      Third District Court of Appeal
                               State of Florida

                         Opinion filed November 5, 2014.
         Not final until disposition of timely filed motion for rehearing.

                               ________________

                               No. 3D13-2257
                         Lower Tribunal No. 08-24725
                             ________________


             Katline Realty Corp., a Florida Corporation,
                                    Appellant,

                                        vs.

  Gregg Avedon, as Personal Representative of the Estate of Jane
                            Avedon.
                                     Appellee.



     An Appeal from the Circuit Court for Miami-Dade County, Jacqueline
Hogan Scola, Judge.

     David H. Charlip, for appellant.

     Mark A. Marder, for appellee.


Before WELLS, SUAREZ and SALTER, JJ.

     WELLS, Judge.
      Lender, Katline Realty Corporation, appeals from a final judgment in favor

of borrowers, Arnold and Jane Avedon. The Avedons are now deceased and

Gregg Avedon, as personal representative for the estate of Jane Avedon, has been

substituted as the appellee in this appeal. We affirm that portion of the judgment

finding that Katline violated the Homeownership and Equity Protection Act of

1994 (HOEPA)1, but reverse for recalculation of the amount of set-off to which the

estate is entitled against the remaining amounts owed to Katline.

      In April 2000, the Avedons, an elderly couple living on social security

benefits, executed a $37,000 promissory note secured by a mortgage on their home

in Katline’s favor. The evidence below confirmed that this high interest loan is a

mortgage loan transaction which falls within the purview of HOEPA. See 15

1 HOEPA was enacted in 1994 as an amendment to The Truth In Lending Act
(TILA) to address predatory lending practices targeted at a special class of
regulated closed-end home equity loans. See Eugene J. Kelly, Jr. et al., An
Overview of HOEPA, Old and New, Consumer Finance Law Quarterly Report,
(Fall 2005); 15 U.S.C. § 1639. TILA itself was enacted in 1968 and generally
“promotes consumers’ informed use of credit by requiring meaningful disclosure
of credit terms relating to finance charges, interest rates, and borrowers’ rights, and
protects consumers against inaccurate and unfair credit billing and credit card
practices[, and] subjects the creditor to civil damages, penalties, rescission and
recoupment, and criminal liability [for violations].” Validity, Construction, and
Application of Truth in Lending Act (TILA) and Regulations Promulgated
Thereunder—United States Supreme Court Cases, 67 A.L.R. Fed 2d 567 (2012);
15 U.S.C. § 1601 et seq.

Because the parties agree that the 2000 version of the federal statutes apply to this
case, this opinion will cite to and quote from that version of both TILA and
HOEPA.


                                          2
U.S.C. § 1602(aa) (2000)2; see also Eugene J. Kelly, Jr. et al., An Overview of

HOEPA, Old and New, Consumer Finance Law Quarterly Report, Fall 2005

(confirming generally that to come within HOEPA a loan must be a non-purchase

money loan secured by the borrower’s principal dwelling, and call for either a high

annual percentage interest rate or excessive points and fees).

      The evidence adduced below also confirmed that this mortgage loan

transaction violated HOEPA because it provided for an increase in the loan’s

interest rate on default and because it imposed a prepayment penalty. See 15

U.S.C. § 1639(d) (2000) (providing that mortgage loans subject to HOEPA “may

not provide for an interest rate applicable after default that is higher than the

interest rate that applies before default”); 15 U.S.C. § 1639(c) (2000) (providing

that mortgage loans subject to HOEPA “may not contain terms under which a

consumer must pay a prepayment penalty for paying all or part of the principal

before the date on which the principal is due”).

       Thus, in late 2005 when the Avedons stopped making payments on their

loan, and Katline sued to collect on the note and to foreclose the mortgage, the


2 This subsection provides that a HOEPA mortgage loan is one, other than a
residential mortgage transaction, reverse mortgage transaction, or transaction under
an open ended credit plan, that secures a credit transaction with the consumer’s
principal dwelling and (1) carries an annual percentage rate at the time of the
transaction exceeding by more than 10 percentage points the yield on certain
specified Treasury securities; or (2) imposes total points and fees which exceed
more than 8 percent of the total loan amount or $400. 15 U.S.C. § 1602(aa) (2000).

