charges should be

included in this calculation. Their disagreement is

compounded by the imprecise language of TILA itself and

the maze of federal regulations interpreting the statute.

TILA defines the finance charge as "the sum of all

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charges, payable directly or indirectly by the person to

whom the credit is extended, and imposed directly or

indirectly by the creditor as an incident to the

extension of credit.” 15 U.S.C. § 1605(a). The statute

goes on at some length and is accompanied by detailed

implementing regulations at 12 C.F.R. § 226.4. In short,

the finance charge is the cost of obtaining credit.

Frazier claims that Accredited violated TILA by

failing to include certain excessive fees in the

disclosed finance charge. She contends that the

endorsement fee was charged for a service that was not

provided and that the fees for a title search, a title

examination, recording, and title insurance were

excessive. She argues that all of these charges should

have been included in the finance charge. Accredited

denies that it violated TILA; Accredited contends that

the disputed fees were imposed by a third party; no

charges were excessive; if any charges were excessive,

only the excessive portion should be added to the finance

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charge, not the entire charge as Frazier contends;

certain charges were improperly included in the disclosed

finance charge and must be excluded from the correct

finance charge; and any difference between the correct

finance charge and the disclosed finance charge falls

within TILA's tolerance for accuracy.

1. Whether Accredited is responsible

for the charges imposed by a third party

Accredited first contends that it cannot be held

responsible for any excessive fees because Swafford, the

settlement agent that closed the loan, imposed the fees.

Accredited argues that the disputed fees should be

excluded because it "neither required nor retained the[]

fees” charged by Swafford. Def. Br. at 6. This argument

fails because the statute asks whether the lender

required the services, not just the charges. See 15

U.S.C. § 1605(a) (third-party charges are included in the

finance charge unless the lender "does not require the

imposition of the charges or the services provided and

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9

does not retain the charges"); see also O'Brien v. J.I.

Kislak Mortg. Corp., 934 F. Supp. 1348, 1357 (S.D. Fla.

1996) (Ryskamp, J.) ("If the creditor required a third

party to perform a service, is aware that the third party

will perform the service, and imposes a separate charge

on the consumer for the performance of that service, the

fee is a disclosable finance charge.").

 Accredited does not, and could not, dispute that it

required the services represented by the fees for title

insurance, abstract search, title examination, and

recording, as Frazier offers uncontradicted testimony of

the settlement agent that any services it performed were

required by Accredited. See Pl. Exh. 7 at 112-13.

Accredited protests, however, that the endorsement fee is

a different matter, because no service was actually

provided for this fee and, thus, Accredited could not

have "required" it. Frazier concedes that Accredited did

not require any service that mandated the $ 50

endorsement fee retained by Swafford. See Pl. Br. at 19

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(title insurance company's rate manual indicates that

"all standard residential endorsements are included in

the filed rate and no additional [endorsements] were

written"). Because no separate endorsement service was

required by Accredited, the endorsement fee must be

excluded from the finance charge. 

However, the court must determine whether the

remaining fees challenged by Frazier were excessive and

whether any excess resulted in an impermissible

understatement of the finance charge. 

2. Calculation of the TILA 

tolerance for accuracy

TILA deems a finance charge accurately disclosed if

it is understated by no more than "one-half of one

percent of the total amount of credit extended." 15

U.S.C. § 1605(f)(2); see also 12 C.F.R. § 226.23(g)

(understatement cannot be more than one-half of one

percent of the “face amount of the note”). The correctly

calculated finance charge is referred to as the “actual”

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3. The disclosed finance charge was calculated by

adding the prepaid-finance charge, which totaled

$ 3,582.90, to the interest during the term of the loan,

$ 82,189.61. The prepaid-finance charge included the

following: (1) origination fee ($ 1,960.00), (2)

processing fee ($ 500.00), (3) underwriting fee

($ 500.00), (4) appraisal-review fee ($ 250.00), (5)

flood-zone-determination fee ($ 9.50), (6) per diem

interest fee ($ 22.40), and (7) settlement/closing fee

($ 275.00). The interest during the term of the loan was

calculated by subtracting the loan principal ($ 56,000)

from the total payments ($ 138,189.61). See Def. Exh. 8

at 4. 

4. The $ 280 is added to the disclosed finance

charge of $ 85,772.51 to determine the tolerance for

accuracy; the sum of these two amounts is $ 86,052.51.

