SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-5665-96T5F
A-2251-97T5F
A-2253-97T5F
SUZANNE TURNER, on behalf
of herself and all others similarly
situated,
Plaintiffs-Respondents,
v.
FIRST UNION NATIONAL BANK (formerly
First Fidelity Bank, NA NJ, a National
Banking Association),
Defendant-Appellant.
_________________________________________________________________
DANIEL IVERSON, LAWRENCE COHEN, and
TERRI COHEN, on behalf of themselves
and all others similarly
situated,
Plaintiffs-Respondents,
v.
COLLECTIVE BANK, a federally chartered
bank organized under the laws of the
United States of America (improperly
named as Collective Bankcorp, Inc., a
Delaware Corporation),
Defendant-Appellant.
_________________________________________________________________
THOMAS KELLY, on behalf of himself
and all others similarly situated,
Plaintiffs-Respondents,
v.
CHASE MANHATTAN MORTGAGE CORPORATION,
(a/k/a, CHASE HOME MORTGAGE CORP.),
Defendant-Appellant.
______________________________________________________
Argued May 19, 1998 - Decided July 9, 1998
Before Judges Dreier, Keefe and P.G. Levy.
On appeal from the Superior Court of New
Jersey, Law Division, Essex County (A-5665-96T5F) and Atlantic County (A-2251-97T5F & A-2253-97T5F).
John M. Donnelly argued the cause for respondents
Turner, Iverson, and Kelly (Levine, Staller,
Sklar, Chan, Brodsky & Donnelly, and Schiffrin &
Craig, attorneys; Arthur M. Brown, Marc Topaz, and
Mr. Donnelly, on the briefs).
Gregory R. Haworth argued the cause for
appellants First Union National Bank (Cole,
Schotz, Meisel, Forman & Leonard, attorneys;
Mr. Haworth, of counsel; David S. Blatteis
and Mr. Haworth, on the briefs).
Gerald A. Liloia argued the cause for
respondent Collective Bank (Riker, Danzig,
Scherer, Hyland & Perretti, and McCarter &
English, attorneys; Anthony J. Sylvester and
Glenn P. Callahan, on the briefs).
George E. McDavid argued the cause for
respondent Chase Manhattan Mortgage
Corporation (Reed, Smith, Shaw & McClay,
attorneys; Leonard Bernstein and Mr. McDavid,
of counsel; Robert M. Jaworski, Kathleen F.
Doran, and Mr. McDavid, on the briefs).
Dominick A. Mazzagetti argued the cause for amici curiae New Jersey Bankers Association and New Jersey League of Community and Savings Bankers (Jamieson, Moore, Peskin &
Spicer, attorneys; Dennis R. Casale, of
counsel; Mr. Mazzagetti, on the brief).
The opinion of the court was delivered by
KEEFE, J.A.D.
This case requires the court to construe N.J.S.A 46:10A-6(d), pertaining to a lender's right to pass along its attorney
fees to residential borrowers for the review of certain loan
documents. These consolidated cases come to us from two Law
Division rulings that conflict in their interpretation of the
statute. In Kelly v. Chase Manhattan Mortgage Corp. and Iverson
v. Collective Bank, considered together by the same Law Division
judge, the judge construed N.J.S.A. 46:10A-6(d) to mean that a
lender was prohibited from requiring a borrower to pay any fee
charged by the lender's attorney, except when the borrower or the
borrower's attorney submitted documents that created "extra work"
for the lender's attorney. The trial judge also determined that
federal regulations did not preempt N.J.S.A. 46:10A-6(d) as to
defendant Collective Bank, a federally chartered savings and loan
association.
In contrast, in Turner v. First Union, a different Law
Division judge interpreted the statute literally and determined
that although a lender may pass along its attorney's fee to the
borrower for the review of loan documents submitted "by or at the
request of borrower's attorney," no such fee could be required
where the borrower is unrepresented by counsel and/or where the
borrower himself submits or directs the loan documents to be
submitted to the lender.
We hold that N.J.S.A. 46:10A-6(d) permits lenders to pass
along attorney fees associated with the review of "loan
documents," as that term is defined in the statute, regardless of
whether the "loan documents" are submitted by or at the direction
of the borrower's attorney or the borrower. Thus, we reverse
both judgments under review with respect to their interpretation
of N.J.S.A. 46:10A-6(d). As to the preemption issue, we agree
with the Law Division that federal regulations do not preempt
state law concerning attorney fees.
