Title: Suzanne Turner, et al. v. First Union National Bank, et al.
Citation: N/A
Docket Number: a-50-98
State: new-jersey
Issuer: new-jersey Supreme Court
Date: December 9, 1999

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). GARIBALDI, J., writing for a unanimous Court. This appeal involves the interpretation of N.J.S.A. 46:10A-6(d) ( Section (d) ), which prohibits lenders from shifting their legal fees to borrowers, except where the lenders seek reimbursement for legal fees incurred for the review of loan documents. The Court also considers whether federal banking regulations preempt Section (d), inasmuch as one of the respondent banks is a federally-chartered savings and loan association. This appeal results from the Appellate Division's consolidation of three separate Superior Court actions in which the facts were stipulated. Suzanne Turner, Daniel Iverson, and Thomas Kelly ( petitioners ) residential borrowers, secured loans from respondents, lenders authorized and licensed under the laws of New Jersey or the United States to engage in the business of making mortgage loans. As a condition to obtaining the loans, the lenders required petitioners to reimburse them for their attorneys' fees incurred to review title and other loan documents submitted by petitioners. Those fees ranged between $100 to $170. The petitioners sued their respective lenders claiming that the lenders' fee shifting violated Section (d). In the Turner matter, the trial court held that the lender could not charge a review fee to an unrepresented borrower, finding that Section (d) made it clear that a lender could require a fee only when the loan documents were prepared or submitted at the direction of the borrower's attorney, but not when they are submitted by the borrower herself or himself. In Iversen and Kelly, the trial court held that the lenders could not charge a review fee unless the borrowers' attorneys prepared or submitted documents, using their legal skill and judgment that created extra work for the lenders' attorneys. Where, however, the borrower's attorney merely undertook the 'ministerial act' of gathering title work and submitted it to the lender, the trial court held that the lender could not charge the borrower for any attorney's fees associated with the review of such documents. The trial court further held that federal banking regulations did not preempt Section (d) with respect to Collective Bank, the federally-chartered savings and loan association. Accordingly, petitioners' motions for summary judgment were granted in each case. The Appellate Division reversed all three decisions with respect to the trial court's interpretations of Section (d). The Panel held that Section (d) permits lenders to pass along their attorneys' fees associated with the review of loan documents regardless of whether the loan documents are submitted by, or at the direction of, the borrower's attorney or the borrower, and regardless of whether extra work is involved. However, the Appellate Division affirmed the trial court's holding that Section (d) is not preempted by federal banking regulations. The Supreme Court granted petitioners' motion for leave to appeal and Collective Bank's cross-appeal. HELD: Section (d) of N.J.S.A. 46:10A-6 permits lenders to charge a fee for the review of loan documents prepared, or submitted by, or at the direction of the borrowers' attorneys or the borrowers, regardless of whether the borrowers are represented and regardless of whether the submission of documents in the borrowers' behalf creates extra work for the lenders; N.J.S.A. 46:10A-6 is expressly preempted by federal banking regulations addressing the issue of attorney's fees. 1. N.J.S.A. 46:10A-6 was enacted as a consumer protection statute, and guarantees a borrower the right to select his own attorney in certain mortgage loan transactions by prohibiting lenders from requiring borrowers to use and pay for the services of the lenders' attorneys. (pp. 6-7) 2. Although N.J.S.A. 46:10A-6 was amended in 1978, the amendment merely extended the statute to commercial loans and did not alter the provision of the statute allowing lenders to charge residential borrowers a review fee for documents prepared by the borrower's attorney. While the 1993 amendment did address the standing practice by lenders of charging borrows for attorney fees incurred by the lender, no case has interpreted the meaning of that amendment. (pp. 7-10) 3. When the provisions of a statute are clear and unambiguous, they should be given their literal significance, unless it is clear from the text and purpose of the statute that such meaning was not intended. (pp. 10-11) 5. The exception in Section (d) relating to the review of loan documents applies to both represented and unrepresented borrowers. (pp. 12-13) 6. The Legislature clearly expressed its view that review fees can be charged for the routine review by the lender's attorney of documents material to the loan submitted by the borrower's attorney or by third parties. (pp. 13-14) 7. Section (d) is preempted by federal banking regulations. (pp. 14-15) 8. Congressional intent to preempt State law may be manifested by express provision, by implication, or by a conflict between federal and state law. However, preemption should not be lightly presumed. (pp. 15-16) 9. In creating the Federal Home Loan Bank Board, which was given broad power to promulgate rules and regulations to govern the lending practices of federal savings and loan associations, Congress expressed its intention that federal law would govern the terms of loan instruments issued by federal savings and loan associations. (pp. 16-17) 10. The fact that a federal regulation is permissive does not eliminate a preemptive conflict. (pp. 17-21) 11. Other state courts