District Court’s Split On Whether The Consumer’s Inability To Tender Rescission Proceeds Will Justify Dismissal of the Rescission Claim At The Pleading Stage

In three recent California District Court decisions, the courts were asked to dismiss TILA rescission actions on the ground that the consumer could not demonstrate the ability to tender. In Alcaraz v. Wachovia Mortg., FSB, 08-cv-01640 (E.D.Cal. Jan. 21, 2009), the assignee of the lender argued that the Plaintiff was not entitled to injunctive relief or rescission in the absence of an allegation that she is truly able and willing to do ‘equity’ by tendering the full indebtedness. The assignee pointed to the allegation in the complaint that the plaintiff lacked sufficient income to afford or pay the loan and thus acknowledged her inability to tender the full debt. Although, the complaint failed to allege the consumer’s ability to tender, the court was troubled that the assignee attempted to rely on a factual issue to defeat the claim. It denied the motion but admonished the Plaintiff to take heed of F.R.Civ.P. 11(b)’s requirements if she later elects to amend her complaint.

In Cosio v. Simental, 08-6853 (C.D.Cal. Jan. 27, 2009), a Central District of California court similarly refused to dismiss a TILA claim as premature. The assignee asserted that the plaintiff’s had not alleged nor shown the ability to tender the benefit they received under the loan. The Court viewed the assignee as challenging the Plaintiffs’ _ability_ to tender what benefit the Court determines appropriate. The court found that the assignee’s fears appear well-founded. After all, by their own admission plaintiffs allege that they ‘do not have sufficient income to pay monthly mortgage payments due on these option ARM loans.’ Nevertheless, the Court could not conclude with certainty on the underdeveloped factual record that plaintiffs will be unable to tender payment if they ultimately prevail on their claim for rescission. Simply because plaintiffs presently did not have sufficient funds available to make certain payments does not necessarily mean that at the time of rescission Plaintiffs will be unable to tender. Circumstances may very well change between now and the time of tender.

The opposite conclusion was reached in Garza v. American Home Mortgage,Co., 08-1477 (E.D.Cal. Jan. 27, 2009). In that case, the District Court dismissed the complaint with leave to amend to allege, subject to F.R.Civ.P. 11(b) requirements, that plaintiff has the ability to tender and pay back what she has received. The court observed that [r]escission is an empty remedy without the consumer’s ability to pay back what she has received (less interest, finance charges, etc.). The court found that the complaint failed to address head on her ability to tender loan proceeds. It failed to hint that the plaintiff was able to fulfill her obligations under 15 U.S.C. §1635(b) and 12 C.F.R. §226.23(d). The complaint therefore lacked a necessary element of the TILA rescission claim.

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