Court Opinion

ID: 2979895
Source: CourtListenerOpinion
Date Created: 2015-09-22 19:00:52.916227+00
Date Added: 2024-06-11T15:42:02.621232
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                               File Name: 11a0401n.06
                                                                                          FILED
                                           No. 10-3165
                                                                                     Jun 16, 2011
                            UNITED STATES COURT OF APPEALS                     LEONARD GREEN, Clerk
                                 FOR THE SIXTH CIRCUIT

DENNIS H. JACOB,

          Plaintiff-Appellant,

v.                                                        ON APPEAL FROM THE
                                                          UNITED STATES DISTRICT
HOME SAVINGS AND LOAN COMPANY OF                          COURT FOR THE NORTHERN
YOUNGSTOWN, OHIO,                                         DISTRICT OF OHIO

          Defendant-Appellee.

                                                     /

Before:          MARTIN, NORRIS, and SILER, Circuit Judges.

          BOYCE F. MARTIN, JR., Circuit Judge. Dennis Jacob asserts that Home Savings and Loan

Company of Youngstown, Ohio violated the Truth in Lending Act by failing to provide appropriate

disclosures in connection with his residential construction loan. Jacob also brought several claims

under Ohio state law arising out of this transaction. The district court granted summary judgment

for Home Savings and Loan on all of Jacob’s claims and we AFFIRM.

                                                I.

          In June 2006 Jacob took out a $200,000 residential construction loan from Home Savings

and Loan to build a house in Ottawa Lake, Michigan. The loan was divided into two phases: a

“construction period” and a “permanent financing period.” At the closing, Jacob signed several

documents including a note, a mortgage, a “Construction Loan Agreement,” and a one-page

“Construction Loan Addendum.” The Construction Loan Addendum stated in pertinent part:
No. 10-3165
Jacob v. Home Savings & Loan Co. of Youngstown, Ohio
Page 2

       1. Construction Period
       This Addendum shall govern Borrower’s obligations and rights during the
       Construction Period, which shall begin on the date of the Note and this Addendum
       and end on 04/01/2007, unless Lender in its sole discretion extends that date.
                                             * * *
       6. Conversion to Permanent Loan
       If at any time the Construction Period ends, construction is not complete or the
       property not lawfully occupied, Lender may withhold such portion of the principal
       as it deems necessary to ensure the completion of construction and readiness for
       occupancy of the property. Borrower will pay interest under the Note as if the full
       amount of the principal has been disbursed in that event. Upon conversion, all
       accrued and unpaid interest up to conversion date shall be due in full and paid to the
       Lender.

       During the construction period, Jacob was only obligated to make monthly interest payments

on the monies that had actually been advanced for construction purposes. However, once the loan

entered the permanent financing period, the agreement required Jacob to pay interest as if the full

principal had been disbursed. In order to ensure completion of the home, and to protect its collateral,

the agreement permits Home Savings and Loan to retain the undisbursed funds and treat them as if

they had been disbursed at the end of the construction period.

       Construction did not go as planned, and Jacob did not finish building his house until 2009.

After the construction period ended, on April 2, 2007 Home Savings and Loan sent Jacob a letter

informing him that his loan would revert to a conventional permanent mortgage on May 1 and his

first full mortgage payment would be due May 15. Jacob spoke to a representative at Home Savings

and Loan and arranged to extend the construction period for sixty days in exchange for a $200 fee.

With this extension the construction period ended on July 1.

       On June 1, Home Savings and Loan sent Jacob a letter explaining that his loan would convert

to a conventional mortgage on July 1, and his monthly payment of $1,313.86 would be due July 15.
No. 10-3165
Jacob v. Home Savings & Loan Co. of Youngstown, Ohio
Page 3

Construction, however, still lagged behind.       Rather than purchasing additional two-month

extensions, Jacob sought a less expensive way to continue financing construction of his home. Jacob

asserts that he believed that he could convert the loan to permanent status but, because he had only

drawn about $90,000 of the $200,000 total loan amount, he would only be paying interest on the

disbursed amount. This would be substantially less than the $1,313.86 monthly payment, and he

believed that the excess payment would be applied to reduce the principal. Jacob alleges that he

spoke to a Mr. Morgan Stanley at Home Savings and Loan who confirmed his understanding.

       Jacob let the loan proceed into the permanent financing period and began making payments.

