IN RE: ANGELO DIVITTORIO, Dеbtor. ANGELO DIVITTORIO, Appellant, v. HSBC BANK USA, NA as Trustee on behalf of ACE Securities Corp. Home Equity Loan Trust and for registered holders of ACE Securities Corp. Home Equity Loan Trust, Series 2006-SD1, Asset-Backed-Pass Through Certificates, Appellee, OCWEN LOAN SERVICING, LLC; INDYMAC FEDERAL BANK, Defendants.
No. 11-1188
United States Court of Appeals For the First Circuit
January 6, 2012
Before Lipez, Ripple, and Howard, Circuit Judges.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Edward F. Harrington, U.S. District Judge].
RIPPLE, Circuit Judge. Angelo DiVittorio filed this adversary proceeding in which he asserted a right to rescind a loan agreement on the ground that the disclosures made at closing did not comply with the Massachusetts Consumer Credit Cost Disclosure Act (“MCCCDA“),
I
A. Loan Origination
Mr. DiVittorio and his brother, Joseph DiVittorio (“Joseph“), have resided at 39-41 Bonner Avenue, in Medford, Massachusetts, since 1970. On March 13, 2003, Mr. DiVittorio entered into a loan agreement in the amount of $330,000 by executing a note and granting a first mortgage to IndyMac Bank, FSB (“IndyMac“). Joseph also signed the mortgage, but is not an obligor on the note. At the closing on March 13, 2003, Mr. DiVittorio received multiple disclosures regarding the note and mortgage, including: (1) the “Truth in Lending Disclosure Statement” (the “TIL Disclosure“), App. 37; (2) a three-page document titled “Adjustable Rate Mortgage Loan Program Disclosure Non–Convertible 2/6 LIBOR Performance ARM” (the “ARM Disclosure“), id. at 38-40; (3) an “Addendum to Fixed/Adjustable Rate Note” (the “Addendum“), id. at 60; and (4) the “Rider to Security Instrument and Fixed/Adjustable Rate Rider” (the “Adjustable Rate Rider“), id. at 78.
The TIL Disclosure recited an annual percentage rate (“APR“) of 7.365%, noted that the loan contained a “variable rate feature” and referred the borrower to a separate disclosure regarding the variable rate. Id. at 37. The ARM Disclosure revealed that the loan was subject to a performance-based rate reduction according to which Mr. DiVittorio would qualify
Your Interest Rate will be based on an index rate plus a margin, rounded to the nearest .125% (the “Interest Rate“), unless your Caps limit the amount of change in the Interest Rate. The “Margin” is the amount which will be added to the index to determine your Interest Rate. The Margin may be reduced by .50%, for credit levels I+, I, and II as shown in the examples below; and, by 1.00% for credit levels III and IV after the second year of the loan if all payments for the first two years of the loan are paid on time. If the Margin is reduced after the second year of the loan, the Margin will not change throughout the remaining term of the loan. Please ask us for our current Interest Rates and Margins.
Id. at 38. The ARM Disclosure did not indicate Mr. DiVittorio‘s “credit level” or the potential margin reduction he would receive pursuant to the reduction feature; however, both the Addendum and the Adjustable Rate Rider clarified that he was entitled to a .500% margin reduction if he timely made the first twenty-two payments. Although, for purposes of calculating the APR, IndyMac employed the reduced rate for which Mr. DiVittorio would become eligible after two years of timely payments, the TIL Disclosure itself did not state that the APR accounted for this performance-based reduction in interest rate.
B. Bankruptcy Proceedings
Mr. DiVittorio filed his Chapter 13 petition on October 11, 2005. Ocwen Loan Servicing, LLC (“Ocwen“), the entity which serviced Mr. DiVittorio‘s mortgage, first moved for reliеf from the automatic stay in order to foreclose on the property on August 10, 2006; Mr. DiVittorio opposed the motion. After two months of negotiations, the parties filed a stipulation on October 25, 2006, according to which Mr. DiVittorio agreed to cure the post-petition arrearage.
