FYI: 6th Cir Confirms No TILA Right to Cancel for Failure to Disclose Assignment of Loan

The U.S. Court of Appeal for the Sixth Circuit recently confirmed that a mortgagee's alleged failure to notify borrowers of an assignment of the loan does not give rise to a right to cancel under the federal Truth In Lending Act (TILA).

 

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee initiated a foreclosure action, and the borrowers responded with a "notice of rescission" to the mortgagee and the mortgagee's counsel, alleging that the mortgagee had violated the federal Truth in Lending Act and that mortgagee lacked standing to foreclose.

 

Prior to the foreclosure sale, the borrowers sued the mortgagee and the mortgagee's counsel in state court, reiterating the allegations in their notice of rescission.  The mortgagee removed the case to federal court, where the parties agreed to dismiss the mortgagee's counsel from the lawsuit. 

 

The trial court subsequently granted the mortgagee's motion for summary judgment, from which borrowers appealed.

 

As you may recall, Congress added subsection (g) to 15 U.S.C. § 1641 in the Helping Families Save their Homes Act of 2009.  Pub. L. 111-22, 123 Stat. 1658.  Section 1641(g) provides that "not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned, the new owner or assignee of the debt shall notify the borrower in writing of such transfer."  See 15 U.S.C. § 1641(g). 

 

In reaching its decision, the Sixth Circuit addressed four alleged errors below raised by the borrowers:

 

First, the borrowers alleged that the mortgagee waived its right to remove the case to federal court by filing papers in state court, which included two written objections to borrowers' motions and an answer to the complaint. 

 

Rejecting this argument, the Appellate Court held that the mortgagee's counsel's filings in state court did not constitute a waiver, as waiver of the right to remove "must be clear and unequivocal."  See Regis Assocs. v. Rank Hotels (Mgmt.) Ltd., 894 F.2d 193, 195 (6th Cir. 1990).  Here, the defensive actions taken by the mortgagee's counsel did not constitute a "clear and unequivocal" waiver.  The Sixth Circuit noted that the Federal Rules of Civil Procedure contemplate the filing of an answer prior to the time for filing a removal motion.  See Fed. R. Civ. P. 81(c)(2). 

 

Going further, the Court noted that even if the mortgagee's counsel had waived its right to remove, this waiver would not be binding on the mortgagee, as the "rule of unanimity" requires that each defendant consent to removal.  See 28 U.S.C. Section 1446(b)(2)(A); Loftis v. United Parcel Serv., Inc., 342 F.3d 509, 516 (6th Cir. 2003).

 

Next, the borrowers alleged that they had the right to rescind the loan under TILA due to mortgagee's failure to notify them of the assignment of the deed of trust.  The borrowers asserted that TILA's right of rescission should be applicable to a violation of § 1641(g).

 

Here, the Sixth Circuit held that the notice requirement of § 1641(g) applies only to an assignment of the underlying debt, not to the debt instrument itself, which in this case was the deed of trust. 

 

Section 1641(g) would apply to the transfer of the note, but the Court noted that the note here was transferred in 2006, more than three years before § 1641(g) became law.  At the time of the 2006 note transfer, there was no notice requirement in effect. 

 

Moreover, the Court stated, even if the mortgagee had violated § 1641(g) through its assignment of the deed of trust in 2012, the borrowers still would not be permitted to rescind the loan, but rather would be limited to recovering money damages in an amount between $400 and $4,000 (although more could be recovered upon a showing of actual damages exceeding $4,000 due to the failure to notify).  See 15 U.S.C. § 1640(a)(2)(A)(iv), (e). 

 

In addition, the Court added that although the initial loan agreement in December 2005 constituted a consumer credit transaction subject to § 1635(a) of the Truth in Lending Act, the assignment of the deed of trust from MERS to the mortgagee in 2012 did not constitute a consumer credit transaction, as neither party to the 2012 assignment was a consumer, nor was either party extended credit.  The Sixth Circuit noted that the borrowers were not a party to the 2012 assignment from MERS to the mortgagee, and this assignment did not affect the terms of the borrowers' mortgage loan.

 

Third, the borrowers argued that mortgagee lacked standing because the loan documentation was allegedly inadmissible hearsay evidence. 

 

The Sixth Circuit upheld the mortgagee's standing, holding that mortgagee's loan documentation was not hearsay under the "verbal acts" doctrine, as the relevant documentation, in the form of writings and statements, such as contracts, "affect the legal rights of the parties" and thus are not hearsay.  See Fed. R. Evid. 801(c).  Nor was authentication an issue, the Court held, as the documents were recorded in the public records.  See Fed. R. Evid. 902(1).  The Court held that the endorsements on the note and allonge were sufficient to prove mortgagee's standing. 

 

Finally, the borrowers alleged that the mortgagee forfeited its right to foreclose when it failed to bring a compulsory breach of contract counterclaim in response to the borrowers' Truth in Lending Act complaint. 

