Lead Opinion
These consolidated cases involve claims brought under the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., related to the plaintiffs’ mortgage transactions. Stephen Sobieniak and Victoria McKinney (collectively “Sobieniaks”) seek rescission and money damages from BAC Home Loans Servicing (BAC). Alan and Mary Jane Keiran seek the same relief from Bank of New York Mellon (BNYM). We affirm the district court.
I. BACKGROUND
Due to the similarity of issues, these cases were consolidated for appeal, but we set forth the facts of each separately. On March 6, 2007, the Sobieniaks contacted Countrywide bank, requesting to essentially refinance their mortgage loan. Countrywide sent Sobieniaks TILA disclosures showing a principal value of $567,000 and an annual percentage rate of 6.021%, leading to total payments of $1,207,446.33. On March 22, 2007, the Sobieniaks executed a promissory note with a principal value of $562,600 and a fixed annual percentage rate of 5.875%, leading to total payments amount of $1,198,077.73. The note was secured by the Sobieniaks’ principal residence, located in Wayzata, Minnesota. At closing, each of the Sobieniaks acknowledged receiving, as relevant to this action, two copies of the notice of right to cancel (rescind), and one copy of the TILA disclosure statement.
On January 15, 2010, the Sobieniaks sent a notice of rescission to BAC (which merged with Countrywide and became its successor in interest). On January 29, BAC denied the request to rescind because, in BAC’s view, the Sobieniaks had received the correct number of copies of the required notices of right to cancel and TILA disclosures. On January 14, 2011, the Sobieniaks filed the present action pro se, but later obtained counsel and filed an amended complaint seeking rescission, money damages and a declaration that the mortgage is void, all due to BAC’s alleged failure to provide two copies of a TILA disclosure at closing. The district court granted summary judgment in favor of BAC, finding that the Sobieniaks’ claim for money damages for the failure to provide documents at closing was barred by the one-year statute of limitations in 15 U.S.C. § 1640(e); that the Sobieniaks were not entitled to money damages for failure to rescind because the Sobieniaks had not rebutted the presumption that they received all of the required TILA disclosures, and alternatively that the disclosure documents were valid on their face. The court further held that the Sobieniaks had no right to rescind because they did not file the suit for rescission within the three-year statute of repose contained in 15 U.S.C. § 1635(f).
The facts in the Keiran case are similar. In December 2006, the Keirans and Home Capital, Inc. (HCI) executed a promissory note in the amount of $404,000 in exchange for a mortgage of real property located in Lakeville, Minnesota. The loan was subsequently assigned to, and is currently held by BNYM. At closing, each of the Keirans acknowledged receiving, as relevant to this action, two copies of the notice of right to cancel (rescind), and one copy of
On appeal, plaintiffs challenge the district court’s rulings regarding whether filing suit, or instead simply giving notice to the bank within three years is required to preserve the right of rescission under 15 U.S.C. § 1635(f). Additionally, they challenge the district court’s rulings that the banks were entitled to summary judgment on plaintiffs’ claims for money damages.
II. DISCUSSION
We review the district court’s grant of summary judgment de novo, viewing the evidence and inferences in favor of the nonmoving party, and affirming if there is no genuinely material factual dispute and the movant is entitled to judgment as a matter of law. Davis v. U.S. Bancorp,
Congress enacted TILA “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.” 15 U.S.C. § 1601(a). We broadly construe TILA in favor of consumers. Rand Corp. v. Moua,
the annual percentage rate, the method of determining the finance charge and the balance upon which a finance charge will be imposed, the amount of the finance charge, the amount to be financed, the total of payments, the number and amount of payments [and] the due dates or periods of payments scheduled to repay the indebtedness.
15 U.S.C. § 1602(u).
These disclosures must be made “clearly and conspicuously in writing, in a form
A. Rescission
The first issue we consider is whether the plaintiffs timely filed this action to enforce their right of rescission, which “shall expire three years after the date” of the consummation of their loan transactions. Id. § 1635(f). Plaintiffs contend that to preserve that right, they needed only to inform the lender, within three years and in writing, of their intent to rescind. The banks argue that the borrower must instead file suit for rescission within three years of closing or the right expires pursuant to the terms of § 1635(f). Our sister circuits are split on this issue.