On March 22, 2007, Ocwen filed an affidavit of non-compliance, asserting that Mr. DiVittorio again had defaulted. After months of negotiations, Mr. DiVittorio filed an “Assented Motion of Debtor for Authority to Modify Loan with Ocwen Loan Servicing, LLC” on November 30, 2007. Id. at 99. In his motion, Mr. DiVittorio represented to the bankruptcy court that he and Ocwen had “engaged in extensive negotiations regarding the subject original loan documentation including the original note and mortgage.” Id. Mr. DiVittorio further stated that he “believe[d] that this Modification Agreement [wa]s beneficial for the Debtor and all creditors in this case and [wa]s in the best interest of this estate.” Id. at 100.
The modification agreement attached to the motion (the “Modification“) reduced the interest rate on the loan from in excess of eleven percent to a fixed rate of seven percent and amortized the arrearage over the remaining life of the loan. The Modification also contained the following release (the “Release“) by Mr. DiVittoriо:
YOUR RELEASE OF OCWEN:1 IN THE EVENT THAT YOU HAVE ANY CLAIMS, ACTIONS OR CAUSES OF ACTION, STATUTE OF LIMITATIONS OR OTHER DEFENSES, COUNTERCLAIMS OR SETOFFS OF ANY KIND WHICH EXIST AS OF
THE DATE OF THIS MODIFICATION, WHETHER KNOWN OR UNKNOWN TO YOU, WHICH YOU NOW OR HEREAFTER MAY ASSERT AGAINST OCWEN IN CONNECTION WITH THE MAKING, CLOSING, ADMINISTRATION, COLLECTION OR THE ENFORCEMENT BY OCWEN OF THE LOAN DOCUMENTS, THIS MODIFICATION OR ANY OTHER RELATED AGREEMENTS, THEN BY EXECUTING THIS MODIFICATION YOU FOREVER IRREVOCABLY WAIVE AND RELINQUISH THEM.
FOR PURPOSES OF THIS SECTION, OCWEN SHALL SPECIFICALLY, [sic] INCLUDE BUT SHALL NOT BE LIMITED TO, PRESENT AND FORMER OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SERVICING AGENTS, ATTORNEYS AND ALL PRIOR AND SUBSEQUENT PARTIES OR PREDECESSOR(S) IN INTEREST, TO BOTH OCWEN AND INVESTOR.
Id. at 106. In the Modification itself, Mr. DiVittorio warranted that he “ha[d] obtained, or ha[d] had the opportunity to obtain, independent legal counsel concerning the meaning and importance of this Modification,” id.; indeed, Mr. DiVittorio‘s former counsel signed the Modification. The Modification also contained a statement that Mr. DiVittorio had entered the Modification “voluntarily and with full understanding of its contents and meaning.” Id. The bankruptcy court approved the Modification on December 11, 2007.
Mr. DiVittorio again fell behind on his mortgage payments, and Ocwen moved for relief from the stay. After several extensions, Mr. DiVittorio filed an opposition on February 3, 2009. On February 5, 2009, the bankruptcy court granted Ocwen‘s motion for relief effective March 27, 2009.
C. Adversary Proceeding
Shortly thereafter, by a letter dated February 11, 2009, and addressed to HSBC, Ocwen and IndyMac, Mr. DiVittorio purported to rescind the loan and requested an accounting. Two days later, Mr. DiVittorio, through new counsel, filed a motion seeking to vacate the order granting relief from stay on the basis that he had rescinded the loan. Ocwen filed an opposition, and, on March 10, 2009, Mr. DiVittorio filed the present adversary proceeding asserting his claim of rescission under the MCCCDA.2
1.
In his complaint, Mr. DiVittorio alleged that IndyMac violated the MCCCDA because the APR set forth on the TIL Disclosure was not calculated in conformity with applicable regulations. Mr. DiVittorio also alleged that the TIL Disclosure significantly underestimated the finance charge for the loan and also failed to specify the timing of the installment payments. The failure to make these material disclosures, Mr. DiVittorio averred, entitled him to rescission, damages and attorneys’ fees.