However, he soon discovered that Home Savings and Loan disagreed with his interpretation of how

his payments would be allocated. Home Savings and Loan treated the loan as if the full amount of

the principal had been disbursed and applied Jacob’s payments accordingly. This meant that a large

portion of Jacob’s payments went to pay interest on money that had not yet actually been disbursed

to him. Jacob continued making monthly payments of $1,313.86 until July 2009 when he refinanced

with a different lender.

       In June 2008 Jacob filed a lawsuit against Home Savings and Loan alleging that it violated

the Truth in Lending Act, and specifically Regulation Z. Jacob also brought several claims under

Ohio state law. Both parties moved for summary judgment and the district court granted summary

judgment in favor of Home Savings and Loan on all of Jacob’s claims.

                                                II.

       We review the district court’s grant of summary judgment de novo. Bentkowski v. Scene

Magazine, 637 F.3d 689, 693 (6th Cir. 2011). Summary judgment is appropriate where the
No. 10-3165
Jacob v. Home Savings & Loan Co. of Youngstown, Ohio
Page 4

pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show “that there

is no genuine dispute as to any material fact and that the movant is entitled to a judgment as a matter

of law.” Fed. R. Civ. P. 56(a). “The moving party has the initial burden of proving that no genuine

issue of material fact exists,” and the court must draw all reasonable inferences in the light most

favorable to the nonmoving party. Vaughn v. Lawrenceburg Power Sys., 269 F.3d 703, 710 (6th Cir.

2001). When a motion for summary judgment is properly made and supported and the nonmoving

party fails to respond with a showing sufficient to establish an essential element of its case, summary

judgment is appropriate. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

       Home Savings and Loan did not violate the Truth in Lending Act or Regulation Z by failing

to provide new disclosures when the construction period ended and Jacob’s loan converted to the

permanent financing period. Regulation Z provides that a refinancing is a new transaction, which

requires lenders to provide new disclosures. It goes on to explain that “[a] refinancing occurs when

an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation

undertaken by the same consumer.” 12 C.F.R. § 226.20(a) (2010). However, Regulation Z also

states that “[a] series of advances under an agreement to extend credit up to a certain amount may

be considered as one transaction.” Id. § 226.17(c)(6). And, it specifically notes that “[w]hen a

multiple-advance loan to finance the construction of a dwelling may be permanently financed by the

same creditor, the construction phase and the permanent phase may be treated as either one

transaction or more than one transaction.” Id. Here, the loan documents explain that Jacob and

Home Savings and Loan treated the construction phase and permanent phase as a single transaction.
No. 10-3165
Jacob v. Home Savings & Loan Co. of Youngstown, Ohio
Page 5

Therefore, this transaction falls well within the exception in section 226.17(c)(6) and Home Savings

and Loan did not need to provide new disclosures when the construction period ended.

       Jacob attempts to skirt the plain language of the loan documents and Regulation Z by arguing

that Home Savings and Loan increased his interest rate when the construction period ended.

However, it did not. Jacob computes the interest rate by comparing the amount of his monthly

payment to the $92,795 in principal he had drawn when the construction period ended. But, there

is no basis to compute the interest rate in that manner. Although Jacob had received less than half

of the total loan amount when the construction period ended, paragraph six of the Construction Loan

Addendum anticipated this situation and provides that Jacob must pay “interest under the Note as

if the full amount of the principal has been disbursed.”1 Home Savings and Loan simply charged

the interest rate provided for under the agreement on the full $200,000 principal amount as provided

for under the contract. Therefore, because Regulation Z permitted Home Savings and Loan to treat

the construction phase and permanent financing phase as a single transaction, and it did not change

the interest rate it charged, it did not violate the Act by failing to make additional disclosures when

the construction period ended.

       1
        Jacob points to several interrogatories where Home Savings and Loan acknowledged that
Jacob paid interest on principal that it had not disbursed to him. However, that is not inconsistent
with the loan documents, which explicitly permit Home Savings and Loan to charge interest on the
full amount of the principal at the end of the construction period.
No. 10-3165
Jacob v. Home Savings & Loan Co. of Youngstown, Ohio
Page 6

                                               III.

       Jacob also asserts that Home Savings and Loan is liable under Ohio state law for the tort of

negligent misrepresentation and argues that the loan agreement violates public policy. The district

court did not err by granting summary judgment on these claims.

                                               IV.

       The district court properly granted Home Savings and Loan summary judgment and we

therefore AFFIRM.