11

finance charge. 15 U.S.C. § 1605(f) (referring

throughout to “actual finance charge” to describe finance

charge when calculated correctly). Accredited disclosed

a finance charge of $ 85,772.51 for Frazier’s $ 56,000

loan.3

 The parties agree that the TILA tolerance for

accuracy is $ 280, or one-half of one percent of

$ 56,000. To fall within TILA’s tolerance for accuracy,

Frazier’s actual-finance charge must not exceed

$ 86,052.51.4

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3. Whether particular charges

are part of the finance charge

The finance charge includes "fees for services to be

performed periodically during the loan term." Official

Staff Interpretation, 12 C.F.R. Pt. 226, Supp. I at

226.4(c)(7) n. 3. However, TILA excludes certain charges

from the finance charge: "Fees and charges prescribed by

law which actually are or will be paid to public

officials for determining the existence of or for

perfecting or releasing or satisfying any security

related to the credit transaction," 15 U.S.C.

§ 1605(d)(1); "Fees or premiums for title examination,

title insurance, or similar purposes," 15 U.S.C.

§ 1605(e)(1); and "Appraisal fees, including fees related

to any pest infestation or flood hazard inspections

conducted prior to closing." 15 U.S.C. § 1605(e)(5). In

addition to excluding the fee the lender was charged, the

lender may exclude "the cost of verifying or confirming

information connected to the item." Official Staff

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Interpretation, 12 C.F.R. Pt. 226, Supp. I at 226.4(c)(7)

n. 1. 

In all cases, the charge must be "bona fide and

reasonable" in order to be properly excluded from the

finance charge. 12 C.F.R. § 226.4(c)(7). Neither the

statute nor the implementing regulations define “bona

fide and reasonable.” Courts characterize a charge as

bona fide and reasonable if "it was for a service

actually performed and reasonable in comparison to the

prevailing practices of the industry in the relevant

market." Brannam v. Huntington Mortgage Co., 287 F.3d

601, 606 (6th Cir. 2002); see also Guise v. BWM Mortg.,

LLC, 377 F.3d 795, 801 (7th Cir. 2004). Only the

unreasonable portion of a fee, that is, the excessive

portion, will be added to the finance charge. Guise,

377 F.3d at 800.

With these guidelines in mind, the court turns to

particular charges disputed by the parties, taking up,

first, charges that Accredited contends were improperly

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included in the disclosed finance charge, and, second,

the charges that Frazier contends were improperly

excluded.

a. Improperly included fees

i. Whether such fees may be excluded 

in calculating the actual-finance charge

Accredited contends that the $ 250 appraisal-review

fee, the $ 66 tax-service fee, and the $ 9.50 floodhazard-determination fee were improperly disclosed as

part of the finance charge and should not be included

when calculating the actual-finance charge. Frazier

argues that the court should not exclude these charges

because they were previously disclosed to Frazier as part

of the finance charge. 

The statute requires the court to determine the

‘actual’ finance charge. 15 U.S.C. § 1605(f). The word

‘actual’ instructs the court to determine the finance

charge based on the objective criteria outlined in the

statute and implementing regulations. The court could

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not include fees not properly characterized as finance

charges and then call its determination the ‘actual’

finance charge. Nowhere does the statute suggest that

the court must begin its calculation of the actualfinance charge with the disclosed charge. Indeed, the

point of the entire exercise is for the court to

calculate what the lender should have told the borrower

and then determine whether the lender came close enough.

Thus, Frazier’s argument must fail. See Scott v. IndyMac

Bank, FSB, 2004 WL 422654, at *3 (N.D. Ill. 2004)

(Gettleman, J.) (excluding from calculation of finance

charge fees improperly included in disclosed finance

charge); see also Marquez v. New Century Mortg. Corp.,

2004 WL 742205, at *3 (N.D. Ill. 2004) (Manning, J.)

("any finance charges disclosed to the plaintiffs must be

reduced by the charges that should not have been included

in their TILA documents"). 

