Case Law Newsletter

Noonan and Lieberman keeps you current on litigation news with its regular Case Law Update focusing on important and emerging trends in federal and state case law. Case Law Update is edited by attorney James V. Noonan.

Sign up for the list

The newsletter is sent out monthly.

Archive

October 2008

Service of Notice of Rescission on Creditor Effective to Rescind the Loan Against the Assignee who was not notified until three years later.

was proper even though the assignee received more than three years after the closing. In Hubbard v. Ameriquest Mortg. Co. 05-CV-389 (September 30, 2008 N.D.Ill.,) the parties conceded that the Plaintiff was entitled to rescind the loan. However, the assignee maintained that it cannot be liable for rescission because, although the Plaintiff gave notice to the loan originator within three years, the Plaintiff did not also give notice of the request for rescission to the assignee within the three years as required by 15 U.S.C. § 1635. The assignee first received notice of Plaintiff’s intent to rescind the loan when it was added as a party to the lawsuit. The question was whether Plaintiff’s timely notice to the original lender was sufficient to effectuate rescission as to assignees who did not receive timely notice. The court concluded that a timely rescission request as to the original creditor is equally effective against an assignee, despite lack of notice to the assignee within the three year window. The court’s conclusion was premised on the language of TILA and Regulation Z which “significantly” only require notification to the “creditor.” 15 U.S.C. § 1635(a) Thus, “under the plain language of the statute, [plaintiff] fulfilled his obligation to rescind when he notified . . . the ‘creditor’ that he wanted to rescind”. The court also fixed on the statutory language reading that “[a]ny consumer who has a right to rescind a transaction under section 1635 of this title may rescind the transaction against any assignee of the obligation” 15 U.S.C. § 1641© as being fully consistent with this outcome. “Reading that provision in light of the text, structure, and purpose of TILA as a whole and the Seventh Circuit’s relevant precedents,” the Court concluded that Section 1641© simply clarifies that assignees may not hide behind an assignment. As long as the borrower has properly rescinded the transaction by giving notice to the “creditor” within the three year statutory period, the rescission of the transaction is effective against any assignee. Note that the Ninth Circuit in Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir., 2002) concluded that a borrower’s rescission was not effective where it was not received by the assignee of the loan within the three-year statute of repose.

Court refuses to impose liability for damages and attorney's fees on an assignee who was not responsible for and who had no notice of TILA disclosure violations at the time of an assignment.

We had some good news this month though. In an issue we have been tracking because we have often advanced it – unsuccessfully- here in Illinois, (See Payton v. New Century Mortgage Corp., 2003 WL 22349118 (N.D.Ill.2003) and Fairbanks Capital Corp. v. Jenkins, 225 F.Supp.2d 910 (N.D.Ill.2002)) a District Court in Florida determined that under TILA an assignee who loses a rescission claim is not liable for the Plaintiff’s attorneys fees. The court in Parker v. Potter, 8:06-cv-183 –T-26EAJ (October 22, 2008) found the Plaintiff was entitled to rescind the loan due to TILA violations occurring at the loan’s origination. It rejected the contention that the Plaintiff was also entitled to fees from the assignee because there was no record evidence that the assignee was responsible for and had notice of the disclosure violations. It relied on Brodo v. Bankers Trust Co., 847 F.Supp. 353, 359 (E.D.Pa.1994) where that court observed that “[a]pparently Congress did not wish to impose liability for damages and attorney’s fees on an assignee who was not responsible for and who had no notice of TILA disclosure violations at the time of an assignment”.

MERS could be liable to class for overcharging them for foreclosure fees and costs.

The Plaintiffs in Trevino v. Merscorp, Inc. —- F.Supp.2d ——, Civ.Action No. 07-568, (D.Del., September 30, 2008) brought a class action complaint against Mortgage Electronic Registration Systems, Inc. (“MERS”), and the loan servicer, among others, challenging MERS’s flat fee arrangement on referring foreclosure and other enforcement proceedings to attorneys. The complaint alleged that MERS overcharged Plaintiffs and the class for costs and expenses, including attorney’s fees, to enforce the mortgages in foreclosure and other enforcement proceedings. Based on this alleged conduct, Plaintiffs asserted claims for breach of contract, unjust enrichment and breach of the duty of good faith and fair dealing alleging that because MERS had arrangements with attorneys for flat-fee, per-case rates a borrower subject to an enforcement action should be obligated to reimburse MERS for no more than the fee MERS pays its attorneys. Instead, MERS allows its attorneys and/or loan servicers to collect fees directly from the borrower “in an amount substantially in excess MERS’s flat-fee obligation.” The Court denied MERS’s motion to dismiss finding that the allegations as plead stated a claim for breach of contract. It found that the Mortgage Note was an enforceable contract between MERS, as mortgagee of record, and the Plaintiffs, as mortgagers. It agreed that the allegation that MERS breached the Mortgage Note by charging and collecting costs, fees and expenses from Plaintiffs which were not incurred, and to which it was not entitled stated a claim for breach of contract. The court also sustained the counts sounding in unjust enrichment and breach of the duty of good faith and fair dealing.

State Law on _Bona Fide_ Purchaser is Not Preempted by Bankruptcy Law

In Tippett v. Coleman (In re Tippett), 542 F.3d 684 (C.A. 9, Sept. 4 2008) the debtors filed for Chapter 7 bankruptcy, but then sold their home to without telling the bankruptcy Trustee of the sale, and without telling the buyer of the bankruptcy. Although it was undisputed that the buyer was a bona fide purchaser under California law, the Trustee sued to quiet title to the property in favor of the bankruptcy estate. The bankruptcy court ruled in the Trustee’s favor. The Bankruptcy Appellate Panel reversed and entered judgment in favor of the buyer. Under California law the unrecorded transfer to the bankruptcy estate was void as to a good faith purchaser for value who recorded the purchase. The court opined that unless California law was preempted, the transfer to Coleman was effective. The Court found that it wasn’t. Noting that preemption occurs when state law is inconsistent with the goals and purposes of federal bankruptcy law, it determined that the goal of the California statute was not inconsistent with the Bankruptcy court’s goal of equally distributing a debtor’s assets to creditors. The Court noted that because the proceeds of the sale became part of the bankruptcy estate there should be little or no reduction of total assets. It also observed that an analogous federal statute, 11 U.S.C. §549(a), provides protection to bona fide purchasers, suggesting no incompatibility with the intent of Congress. The Court also held that the automatic stay did not nullify the conveyance, because the stay was intended to protect the debtor against his creditors. Consequently, the stay did not automatically void a transaction in which the debtor was a willing participant.