                                          3
Avedons, by way of affirmative defense, sought to set-off against any amounts

owed to Katline an amount equal to the damages authorized in TILA/HOEPA for

these two HOEPA violations. See 15 U.S.C. § 1639(j) (2000) (providing that any

mortgage containing a provision prohibited by HOEPA shall be treated as a failure

to deliver material disclosures under TILA thereby subjecting the loan transaction

to TILA remedies); 15 U.S.C. § 1640(a)(1)-(4) (2000) (providing for an award of

actual and statutory damages for both TILA (and therefore HOEPA) violations);

12 C.F.R. § 226.23(a); Martinec v. Early Bird Int’l, Inc., 126 So. 3d 1115, 1118

(Fla. 4th DCA 2012) (confirming that a debtor alleging a HOEPA violation “is

entitled to actual and statutory damages under TILA as a defense of recoupment or

set-off” against a foreclosure action for collection of a debt, even when an

affirmative action for rescission by the debtor would be barred by TILA’s statute

of limitations).

      Katline sought to avoid this defense claiming that savings clauses in its loan

documents cured any TILA/HOEPA violations.3 Katline cited no authority either

3The promissory note focused primarily on avoiding any penalties should the loan
prove usurious:

      Notwithstanding anything to the contrary contained herein and/or
      within the Mortgage . . . the effective rate of interest on the obligation
      evidenced by this Promissory Note shall not exceed the maximum
      effective rate of interest permitted to be paid under the higher of (1)
      the laws of the State of Florida; or (2) the laws of the United States . .
      ..


                                          4
below or here to support its argument that such clauses have application to a

HOEPA loan, nor has this court been able to locate any. Rather, we agree with the

trial court when it concluded that:

         [A] savings clause disclaiming a violation of a higher interest rate
         under HOEPA undermines the intent of [Congress] to protect
         consumers against predatory lending. See 198 A.L.R. Fed 631 (2004)
         (HOEPA was enacted to prevent lenders from making “high cost
         mortgage loans to individuals . . . without regard to the individual’s
         income and cash flow to repay the debt”).

                Likewise, a policy allowing a savings clause to disclaim a
         violation of TILA for a pre-payment penalty may encourage lenders to
         include pre-payment penalties since the only penalty, if caught, would
         be the loss of the pre-payment penalty charges.

         We agree with this assessment for a number of reasons. First, because it is

consistent with HOEPA’s primary goal to protect borrowers from risking the

equity in their homes in high-interest/high-risk loan transactions containing hidden

costs:

            SUBTITLE B: HOME OWNERSHIP AND EQUITY PROTECTION

The mortgage was more expansive and attempted to excuse any violation of law:

                It is agreed that nothing herein contained nor any transaction
         related hereto shall be construed or so operate as to require the
         Mortgagor to pay interest at a rate greater that [sic] is now lawful in
         such case to contract for, or to make any payment or to do any act
         contrary to law; that if any clauses or provisions herein contained
         operate or would prospectively operate to invalidate this Mortgage or
         said promissory note in whole or in part, then such clauses and
         provisions only shall be held for naught, as though not herein
         contained, and the remainder of this Mortgage shall remain operative
         and in full force and effect.

                                           5
                              A. INTRODUCTION

      ....

   Legislation is needed to address reverse redlining and to protect
borrowers who might enter into home equity scam transactions. . . .
Certain loan structures . . . are potentially dangerous when misused.
The Committee has acted [in proposing HOEPA] to provide
additional consumer protections for these structures.