Thus, in addition to the fees that Frazier

challenges, the court must determine whether the fees for

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appraisal review, tax service, and flood-hazard

determination were properly included in the finance

charge.

ii. Whether such fees were improperly

 included in the disclosed finance charge

The appraisal-review fee is "for an in-house

appraiser's review of the appraisal report to verify the

adequacy and completeness of the report, and to verify

that the property value meets the minimum guidelines for

the loan program." Def. Exh. 8 at 7. Frazier challenges

whether such a service was actually performed and,

further, whether the $ 250 fee is reasonable for the

service actually performed. She argues that, "[i]n

transactions covered by [Real Estate Settlement

Procedures Act], such as the one at bar, the review of

the work of another party is not a compensable service."

Pl. Sur Reply in Opp. at 2. But the court is determining

whether the fee is a finance charge under TILA, and TILA

regulations expressly allow lenders to exclude the cost

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5. The parties' Joint Appendix includes the report

prepared by Accredited's review appraiser, and it is a

detailed document; Frazier cannot plausibly argue that

Accredited provided no service to earn this fee. See

Joint Appendix, Vol. X at 1529-31. 

17

of verifying appraisals from the finance charge.

Official Staff Interpretation, 12 C.F.R. Pt. 226, Supp.

I at 226.4(c)(7) n. 1. Frazier offers no evidence

tending to show that the service was not performed or

that $ 250 is excessive for an appraisal-review fee.5

Thus, the fee is not properly characterized as a finance

charge and should not have been included in the finance

charge.

By contrast, the $ 9.50 flood-zone-determination fee

and the $ 66 tax-service fee were properly included in

the finance charge. "[F]ees for services to be performed

periodically during the loan term" are included the

finance charge. Official Staff Interpretation, 12 C.F.R.

Pt. 226, Supp. I at 226.4(c)(7) n. 3 (emphasis added).

The official staff interpretation of the regulation

provides examples particularly relevant here: Although "a

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fee to search for tax liens on the property or to

determine if flood insurance is required" should be

excluded from the finance charge, "a fee for one or more

determinations during the loan term of the current tax

lien status or flood insurance requirements is a finance

charge, regardless of whether the fee is imposed at

closing, or when the service is performed." Id.

(emphasis added). Because the tax-service fee was for a

determination made during the loan term, see Def. Exh. 8

at 6 (tax-service fee is "for monitoring the property

real estate taxes after loan closing") (emphasis added),

it was properly included in the original finance charge.

See Romaker v. Crossland Mortg. Corp., 1995 U.S. Dist.

LEXIS 22252, at *9 (N.D. Ill. Nov. 3, 1995) (Grady, J.)

("[T]ax service fee[s] ... are usually fees which are

required to be included as part of the finance charge.").

Similarly, because at least some portion of the floodzone-determination fee was imposed for monitoring the

property after closing, see Def. Br. at 17 (flood-zoneCase 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 18 of 39
6. Although the most fair approach would split the

fee and include only that portion charged for monitoring,

the parties have not presented any argument or evidence

as to which portion of the fee is for monitoring. At

this stage, the court views the facts in the light most

favorable to the plaintiff, and, thus resolves the

evidentiary equipoise in Frazier’s favor.

19

determination fee, in part, was “for monitoring the

property in the event map revisions result in the

restructuring of the lender's insurance requirements"),

it too was properly included in the finance charge.6

For the above reasons, the $ 66 tax-service fee and

the $ 9.50 flood-zone-determination fee will be included

in the court’s calculation of the actual-finance charge,

but the $ 250 appraisal-review fee will not. 

b. Improperly excluded fees

Frazier challenges the reasonableness of a number of

fees, including the fees for title examination, title

abstract, recording, title insurance, and endorsement.

In total, Frazier's briefing alleges that the finance

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7. By contrast, in her complaint, Frazier contends

that the finance charge was understated by $ 499.50. See

Am. Compl. ¶¶ 24-27.

8. Although Frazier’s briefing is not crystal clear

on this point, the complaint does not allege that no

service was provided in exchange for the titleexamination fee, only that the fee was excessive. See

Am. Compl. ¶ 24.

20

charge was understated by $ 566.7

 The court considers

each charge in turn. 

i. Title-examination fee

Frazier argues that the $ 250 title-examination fee

was neither bona fide nor reasonable and that the entire

fee should be included in the finance charge.8

 Accredited

responds with evidence that this charge reflected the

cost of “Swafford’s commitment department receiving the

title search from the abstracting department, analyzing

the information obtained from the courthouse, and putting

the information in the form of a title commitment,” as

well as “any efforts by Swafford’s processing department

to clear up any issues in the title commitment based on

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feedback from the lender.” Def. Br. at 14 (citing

Swafford deposition). Frazier does not dispute this

evidence and offers nothing more than bare argument that

the fee was not bona fide or reasonable. She does not

suggest that Swafford did not perform these services, nor

does she provide evidence or even argument that the fee

was excessive based on prevailing-market rates. 

