Assignee Of A Mortgage From The FDIC As Receiver Required To Litigate TILA Recission Claim

In Fernandes v. JPMorgan Chase Bank, N.A., (N.D.I.L., No. 11-CV-652, October 13, 2011), the borrower of a second mortgage brought a complaint seeking rescission of the mortgage under the Truth In Lending Act (TILA) due the original creditor’s failure to provide material disclosures. The borrower also sought statutory damages for the disclosure violation and for the failure to respond to TILA rescission notice. The complaint was brought against the successor assignee of the FDIC who was appointed receiver of the originator after the originator failed; as well as against the FDIC. The assignee moved to dismiss the complaint on the ground that the claims were barred by the Purchase and Assignment Agreement (P&A) entered into between it and the FDIC-R. It argued that under the P&A it specifically did not assume any liability associated with borrower’s claims for relief. The District Court denied in part and granted in part the motion to dismiss. The Court began its analysis by concluding that the assignee was an assignee of the FDIC-R within the plain meaning of the term. The Court then reviewed several decisions where assignee liability was contested on the basis that it was not assumed under similar exclusion provisions in other P&A agreements. The Court found agreed that the right of rescission under TILA as against the assignee belongs to the the borrower, and thus the right ought not to be extinguished by contract between the original assignee (the FDIC-R) and its subsequent assignee without the consumer’s consent or input. The Court said it would be contrary to congressional intent to allow assignee liability for rescission under TILA to be contracted away. Accordingly, the Court denied the dismissal of the TILA rescission claim. On the issue of statutory damages for the originator’s alleged failure to provide the required disclosures, the Court held that the P&A insulated the assignee from damages and that such claims remain the liability of the FDIC-R under the P&A. However, the Court found that the borrower’s claim for statutory damages for the assignee’s failure to respond to the notice of rescission was based on the assignee’s actions after the P&A was entered. Because the claim for rescission was not barred the claim for damages as a result for failure to rescind is likewise not barred. Accordingly, the Court dismissed the claim for statutory damages against the assignee for the originator’s failure to provide disclosures, but denied dismissal of statutory damages for the failure to respond to the notice of rescission. Commentator note: it is interesting to note that this case did not touch on the applicability of TILA’s bar to assignee’s liability on the basis of involuntary assignment, even though the bar appears to be present based on the facts as described in the decision.

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