In Gilbert v. Residential Funding LLC,
To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor’s designated place of business.
12 C.F.R. § 226.23(a)(2).
The Gilbert court found that the plain meaning of the statute and the regulation compelled the conclusion that the plaintiffs exercised their right to rescind by signaling their intent to do so in a letter to the bank.
On the other hand, the Tenth Circuit in Rosenfield v. HSBC Bank, USA,
[w]e disagree that the filing of a suit to rescind is not required in order to exercise the right. We simply cannot square the Fourth Circuit’s view with the Supreme Court’s strong pronouncement in Beach that the TILA rescission right is extinguished if it is not exercised within the three-year statutory period, and the Court’s vision of repose and its salutary purposes under TILA.
Id. (citation omitted). The Ninth Circuit is in accord with this viewpoint. See, e.g., McOmie-Gray v. Bank of Am. Home Loans,
The Supreme Court decision referred to in Rosenfield is Beach v. Ocwen Federal Bank,
The Rosenfield court relied extensively on Beach in reasoning that § 1635(f) governs the “life” of the right to rescind, holding that “the mere invocation of the right to rescission via a written letter, without more, is not enough to preserve a court’s ability to effectuate (or recognize) a rescission claim after the three-year period has run.”
Another focus of the Rosenfield court was the character of rescission in general. Because rescission is an equitable remedy designed to return parties to the status quo ante, its justification is remedial economy as compared with remedies designed to achieve the compensatory goal of a damages award. Remedial economy is not furthered when rescission is prohibitively difficult or even impossible to enforce. Id. at 1183-84. If a plaintiff must only notify the lender of his or her “intent” to rescind, at some uncertain future date, the plaintiff
Given these considerations, we agree with the Tenth Circuit’s thorough and well-reasoned opinion in Rosenfield and hold that a plaintiff seeking rescission must file suit, as opposed to merely giving the bank notice, within three years in order to preserve that right pursuant to § 1635(f). The nature of a statute of repose and the remedy of rescission, in addition to the uncertainties as to title that would likely occur if the right is not effectuated by court filing within three years of the underlying transaction, are each compelling reasons for the conclusion that we draw. We are not unmindful of the language of Regulation Z or the interpretation of that regulation — that notice, as opposed to filing suit, is enough to preserve the right — that the Consumer Financial Protection Bureau (CFPB), amicus in this case, has advanced in favor of the plaintiffs. However, we agree with Rosenfield that the text of the statute, as explicated in Beach, establishes that filing suit is required. And furthermore, while Regulation Z sets forth one of the things an obligor must do to rescind the loan — give written notice to the bank — it does not set forth the entirety of things necessary to accomplish rescission. Indeed, Regulation Z says nothing about filing suit, but filing suit will certainly be necessary to actually accomplish rescission in most cases where rescission under TILA is sought. See Ro-senfield,
Nor do we agree with the CFPB’s argument that the bank, rather than the obli-gor, should be required to file suit to essentially prevent rescission. This would create a situation wherein rescission is complete, in effect, simply upon notice from the borrower, whether or not the borrower had a valid basis for such remedy. Under this scenario, the bank’s security interest would be unilaterally impaired, casting a cloud on the property’s title, an approach envisioned and rejected by Beach,
B. Money Damages
Plaintiffs next challenge the district court’s rulings that they are, as a matter of law, not entitled to money damages for the banks’ refusal to rescind after the Sobien-iaks and Keirans gave written notice of their respective intents to rescind. TILA allows for actual damages and attorney fees when a creditor violates the statute (which presumably includes an alleged violation of the consumer’s right to rescind), and such claims must be brought within one year from the date of the occurrence of the violation. 15 U.S.C. §§ 1635(g), 1640(a) & (e).
