#2578               signed 7-1-02

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

ORDER ON SUMMARY JUDGMENT MOTION

This proceeding is before the Court on the plaintiff-debtor's motion for summary judgment.

The plaintiff-debtor (“the Debtor”) appears by counsel Fred W. Schwinn of the Consumer Law

Center, P.A., Topeka, Kansas. Defendant Conseco Finance Servicing Corporation (“Conseco”)

appears by counsel Michael A. Priddle of Joseph & Hollander, P.A., Wichita, Kansas. The Court has

reviewed the relevant pleadings and is now ready to rule.

In March 1999, the Debtor and Judy A. Sherman obtained a loan from Conseco, then known

as Green Tree Financial Servicing Corporation, for about $115,000. They gave Conseco a mortgage

on real property that served as the Debtor's home (the record contains no indication whether it was

also Ms. Sherman's home) to secure the loan. Conseco gave them notice of their right to rescind the

transaction, as required by §1635 of the Truth in Lending Act (“TILA”), 15 U.S.C.A. §1635, but used

an incorrect notice form for the type of transaction it was. As a result, instead of three days, the Debtor

and Ms. Sherman had three years to rescind the transaction.

The Debtor filed a chapter 13 bankruptcy petition in April 2000. On May 12, 2000, Conseco

filed a proof of claim in which it asked to have notices sent to it at an address in Tempe, Arizona;

although the mortgage that the Debtor and Ms. Sherman gave Conseco was on real property, Conseco

says the Arizona address is for its mobile home department. Two months after Conseco filed its proof

of claim, the Debtor's attorney sent a certified letter to Conseco at the Arizona address, informing the

company of the Debtor's decision to rescind the home mortgage transaction. A few months after that,

the Debtor commenced this adversary proceeding, seeking to enforce the rescission remedy established

by the TILA. Conseco concedes that the Debtor has the right to rescind the transaction and contests

only whether he effectively did so by sending the notice of rescission to the Arizona address. Conseco

also concedes that “someone” at the Arizona address received the letter from the Debtor's attorney,

but claims it cannot determine whether it received the letter at that address, apparently meaning it

cannot determine whether the person who signed the certified mail receipt was acting on its behalf. It

has not suggested that any people who were not its employees would have been at that location and

might have signed for the letter. Conseco contends that the Debtor was required to send his notice of

rescission to Conseco at the address identified in the original loan documents as the one to use for that

purpose.

Ms. Sherman has not been made a party to the adversary proceeding, but has entered an

appearance as an interested party and asked that notices in the case be sent to her attorney.

DISCUSSION AND CONCLUSIONS

2

As indicated, Conseco concedes that the Debtor sent his notice of rescission to a valid address

for a department of the company and that someone at that address received the notice. Apparently, it

is now unable to locate the notice, and so questions whether it actually received the notice. However, it

has not indicated how the notice might have been received by anyone other than one of its employees at

the address where it was delivered. The Court concludes that Conseco has not raised a genuine issue

of material fact concerning its receipt of the notice. Furthermore, the Court cannot agree that the

Debtor should have sent the notice to the address contained in the original loan documents, which were

fifteen months old by the time the notice was sent. Instead, the Debtor reasonably sent the notice to the

address that Conseco gave on its proof of claim as the place where it wanted to receive all notices

concerning the Debtor's bankruptcy case. What notice could be more important to a secured creditor

than one indicating the bankrupt debtor was trying to rescind his or her transaction with the creditor?

Furthermore, if the Debtor had sent the notice to the address contained in the loan documents and

Conseco could not locate the notice, the Court is convinced that Conseco would have taken the

opposite position and claimed the Debtor should have used the proof of claim address. The Court

concludes that the Debtor validly rescinded the transaction, and that Conseco received the notice of

rescission at the Arizona address.

With that preliminary question out of the way, the Court notes that the parties have made the

same arguments concerning rescission under §1635 of the TILA that the Court considered and

resolved in two decisions in a previous case. See Quenzer v. Advanta Mortgage Corp. (In re

Quenzer), 266 B.R. 760 (Bankr. D. Kan. 2001) (“Quenzer I”); Quenzer v. Advanta Mortgage

Corp. (In re Quenzer), 274 B.R. 899 (Bankr. D. Kan. 2001) (“Quenzer II”). In this case, only one of

3

the two obligors under the mortgage transaction has tried to rescind the transaction, but Conseco has

not alleged that this fact has any impact on rescission under the TILA. Otherwise, this case is not

distinguishable in any relevant way from the Quenzer case, and the Court concludes that its resolution of

that case applies here as well. This means that Conseco's mortgage immediately became void when

the Debtor sent it his notice of rescission. When Conseco received that notice, it became obliged to

return certain money or property to the Debtor, after which the Debtor would become obliged to return

money to Conseco. As in Quenzer II, because the Debtor intends to satisfy his obligation to Conseco

by treating it as a general unsecured obligation under his chapter 13 plan, the Court will exercise its

authority under §1635 to modify the statutory rescission procedure established under that provision,

and will set the parties' obligations off against one another, instead of requiring Conseco to fulfill its

obligation first.

The Court will also impose civil penalties under TILA §1640 for Conseco's violations of that

act. The uncontroverted facts have established that, like the creditor in Quenzer, Conseco violated the

TILA in two respects: (1) it gave improper notice of the right to rescind; and (2) it failed to honor a

valid exercise of the right to rescind. So long as the Court's conclusion that Conseco's mortgage

became void when the Debtor rescinded the transaction remains in effect, the Court will impose a $250

civil penalty for each violation, for a total penalty of $500. If Conseco succeeds in saving its mortgage

lien, however, the Court will increase the penalties to $2,000 for each violation, for a total of $4,000.

The Debtor has asserted another TILA violation in connection with a $100 charge in the mortgage

transaction, but Conseco has properly raised a genuine issue of material fact about whether the charge

violated the TILA, so the Court cannot resolve that dispute in this summary judgment ruling.

4

The Debtor has offered a partial calculation of the proper net amount of the unsecured claim

that Conseco should be allowed against his bankruptcy estate, but the amounts stated are not complete

and are not properly supported by the record, so the Court cannot now determine the amount of

Conseco's claim. The Court informs the parties that it will follow the method it used in Quenzer II, see

274 B.R. at 904-06, to calculate Conseco's net unsecured claim against the chapter 13 bankruptcy

estate. The parties should confer to see if they can determine the proper amounts to use in making that

calculation. If they cannot, they should file pleadings bringing their remaining dispute to the Court for

resolution.

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of July, 2002.

__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

5