On March 12, 2009, the bankruptcy court held a hearing on Mr. DiVittorio‘s motion. The judge declined to vacate his order but stayed the foreclosure for ninety days to determine the validity of Mr. DiVittorio‘s purported rescission.
HSBC later moved to dismiss the complaint on the ground that it was time-barred
2.
In its initial memorandum of decision, the bankruptcy court granted the motion to dismiss. It first determined that Mr. DiVittorio‘s rescission claim was not time-barred:
The primary difference between TILA and the CCCDA is the time within which actions for either damages or rescission must be commenced. Under TILA, actions for damages must be brought within one year of the occurrence of the violation, while actions for rescission must be brought within three years. In contrast, actions under the CCCDA generally must be brought within four years. In In re Fidler, however, I held that an action under the CCCDA, including one seeking rescission, may be asserted defensively by way of recoupment outside the four year statutory period. “To demonstrate that a claim is being asserted in recoupment, the following elements must be satisfied: ‘(1) the [CCCDA] violation and the creditor‘s debt arose from the same transaction, (2) [the claimant] is asserting her claim as a defense, and (3) the ‘main action’ is timely.‘”
In the present case, I find that all elements of recoupment are met. Clearly, both the Defendant‘s secured claim and the Debtor‘s CCCDA claim arise from the March 13, 2003 loan transaction. Moreover, the Debtor is asserting his CCCDA claims defensively in response to the Defendant‘s impending foreclosure of the Property. While the Defendant disputes that this adversary proceeding is defensive in nature because the Debtor did not plead recoupment, it correctly acknowledges this argument places form over substance. Although mention of recoupment is conspicuously absent from the Complaint, it was not filed in a vacuum and the Defendant‘s collection attempts cannot be ignored. Finally, the “main action” in this litigation, namely, Ocwen‘s proof of claim and motion for relief from stay, is timely. Therefore, I find that the Debtor‘s CCCDA claims are timely.
In re DiVittorio (“DiVittorio I“), No. 05-20854, 2009 WL 2246138, at *9 (Bankr. D. Mass. July 23, 2009) (alteration in original) (footnotes omitted).
On the merits, however, the bankruptcy court found that the TIL Disclosure conformed with the requirements of the statute and regulations. Specifically, IndyMac‘s calculation of the APR was proper and, therefore, not misleading. Additionally, IndyMac‘s omission of the word “monthly” from the payment schedule would not have caused the average consumer to be confused with respect to his payment obligations and, therefore, was not a basis for rescinding the transaction.
Mr. DiVittorio appealed to the district court, which remanded on grounds that do not bear directly on the matters prеsently before us. When the case returned to the bankruptcy court, Mr. DiVittorio suggested that, in lieu of further briefing on the motion to dismiss, the parties simply submit the briefs that they had filed in the district court. HSBC also requested an opportunity to file a motion for summary judgment focused on its claim that, even if Mr. DiVittorio had stated a claim for relief under the TILA and the MCCCDA, he nevertheless had waived any rights under those statutes. The bankruptcy court granted both requests.
HSBC subsequently filed its motion for summary judgment in which it argued that Mr. DiVittorio had released all his claims against HSBC, including any claim to rescission, when he entered into the Modification.3 In his opposition, Mr. DiVittorio asserted that the waiver should not be enforced on statutory and policy grounds and that his brother Joseph, as co-owner of the property, had exercised his own right to rescind the transaction, which the court was required to recognize.
The bankruptcy court affirmed its initial decision with respect to the motion to dismiss. The bankruptcy court observed that the commentary to the TILA is “silent as to the question posed here: namely, whether a lender, at the time of consummation, can factor an assumption of timely payments into the APR calculation?” In re DiVittorio (“DiVittorio II“), 430 B.R. 26, 43 (Bankr. D. Mass. 2010). The bankruptcy court continued:
The parties each rely on different considerations to fill in the gap left by the Commentary. Generally, thе CCCDA requires disclosures to “reflect the terms of the legal obligation between the parties” and, in the absence of exact information, be “based on the best information reasonably available at the time the disclosure is provided.” The Defendant asserts that the terms of the Note and Mortgage required timely payments, while the Debtor argues that an assumption of timely payments was contrary to the best information available.
