Opinion
No. 81CA0027
Decided March 11, 1982. Rehearing denied April 15, 1982. Certiorari Dismissed on Stipulation of the Parties July 21, 1982.
Appeal from the District Court of Douglas County, Honorable Edward J. Byrne, Judge.
Law Offices of John M. Franks, John M. Franks, Bosworth Slivka, P.C., Richard P. Slivka, for plaintiffs-appellants.
George F. Elsner, for defendants-appellees.
Plaintiffs, Wanda and Kenneth Varady, appeal the trial court order granting summary judgment in favor of defendants, Marilyn and Robert White. We reverse and remand.
Shortly after purchasing the Whites' home in 1976, the Varadys demanded rescission of the purchase contract and the Whites refused. The Varadys brought an action, alleging that the Whites' misrepresentations induced them to purchase the home and that the Whites had failed to make disclosures required under Colorado's version of the Uniform Consumer Credit Code (UCCC), § 5-1-101, et seq., C.R.S. 1973. The trial court found that no material misrepresentations had been made and that the UCCC did not apply. On appeal, we affirmed the trial court's finding on misrepresentation, but remanded the cause for new trial on the issue whether the sale was a "consumer credit sale" within the meaning of § 5-2-104(1)(a), C.R.S. 1973. Varady v. White, 42 Colo. App. 389, 595 P.2d 272 (1979) (Varady I). On remand, the trial court held that the Whites' sale of their residence to the Varadys was not a "consumer credit sale."
I.
Section 5-2-104(1)(a) provides that a "consumer credit sale" is a sale of an interest in land in which "[c]redit is granted . . . by a person who regularly engages as a seller in credit transactions of the same kind . . . ." (emphasis added). Thus, in order to determine whether the disputed transaction is subject to the disclosure requirements of the UCCC, we must consider whether, as a matter of law, the prior transactions constituted "regular" credit transactions and whether they were of "the same kind" as the subject transaction.
Colorado's UCCC is based on the Federal Consumer Credit Protection Act (CCPA), 15 U.S.C.A. § 1601, et seq., and the intent of the CCPA "seems to have been to except from the Act only those lenders whose extensions of credit are an occasional, isolated, and incidental portion of their business." Eby v. Reb Realty, Inc., 495 F.2d 646 (9th Cir. 1974). Thus, private homeowners who take back second mortgages upon selling their homes would normally not be required to comply with the disclosure requirements of the Act. [1969 — 1974 Transfer Binder] Cons. Cred. Guide (CCH) ¶ 30,206 (Federal Reserve Board Letter November 4, 1969).
Although the Whites sold their own home and took a second mortgage, Varady I, supra, they had subdivided their 90-acre property and sold five unimproved lots in their subdivision prior to the sale to plaintiffs. Neither defendant had a real estate license or worked full time in the real estate business: Robert White was an electronic technician and Marilyn White was a housewife. However, the subdivision and sale of lots is itself a business venture. After five separate sales of lots from a 90-acre tract, the Whites cannot claim ignorance of real estate transactions. Moreover, they sold more unimproved lots after the sale to plaintiffs. In Eby, supra, the realty firm was held to have engaged in "regular" credit transactions although it had sold only three parcels on credit within a time span of nineteen months. The Whites sold lots in September and October of 1974, and April, June, and July of 1976 before the sale to the Varadys. This constitutes "regular" credit transactions for purposes of § 5-2-104(1)(a), C.R.S. 1973.
Since the phrase "credit transactions of the same kind" is not included in the definition of a credit transaction under the CCPA, we must interpret this phrase without the aid of federal guidelines. While the Whites sold the Varadys improved land and the prior sales conveyed unimproved lots, the presence or absence of improvements is not a critical factor in determining whether transactions are of the same kind. All the sales consisted of an "interest in land" purchased primarily for a personal, family, or household use under § 5-2-104(1)(c), C.R.S. 1973.
The two sales in 1974 and the sale to the Varadys in 1976 involved second deeds of trust, while the other three sales in 1976 involved first deeds of trust. However, the Whites were the creditors in each of the transactions, so the form of the security interest is not determinative of this issue. Although these six transactions were not identical in each minute detail, we conclude, as a matter of law, that they were "credit transactions of the same kind." Therefore, since the Whites regularly engaged in credit transactions of the same kind, their sale to the Varadys was a "consumer credit sale" under § 5-2-104(1)(a), C.R.S. 1973.