Even though their claim for actual rescission is not timely based upon the foregoing analysis, the plaintiffs’ claims for money damages based upon the banks’ failure to rescind is, at the very least, cognizable. The heart of our analysis in the preceding section is that § 1635(f)’s status as a statute of repose means that the right was extinguished after three years, not that the right never existed. The failure-to-rescind cause of action accrued when plaintiffs requested rescission and the banks denied the request. As previously noted, ante n.2, this claim is timely. We apply an “objective standard of review” to alleged violations of TILA. Ofor v. Ocwen Loan Servicing, LLC,
Both sets of plaintiffs sue assignee banks
[A]ny civil action for a violation of ... [TILA] which may be brought against a creditor may be maintained against any assignee of such creditor only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement, except where the assignment was involuntary.
15 U.S.C. § 1641(a).
Plaintiffs argue that § 1641(a) does not apply to violations based on a failure to rescind. However, the statute does not exempt rescission failures from its provisions. Further, the point of the statute is to afford some measure of protection to assignee banks, whose representatives were not present at closing. Taylor v. Quality Hyundai, Inc.,
We agree with the banks that the alleged violation — that each set of plaintiffs were given one, rather than two TILA disclosures — was not facially apparent on the loan documents as set forth in § 1641. Assignee banks are entitled under § 1641 to rely upon the documents contained in the files they received upon assignment, and if those documents appear complete and accurate on their face, a borrower has no basis for a claim for monetary damages against an assignee bank. The record discloses that the loan files in both eases have acknowledgments from the Keirans and the Sobieniaks that they received all of the notices they were entitled pursuant to TILA, including that each of the four borrowers received two copies of the notice of right to cancel, and one copy of the TILA disclosure statement. Those acknowledgments are “ ‘conclusive proof ” that the required TILA disclosures were delivered for purposes of an assignee bank’s liability under § 1641.
III. CONCLUSION
We affirm the district court.
Notes
. The Honorable David S. Doty, United States District Judge for the District of Minnesota.
. Plaintiffs do not challenge the district court’s rulings that their claims for money damages for the banks’ failures to deliver documents at closing are barred by § 1640's one-year statute of limitations, as both lawsuits were clearly brought more than one year after the respective loan closings. Their claims for money damages for the banks’ failures to rescind are, however, timely. See 15 U.S.C. §§ 1635(b), 1640(e).
. Prior to Sherzer, it looked as though the Third Circuit might be on the other side of this issue. See Williams v. Wells Fargo Home Mortg., Inc.,
. The Rosenfield. court expressly did not decide the question of whether rescission under TILA could also be accomplished if the lender, upon receipt of the obligor’s notice to rescind, agrees to rescission and purports to cancel the underlying transaction.
.Keirans also sued their loan servicer, BAC. Subject to exceptions not applicable here, loan servicers are not liable for money damages under TILA. See 15 U.S.C. § 1641(f); Gale v. First Franklin Loan Servs.,
. The Sobieniaks argued for the first time at oral argument that BAC is not actually an assignee bank, and allege there are issues of fact with regard to whether BAC’s successor-by-merger acquisition of Countrywide makes it an assignee bank. However, the Sobieniaks alleged in their complaint that BAC was an assignee bank, and repeated this assertion in the opening brief. We accordingly treat BAC as an assignee bank and will not consider the Sobieniaks’ contrary argument on appeal. See Express Scripts, Inc. v. Aegon Direct Mktg. Servs., Inc.,
. As previously noted, plaintiffs also brought a stand-alone claim for money damages for
. Given the banks' status as assignees, we need not reach the merits of whether the plaintiffs actually were given an inadequate number of TILA disclosures (entitling them to rescission). And indeed, if we did decide that there was no TILA disclosure violation on the merits, our analysis in the preceding section would be unnecessary because absent a disclosure violation, the right to rescind is not extended for three years and instead ends at the close of the three-day window following consummation of the loan transaction. See Rand,
Concurrence Opinion
concurring in part and dissenting in part.
While I agree with the majority that the Truth in Lending Act (TILA) does not permit suits for damages against assignees unless the alleged statutory defects are apparent on the face of the lending documents, I otherwise dissent. The majority decision is contrary to the plain language of TILA, the congressional intent behind it, and the position of the agency responsible for enforcing it. TILA is “remedial legislation to be construed broadly in favor of consumers,” Rand Corp. v. Yer Song Mono,
I.
A.