       The bill [adopting HOEPA] amends the Truth in Lending Act
to define a class of non-purchase, non-construction, closed-end loans
with high interest rates or upfront fees as “High Cost Mortgages.” To
ensure that consumers understand the terms of such loans and are
protected from high pressure sales tactics, the legislation requires
creditors making High Cost Mortgages to provide a special,
streamlined High Cost Mortgage disclosure three days before
consummation of the transaction. The bill also prohibits High Cost
Mortgages from including certain terms such as prepayment penalties
and balloon payments that have proven particularly problematic.
Finally, the bill provides increased civil liability for failure to comply
with the requirements for High Cost Mortgages and enables a
borrower to assert all claims and defenses against an assignee of the
High Cost Mortgages that could be asserted against the originator.

             B. THE REVERSE REDLINING PROBLEM

       Mortgages are loans secured by real estate. Most residential
mortgages are purchase or construction mortgages, with the proceeds
used to finance the purchase or initial construction of the home.
“Home equity loans” and “second mortgages,” however, are
mortgages whose proceeds are not used to purchase or build the home
serving as security for the loan. Such “non-purchase money
mortgages” are also secured by homes, but the proceeds are
characteristically used for purposes such as home improvements or
credit consolidation.




                                    6
       Evidence before the Committee indicates that some high-rate
lenders are using non-purchase money mortgages to take advantage of
unsophisticated, low income homeowners. While individual cases
differ, a pattern has emerged in which low income, often elderly
homeowners claim that mortgage lenders, brokers, or home
improvement contractors have “hustled” them into taking out non-
purchase money mortgages with extremely high interest rates, fees, or
both. . . . .

       Typically, the homeowners have limited incomes but have
developed equity in their homes as the result of paying down their
first mortgages, inheritance, or the rise in real estate values in the
1980s. The equity provides security for sizeable second mortgage
loans. Because the borrowers have little cash flow, however, they
must often struggle to meet overwhelming mortgage payments. In
some instances, the struggle culminates in the borrower’s loss of his
or her home through foreclosure.

      Evidence suggests that some home improvement contractors,
second mortgage brokers, and other lenders act in a “predatory”
fashion, targeting unsophisticated, low income homeowners and
“skimming” equity from the neighborhoods through high-rate, high
fee loans. Mortgage finance companies often purchase the loans
which they retain as portfolio investments or resell to banks and other
financial institutions.

      ....

                  D. DESCRIPTION OF LEGISLATION

      ....

      1. High cost mortgages

       The legislation defines a class of mortgages as “High Cost
Mortgages.” The bill defines these transactions to be closed-end loans
that are not used for acquisition or construction and that have up-front
fees or interest rates above the “triggers” in the bill.

      ....


                                   7
            6. Prohibited terms

            The Committee finds that certain loan terms are particularly
      problematic and often mislead borrowers about the true cost of a loan.
      Consequently, the legislation prohibits High Cost Mortgages from
      containing the following terms: prepayment penalties, points on loan
      amounts refinanced, default interest rates above the rate prior to the
      default, balloon payments, negative amortization, or prepayment of
      more than two of the periodic payments.

S. REP. NO. 103-169, at 21-22, 23, 25 (1993), reprinted in 1994 U.S.C.C.A.N.

1881; see also Lisa Keyfetz, The Home Ownership and Equity Protection Act of

1994: Extending Liability for Predatory Subprime Loans to Secondary Mortgage

Market Participants, 18 Loy. Consumer L. Rev. 151, 151-52, 175 (2005) (footnotes

omitted) (stating that “[i]n response to evidence of a pattern of abuse in the

subprime mortgage market, Congress passed the Home Ownership and Equity

Protection Act (“HOEPA” or the “Act”) in 1994 . . . [and g]iven the dominant role

the secondary market plays in demanding and financing subprime mortgages,

HOEPA’s drafters focused on the need for a mechanism to hold financiers of

predatory lending accountable for the misconduct of their counterparts in the

primary mortgage origination market”).

      Second, we agree with the trial court’s assessment because HOEPA, like

TILA, is a disclosure law not a usury law and serves an entirely different purpose.

The purpose of a usury law is to limit the amount of interest that may be charged

as a cost of borrowing money.      The purpose of TILA/HOEPA is to provide


                                         8
information up-front to potential borrowers so that they know what they are getting

and what they are being charged for getting it. See S. REP. NO. 103-169 at 21

(“Subtitle B does not create a usury limit or prohibit loans with high rates or high

fees. . . . The bill amends the Truth in Lending Act to . . . ensure that consumers

understand the terms of such [high cost] loans.”).