In sum, Frazier has offered no basis upon which a

reasonable factfinder could conclude that the titleexamination fee was not bona fide or not reasonable.

Accordingly, the court finds that the $ 250 charge for

title examination was properly excluded from the finance

charge. 

ii. Title-abstract-search fee

Frazier was charged $ 200 for the title-abstract

search. She contends that she should not have been

charged more than $ 72 because this was the fee charged

by the company that performed the abstract search for

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Swafford. She asserts that, because she was charged

$ 200, the difference of $ 128 should be added to the

finance charge. Accredited responds with evidence that

this charge covered the cost of verifying the title

company's work, including "the cost of receiving and

confirming the abstract/title search order with the loan

officer, entering the order into the data base,

determining the county where the property is located,

sending the order to an abstractor in that same county,

monitoring the order to make sure it was returned within

48 hours, and reviewing the abstract/title search to make

sure it included all necessary components." Def. Br. at

13 (citing Swafford deposition). Frazier offers no

evidence or argument that these services were not, in

fact, provided or that the fee exceeded prevailing-market

rates. Accordingly, there is no basis from which a

factfinder could conclude that the additional $ 128 was

not bona fide or reasonable, and the $ 128 was properly

excluded from the finance charge.

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iii. Recording fee

Frazier contends that the recording fee was neither

bona fide nor reasonable because she was charged $ 64

above the cost of recording and Swafford performed no

service in exchange for this additional money. 

Payments "which actually are or will be paid to

public officials" may be excluded from the finance

charge. 15 U.S.C. § 1605(d)(1). Any overpayment must be

treated as part of the finance charge. See Payton v.

New Century Mortg. Corp., 2003 WL 22349118, at *4 (N.D.

Ill. 2003) (Holderman, J.) (only actual recording fee

paid to public official was properly excluded from

finance charge). Swafford paid a recording fee of $ 56,

Pl. Exh. 8 at 15, and the good-faith estimate shows that

Frazier was charged $ 120 for the same. See Def. Exh. 3

at 2, Line 1201. Accordingly, $ 64 of the recording fee

was not bona fide and should be added to the finance

charge.

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iv. Title-insurance fee

Frazier contends that a portion of the $ 200 titleinsurance fee was not reasonable because it exceeded the

rate charged by the title-insurance company.

The title-insurance company charged Swafford $ 126

for Frazier’s title insurance. Frazier was charged

$ 200. Frazier contends that the $ 74 difference should

be included in the finance charge. Accredited responds

that $ 74 is a bona fide and reasonable fee for the

service of securing title insurance, citing Official

Staff Interpretation, 12 C.F.R. Pt. 226, Supp. I at

226.4(c)(7) n. 1. The Official Staff Interpretation,

however, speaks only to whether lenders may exclude

charges for “verifying or confirming information”

connected with certain real estate fees, not whether

lenders may exclude fees collected for securing services.

As Accredited has produced no evidence that Swafford

performed any additional work that might be construed as

verifying the title-insurance company's work, the $ 74

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9. Frazier also contends that the rate was

unreasonable because it exceeded the permissible rate

under Alabama law. Neither party identifies Alabama’s

permissible rate in the briefing on summary judgment; in

her complaint, Frazier claims that the permissible rate

was $ 161; in the briefing on class certification,

Frazier asserts that the legal maximum was $ 126.

However, because the court finds that Swafford’s rate was

unreasonable by $ 74 (the same amount by which the rate

would be unreasonable if the legal maximum was $ 126),

the court need not resolve this question.

25

difference was unreasonable and should be added to the

finance charge.9

4. Whether the tolerance is met

As noted above, in order to fall within TILA’s

tolerance for accuracy, the actual-finance charge must be

equal to or less than $ 86,052.51. 