The facts in all of the consolidated matters have been stipulated by the parties. The defendants are lenders licensed and authorized under the laws of the United States and the State of New Jersey to engage in the business of making mortgage loans. The defendants make several thousand loans each year secured by mortgages on real property located in the State of New Jersey. Of the three defendant lenders, Collective is the only lender that is a federally chartered savings and loan association organized under the laws of the United States.
The representative plaintiffs in these consolidated matters all obtained mortgage loans from the defendant lenders. All of the loans were secured by a mortgage on real property located in the State of New Jersey, on which the principal structure is a one-to-four family residence.
As a pre-condition for receiving the loans from defendant lenders, the plaintiffs were required to obtain title insurance.
In addition, each of the defendant lenders required that the
plaintiffs pay a review fee, whether they were represented by an
attorney (as in Iverson and Kelly) or not (as in Turner), and to
reimburse the lender for attorney fees incurred to review title
documents submitted by the plaintiffs. At closing, the lenders'
charge for reviewing the loan documents submitted by plaintiffs
ranged from $100 to $170.See footnote 1 This charge to the borrowers, both
represented and not represented by an attorney, was limited to a
review of "loan documents," as that term is defined in N.J.S.A.
46:10A-6(d).
N.J.S.A. 46:10A-6(d) provides, in relevant part, that
d. If a loan is made to a person or persons primarily for personal, family or household purposes and is secured by real property located in this State: (1) on which the principal structure is a one-to-four family residence; or (2) on which a one-to-four family residence is to be the principal structure to be constructed with the use of the loan proceeds, the lender shall not require the borrower to reimburse the lender for, or to pay all or any portion of, any fee or expense charged by the lender's attorney except to the extent of a fee for the review of the loan documents prepared or submitted by or at the direction of the borrower's attorney or such other work or services as requested by borrower or borrower's attorney. Any other legal fee or expense of the lender's attorney shall be the sole responsibility of the lender.
For the purposes of this subsection, "loan document" means a promissory note, loan
agreement, mortgage, affidavit of title,
power of attorney, survey and survey
affidavit, title documents and searches and
commitments for title insurance and
modification of any promissory note, mortgage
or loan agreement. (emphasis added)
As clearly demonstrated by the language of the statute, the
general rule is that a lender's attorney's fees may not be passed
along to the buyer, "except to the extent of a fee for the review
of the loan documents prepared or submitted by or at the
direction of the borrower's attorney or such other work or
services as requested by the borrower or borrower's attorney."
(emphasis added). The focus of the parties' dispute is the
interpretation of the exceptions.
Recognizing that the representative plaintiff in Turner was
not represented by an attorney during the mortgage transaction,
the Law Division judge concluded that the statute is "clear and
unambiguous . . . that a lender may only require a fee when the
loan documents are prepared or submitted at the direction of the
borrower's attorney, but not when they are submitted by the
borrower herself [or himself]." According to the judge, "it is
not manifestly absurd or contrary to public policy to find that
the Legislature reasonably intended to allow a fee to be charged
only when an attorney submits the loan documents." Accordingly,
the judge granted plaintiffs' motion for summary judgment.
As in Turner, the issue before the Law Division in Kelly and
Iverson was whether the statute permitted lenders to charge
attorney review fees. Unlike Turner, however, the representative
plaintiffs in Kelly and Iverson were represented by counsel. In
addition, in the Iverson matter, defendant Collective also
presented the issue of whether federal regulations preempted
N.J.S.A. 46:10A-6(d).
The judge concluded that the statute does not permit lenders
to charge borrowers a fee for the review of loan documents
submitted by the borrower, regardless of whether the borrower is
represented by counsel. According to the judge, the statute only
permits lenders to charge review fees where the borrower's
attorney prepares or submits documents which create "extra work"
for the lender's attorney. For example, the statute would allow
lenders to charge a fee for the review of documents if the
borrower's attorney submits a different form of the mortgage note
than that normally used by the lender. That is so, according to
the judge, because the lender's attorney would have to expend
additional time and effort to review that document. Where,
however, the borrower's attorney merely undertakes the
"ministerial act" of gathering title work and submits it to the
lender, the judge held that the lender may not charge the
borrower any attorney fees associated with the review of such
documents. In addition, the judge held that federal regulations
do not preempt N.J.S.A. 46:10A-6(d). Accordingly, plaintiffs'
motions for summary judgment were granted in both matters.
We granted leave to appeal in all of the matters and
consolidated all three cases for review. Subsequently, we
granted the motion of New Jersey Bankers Association and New
Jersey League of Community and Savings Bankers to participate as
amici curiae.