      Because the usurious nature of a loan transaction may not become apparent

for some time after a loan transaction has been consummated, inclusion of a

savings clause in a loan transaction may serve a legitimate purpose in preventing

liability for an inadvertent violation of the usury laws:

      [W]e also believe that savings clauses serve a legitimate function in
      commercial loan transactions and should be enforced in appropriate
      circumstances. For instance[:]

             [W]here the actual interest charged is close to the legal
             rate, or where the transaction is not clearly usurious at the
             outset but only become usurious upon the happening of a
             future contingency, the clause may be determinative on
             the issue of intent [to charge more than the legally
             allowed amount of interest].

Jersey Palm-Gross, Inc. v. Paper, 658 So. 2d 531, 535 (Fla. 1995) (quoting Jersey

Palm-Gross, Inc. v. Paper, 639 So. 2d 664, 671 (Fla. 4th DCA 1994)).

      But because the purpose of HOEPA and TILA is to provide information up-

front so that potential purchasers can assess the true cost of the loan they are about

to take, enforcement of a savings clause, which effectively nullifies the obligation

to disclose pertinent information, undermines rather that furthers this purpose. See


                                           9
Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998) (“The declared purpose of

the Act is ‘to assure a meaningful disclosure of credit terms so that the consumer

will be able to compare more readily the various credit terms available to him and

avoid the uninformed use of credit, and to protect the consumer against inaccurate

and unfair credit billing . . . .’” (quoting 15 U.S.C. § 1601(a))).

      Thus, in light of the distinct purposes to be served by HOEPA and TILA, the

trial court was correct in refusing to find that the savings clauses in Katline’s loan

documents effectively nullified the mandated disclosures of HOEPA. See 15

U.S.C. § 1639(j) (2000) (providing that any mortgage containing a provision

prohibited by HOEPA shall be treated as a failure to deliver material disclosures

under TILA thereby subjecting the loan transaction to TILA remedies).

      Third, we agree with the trial court’s assessment because it is consistent with

those portions of HOEPA which recognize only a few instances in which penalties

for TILA/HOEPA violations may be avoided. Paragraph 1640(a)(4) of HOEPA,

for example, forgives a creditor’s failure to comply with HOEPA where the

“creditor demonstrates that the failure to comply [with HOEPA] is not material.”

15 U.S.C. § 1640(a)(4) (2000). Likewise, subsections 1640(c) and 1640(f) of TILA

forgive a creditor for scriveners’ errors or for reliance on federal regulators. See

15 U.S.C. § 1640(c) (2000) (generally providing that a creditor may be relieved of

liability where a preponderance of the evidence shows that a “violation was not



                                           10
intentional and resulted from a bona fide error notwithstanding the maintenance of

procedures reasonably adapted to avoid such error[, for example,] . . . clerical,

calculation, computer malfunction and programing, and printing errors, except

[for] error[s] of legal judgment with respect to a person’s obligations”); 15 U.S.C.

§ 1640(f) (2000) (providing that no liability will be imposed for TILA violations

when a creditor has acted “in good faith in conformity with any rule, regulation, or

interpretation thereof by the Board [of Governors of the Federal Reserve System]

or in conformity with any interpretation or approval by an official or employee of

the Federal Reserve System duly authorized . . . to issue such interpretations or

approvals”).

      Notably, none of these provisions suggests that a creditor may receive

absolution for failure to make mandatory disclosures as would a savings clause.

Moreover, not one of these exceptions finds application here.              Including a

prepayment penalty or a default interest provision in a HOEPA loan transaction

cannot be viewed as not being material because HOEPA expressly provides that it

is. See S. REP. NO. 103-169 at 28 (“Failure to provide the High Cost Mortgage

disclosure three days before consummation and inclusion of prohibited loan terms .