The finance charge is calculated as follows:

Prepaid-finance charge

Origination fee* $ 1,960.00

Processing fee* 500.00

Underwriting fee* 500.00

Closing fee* 275.00

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Per-diem interest* 22.40

Tax-service fee 66.00

Flood-zone-determination fee 9.50

Recording fee 64.00

Title-insurance fee 74.00

TOTAL $ 3,470.90

* These fees are not disputed

Actual-finance charge

Prepaid-finance charge $ 3,470.90

Loan-term interest 82,189.61

TOTAL $ 85,660.51

Because the actual-finance charge ($ 85,660.51) is

below the tolerance for accuracy ($ 86,052.51), the court

finds that the disclosed finance charge was within TILA’s

tolerance for accuracy. Accordingly, summary judgment

must be granted on the TILA understatement-of-financecharge claim. 

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B. TILA claim for failure

to honor rescission notice

Frazier also contends that Accredited violated TILA

when it failed to honor her rescission notice. However,

Frazier’s rescission notice relied on her assertion that

the disclosures Accredited provided were inadequate;

Frazier contended that Accredited understated the finance

charge and that, as a result, she never received the

disclosures she was due to receive under TILA. Because,

as established above, Accredited did not understate the

finance charge in violation of TILA, the disclosures

provided were not deficient. Thus, Frazier’s notice of

rescission was without merit, and Accredited’s refusal to

honor her notice cannot form the basis for a separate

TILA violation. Accordingly, summary judgment will be

granted on the TILA failure-to-honor-rescission claim.

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II. HOEPA violation

HOEPA requires lenders to make certain specific

disclosures for ‘high cost’ loans. 15 U.S.C. § 1639.

Frazier argues that her loan was high cost under HOEPA

and that Accredited violated HOEPA when it failed to make

the disclosures required for high-cost loans. Accredited

denies that Frazier’s loan was high cost.

A loan is high cost under HOEPA if "the total points

and fees payable by the consumer at or before closing"

exceed 8 % of the total-loan amount. 15 U.S.C.

§ 1602(aa)(1)(B)(I). The parties do not agree on the

total-loan amount or the total HOEPA points and fees.

Frazier contends that the total-loan amount is

$ 51,619.50; that the 8% HOEPA permissible points and

fees is $ 4,129.56; and that she paid $ 4,380.50 in

points and fees. Accredited contends that the total-loan

amount is $ 52,367.10; that the 8 % HOEPA permissible

points and fees is $ 4,189.37; and that Frazier paid

$ 3,610.50 in points and fees.

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 28 of 39
10. 12 C.F.R. § 226.18(b) provides that, “The amount

financed is calculated by: (1) Determining the principal

loan amount or the cash price (subtracting any

downpayment); (2) Adding any other amounts that are

financed by the creditor and are not part of the finance

charge; and (3) Subtracting any prepaid finance charge.”

11. 12 C.F.R. § 226.32(b)(1)(iii) includes “All

items listed in 226.4(c)(7) (other than amounts held for

future payment of taxes) unless the charge is reasonable,

the creditor receives no direct or indirect compensation

in connection with the charge, and the charge is not paid

to an affiliate of the creditor.” 12 C.F.R.

§ 226.4(c)(7) refers to “real-estate related fees”: “(i)

Fees for title examination, abstract of title, title

insurance, property survey, and similar purposes. (ii)

Fees for preparing loan-related documents, such as deeds,

mortgages, and reconveyance or settlement documents.

(iii) Notary and credit report fees. (iv) Property

appraisal fees or fees for inspections to assess the

value or condition of the property if the service is

performed prior to closing, including fees related to

pest infestation or flood hazard determinations. (v)

Amounts required to be paid into escrow or trustee

accounts if the amounts would not otherwise be included

(continued...)

29

A. Total-loan amount

The Official Staff Commentary to Regulation Z

explains that "the total loan amount is calculated by

taking the amount financed, as determined according to

226.18(b),10 and deducting any cost listed in

226.32(b)(1)(iii)11 and 226.32(b)(1)(iv)12 that is both

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 29 of 39
(...continued)

in the finance charge.

12. 12 C.F.R. § 226.32(b)(1)(iv) includes “Premiums

or other charges for credit life, accident, health, or

loss-of-income insurance, or debt-cancellation coverage

(whether or not the debt-cancellation coverage is

insurance under applicable law) that provides for

cancellation of all or part of the consumer’s liability

in the event of the loss of life, health, or income or in

the case of accident, written in connection with the

credit transaction.”

