## Facts

- George and Clara Stone sold a dairy farm to Danny and Judy Davis and held a purchase-money mortgage.
- The Davises sought additional financing and applied to Ashtabula County Savings & Loan Company (the lender) for a $60,000 mortgage loan.
- The lender approved the loan and presented the borrowers with a Federal Reserve Regulation Z disclosure form listing loan costs and “Other Insurance,” including mortgage insurance.
- The form stated mortgage insurance was not required and provided two alternatives for the borrower to select: “I desire” or “I DO NOT desire” mortgage insurance.
- Danny Davis marked that he desired mortgage insurance.
- The lender did not procure mortgage insurance and did not advise the Davises that they needed to apply directly to a mortgage insurance company or explain the procedure for obtaining coverage.
- Danny Davis later died in a motorcycle accident; Judy Davis remained obligated on the mortgage.
- After default, the Stones filed a foreclosure action; Judy Davis filed a cross-claim against the lender alleging negligence for failing to procure or explain how to obtain mortgage insurance.

## Issues

1. Whether a lender that uses a Regulation Z form and elicits a borrower’s written desire for mortgage insurance has a duty to advise the borrower how to procure that insurance.
2. Whether the lender’s failure to provide such advice can support negligence liability for proximately caused loss from the absence of coverage.
3. Whether the Truth in Lending Act and Regulation Z preclude state common-law negligence liability based on the lender’s use of the disclosure form.

## Decision

- The Supreme Court of Ohio affirmed judgment for Judy Davis on her negligence claim.
- The court held the lender had a duty to advise the borrower how mortgage insurance could be procured when the lender’s Regulation Z form elicited an express written desire for such insurance.
- The court held the lender could be liable for injuries proximately caused by failing to point out the procedure and failing to advise that the borrower must obtain the insurance by applying directly to a mortgage insurance company.
- The court rejected the argument that Truth in Lending remedies are exclusive or that federal disclosure law bars the state-law duty recognized in this case.

## Legal Principles

- A lender that uses a Regulation Z disclosure form to obtain a borrower’s written request for optional mortgage insurance must exercise reasonable care by advising how such insurance may be obtained.
- When a borrower indicates a desire for mortgage insurance on the form, the lender’s omission to explain the steps required to obtain coverage can constitute negligence if it proximately causes harm.
- Federal Truth in Lending disclosure requirements establish minimum standards and do not, without express congressional direction, preempt complementary state common-law duties arising from a lender’s conduct in a specific transaction.

## Conclusion

Ohio recognized a negligence-based duty triggered by a lender’s use of a Regulation Z form to solicit a borrower’s written desire for mortgage insurance: the lender must explain how to obtain the coverage, and failure to do so may result in liability for resulting loss, without being barred by Truth in Lending law.


Stone v. Davis, 66 Ohio St. 2d 74, 419 N.E.2d 1094 (Ohio 1981)