As the Court recognized in its recent decision in Cornblatt v. Barow, 153 N.J. 218, 231 (1998), the surest indicator of the Legislature's intent is in the language of the statute itself. Thus, "`[i]f the language is plain and clearly reveals the meaning of the statute, the court's sole function is to enforce the statute in accordance with those terms.'" Ibid. (quoting State, Dep't of Law and Pub. Safety v. Bigham, 119 N.J. 646, 651 (1990)).
In the context of the mortgage transactions in Iverson and Kelly, in which the borrowers were represented by counsel, it is clear on this record that the lenders' charge for fees were associated with the review of "loan documents." In fact, this was stipulated to by the parties.See footnote 2 Thus, applying the foregoing principle of statutory construction to Iverson and Kelly, it is clear that the express terms of the statute permit a lender to pass along its attorney's fees to the borrower for the review of "loan documents." This is so whether the "loan document" is simply forwarded to the lender at the direction of the borrower's
attorney, in the case of a title search or a survey, or where the
borrower's attorney drafts or prepares a promissory note or loan
agreement. Both are treated the same under the statute,
regardless of how much or how little "work" the submission
creates for the lender's attorney. The only requirement, under
the express terms of the statute, is that the documents "prepared
or submitted by or at the direction of the borrower's attorney"
fall within the definition of "loan document," as defined in the
statute.
Although plaintiffs claim that the word "submitted" is
ambiguous, that claim is without merit. A court must interpret
the words of a statute based on their "normal and accepted
connotations as well as their ordinary and well understood
meanings." State v. Hoffman,
149 N.J. 564, 580 (1997). The word
"submitted" means "to send for or commit for consideration, study
or decision," or "to present or make available for use or study."
Webster's Third New International Dictionary 2277 (1966).
The Law Division judge's interpretation of N.J.S.A. 46:10A-6(d) in Iverson and Kelly, therefore, is not in accord with the
statute's plain meaning. In reaching the conclusion that "extra
work" by the lender's attorney is required to justify an
attorney's fee to be paid by the borrower, the judge read the
first clause of the exceptions contained in N.J.S.A. 46:10A-6(d)
entirely out of the statute. While it can be argued that the
second clause of the exceptions following the disjunctive "or"
creates an "extra work" standard, it is clear that the
Legislature did not intend it to stand alone as a basis for the
passing through of attorney fees to a borrower. That is so for
two reasons. First, it ignores the first clause of the
exceptions, and secondly, because subsection c. of the statute
requires the lender to disclose in advance "a good faith estimate
of any charge which the borrower will be expected to pay to the
lender's attorney for . . . services . . . ." N.J.S.A. 46:10A-6(c)(2). If "extra work" was the only type of attorney fee that
could be passed through to the borrower, this section of the
statute would be rendered meaningless. A lender could not
possibly predict in advance the extra work that a borrower might
ask it to perform.
The problem, however, with the literal interpretation of the statute arises in the context of an unrepresented borrower. Under a literal interpretation of the statute, the lender's right to charge an attorney review fee simply depends on the identity of the party submitting the loan documents: the "loan documents" must be "prepared or submitted by or at the direction of the borrower's attorney . . . ." Thus, if interpreted literally, a borrower represented by an attorney is required to pay the lender's attorney review fee, while an unrepresented borrower does not have to pay the fee, even though the lender's attorney is performing the same review work. We can ascertain no legislative purpose for this peculiar result.
Where, as here, the literal interpretation of a statute
produces peculiar or absurd results, a court must interpret the
statute "sensibly rather than literally, with the purpose and
reason for the legislation controlling." Reisman v. Great Am.
Recreation, Inc.,
266 N.J. Super. 87, 96 (App. Div.), certif.
denied,
134 N.J. 560 (1993). This issue was eloquently addressed
by Chief Justice Vanderbilt in Watt v. Mayor and Council of the
Borough of Franklin,
21 N.J. 274, 277 (1956):
As we move away from the ideal of a clear and
unambiguous statute we find statutes that on
their face are clear and unequivocal but in
light of related legislation and of
surrounding facts and circumstances of the
case in which it is applicable, the true
meaning becomes indefinite or obscure. In
these instances it may be the plain meaning
of the words themselves that casts doubt as
to the true intention of the Legislature, or
often it is the absurdity of the result
flowing from a literal application of that
plain meaning that causes wonder as to the
true purpose of the enactment. . . . When
these circumstances appear the court is not
only at liberty to interpret the statute but
it is its solemn duty to seek out and give
effect to the legislative intent evident from
the aids available to it.
. . . [I]f a literal application of the
statute would create a manifestly absurd
result, contrary to public policy, which the
Legislature could not have reasonably
intended, then the court would be permitted
to construe the statute.