II.
Since the Varady-White transaction was a consumer credit sale of an interest in land, the debtors have rescission rights under § 5-5-204, C.R.S. 1973. Varady I, supra. This section permits the debtor to rescind the transaction "until midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required under this section . . . whichever is later . . . ." When a debtor rescinds, § 5-5-204(2), C.R.S. 1973, affords him a number of rights. First, he is not liable for any credit service charge, and any security interest given by the debtor becomes void upon the rescission. Second, within ten days after receipt of a notice of rescission, the creditor must return to the debtor "the money or property given as earnest money, down payment, or otherwise," and must terminate any security interest created under the transaction. And third, upon the performance of the creditor's obligations, the debtor must tender the property to the creditor, and unless the creditor takes possession of the property within ten days after tender by the debtor, the debtor may keep the property without paying for it.
In Varady I, the Whites argued that even if the UCCC applies to the transaction, § 5-5-204, C.R.S. 1973, does not apply because of the exclusion for first liens in § 5-5-204(5), C.R.S. 1973. Our decision that the transaction involved a second lien, and therefore that the transaction was not within the exception set out in § 5-5-204(5), is the law of the case.
These statutory provisions were applied in Strader v. Beneficial Finance Co., 191 Colo. 206, 551 P.2d 720 (1976), in which the creditor failed to comply with its statutory obligation to disclose in a timely manner the interest rate on a home improvement loan. The debtors were permitted to retain the unpaid balance of the loan. In that case, the creditor made the proper disclosures eleven months after the transaction, and the debtors exercised their right to rescind within three days. Accordingly, it is irrelevant that the Varadys did not explicitly tender the property upon notice of intent to rescind, since the obligation to tender arises only after the security interest is released. Strader, supra. The statutory duty to tender does not arise until after the creditor has released his security interests. Section 5-5-204(2), C.R.S. 1973.
Where, as here, the creditors have not made the disclosures required by the UCCC, the debtors are at liberty to rescind the contract at their pleasure. Sosa v. Fite, 498 F.2d 114 (5th Cir. 1974). Since the Varadys gave the Whites notice of their intent to rescind within three days of closing, and the Whites did not return the Varadys' payments and terminate their security interest within ten days of the notice of rescission, the Whites must return all money paid to them by the Varadys, and ownership of the property vests in the Varadys without their obligation to pay for it. Section 5-5-204(2), C.R.S. 1973; see Strader, supra.
In Strader, the court held that § 5-5-204, C.R.S. 1973, "is intended as an impetus for the creditor to take immediate action to clear title and to fulfill its obligations. If not interpreted in this way, there is no stimulus for the creditor to comply with the statutory provisions requiring him to release the security interests within the ten-day period." The court embraced the reasoning in Sosa, supra, which requires strict compliance, and rejected the equitable approach represented by Palmer v. Wilson, 502 F.2d 860 (9th Cir. 1974). See Note, Consequences of the Creditor's Failure to Acknowledge Rescission by the Debtor Under Strader v. Beneficial Finance Co., 48 U. Colo. L. Rev. 437 (1977).
In Strader, the debtors sought and the court awarded the release of the security interest in the debtors' home. However, under § 5-5-204(2), C.R.S. 1973, the debtors are also entitled to the return of the money given "as earnest money, down payment, or otherwise." (emphasis added). Thus, the Varadys are entitled to a return of all the money they paid to the Whites. Sosa, supra.
The Whites were subject to a statutory duty to inform the Varadys of their right to rescind the transaction. Thus, it is irrelevant that Wanda Varady was a real estate agent licensed in Arkansas who was apparently aware of her right to rescind. There is no indication in the statute that the General Assembly intended to make special rules for consumers who happen to know their rights. Similarly, although the Whites did not act purposefully to deprive the Varadys of their rights, it is up to the creditor to avoid forfeiture by complying with the UCCC. The creditors' "lament of any inequity being visited upon them is utterly unpersuasive, for the power was completely theirs to prevent this parade of creditor horribles from ever occurring." Sosa, supra. In short, all the Whites had to do to avoid this result was to follow the law. Note, U. Colo. L. Rev., supra.
The judgment is reversed and the cause is remanded with directions to enter judgment consistent with this opinion.
JUDGE TURSI concurs.
JUDGE VAN CISE dissents.