Goebel v. First Federal Savings and Loan Association of Racine

In 1964, Goebel and others (plaintiffs) signed a note and a 25-year mortgage with First Federal Savings and Loan Association of Racine (First Federal) (defendant). The plaintiffs borrowed $17,000 at 6 percent annual interest, payable in monthly installments of $110. The note included an interest-rate adjustment provision. The note also provided that First Federal could increase the amount of the plaintiffs’ monthly payments if the plaintiffs took future advances or if First Federal made necessary cash expenditures in connection with the loan. Approximately nine years later, First Federal informed the plaintiffs that the interest rate under the loan was increasing,to 8 percent in September 1973. First Federal notified the plaintiffs that the interest rate would only increase to 7 percent in November 1973. First Federal suggested that the plaintiffs increase the monthly mortgage payment by $7.49 or extend the loan an additional two years to pay the increase in interest. The plaintiffs took neither action, but continued to make monthly payments in the agreed amount of $110. After discovering that hundreds of other borrowers had paid First Federal higher monthly mortgage payments to cover the interest-rate increase, the plaintiffs brought a class action against First Federal. The plaintiffs argued that First Federal could not increase the amount of monthly mortgage payments or require that a loan be extended to pay the amount of an increased interest rate.