Prior to the 1970s, it was common practice in New Jersey for an attorney to represent both the lender and the borrower in a mortgage loan transaction. The so-called "closed shop" practice allowed lenders to require that borrowers use the lender's
attorney for loan closings. The practice was upheld by the
Advisory Committee on Professional Ethics (ACPE), see ACPE
Opinion No. 27, reprinted in
87 N.J.L.J. 97 (February 13, 1964),
as well as the Supreme Court. See In re Kamp,
40 N.J. 588
(1963). In Kamp, the Supreme Court held that representation of
the borrower by the lender's attorney, although constituting
double representation, was permitted under the canons of
professional ethics so long as disclosure was made to the
borrower of the potential conflict. Id. at 596; see also ACPE
Opinion No. 119, reprinted in
90 N.J.L.J. 749 (November 16,
1967); ACPE Opinion No. 100, reprinted in
89 N.J.L.J. 696
(October 27, 1966); ACPE Opinion No. 51, reprinted in
87 N.J.L.J.
705 (November 5, 1964).
In 1973, Governor William Cahill took the first steps in
ending the "closed shop" practice in New Jersey. In his Third
Annual Message delivered to the Legislature on January 9, 1973,
he spoke of the need to allow borrowers to be represented by an
attorney of their choice.
For many years, it has been accepted practice
of some lending institutions to require a
prospective borrower to retain an attorney
selected by the institution or to require the
borrower to pay a legal fee for the
institution's attorney to review the
transaction as a condition for obtaining a
mortgage loan. The selected attorney would
often be a member of the board of directors
or in some way connected with the
institution.
. . . . [While] the institution should certainly have the right to be represented by an attorney of its choice at a mortgage closing[,] [w]e must, however, ensure that
the borrower also can be represented by the
attorney of his choice without being
penalized by being required to pay for the
lender's legal expenses.
Following Governor Cahill's address to the Legislature, the
Governor's Commissioner of Banking, Richard Schaub, proposed Rule
3:1-5.3. Under the proposed rule, a lender would not have been
able to charge a mortgagor of a one to four family residence any
counsel fees incurred by the lender's attorney, and the borrower
would be entitled to an attorney of his own choosing.
5 N.J.
Reg. 215 (July 5, 1973). The rule, however, was not acted upon
before Governor Cahill's term of office ended.
Although no action was taken on the "closed shop" practice
during the term of Governor Cahill, Governor Brendan Byrne's
administration moved forward with the similar goal of ending the
"closed shop" practice of lenders in New Jersey. In 1974, the
Assembly introduced Bill No. A-1788. That bill was enacted on
July 7, 1975, L. 1975, c. 145, § 1, and codified as N.J.S.A.
46:10A-6. The statute, as originally enacted, provided that "an
individual borrower of a loan to be secured by a mortgage on
one-, two-, three-, or four-family residence. . . shall have the
right to be represented in the transaction by an attorney at law
of New Jersey of his own selection." The statute, however, did
not preclude a lender from requiring that
documents prepared in connection with a
mortgage loan transaction prepared by a
borrower's attorney to be submitted to the
lender's attorney for examination and review
and require the borrower to pay a reasonable
fee for such service by the lender's
attorney.
[L. 1975, c. 145, § 1.]
Although there were no statements attached to A-1788 referencing
the proposed Rule 3:1-5.3, it is clear that the statute adopted
the proposed rule's position that residential borrowers
(mortgaging one to four family residences) would be entitled to
an attorney of their own choosing, but rejected the prohibition
found in the proposed rule dealing with the lender's right to
charge the borrower reasonable fees for the review of documents
submitted by the borrower's attorney.
In 1978, the Legislature amended N.J.S.A. 46:10A-6
pertaining to commercial borrowers. The amendment, however, had
little impact on the original enactment dealing with residential
borrowers. As originally proposed in the Assembly, A-104, the
amendment would have prohibited the lender from "requiring
borrowers to pay a fee . . . for the bank's attorney to review
papers prepared by the borrower's attorney." A-104, however, was
not enacted. Rather, a different version, initially presented in
the Senate (S-35), was passed by both houses, and did not alter
the practice of lenders charging a residential borrower review
fees for documents prepared by the borrower's attorney. L. 1978,
c. 65, § 2. The 1978 amendment simply extended the application
of the statute to commercial mortgage loans.