Id. (footnote omitted) (quoting
First and foremost, all disclosures are premised on what the parties obligate themselves to do. This is what the regulation requires and the reason is obvious-- to assume otherwise would render every disclosure an estimate and preclude any meaningful disclosure. For this reason, I question whether a borrower‘s strict compliance with the terms of his legal obligation can ever be deemеd “unknown” for the purposes of this regulation. Therefore, because the lender had the exact information, resort to the “best information reasonably available,” whatever that may have been, was unnecessary.
Id. at 44 (footnotes omitted). The bankruptcy court then turned to the remaining of Mr. DiVittorio‘s contentions:
While the Debtor attempts to distance himself from this obligation by acknowledging only its “technical” accuracy and emphasizing the contingent nature of the Defendant‘s obligation to adjust the interest rate based upon the Reduction Feature, these characterizations miss the mark. The Debtor was obligated to make timely payments and, upon making twenty-two timely payments, the Defendant was obligated to adjust the interest rate based upon a reduced margin to determine the interest rate for the remaining term of the loan. Indeed, if at the time of consummation one assumes the borrower will strictly comply with his obligations, which I find the regulation requires, then logically the lender must similarly factor in any obligation based on that strict compliance.
Id. The bankruptcy court believed that Mr. DiVittorio‘s “attack on the design of the product” was an “attempt to revive a time-barred predatory lending claim.” Id. The bankruptcy court observed that
the central premise of the Debtor‘s Complaint, that the assumption of timely payments was not justified, sounds in negligence and speaks to the lender‘s business practices. Although dressed up in terms of numerical inaccuracy, the Debtor‘s argument is that the Defendant, by use of a complex adjustable interest rate feature premised on the Debtor‘s obligation to make timely payments, was able to disclose a better APR than he would likely receive. That simply is not a CCCDA claim because the disclosure was based upon what the regulations required.
Id. at 45. The bankruptcy court concluded that, “[a]s neither TILA nor the CCCDA substantively regulate credit terms, I cannot say the present calculation violates either statute absent a clearer directive from either Congress or the Federal Reserve Board,” and “it is not the Court‘s role to read new requirements and prohibitions into the statute.” Id. Consequently, the bankruptcy court again dismissed Mr. DiVittorio‘s adversary complaint for failure to state a claim.
In the interests of judicial economy, the bankruptcy court also considered the issue of waiver raised by way of HSBC‘s motion for summary judgment. The bankruptcy court first determined that, contrary to Mr. DiVittorio‘s assertions, it did not have to consider the effect of Joseph‘s attempted rescission because he was not a plaintiff in the advеrsary proceeding or in any other action. Addressing the substance of the motion, the bankruptcy court turned to whether Mr. DiVittorio had waived his right to rescission by entering the modification. The bankruptcy court observed that neither the regulation nor the commentary “entirely address[ed] the issue implicitly raised by the Debtor, namely, whether it is possible to waive the right of rescission after the expiration of the initial rescission period but before the underlying claim is raised.” Id. at 49. After reviewing the case law from other bankruptcy courts and circuits, the court concluded:
I find that as a matter of Massachusetts law, the Debtor‘s possession of the loan documents put him on inquiry notice of his purported CCCDA claims and his right to rescind. Moreover, by specifically referencing claims arising “in connection with the making, closing, administration, collection, or the enforcement . . . of the loan documents,” the Release should have compelled him to investigate the possibility of such claims. It is also significant that the Debtor executed this Release as part of the Modification after eight months of negotiations with the
Defendant, during which he was represented by counsel. As a necessary part of that representation, prior counsel would have reviewed the loan documents, analyzed any possible claims arising therefrom, negotiated the terms of the Modification, explained them to the Debtor, and made a recommendation with respect to a course of action. Consequently, I find the Debtor‘s execution of the Release contained within the Modification was knowing and voluntary.