similarly have held that federal regulations governing federal savings and loan associations preempt state law. (pp. 21-22) 12. Because federal regulations unambiguously allow federal savings and loan associations to shift fees for initial charges, including the costs of title examination and the drawing of papers, as well as fees that are attributable to processing and closing a loan, and because the relevant federal regulation contains an express preemption clause, Section (d) is preempted by federal law. (pp. 22-23) 13. Even recent revisions of the regulations governing the lending practices of federal savings and loan associations emphasize that the Office of Thrift Supervision has long occupied the field of lending regulation for federal savings and loan associations and continues to do so. (pp. 23-24) 14. Implicit in the legislative purposes of N.J.S.A. 46:10A-6 is the Legislature's intention that review fees charged in residential loan transactions be reasonable and modest, such as was the case in the subject transactions. (pp. 24-25) 15. The ability to regulate fees associated with mortgage operations strongly influences lending practices, and if a bank cannot pass on the cost of document review to the consumer, it must raise interest rates, forego document review, or change its lending practices. (p. 25) Judgment of the Appellate Division is MODIFIED and AFFIRMED. CHIEF JUSTICE PORITZ and JUSTICES O'HERN, STEIN, COLEMAN, LONG, and VERNIERO join in JUSTICE GARIBALDI's opinion. SUZANNE TURNER, on behalf of herself and all others similarly situated, Plaintiffs-Appellants and Cross-Respondents, v. FIRST UNION NATIONAL BANK (formerly First Fidelity Bank, NA NJ, a National Banking Association), Defendant-Respondent. ______________________________ DANIEL IVERSEN and LAWRENCE COHEN and TERRI COHEN, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants and Cross-Respondents, v. COLLECTIVE BANK, a federally chartered savings bank organized under the laws of the United States of America (improperly named as Collective Bancorp., Inc., a Delaware corporation), _______________________________ THOMAS KELLY, on behalf of himself and all others similarly situated, Plaintiffs-Appellants and Cross-Respondents, v. CHASE MANHATTAN MORTGAGE CORPORATION, a Delaware corporation, a/k/a Chase Home Mortgage Corporation, Defendant-Respondent. ________________________________ Argued September 27, 1999 -- Decided December 9, 1999 On appeal from the Superior Court, Appellate Division, whose opinion is reported at 314 N.J. Super. 33 (1998). John M. Donnelly and Arthur M. Brown argued the cause for appellants and cross respondents (Levine, Staller, Sklar, Chan, Brodsky &amp; Donnelly, and Schiffrin, Craig &amp; Barroway, LTD., attorneys; (Mr. Brown, Marc A. Topaz and Mr. Donnelly, on the briefs). Gregory R. Haworth argued the cause for respondent First Union National Bank (Duane, Morris &amp; Heckscher, attorneys). George E. McDavid argued the cause for respondent Chase Manhattan Mortgage Corporation, (Reed Smith Shaw &amp; McClay, attorneys; Mr. McDavid, Leonard A. Bernstein and Robert M. Jaworski, of counsel; Kathleen F. Doran, on the briefs). Gerald A. Liloia argued the cause for respondent and cross-appellant, Collective Bank, (Riker, Danzig, Scherer, Hyland &amp; Perretti and McCarter &amp; English, attorneys; Mr. Liloia and Glenn P. Callahan, on the brief. Dennis R. Casale argued the cause for amici curiae New Jersey Bankers Association and New Jersey League of Community and Savings Bankers (Jamieson Moore Peskin &amp; Spicer, attorneys; Dominick A. Mazzagetti, on the letter brief). Wayne A. Watkinson submitted a brief on behalf of amici curiae Mortgage Bankers Association of New Jersey and League of Mortgage Lenders (Goldman, Levy, Zolotorofe &amp; Corcoran, attorneys). The opinion of the Court was delivered by GARIBALDI, J. This appeal involves the interpretation of N.J.S.A. 46:10A 6(d) ("Section (d)"), as amended by L. 1993, c. 33. N.J.S.A. 46:10A-6 guarantees borrowers the right to independent legal representation in mortgage transactions. Although Section (d) prohibits lenders from shifting their legal fees to borrowers, it contains an exception allowing lenders to obtain reimbursement for legal fees incurred for the review of loan documents. We must determine the scope of the Section (d) exception. Moreover, because one of the respondent banks is a federally-chartered savings and loan association organized under the laws of the United States, we also must determine whether federal banking regulations preempt Section (d). Payment of attorney's fee by home borrowers, provided: In connection with a loan on a home . . . a savings association or subsidiary thereof may require such borrower to reimburse it for legal services rendered by its attorney, or to directly pay such attorney for such services, only if: (1) Such attorney's fee is limited to legal services attributable to processing and closing such loan (and not unrelated services performed for the savings association . . . by the attorney); (2) Such attorney's fee, if in excess of $100, is supported by a statement provided to the borrower at or prior to settlement which: [describes the legal services being performed and sets forth the time, hourly rate, basis for the fees, that the services are being performed for the savings association and that the services are being paid for by the borrower.] [12 C.F.R. 563.35(d) (1995) (emphasis added).] NO. A-50/51 SUZANNE TURNER, on behalf of herself and all others similarly situated, Plaintiffs-Appellants and Cross-Respondents, v. FIRST UNION NATIONAL BANK (formerly First Fidelity Bank, NA NJ, a National Banking Association), Defendant-Respondent. (and other related matters) DECIDED December 9, 1999 Chief Justice Poritz