Kane v. Equity One, Inc., ___ F.Supp.2d ___, 2003 WL 22939377 (E.D.Pa.).
From the March, 2004 issue of The Title Insurance Law Newsletter
A borrower's claim that her lender violated the Truth-In-Lending Act by splitting her loan into two parts without telling her in advance was found to be a valid cause of action by a Pennsylvania federal court.
Mary Kane applied for a loan from Equity One, through a mortgage broker. The idea was to refinance a wrap around mortgage on Kane's own home and her son Derrick's.She alleged that she thought it would be one loan. However, when she was given the loan documents, there were two separate sets of loan documents. The larger loan had an APR of 11.5 and a fifteen-year term. The second loan was for $9,710.00 at an APR of 14.257% and a term of 10 years. She sought to rescind, and then sued for violations of TILA, HOEPA and other statutes.
Equity One argued that TILA permits a loan to be structured as two segments. The court said that the lender was "correct provided that the borrower expected that the transaction would be structured in that manner." However, it noted, "a lender may violate TILA if a borrower expected to receive a single loan executed in one transaction and nonetheless received two separate loans." citing Hemauer v. ITT Fin. Servs., 751 F.Supp. 1241, 1243 44 (W.D.Ky.1990).
The court found that the Third Circuit had not yet ruled on alleged "loan splitting" under TILA. However, it found decisions from Minnesota and Illinois, in addition to Hemauer from Kentucky, holding that "such practices violate TILA's mandate that the lender provide a single, comprehensible disclosure of the cost of credit" under 12 C.F.R. ยง 226.17(a) (2003). Given those decisions, the court found that Ms. Kane had pled facts that allowed her to survive a motion to dismiss, anyway.
At this stage of the proceedings, this allegation is sufficient to make out a case of loan splitting; an eventual determination of what TILA required for this particular transaction or transactions depends on further factual analysis and can only be resolved after consideration of the circumstances surrounding the transaction and the parties' original agreement as to the nature, number, and purpose of the contemplated transaction.