Id. at 54 (alteration in original) (footnotes omitted).
The district court affirmed the bankruptcy court‘s dismissal of Mr. DiVittorio‘s complaint and adopted the reasoning of the bankruptcy court with respect to that issue. It did not reach, however, HSBC‘s motion for summary judgment and, therefore, did not consider the validity of the waiver.
II
A. Statutory Framework
Mr. DiVittorio‘s claim is brought under Massachusetts‘s analog to the TILA, the MCCCDA.4 As we have observed in a previous case:
The law to be applied in this case involves an unusual interplay of federal and state law. The overall statutory framework is provided by the federal Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq. Pursuant to § 1633 of that title, however, the Federal Reserve Board has determined that [the MCCCDA] establishes requirements “substantially similar” to TILA‘s and thus serves to exempt transactions within Massachusetts from the federal disclosure requirements.
Bizier v. Globe Fin. Servs., Inc., 654 F.2d 1, 2 (1st Cir. 1981).5
Specifically, the Federal Reserve Board (the “FRB” or the “Board“) has exempted credit transactions within Massachusetts from chapters two and four of the TILA; contained in those chapters is the statute of limitations for actions for dаmages and rescission. Therefore, Mr. DiVittorio‘s claim technically is brought under the MCCCDA. Nevertheless, the MCCCDA was “closely modeled” after the TILA and, in most respects, “mirrors its federal counterpart.” McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 422 (1st Cir. 2007). Thus, “the MCCCDA should be construed in accordance with the TILA.” Id.6 Our consideration of Mr. DiVittorio‘s claim, therefore, is informed by the TILA.
The TILA designates the Board as the agency charged with the task of “prescrib[ing] regulations to carry out the purposes of this subchapter.”
The Board also has published an official commentary for Regulation Z. See generally
Moreover, although “[i]t is commonplace that courts will further legislative goals by filling the interstitial silences within a statute or a regulation,” there also are times when “caution must temper judicial creativity in the face of legislative or regulatory silence.” Ford Motor Credit Co., 444 U.S. at 565. The Supreme Court explained in Ford Motor Credit Co. that “[m]eaningful disclosure does not mean more disclosure. Rather, it describes a balance between ‘competing considerations of complete disclosure . . . and the need to avoid . . . [informational overload.]‘” Id. at 568 (alterations in original) (quoting
B. Discussion
On appeal, Mr. DiVittorio first argues that the district court erred in dismissing his complaint. He renews his arguments that the APR was calculated improperly, that the failure to achieve the performance-based decrease in interest rate resulted in a higher finance charge than that set forth on the TIL Disclosure and that IndyMac failed to disclose explicitly the schedule for payments, i.e., that they were to be made on a monthly basis. For its part, HSBC maintains that the APR calculation complied with all statutory and regulatory requirements; specifically, it reflects the parties’ legal obligations as reflected in the loan documents.
With respect to the summary judgment determination, Mr. DiVittorio submits that the bankruptcy court erred in holding that, by way of the Modification, he waived his rights to rescission. Alternatively, Mr. DiVittorio contends that, even if he waived his right to rescission, this court still must recognize the rescission of his brother and co-mortgagor. HSBC disagrees. It argues that Mr. DiVittorio executed a valid waiver of any rights to rescission that he may have had and, furthermore, that the actions of Mr. DiVittorio‘s brother are irrelevant to the issues before the court. For ease of reading and analysis, we begin our discussion by considering thе parties’ waiver arguments.
1. Waiver
Mr. DiVittorio contends that, by signing the Modification, he did not waive his rights to rescind the transaction. First, he claims that, because the TILA and the MCCCDA are consumer protection statutes, the rights to rescission
provided in those laws only can be waived under very limited circumstances, which are not satisfied in the present case. Alternatively, he submits that the policies of the TILA and the MCCCDA would be thwarted by allowing waiver of rescission in these circumstances, especially where, as here, the waiver was not entered knowingly or voluntarily. Finally, Mr. DiVittorio argues that, even if he waived his right to rescission, we still must recognize the rescission of his brother and co-mortgagor.