30

included as points and fees under 226.32(b)(1) and

financed by the creditor." Official Staff

Interpretation, 12 C.F.R. Pt. 226, Supp. I at

226.32(a)(1) (notes added). In other words, the totalloan amount is determined by taking the amount financed

and subtracting (1) real-estate fees that are retained by

the lender or unreasonable and (2) credit insurance. The

amount financed, in turn, is determined by adding the

loan principal and any amount financed by the creditor

that is not part of the finance charge and then

subtracting the prepaid-finance charge.

Thus, the calculation should look like this:

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 30 of 39
31

Total-loan amount

+ Principal

+ Amount financed that is not part of finance charge

- Prepaid-finance charge

- Real-estate fees retained by Accredited

- Unreasonable real-estate fees

- Credit Insurance

The court addresses each term separately.

Principal: The parties agree that the principal-loan

amount is $ 56,000.

Amount financed that is not part of finance charge:

The amount financed that is not part of finance charge

"does not include any amounts already accounted for under

226.18(b)(1)." Official Staff Interpretation, 12 C.F.R.

Pt. 226, Supp. I at 226.18(b)(2) n. 1. The parties agree

that, in this case, the proper sum is $ 0. 

Prepaid-finance charge: The prepaid-finance charge

is "any finance charge paid separately in cash or by

check before or at consummation of a transaction, or

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 31 of 39
32

withheld from the proceeds of the credit at any time."

12 C.F.R. § 226.2(a)(23). As determined in the

discussion of Frazier’s TILA claims, the prepaid-finance

charge is $ 3,470.90.

Real-estate fees retained by Accredited: Accredited

concedes that it retained the $ 250 appraisal-review fee,

the $ 66 tax-service fee, and the $ 9.50 flood-hazarddetermination fee. The sum of these charges is $ 325.50.

Unreasonable real-estate fees: The fees at issue here

are the fees for endorsement, recording, and title

insurance. The parties first dispute whether the

calculation includes only that portion of the fee which

is unreasonable, or the entire fee. Frazier contends

that the court must use the entire fee, relying on the

language of 12 C.F.R. § 226.32(b)(1)(iii) that the

calculation includes "All items listed in 226.4(c)(7) ...

unless the charge is reasonable." Accredited contends

that the court must use only the unreasonable portion.

Other courts to consider the question have concluded that

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 32 of 39
33

the regulation includes only the unreasonable portion of

the charge. See Johnson v. Know Financial Group, L.L.C.,

2004 WL 1179335, at *7-8 (E.D. Pa. 2004) (Antwerpen, J.);

see also Strong v. Option One Mortg. Corp. (In re

Strong), 2005 WL 1463245, at *4-5 (E.D. Pa. 2005)

(Diamond, J.) (following Johnson). In Johnson, the court

cited numerous cases where courts interpreted "reasonable

in amount" in § 226.4(c)(7) to mean that only

unreasonable portions of a particular charge must be

included in the finance charge. Johnson, 2004 WL

1179335, at *8. This court agrees that "there is no

reason to treat differently the phrase ‘reasonable’ in

§ 226.32(b)(1)(iii) of Regulation Z, whose purpose is to

determine which of the charges enumerated in

§ 226.4(c)(7) are to be included in the points and fees

calculation, and which specifically cites to

§ 226.4(c)(7)." Id. Frazier cites cases that do not

support her argument: One case assumes, without

explanation, that the entire fee is counted, Morris v.

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 33 of 39
34

Novastar Mortg. Inc., 2006 WL 2707349, at *4 (W.D. Mo.

2006) (Wright, J.), and the other two cases involved fees

that were unreasonable in their entirety. McMaster v.

CIT Group/Consumer Finance Inc., 2006 WL 1314379, at *6

(E.D. Pa. 2006) (O’Neill, Jr., J.) (entire fee

unreasonable because duplicative); Bynum v. Equitable

Mortgage Group, 2005 WL 81869, at *8 (D.D.C. 2005)

(Conlon, J.) (entire fee unreasonable because illegal).

Accordingly, the court will include only those

portions of the fees that are unreasonable. Here,

Accredited concedes that the entire $ 50 endorsement fee

is excessive, and the court has determined that $ 64 of

the recording fee and $ 74 of the title insurance-fee are

excessive. The sum of these fees is $ 188.

Credit insurance: The parties agree that this value

is $ 0.