. . are material violations of the Subtitle B of Title I.”); 15 U.S.C. §1639(c), (d), (j)

(2000) (prohibiting prepayment penalties and default interest in HOEPA loan

transactions and providing that any mortgage containing these prohibited



                                           11
provisions “shall be deemed a failure to deliver the material disclosures required

under this subchapter”).

      Nor can the prepayment penalty and default interest provisions included in

Katline’s loan documents be viewed as clerical or printing errors. On default,

Katline repeatedly demanded, in strident terms, payment of the maximum amount

due on the loan as well as default interest and a prepayment penalty. Including

these provisions in Katline’s loan documents was no mistake. Moreover, Katline

neither claimed below nor adduced any evidence that it was attempting to conform

to a rule or regulation by the Board of Governors of the Federal Reserve System

either by including these provisions in its loan documents or by including savings

clauses in its documents in an attempt to absolve itself of liability for including

these provisions.

      Thus, while a savings clause may serve a useful purpose in avoiding the

harsh consequences of a loan transaction which inadvertently turns out to be

usurious after all of the math is done, the presence of such clauses in a HOEPA

loan in no way relieves the offending party of its liability for the violation of the

provisions of this disclosure law. For these reasons we agree with the trial court’s

assessment that the savings clauses included in Katline’s loan documents cannot,

and do not, negate Katline’s liability for violating TILA/HOEPA’s disclosure

mandates.



                                         12
      Although we agree that the penalties imposed by TILA and HOEPA must be

assessed in this case, we do not agree to the determination made below as to the

amount which should be set-off against the outstanding $31,566.59 balance of the

Katline loan. Under 15 U.S.C. § 1640, a creditor who fails to comply with the

HOEPA amendment to TILA is liable for (1) actual damages sustained as a

consequence of the creditor’s failure; (2) twice the amount of any finance charge

made in connection with the transaction not to exceed $2000 in the case of an

individual action on a non-open ended credit plan4; (3) costs including any

reasonable attorney’s fees incurred in prosecuting a successful HOEPA action or

defense; and, (4) an amount equal to all finance charges and fees paid:

      1640. Civil liability

      (a) Individual or class action for damages; amount of award; factors
      determining amount of award

      Except as otherwise provided in this section, any creditor who fails to
      comply with any requirement imposed under this part, including any
      requirement under section 1635 of this title, or part D or E of this
      subchapter with respect to any person is liable to such person in an
      amount equal to the sum of—

      (1) any actual damage sustained by such person as a result of the
      failure;



4 The term “open end credit plan” is defined as a plan “under which the creditor
reasonably contemplates repeated transactions, which prescribes the terms of such
transactions, and which provides for a finance charge which may be computed
from time to time on the outstanding unpaid balance.” 15 U.S.C. § 1602(i) (2000).

                                        13
      (2)(A)(i) in the case of an individual action twice the amount of any
      finance charge in connection with the transaction, (ii) in the case of an
      individual action relating to a consumer lease under part E of this
      subchapter, 25 per centum of the total amount of monthly payments
      under the lease, except that the liability under this subparagraph shall
      not be less than $100 nor greater than $1,000, or (iii) in the case of an
      individual action relating to a credit transaction not under an open end
      credit plan that is secured by real property or a dwelling, not less than
      $200 or greater than $2,000 . . . .

            ....

      (3) in the case of any successful action to enforce the foregoing
      liability or in any action in which a person is determined to have a
      right of rescission under section 1635 of this title, the costs of the
      action, together with a reasonable attorney's fee as determined by the
      court; and

      (4) in the case of a failure to comply with any requirement under
      section 1639 of this title, an amount equal to the sum of all finance
      charges and fees paid by the consumer, unless the creditor
      demonstrates that the failure to comply is not material. . . . .

15 U.S.C. § 1640(a)(1)-(4) (2000).

      The Avedons admitted below that they had incurred no actual damages as a

consequence of Katline’s HOEPA violations. The trial court correctly determined

that the Avedons had incurred $33,240.45 in finance charges and that these charges

should be set-off against the outstanding balance of the loan.5 See 15 U.S.C. §

1605(a)(1)-(6) (2000) (defining the term “finance charge” as “the sum of all

charges, payable directly or indirectly by the person to whom the credit is

5 The evidence was that the Avedons had paid $30,115.45 in interest and $3,025.00
in other finance charges for a total of $33,240.45.