Turning to Mr. DiVittorio‘s first contention, he maintains that the TILA and the MCCCDA allow for waiver of the right to rescission only under very limited circumstances. Mr. DiVittorio further argues that, because he did not waive his right under the circumstances provided for in the statute, and in the manner described in Regulation Z, the waiver incorporated into the Modification did not constitute a valid waiver of his rescission rights.
The TILA includes a provision setting forth when a debtor may waive his right to rescission:
(e) Consumer‘s waiver of right to rescind. (1) The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind. Printed forms for this purpose are prohibited, except as provided in paragraph (e)(2) of this section.
Mr. DiVittorio maintains that, because he did not establish a bona fide financial emergency in the manner provided in the regulations, he did not waive effectively his right to rescind the transaction. We cannot accept Mr. DiVittorio‘s argument.
In attempting to rescind the transaction, Mr. DiVittorio was not invoking a “right[] created under” § 1635 of the TILA or under section 10 of chapter 140D. As set forth above,
Indeed, both in submissions to this court and at oral argument, Mr. DiVittorio‘s counsel characterized the right that Mr. DiVittorio was seeking to assert as “rescission in recoupment.” Rescission in recoupment is mentioned explicitly only in the TILA, which provides: “Nothing in this subsection affects a сonsumer‘s right of rescission in recoupment under State law.”
Mr. DiVittorio next argues that recognizing his waiver would thwart the policies undergirding the TILA and the MCCCDA. Mr. DiVittorio correctly notes that, although the TILA and the MCCCDA are enforced by individuals, the statutes have broader public policy goals. This is evident from the opening section of the TILA:
The Congress finds that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is thе purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various terms available to him and avoid the uninformed use of credit . . . .
Given this public interest, Mr. DiVittorio claims that the principle set forth in Brooklyn Savings Bank v. O‘Neil, 324 U.S. 697, 704 (1945), should guide our waiver analysis. In Brooklyn Savings Bank, the Court said that
a statutory right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenes the statutory policy. Where a private right is granted in the public interest to effectuate a legislative policy, waiver of a right so charged or colored with the public interest will not be allowed where it would thwart the legislative policy which it was designed to effectuate.
Id. (internal citations omitted). Indeed, the few courts that have considered the issue have looked to the policies underlying the TILA to determine if waivers of TILA rights should be recognized. See Parker v. DeKalb Chrysler Plymouth, 673 F.2d 1178, 1181-82 (11th Cir. 1982) (looking to the rationale of Brooklyn Savings Bank and the policies of the TILA in striking down a general waiver given by a consumer to an automobile dealer); Tucker v. Beneficial Mortg. Co., 437 F. Supp. 2d 584, 587 (E.D. Va. 2006) (stating that “[t]he Court looks to Congress’ manifested intent in the statute when determining whether a statutory right may be waived” and upholding a waiver incorporated in a settlement agreement negotiated by a state Attorney General on behalf of a class of consumers that the plaintiffs had joined); Johnson v. Steven Sims Subaru, Inc., No. 92 C 6355, 1993 WL 761231, at *5 (N.D. Ill. June 9, 1993) (holding that, in the context of an auto lease agreement, a TILA claim is not barred by a general release procured by a lender from the borrower and explaining that “[t]he underlying policy concerns of TILA preclude defendants from challenging Ms. Johnson‘s TILA claim with a defense predicated upon a general release of liability“).
At oral argument, counsel for HSBC agreed that this principle was applicable to the present case. However, according to counsel for HSBC, it was unclear how the policies underlying the TILA and the MCCCDA could be thwarted by honoring Mr. DiVittorio‘s waiver. Specifically, counsel observed that Mr. DiVittorio‘s statutory rights already had expired when he signed the Modification, the Modification had been negotiated with the assistance of counsel and the bankruptcy court approved the Modification; consequently, the policies underlying the TILA--ensuring informed decisionmaking for unsophisticated consumers--simply were not at issue.
