On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Morris County.
J.h. Coleman and Bilder. The opinion of the court was delivered by Bilder, J.A.D.
This appeal arises under the federal Truth in Lending Act (Act), 15 U.S.C.A. 1601 et seq., which, inter alia, gives mortgage borrowers an unfettered right of rescission for three days following the consummation of the transaction or the delivery of information and rescission forms required by the Act, 15 U.S.C.A. 1635(a), relieves the borrower thereupon of any liability for any finance or other charge, 15 U.S.C.A. 1635(b), requires the return of any payments to the borrower and termination of any security interest, ibid., and provides for civil liability for failure of a creditor to comply with these provisions, 15 U.S.C.A. 1640(a).
The factual background is brief and uncontested. Following negotiations for a $123,000 residential mortgage, in the course of which defendants agreed to pay a 1% commitment fee of $1230, on April 5, 1990 defendants effectively rescinded the agreement pursuant to the Act. No money had been paid which required return and no security interest had been given which required termination.
After rescission, plaintiff demanded payment of the $1230 commitment fee which defendants resisted on the ground that the Act relieved them of any further liability for "any finance or other charge." See 15 U.S.C.A. 1635(b). Plaintiff sued and defendant counter-claimed for attorney's fees and costs pursuant to 15 U.S.C.A. 1640(a)(3) and for punitive damages.
At a bench trial, after consideration of testimony and stipulated facts, the judge found that the commitment fee was a finance charge for which the defendant was not liable*fn1; that since the commitment fee was never paid, § 1640(a)(3) does not
require the award of attorney's fees or costs; and that there was no "especially egregious" conduct such as would warrant the award of punitive damages, citing Leimgruber v. Claridge Associates, Ltd., 73 N.J. 450, 454, 375 A.2d 652 (1977).*fn2 Judgment was entered for defendant on the complaint, and presumably for plaintiff on the counter-claim. Defendants appeal from the denial of punitive damages and of attorney's fees and costs. The question before us is whether an attempt to collect a finance charge for which § 1635 says a borrower is not liable can give rise to § 1640(a)(2) and (3) liabilities for penalties and attorney's fees.
The relevant portions of the federal act are §§ 1635 and 1640 which in relevant part read as follows:
§ 1635 Right of rescission as to certain transactions
Disclosure of obligor's right to rescind
(a) Except as otherwise provided in this section, in the case of any consumer credit transaction . . . in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section.
Return of money or property following rescission
(b) When an obligor exercises his right to rescind under subsection (a) of this section, he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission. Within 20 days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor's obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does ...