In 1987, the dispute over N.J.S.A. 46:10A-6 surfaced again
as the result of an Opinion issued by the ACPE. In Opinion 608,
the ACPE was presented with the question of whether the practice,
whereby a lender's attorney would charge a fee to the lender and
the lender would then pass along that charge to the borrower, was
a violation of the Rules of Professional Conduct. ACPE Opinion
No. 608, reprinted in
120 N.J.L.J. 1112 (December 10, 1987). The
ACPE found that such practice was in violation of the Rules of
Professional Conduct, explaining that the practice was intended
to defeat the purpose of N.J.S.A. 46:10A-6 and was unethical.
Ibid.
Following the release of Opinion 608, the ACPE received
numerous requests to reconsider its decision. Accordingly, in a
supplemental opinion issued in June of 1989, the ACPE explained
its ruling further. See ACPE Supplement to Opinion No. 608,
reprinted in
123 N.J.L.J. 1368 (June 1, 1989). The ACPE
included, as part of its opinion, the full inquiry made by the
attorney. The question by the attorney was as follows:
As the lender's attorney, we will perform the
title search, provide for insuring title,
etc., and we will bill the lender. The
lender, in turn, will then bill the borrower
for that work. The lender will also advise
the borrower that we will close the mortgage
for the lender at our office and borrower may
get their own counsel to represent them if
they so choose. Is this procedure in
violation of ethics rules?
[Ibid.]
The ACPE analyzed the legislative history, as it understood it to
that point, and reaffirmed its initial position that the practice
was in violation of the Rules of Professional Conduct.See footnote 3 Ibid.
It appears abundantly clear that N.J.S.A.
46:10A-6 applies to all transactions on which
a loan by a bank or financial institution is
secured by a mortgage on New Jersey real
estate and this includes commercial
transactions. The legislation specifically
states that lenders may not require a
borrower to employ the services of lender's
attorney. The lender may require that
documents prepared by borrower's attorney be
submitted to the lender's attorney for
examination and require the borrower to pay
the lender's attorney a reasonable fee for
such services.
As set forth in Opinion 608 as originally
published, the procedure proposed in the
initial inquiry [where the lender's attorney
would prepare the title work, charge the
lender, and the lender would in turn charge
the borrower for the associated fees] is in
violation of the Rules of Professional
Conduct.
[Ibid. (emphasis in original).]
The ACPE encouraged any party dissatisfied with its
interpretation of the statute to seek relief from either the
Legislature, to change the statute, or the Supreme Court,
regarding the statute's interpretation. Ibid.
Opinion 608 drew harsh criticism from the bar. See Henry
Gottlieb, Uproar Over Mortgage Fees Ruling, Ethics Decision Bars
Banks From Charging For Legal Costs,
124 N.J.L.J. 1 (July 6,
1989). Interested parties dissatisfied with Opinion 608 heeded
the ACPE's advice and sought relief in both the Legislature and
the Supreme Court. Members of the New Jersey Bar Association and
the banking industry petitioned the Supreme Court to review the
ACPE Opinion. See Henry Gottlieb, Big Names Go To Bat To Retain
Mortgage Fees,
124 N.J.L.J. 5 (September 21, 1989). The Court
granted the petition,
118 N.J. 193 (1989), and subsequently
appointed a Special Master to conduct hearings as to the
practices of lenders. At the same time, legislators were lobbied
by the banking industry to clarify the statute.
From the time that Opinion 608 was issued, several bills
were introduced in the Legislature to amend N.J.S.A. 46:10A-6.
For example, S-3600 was introduced by Senator Jackman, and would
have allowed
an agreement between the lender and the
borrowers which permits the lender to charge
the borrower the fee charged the lender for
any one or more of the following services
performed by the lender's attorney:
a. Review of documents prepared by the
borrower's attorney in connection with a
mortgage loan transaction;
b. The preparation of mortgage loan
documents; or
c. Review of title to the mortgaged
property;
provided that these services are performed
for the purpose of ensuring that the mortgage
loan is on the terms and conditions required
by the lender.
S-3600 was not enacted.
In 1990, S-2801 was introduced, and would have permitted a
lender to require a borrower to pay the fees of the lender's
attorney for review of "the loan and title documents and other
legal services directly related to the loan transaction." S-2801
was not enacted into law.
Finally, in 1992, Assembly Bill No. 1194 was introduced.
Specifically with regard to the primary issue raised by Opinion
608, the bill, as introduced, stated:
. . . . the lender shall not require the
borrower to reimburse the lender for, or to
pay all or any portion of, any fee or expense
charged by the lender's attorney except to
the extent of a fee for the review of the
loan, title documents and other documents
directly related to the loan transaction or
such other work as requested by borrower's
attorney. Any other legal fee or expense of
the lender's attorney shall be the sole
responsibility of the lender.