Total-loan amount: After carrying out the proper

calculation, the total-loan amount is $ 52,015.60:

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 34 of 39
35

Total-loan amount

Principal $ 56,000.00

Amount financed that is

not part of finance charge

 0

Prepaid-finance charge - 3,470.90

Real-estate fees retained

by Accredited

- 325.50

Unreasonable real-estate

fees

- 188.00

Credit Insurance - 0.00

Total-loan amount $ 52, 015.60

Eight percent of this amount is $ 4,161.25.

B. Points and fees

Under HOEPA, ‘total points and fees’ include:

“(A) all items included in the finance

charge, except interest or the

time-price differential;

 “(B) all compensation paid to mortgage

brokers;

“(C) each of the charges listed in

section 1605(e) of this title (except an

escrow for future payment of taxes),

unless -- 

(i) the charge is reasonable;

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 35 of 39
36

(ii) the creditor receives no direct or

indirect compensation; and 

(iii) the charge is paid to a third

party unaffiliated with the creditor;

and

“(D) such other charges as the Board

determines to be appropriate.”

15 U.S.C. § 1602(aa)(4). In turn, § 1605(e) lists: 

“(1) Fees or premiums for title

examination, title insurance, or similar

purposes.

“(2) Fees for preparation of

loan-related documents.

“(3) Escrows for future payments of

taxes and insurance.

“(4) Fees for notarizing deeds and other

documents.

“(5) Appraisal fees, including fees

related to any pest infestation or flood

hazard inspections conducted prior to

closing. 

“(6) Credit reports.

15 U.S.C. § 1605(e). Thus, the points and fees are

largely determined by the finance charge. Title-related

fees and appraisal fees are not included unless they are

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 36 of 39
13. The court hesitates to include the tax-service

and flood-zone-determination fees because they are

already included in the finance charge and counting them

here arguably amounts to “double” counting. However, as

the outcome is the same whether or not the court counts

these fees, the court follows the direction of the

statute without deciding the question.

37

unreasonable; the lender receives direct or indirect

compensation for them; or they are paid to a third party

affiliated with the lender.

The prepaid-finance charge, as determined above, is

$ 3,470.90. For the points-and-fees calculation, the

$ 22.40 in interest is subtracted, bringing the charge to

$ 3,448.50. The charges that were retained by Accredited

include the $ 250 appraisal-review fee, the $ 66 taxservice fee, and the $ 9.50 flood-zone-determination

fee.13 In addition, the charges that were unreasonable

include the $ 50 endorsements fee, the $ 120 recording

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 37 of 39
14. The parties disagree about whether HOEPA points

and fees (as opposed to the HOEPA total-loan amount)

include the entire unreasonable charge, or just the

portion that is unreasonable. The court need not reach

this question, however, because, as explained below, the

total points and fees do not exceed 8 % of the total-loan

amount even if the unreasonable charges are included in

their entirety, as Frazier urges. If the court were to

include only the unreasonable portion of the charges

($ 64 for the recording fee and $ 74 for the title

insurance fee), the total points and fees would be even

lower--$ 3,963.00.

38

fee, and the $ 200 title-insurance fee.14 The total

points-and-fees amount is:

Points-&-fees amount

Prepaid-finance charge

(less interest)

$ 3,448.50

Appraisal-review fee 250.00

Tax-service see 66.00

Flood-zone-determination

Fee

 9.50

Endorsement 50.00

Recording fee 120.00

Title-insurance fee 200.00

TOTAL $ 4,144.00

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 38 of 39
C. Whether points and fees exceed 8 % of loan

As noted above, in order to qualify as a high-cost

loan, the total points and fees must exceed 8 % of the

total-loan amount. The $ 4,144 that Frazier paid in

total points and fees does not exceed $ 4,161.25, which

is 8 % of the total-loan amount. Thus, the loan is not

a high-cost loan within the meaning of HOEPA, and no

additional disclosures were required. Accordingly,

summary judgment will be granted as to Frazier’s HOEPA

claim.

***

For the foregoing reasons, summary judgment is

granted as to Frazier’s TILA and HOEPA claims. An

appropriate judgment will be entered.

DONE, this the 6th day of April, 2009.

 /s/ Myron H. Thompson 

UNITED STATES DISTRICT JUDGE

Case 1:08-cv-00011-MHT-SRW Document 118 Filed 04/06/09 Page 39 of 39