TILA provides consumers an unconditional right to rescind a consumer credit transaction for three days after the parties have consummated the loan. 15 U.S.C. § 1635(a). The time to rescind is extended if the lender has not provided certain required disclosures. In that situation, a consumer’s “right of rescission shall expire three years” from the date of closing. Id. § 1635(f). Regardless of the grounds for rescission, TILA provides that “the obligor has the right to rescind the transaction ... by notifying the creditor, in accordance with the regulations of the [Consumer Financial Protection] Bureau, of his intention to do so.” Id. at § 1635(a). Regulation Z, promulgated by the agency charged by Congress with enforcing TILA, has provided that a consumer can “exercise the right to rescind” by “notifying] the creditor of the rescission by mail, telegram, or other means of written communication.” 12 C.F.R. § 226.23(a)(2). Such notification is the only requirement the statute and Regulation Z impose upon consumers to exercise their right of rescission.
There is no dispute that the Keirans and the Sobieniaks followed these statutory procedures. Both couples gave written notice to the lending banks that they were exercising their right to rescind, and each sent that notice less than three years after their home purchase was completed. Both couples clearly “exercised” their right in the manner prescribed by TILA and Regulation Z. When a statutory text is clear the “sole function of the courts is to enforce the plain language of the statute.” Coop v. Frederickson,
The majority suggests that Beach v. Ocwen Federal Bank,
While Beach made clear that the right of rescission expires if it is not exercised within a three year period, it “does not address how an obligor must exercise his right of rescission within the three year period.” Sherzer v. Homestar Mortg. Servs.,
It also cannot be inferred from the fact that § 1635 is a statute of repose that homeowners must sue to exercise their right of rescission. A statute of repose extinguishes a statutory right unless some action is taken to exercise that right within a particular time period. By contrast, a statute of limitation is a procedural bar to recovery that does not affect the validity of the underlying right (which could still be revived, for example, by legislative action or used as an affirmative defense). See id. at 262; Harding v. K.C. Wall Prods., Inc.,
While in many circumstances a statute of repose sets a limit on the time to file a lawsuit, it does not always do so. Whether a lawsuit is required depends on how a party may exercise its underlying right. For example, in Ma v. Merrill Lynch,
Congress may choose to use a statute of repose to make the filing of a lawsuit necessary in order to exercise a statutory right, but when it has chosen to do so, it has done it explicitly. Section 413 of ERISA provides an example of a statute of repose in connection with breaches of fiduciary duties: “No action may be commenced” more than six years after the alleged breach of fiduciary duty occurred. 29 U.S.C. § 1113 (recognized as a statute of repose in Radford v. Gen., Dynamics Corp.,
In contrast, TILA contains no language even hinting that a lawsuit is required to exercise the right of rescission. Neither TILA nor Regulation Z mention at any point the need for a court filing. Sherzer,
The proposition that the right of rescission can only be accomplished through a lawsuit is also inconsistent with the way the subject is treated in the statute itself. Section 1635(a) grants consumers an unconditional “right to rescind” their transaction “until midnight of the third business day” following the completion of the transaction or delivery of the required forms. As Sherzer observed, this is structurally identical to the statute of repose in § 1635(f) which we are currently considering.
In addition to the unconditional three day rescission right, § 1635 consistently treats rescission as resulting from an act of the obligor, rather than from an act by a court. Section 1635(a) could hardly be clearer in this respect since it gives the obligor “the right to rescind the transaction ... by notifying the creditor, in accordance with regulations of the Bureau, of his intention to do so.” Section 1635(b) likewise details the effect of such an obligor “exercising] his right to rescind,” which accordingly obligates the lender to terminate the security interest created by the transaction within “20 days after receipt of a notice of rescission.” Termination of the lender’s interest thus depends on his own act or inaction, not receipt of a court summons. In fact there is almost no mention in § 1635 of any action by a court. As the Third Circuit observed in Sherzer, the judicial system is mentioned only twice in § 1635 and neither reference suggests that the act of rescission or notice of it is dependent on court action.
TILA provides only that an “obligor’s right of rescission shall expire three years after the date of consummation of the transaction.” 15 U.S.C. § 1635(f). The statute clarifies that the way this right is exercised is “by notifying the creditor of [the obligor’s] intention to do so,” 15 U.S.C. § 1635(a). Regulation Z removes any doubt by making explicit that the re
B.
