DiVittorio v. HSBC Bank USA, NA (In re DiVittorio)
670 F.3d 273
1st Cir.2012Background
- DiVittorio and his brother signed a March 13, 2003 loan for $330,000 with IndyMac Bank; the brother signed the mortgage but was not an obligor on the note.
- At closing, DiVittorio received the TIL Disclosure (APR 7.365%), an ARM Disclosure, an Addendum, and an Adjustable Rate Rider detailing a potential 0.500% margin reduction after timely payments.
- The Addendum and Rider confirmed eligibility for the margin reduction after timely payments, but the TIL Disclosure did not state that the APR reflected this reduction.
- DiVittorio later filed for Chapter 13 bankruptcy (Oct. 11, 2005); Ocwen moved for relief from stay to foreclose; a 2007 Modification reduced the rate from >11% to 7% and amortized the arrearage; the Modification included a Release waiving claims against Ocwen.
- DiVittorio signed the Modification, received counsel, and the bankruptcy court approved it; he later claimed rescission under the MCCCDA and brought an adversary proceeding.
- The bankruptcy court dismissed the rescission claim for failure to state a claim and concluded the waiver was knowing and voluntary; the district court affirmed the dismissal but did not resolve the waiver issue.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the waiver in the Modification validly bars rescission claims | DiVittorio asserts waiver is invalid or not knowingly voluntary | Waiver was knowing, voluntary, and supported by counsel and court approval | Waiver valid; DiVittorio knowingly and voluntarily waived rescission rights |
| Whether the disclosures violated TILA/MCCCDA such that rescission could be granted | APR calculation, finance charge, and payment period disclosures were deficient | APR, finance charge, and payment period disclosures complied with Regulation Z and Commentary | No TILA/MCCCDA violation; disclosures upheld; no state-law recoupment claim stateable |
| Whether the brother’s attempted rescission can be recognized as recoupment | Joseph’s rescission claim should be considered in recoupment | Joseph is not a party to the adversary proceeding; recoupment not available | Joseph’s rescission claim is time-barred and not a valid recoupment defense |
| Whether the payment period disclosure violated TILA | Lack of explicit monthly payment period violated 15 U.S.C. § 1638(a)(6) | First Circuit would deem a monthly payment understood from the 360/30-year framing; hyper-technicality not required | Disclosures did not violate TILA; reasonable reader would understand monthly payments |
Key Cases Cited
- Hamm v. Ameriquest Mortgage Co., 506 F.3d 525 (7th Cir. 2007) (hyper-technicality not required; reasonable-reader standard applied)
- Melfi v. WMC Mortg. Corp., 568 F.3d 309 (1st Cir. 2009) (interpretation of TILA disclosures consistent with First Circuit approach)
- Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 (1980) (regulatory guidance should be respected; avoid courts’ legislative drafting)
- Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945) (public-interest waivers not allowed if they thwart statutory policy)
- Beach v. Ocwen Fed. Bank, 523 U.S. 410 (1998) (TILA policy considerations and disclosure regime in rescission context)
- Santos-Rodriguez v. Doral Mortg. Corp., 485 F.3d 12 (1st Cir. 2007) (renewed emphasis on consumer-friendly interpretation of disclosures)
- Parker v. DeKalb Chrysler Plymouth, 673 F.2d 1178 (11th Cir. 1982) (waiver of statutory rights under consumer protection statutes analyzed via policy)