                                         14
extended” and includes interest, any amounts payable under a point, discount, or

other system of additional charges; service or carrying charge; loan or finder’s fees

and similar charges; investigation or credit report charges; insurance premiums

against credit loss or default; and mortgage broker fees); 15 U.S.C. § 1640(a)(4)

(2000).

      However, the trial court erred when it set-off, or deducted, double the

amount of the finance charges paid by the Avedons from the loan balance under 15

U.S.C. § 1640(a)(2)(A) (2000). While this subparagraph does initially state that in

an action by an individual the amount of the recovery is “twice the amount of any

finance charge,” see 15 U.S.C. § 1640(a)(2)(A)(i), this same subparagraph also in

clause (iii) expressly caps that recovery in cases involving HOEPA loans at $2000:

      (2)(A) . . . (iii) in the case of an individual action relating to a credit
      transaction not under an open end credit plan that is secured by real
      property or a dwelling, not less than $200 or greater than $2,000 . . . .

15 U.S.C. § 1640(a)(2)(A)(iii) (2000); Koons Buick Pontiac GMC, Inc. v. Nigh,

543 U.S. 50, 62 (2004) (“The specification of statutory damages in clause (i) [of

section 1640(a)(2)(A)] of twice the finance charge continues to apply to loans

secured by real property as it does to loans secured by personal property. Clause

(iii) [of section 1640(a)(2)(A)] removes closed-end mortgages from clause (i)’s

governance only to the extent that clause (iii) prescribes $200/$2,000 brackets . . .

.”) (footnote omitted). Therefore, under this provision, only up to $2000 and not



                                          15
$66,480.90 as the trial court determined may be set-off against the $31,566.59

owed to Katline.

      Although the estate is not entitled to deduct double the amount of the

finance charge that the Avedons paid on the loan from the balance due, the estate is

entitled under paragraph 1640(a)(4) to deduct the entire amount of all of the

finance charges imposed ($33,240.45), from the amount due. See 15 U.S.C. §

1640(a)(4) (2000); In re Williams, 291 B.R. 636, 664 (E.D. Pa. 2003) (“The

statutory damage provision contained in § 1640(a) was amended to increase the

total award to the consumer in the case of HOEPA violations. See 15 U.S.C. §

1640(a)(4).   Besides the standard TILA penalty [under 1640(a)(2)(A)], the

consumer ‘may also recover an amount equal to the total finance charges and fees

paid [under § 1640(a)(4)].’” (quoting Newton v. United Cos. Fin. Corp., 24 F.

Supp.2d 444, 451 (E.D. Pa. 1998))). The Avedons also are entitled to set-off from

the amount due their attorneys’ fees and costs. See 15 U.S.C. § 1640(a)(3) (2000).

      Finally, in recalculating the amounts to which the estate is entitled to set-off

against the amount due, the court below must also credit to Katline the amounts it

paid to third parties on the Avedons’ behalf for property taxes and insurance

premiums. See Lippner v. Deutsche Bank Nat’l Trust Co., No. 07 C 448, 2008

WL 4200654, at *5 (N.D. Ill. Sept. 9, 2008) (confirming that lender was entitled to

credit for payment of mortgage insurance and real estate taxes paid on behalf of the



                                         16
borrower); Moore v. Cycon Enters., Inc., No. 04-CV-800, 2007 WL 475202, at *8

(W.D. Mich. Feb. 9, 2007) (same).

      Accordingly, we affirm the trial court’s determination that Katline’s savings

clauses did not effectively nullify Katline’s HOEPA violations so as to avoid

imposition of TILA/HOEPA penalties; however, we reverse and remand this cause

for a proper calculation of the set-off the estate should receive against the

remaining unpaid principal balance on the loan.

      Reversed and remanded with instructions.




                                        17