Over the course of a year, A-1194 was modified and enacted in its
present form. Under the amendment as enacted, a lender may
charge the borrower for
the review of loan documents prepared or
submitted by or at the direction of the
borrower's attorney or such other work or
services as requested by borrower or
borrower's attorney.
[L. 1993, c. 33, § 1.]
Following the enactment of the 1993 Amendment, the Supreme Court
issued an order directing the ACPE to publish a Notice to the
Bar, stating that Opinion 608 had been superseded by statute, and
dismissed the appeal.
133 N.J. 415 (1993).
There is no legislative statement explaining why the word "borrower" was not included along with "borrower's attorney" in the first clause of the exceptions. We believe, however, that the lengthy history of the development of N.J.S.A. 46:10A-6 that we have just recited demonstrates that the clear purpose of the
statute has been to provide residential borrowers with the right
to select an attorney of their own choosing, while at the same
time providing lenders with the right to charge borrowers for
certain legal expenses incurred during the transaction. In our
view, the 1993 amendments simply clarify ambiguities that existed
in prior versions of the statute regarding the meaning of
"prepared" and "loan documents." In that respect, the 1993
amendments clarified that the documents submitted need not
necessarily be "prepared," in the sense that they would have to
be drafted by the borrower's attorney, but rather that the
documents may be of the type that are "prepared" or those that
are simply "submitted." Further, the definition of "loan
documents" delineates the scope of the fee that the lender could
pass through to the borrower.
Plaintiffs make much of the fact that the term "borrower's
attorney" was added to the final amendment to A-1194.
Undoubtedly, in its introductory form, A-1194 would have allowed
for the lender to charge for fees "to the extent of a fee for the
review of the loan, title documents and other documents directly
related to the loan transaction," without regard to whether the
borrower or borrower's attorney submitted those documents.
There, of course, can be any number of reasons why the wording of
a statute is changed before final enactment. The central
question is, however, whether the tortured history of this
statute reveals any legislative intent to treat unrepresented
borrowers more favorably than represented borrowers.
We believe that the history of the legislation overall is to
encourage borrowers to have separate legal representation rather
than no representation at all. The statute itself supports our
view. N.J.S.A. 46:10A-6(b) states: "the lender's attorney
represents only the lender and not the borrower and the borrower
is, therefore, advised to employ an attorney of the borrower's
choice . . ." (emphasis added). A literal interpretation of
N.J.S.A. 46:10A-6(d) would encourage borrowers to go
unrepresented in real estate transactions, simply to avoid paying
the lender's attorney review fees. Such a result is contrary to
established public policy as announced by our Supreme Court.
"The Court strongly believes that both parties [involved in a
real estate transaction] should retain counsel for their own
protection and that the savings in lawyer fees are not worth the
risks involved in proceeding without counsel." In re Opinion No.
26 of the Comm. on the Unauthorized Practice of Law,
139 N.J. 323, 325 (1995).
Thus, because the legislative history does not support a
dichotomy between borrowers represented by an attorney from those
that are not, and a literal interpretation of the statute would
encourage borrowers to secure residential mortgage loans without
the assistance of counsel contrary to public policy as announced
by the Supreme Court, the statute must be construed to permit
lenders to charge a fee for the review of loan documents prepared
or submitted by or at the direction of the borrower's attorney or
the borrower.
Of the three defendant lenders that are parties to this appeal, only Collective is chartered by the federal government.
Collective claims that N.J.S.A. 46:10A-6 is preempted by federal regulations. Specifically, Collective directs the court to 12 C.F.R. § 563.35(d). Although that regulation has been removed from the Code of Federal Regulations pursuant to 61 Fed. Reg. 60173 (November 27, 1996), the repeal of the regulation has no effect on the outcome of this case, since the transaction between Iverson and Collective took place while the regulation was still in effect in May 1995.
That regulation provided, in relevant part,
Payment of attorney's fees by home borrowers. In connection with a loan on a home (as defined in § 541.14 of this chapter) occupied or to be occupied by the borrower, 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 or
subsidiary by the attorney);
. . . .
Although Collective recognizes that 12 C.F.R. § 563.35(d) ("§ 563.35(d)") did not contain an express preemption clause, Collective argues that § 563.35(d) was incorporated into another section of the Banking regulations, 12 C.F.R. § 545.32(b)(5) ("§
545.32(b)(5)"), which contained an express preemption clause.See footnote 4
See 12 C.F.R. § 545.2.See footnote 5 Collective reasons that § 563.35(d) and
§ 545.32(b)(5), read together, "permit[ted] a federal savings
association, such as Collective, to require a borrower to
reimburse it for legal fees charged by the association's
attorney" and, alternatively, that the intent of the regulations
as a whole are "to occupy the entire field of lending
operations." Collective relies on Fidelity Federal Savings &
Loan Ass'n v. De La Cuesta,
458 U.S. 141,
102 S. Ct. 3014,
73 L.
Ed.2d 664 (1982) in support of the latter position.