The waiver of rights under the circumstances presented here does not “thwart the legislative policy which [the TILA] was designed to effectuate.” Brooklyn Savings Bank, 324 U.S. at 704. The TILA was designed to promote a uniform system of disclosures to allow consumers to make informed credit decisions. See generally
Based on the totality of circumstances, we also agree with the bankruptcy court that, as a matter of law, Mr. DiVittorio‘s waiver was knowing and voluntary. Cf. Smart v. Gillette Co. Long-Term Disability Plan, 70 F.3d 173, 181 (1st Cir. 1995) (“Generally, no single fact or circumstance is entitled to talismanic significance on the question of waiver. Only an inquiry into the totality of the circumstances can determine whether there has been a knowing and voluntary relinquishment of an ERISA-protected benefit.“). Looking to the factors that inform our waiver inquiry, see id. at 181 n.3, we first note that Mr. DiVittorio was not an unsophisticated credit consumer; the present transaction was the thirteenth time that he had refinanced the subject property. Second, the Modification and waiver were the product of eight months of negotiations, during which Mr. DiVittorio was represented by counsel. Third, both the motion to modify filed in the bankruptcy court and the Modification itself explicitly addressed issues related to loan documentation and origination. In the motion to modify, Mr. DiVittorio represented that he had “engaged in extensive negotiations regarding the subject original loan documentation including the original note and mortgage.” App. 99. Moreover, in the Modification, Mr. DiVittorio explicitly waived any claims “in connection with the making, closing, administration, collection or the enforcement by Ocwen of the loan documents, this modification or any other related agreements.” Id. at 106. Finally, he received valuable consideration in the exchange: His variable interest rate of over eleven percent was converted to a fixed rate of seven percent. Given these facts, we believe that Mr. DiVittorio was well apprised of any rights he may have had based on the underlying loan documents--including claims he may have had under the TILA and the MCCCDA--and voluntarily waived those rights in exchange for the significant reduction in interest rate.10
Finally, Mr. DiVittorio argues that, even if he waived his right to rescission in the Modification, the bankruptcy court was required to take notice of his brother‘s rescission. The bankruptcy court concluded that, because Joseph was not a plaintiff in the adversary proceeding, it need not consider the effect of his separate claim of rescission.
Mr. DiVittorio does not directly attack the bankruptcy court‘s conclusiоn. Instead, Mr. DiVittorio‘s argument with respect to the effect of his brother‘s attempted rescission includes little explanation and no citation to authority. We regularly have considered such perfunctory arguments to be waived. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990). “It is not enough merely to mention a possible argument in the most skeletal way, leaving the court to do counsel‘s work, create the ossature for the argument,
Even if we were to consider Mr. DiVittorio‘s claim, it is meritless. As noted previously, the automatic rescission right under the MCCCDA expires after four years. After the expiration of four years, rescission may be obtained only by way of recoupment under the laws of the Commonwealth. See
A right in recoupment is akin to a defense, which arises [“]from some feature of the transaction upon which the plaintiff‘s action is grounded.” Bull v. United States, 295 U.S. 247 (1935). “As developed at common law, the doctrine of recoupment permits the crediting of reciprocal rights against each other where those rights arose under the same transaction, typically the same contract.” Mohawk Industries, Inc. v. United States of America (In re Mohawk Industries, Inc.), 82 B.R. 174, 176 (Bankr. D. Mass. 1987).
In re Fidler, 210 B.R. 411, 420 (Bankr. D. Mass. 1997) (parallel citation omitted), vacated in part on other grounds, 226 B.R. 734 (Bankr. D. Mass. 1998). To establish a TILA claim in recoupment, the claimant must show: “(1) the TILA violation and the creditor‘s debt claim arose from the same transaction, (2) [the claimant] is asserting her claim as a defense, and (3) the ‘main action’ is timely.” Smith v. American Fin. Sys., Inc. (In re Smith), 737 F.2d 1549, 1553 (11th Cir. 1984). In In re Fidler, the bankruptcy court held that, although the debtors in bankruptcy were attempting to assert rescission in an adversary proceeding, the claim nevertheless was “raised . . . defensively in response to [the creditor‘s] assertion of a secured claim and filing of a motion for relief from stay to foreclose on the Property in the Chapter 13 case.” In re Fidler, 210 B.R. at 420. Following this rationale, the bankruptcy court determined that Mr. DiVittorio had raised his claim of rescission as a defense to Ocwen‘s motion for relief from stay.