 

Here, the Sixth Circuit held that the mortgagee did not forfeit its right to foreclose by failing to bring a counterclaim because foreclosure is not a judicial remedy in Tennessee, and thus there was no reason to bring a counterclaim.  In Tennessee, a trustee may conduct a foreclosure sale without filing any court papers.

 

Accordingly, the trial court's summary judgment ruling in favor of the mortgagee was affirmed on all counts.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Cal App Ct (2nd Dist) Rejects Claim That Post-Dated Checks Were Undisclosed "Deferred Downpayments"

The Court of Appeal of the State of California, Second District, recently held that the California Rees-Levering Motor Vehicle Sales and Finance Act, Calif. Civil Code, § 2981, et seq. ("Rees-Levering Act") does not require a post-dated check provided at the time of sale to be categorized as a "deferred down payment" on the sales contract.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff purchased a car from the defendant car dealer using three checks as down payment.  Two of the checks were dated the day after the contract was signed, and one check was dated about two weeks later.

 

The car dealer entered the three check down payment on the line of the sales contract describing it as a down payment as opposed to a deferred down payment. The car dealer informally agreed to briefly hold the checks as a favor to the plaintiff. 

 

After several months of owning the car, the plaintiff sought to rescind the contract based on violations of the Rees-Levering Act. The court ruled in favor of the car dealer and auto finance company and the plaintiff appealed.   

 

The plaintiff argued that the car dealer's failed to disclose a deferred down payment in supposed violation of the Rees-Levering Act, as some or all of the checks were agreed to be held until a later date.  See § 2983 (a)(6)(D) and (c).  In addition, the plaintiff argued if the court were to conclude that a held check is different from a deferred down payment, there would be a violation of the Rees-Levering Act because the agreement to hold the checks would supposedly violate the single document rule.  See Section 2981.9.

 

As you may recall, section 2981 of the Rees-Levering Act defines "down payment" as "a payment that the buyer pays or agrees to pay to the seller in the cash or property value or money's worth at or prior to delivery by the seller to the buyer of the motor vehicle described in the conditional sale contract."  See Section 2981. 

 

The term "down payments" also includes "the amount of any portion of the down payment the payment of which is deferred until not later than the due date of the second otherwise scheduled payment, if the amount of the deferred down payment is not subject to a finance charge. The term does not include any administrative finance charge charged, received or collected by the seller as provided in this chapter." (§ 2981, subd. (f).)

 

Section 2982(a)(6)(D) requires disclosure for deferred down payment, and 2982(c) requires that the deferred down payment schedule be disclosed as required under the federal Truth In Lending Act. 

 

Here, the plaintiff's monthly payments were set to begin after the date on the post-dated check.  None of the checks were deferred to a later due date than the second scheduled payment.  Therefore, the Appellate Court held, the held checks fell under the definition of down payment in section 2981(f).  The Court also noted that the plaintiff did not provide any evidence that holding the checks affected any aspects of the purchase transaction -- it did not increase the purchase price, the amount financed, the annual percentage rate, monthly payments, payment schedule or the final payment. 

 

The Court also noted that the plaintiff made her down payment at the time of the purchase and there was nothing left for her to do after that.  Unlike the car buyers in in two other "deferred down payment" cases in which violations of the Rees-Levering Act were found, the here plaintiff did not make her down payments in installments.  See Rojas v. Platinum Auto Group, 212 Cal. App. 4th 997 (2013) and Munoz v. Express Auto Sales, 222 Cal. App. 4th Supp.1 (2014).  

 

The plaintiff also relied on Highway Trailer of Cal. Inc. v. Frankel, 250 Cal. App. 2d 733 (1967), in which the court held that a post-dated check that was not accurately represented in a contract should not listed as cash down payment.  

 

Here, the Appellate Court noted that Highway Trailer of Cal. Inc. relied on an earlier version of the Rees-Levering Act under which deferred payments were not mentioned.  Accordingly, the Appellate Court refused to read Highway Trailer to suggest that a check, as a matter of law, cannot be listed on a contract as a down payment under the Rees-Levering Act. 

 

After reviewing statutory language, legislative history and case law, the Appellate Court here could not find that a post-dated check must be categorized as deferred down payment under the Rees-Levering Act. 

 

The plaintiff also argued that the car dealer violated the single document rule in the Rees-Levering Act section 2981.9.  This provision requires all agreements of the buyer and seller with respect to the terms of the payment be disclosed in the contract. 

 

The plaintiff argued that because the car dealer agreed that one check would be deposited until a later date, and that agreement was not stated in the contract, the contract violated the single document rule.  The Appellate Court disagreed, refusing to rule that an informal agreement to accommodate a customer by not immediately depositing a check constitutes a "term of payment" requiring disclosure under section 2981.9. 

 

Accordingly, the Appellate Court affirmed the trial court's ruling. 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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