Collective's argument is flawed with respect to its
interpretation of § 563.35(d) and § 545.32(b)(5). Despite
Collective's contention, § 563.35(d) was not incorporated in
§ 545 through § 545.32(b)(5). In fact, § 545.32(b)(5) excepted
§ 563.35(d) from its scope.
Except as provided in § 563.35(d) of this
chapter, a Federal savings association may
require a borrower to pay necessary initial
charges connected with making a loan,
including the actual costs of title
examination, appraisal, credit report,
survey, drawing of papers, loan closing, and
other necessary incidental services and
costs, in such reasonable amounts as the
board of directors may fix. The Federal
savings association may collect the charges
from the borrower and pay the persons
rendering services. (emphasis added)
Attorney fees were not included in the list of enumerated charges
permitted under 545.32(b)(5). Thus, the regulation pertaining to
the recoupment of attorney's fees was not expressly preempted by
the provisions of §545.2.See footnote 6
Collective also argues that even if these regulation did not
expressly preempt N.J.S.A. 46:10A-6(d), that the regulations,
interpreted as a whole, imply that the entire field pertaining to
lending operations is preempted. It is here that Collective
relies on the Supreme Court's decision in Fidelity Federal.
In Fidelity Federal, the Court reviewed a claim whether
regulations promulgated by the FHLBB, permitting federal savings
and loan associations to use “due-on-sale” clauses in mortgage
contracts, preempted California law which prohibited the use of
such clauses. In reaching the conclusion that the federal
regulations preempted state law, the Court recognized that
“preemption may be either express or implied, and `is compelled
whether Congress' command is explicitly stated in the statute's
language or implicitly contained in its structure and purpose."
458 U.S. at 152, 102 S. Ct. at 3022, 73 L. Ed.
2d at 675.
Furthermore, “[e]ven where Congress has not completely displaced
state regulation in a specific area, state law is nullified to
the extent that it actually conflicts with federal law.” Ibid.
Applying these principles, the Court found that the FHLBB's
intent to preempt state law dealing with due-on-sale clauses was
“unambiguous.” The Court determined that California law was in
direct conflict with the federal regulation, because the explicit
language in the regulations was intended "`to have . . . due on
sale practices of Federal associations governed exclusively by
Federal law.'" Id. at 158,
102 S. Ct. 3025, 73 L. Ed.
2d at 678
(citation omitted).
Although Collective argues that Fidelity Federal supports
its position that the federal regulations completely preempt
state law in the area of lending operations, the Court's decision
simply does not support that contention. Indeed, the Court
specifically declined to broaden its holding to include field
preemption, by noting: “Because we find an actual conflict
between federal and state law, we need not decide whether . . .
the regulations occupy the field of due-on-sale law or the entire
field of federal savings and loan regulation.” Id. at 158 n.14,
102 S. Ct. at 3025 n.14, 73 L. Ed.
2d at 679 n.14. Simply because
one area of federal regulations expressly preempts state law, it
does not mean that the entire field is preempted by implication.
This is particularly so when preemptive language only appears in
select chapters or provisions of the regulations.
In Medtronic, Inc. v. Lohr,
518 U.S. 470,
116 S. Ct. 2240,
135 L. Ed.2d 700 (1996), the Court held that where regulations
specifically preempt state law in some areas but not in others,
courts should not infer preemption unless the area being
preempted is identified by Congress's or a federal regulatory
agency's "clear and manifest purpose." Id. at 485, 116 S. Ct. at
2250, 135 L. Ed.
2d at 715. In that case, the Court was reviewing
the scope of preemption provided in the Medical Device Amendments
of 1976 (MDA). The MDA merely permitted manufacturers of medical
devices that were “substantially equivalent” to certain pre-1976
medical devices to keep such devices on the market without
running the gauntlet of the pre-market approval process. The
language of the statute in dispute was: “[N]o State . . . may
establish . . . with respect to a device . . . any state
requirement . . . which is different from, or in addition to, any
[federal] requirement . . . .”
21 U.S.C.A.
§360k(a).
In holding that the statute did not displace a plaintiff's
right under state common law to bring a products liability action
against the manufacturer, the Court held that the state common-law claims in that case were not specifically developed "with
respect to" medical devices. 518 U.S. at 500, 116 S. Ct. at
2258, 135 L. Ed.