The majority expresses concern that making rescission claims viable on written notice would permit a clouding of title that could persist for more than three years after closing. No party disputes that lenders are free to file a declaratory or quiet title action at any time to establish conclusively whether a homeowner’s exercise of his right of rescission is valid. In other words, the “cloud” on title lasts precisely so long as the lender wishes it to last. Once notified that the homeowner has exercised his right of rescission, the lender may choose to negotiate or it may choose to litigate, but it can never be subject to an indefinitely clouded title without its own tacit consent. See Sherzer,
Also of concern to the majority is that forcing lenders to initiate a lawsuit if negotiations prove unsuccessful would mean that a rescission notice might “unilaterally impair” their interest in a property, thus “casting a cloud on the property’s title.” Ante at 728. That same concern would also exist under the majority’s rule, however, because the obligor’s initiation of a lawsuit would also “unilaterally” create a cloud on the title that would not be resolved until a court order or a negotiated settlement. See 15 U.S.C. § 1635(b) (obligating the lender to “take any action necessary or appropriate to reflect the termination of any security interest created under the transaction” within 20 days after receiving notice of rescission).
The First Circuit has pointed out that the congressional goal in TILA was to make “the rescission process a private one, worked out between creditor and debtor without the intervention of the courts.” Belini v. Wash. Mut. Bank, FA,
No doubt borrowers may sometimes make rescission claims without any valid basis, see ante at 728, but lenders may also deny them without legal right or might take advantage of uninformed consumers, see, e.g., McOmie-Gray v. Bank of America Home Loans,
II.
The appellants request monetary damages due to the lenders’ failure to rescind. See 15 U.S.C. § 1640(a). I agree with the majority that §§ 1641(a) and 1641(e) limit the liability of assignees if the alleged defects in the disclosure statements are not apparent on the face of the documents, and that § 1641(c) only restores a consumer’s right to rescind under § 1635 “against any assignee of the obligation.” These statutory limitations further emphasize the error in the majority’s assumption that rescission under § 1635 requires a lawsuit rather than notice.
The majority describes the “point” of § 1641 as providing “some measure of protection to assignee banks, whose representatives were not present at closing.” Ante at 730 (citing Taylor v. Quality Hyundai, Inc.,
Two incentives exist under TILA for assignee lenders to do what § 1635(b) requires; that is, to terminate the security interest within 20 days of being informed of an obligor’s notice of rescission. The first reason a lender might terminate its interest is the prospect of an award of monetary damages if it does not. Even if damages are not available, however, the assignee lender still would have an incentive to clear expeditiously the cloud on title created by the obligor’s rescission claim. If TILA requires only that a homeowner provide notice of rescission in order to satisfy the statute of repose, such a cloud would persist until either the parties reach an agreement or one party obtains a court decision resolving the conflict. The lender therefore has a strong incentive to resolve the rescission claim as quickly as possible, and no reason to delay acceding to a valid rescission notice.
Unfortunately, the majority’s interpretation of TILA would have the effect of eliminating both the risk of monetary damages and the need to clear title proactively. The assignee’s best course of action might always be to deny the rescission claim and wait. The worst case scenario for the lender then would be if the homeowner were to file a successful lawsuit and it were forced to rescind. But the lender would still not likely be in a less favorable position than if it had rescinded the transaction at the time of the original rescission notice. The best case scenario from a lender’s vantage point would be when a homeowner does not bring a timely suit, whether because of negligence, lack of funds or awareness of his legal obligations, or possible misleading assurances by the lender that it is tolling the rescission period during negotiations. The rescission claim would then expire and the assignee be left in the clear even after rejecting a claim it knew to be valid.
If the right of rescission is exercised only by providing § 1635 notice, assignee
III.
The plain language of TILA, its implementing regulations, and its supporting policy rationales all support reading § 1635 to mean what it says: that rescission is exercised when a consumer provides written notice to the lender. The Supreme Court’s decision in Beach is not to the contrary, because it did not address how a consumer rescinds a loan. These cases should be reversed and remanded. For the reasons stated, I respectfully dissent.