2d at 725. Thus, although the MDA did preempt
some state law, the intent of the statute was not to preempt
state common law claims. Ibid. As the Court explained, because
the language in § 360k was “less than precise,” and considering
the presumption against preemption, Congress's silence pertaining
to state common law claims led to the conclusion that the state
common law claim was not preempted under the statute. Id. at
491-502, 116 S. Ct. at 2253-58, 135 L. Ed.
2d at 724-26.
Thus, although the OTS has broad authority to enact
regulations to protect the vitality of the federal savings and
loan associations and may preempt state law where it deems
appropriate to meet that objective, where, as here, the OTB has
not chosen to expressly preempt an area, it must be presumed that
state law is not displaced. See De Buono v. NYSA-ILA Med. and
Clinical Serv. Fund, ___ U.S. ___, ___,
117 S. Ct. 1747, 1752,
138 L. Ed.2d 21, 29 (1997) (explaining the presumption against
preemption); see also Medtronic, supra, 518 U.S. at 485, 116 S.
Ct. at 2250, 135 L. Ed.
2d at 715.
We further note that the statute, as construed herein, does
not conflict with the federal regulations. See Fidelity Federal,
supra, 458 U.S. at 152-53, 102 S. Ct. at 3022, 73 L. Ed.
2d at
675. That is to say, compliance with both the federal
regulations and state statute is not a "physical impossibility,"
and N.J.S.A. 46:10A-6(d) does not "stand[] as an obstacle to the
accomplishment and execution of the full purposes and objectives"
of the federal regulations. Ibid.
The judgments in all three matters with regard to the
interpretation of N.J.S.A. 46:10A-6(d) are reversed. We affirm
that portion of the judgment in Iverson that held that federal
regulations do not preempt N.J.S.A. 46:10A-6(d).
Footnote: 1In none of the matters do the plaintiffs allege that the
amount of the charges were unreasonable; they simply claim that
the charges are not permitted under the statute.
Footnote: 2The transcript of the motions for summary judgment in
Iverson and Kelly reveal that the focus of the discussion was on
the submission a title report and survey by the borrower's
attorney. It appears obvious that these "loan documents" were
specifically argued by the plaintiffs because they are the
clearest example of a pure "submission," that does not entail any
preparation or drafting on the part of the borrower's attorney.
The stipulation of the facts, however, in all the matters simply
refer to all "loan documents," as defined in the statute.
Footnote: 3Defendant First Union and the amici argue that Opinion 608
only applied to "commercial" transactions. We disagree.
Footnote: 4
12 C.F.R. 545.32 has also been repealed. See
61 Fed. Reg. 50951 (September 30, 1996).
Footnote: 512 C.F.R. § 545.2 provides,
The regulations in this part 545 are promulgated
pursuant to the plenary and exclusive authority of the
Office to regulate all aspects of the operations of
Federal Savings associations, as set forth in section
5(a) of the [Home Owner's Loan Act]. This exercise of
the Office's authority is preemptive of any state law
purporting to address the subject of the operations of
a Federal savings association. (emphasis added)
Footnote: 6Collective cites to several letter opinions issued by the
Office of Thrift Supervision (“OTS”), and its predecessor the
Federal Home Loan Bank Board (“FHLBB”), to support its position
that the regulations “preempt state law attempting to regulate
the relationship between federal savings associations and their
borrowers.” These letter opinions, however, do not support such
a position. In fact, all but one of the opinions cited by
Collective pertain to specifically preempted areas not relating
to attorney fees. The only opinion cited by Collective
pertaining to legal services, which coincidentally deals with
N.J.S.A. 46:10A-6, states, “because the subject matter of the
Open Attorney Act [N.J.S.A. 46:10A-6] is covered in § 563.35, the
provision of that section, rather than state law, would apply to
federally chartered institutions." FHLBB Opinion No. 1544 (May
25, 1977). This, however, does not implicate preemption. In
fact, the opinion expressly recognized that
§ 563.35 [did] not purport to `legalize' any
institution's attorney fees or in any way to regulate
the practice of law in any State. It provide[d] merely
that where an institution requires a borrower to pay
the institution's attorney's fees under the
circumstances specified in § 563.35(d), the
requirements and limitations of that provision must be
complied with.
[Ibid.]
The “requirements and limitations” referred to in this opinion refer to the strict notice requirements provided under that provision, which required that the lending institution “[d]escribe[] the legal services being performed" and account for all charges. See 12 C.F.R. § 563.35(d)(2), (3), and (4).