The same cannot be said of Joseph‘s attempted rescission. Joseph is not a party to the bankruptcy proceedings, and Mr. DiVittorio has not pointed to, or asked this court to take judicial notice of, any proceedings in which his brother is a party such that Joseph‘s action could be considered defensive.12 Mr. DiVittorio has not
2. Disclosures
Even if Mr. DiVittorio had not waived his rescission rights when he agreed to the Modification, however, we would conclude that Mr. DiVittorio has failed to state a claim for relief under the TILA or the MCCCDA. Regulation Z requires that “[t]he creditor shall make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep.”
a. Calculation of the APR
Mr. DiVittorio‘s primary contention on appeal is that, when HSBC incorporated the performance-based reduction in interest rate into the calculation of the APR, it violated the TILA. The parties agree that the TILA, Regulation Z and the Commentary do not speak directly to this issue. Nevertheless, both HSBC and Mr. DiVittorio point to provisions of Regulation Z and the Commentary in support of their respective positions.
HSBC invites our attention to
Mr. DiVittorio acknowledges his “technical[],” “legal obligation to make every mortgage payment on time.” Appellant‘s Br. 37. He maintains, however, that “the lender did not have a legal obligation at that time to utilize the more favorable rate.” Id. (emphasis added).
Mr. DiVittorio, however, believes that there are other provisions of Regulation Z and the Commentary that, in comparison to
When creditors use an initial interest rate that is not calculated using the index or formula for later rate adjustments, the disclosures should reflect a composite annual percentage rate based on the initial rate for as long as it is charged and, for the remainder of the term, the rate that would have been applied using the index or formula at the time of consummation.
Commentary, § 226.17(c)(1)-(10)(i). Mr. DiVittorio correctly points out that this section required IndyMac to state the APR in terms of a blended rate by combining two rates: (1) the initial rate and (2) the “index or formula [rate] at the time of consummation.” Id. (emphasis added). Mr. DiVittorio maintains, however, that IndyMac “undermined the formula by introducing another feature“--the performance-based rate reduction--“whose application would turn on circumstances subsequent to the consummation of the loan, not as they existed at consummation.” Appellant‘s Br. 33.
We believe Mr. DiVittorio‘s arguments fail for several reasons. The phrase on which Mr. DiVittorio seizes--“at the time of consummation“--modifies the terms “the rate that would have been applied using the index or formula.” Because a rate based on an index or formula may fluctuate over the course of the loan, it is necessary to tie the calculation to a specific moment in time. Obviously, too, the index or formula rate could not be based on a future date because neither IndyMac nor Mr. DiVittorio could predict accurately whether, when and to what degree the index or formula rate would rise or fall. See App. 38 (ARM Disclosure) (disclosing that “movement of the Index is usually related to market conditions that cannot be predicted“). The FRB, therefore, designated “the time of consummatiоn” as the time for determining the index or formula rate to be incorporated into the blended rate calculation for the APR disclosure.
Even if the phrase “time of consummation” does not simply dictate when the index or formula rate is to be determined, but applies instead to the entire calculation of the APR, Mr. DiVittorio‘s argument still fails. As previously discussed, at the time of consummation, IndyMac had a present obligation to reduce Mr. DiVittorio‘s interest
However, the most compelling reason to reject Mr. DiVittorio‘s argument is that the approach taken by IndyMac in calculating the APR--incorporating the performance-based reduction in interest rate--is compatible with the approach set forth in section 226.17(c)(1)-10(i) of the Commentary. This section of the Commentary suggests that the APR should account for changes in the interest rate over the life of the loan. In this case, the variable rate did not take effect until the second year of the loan, see App. 38 (ARM Disclosure) (“Your interest rate will adjust 24 months after the first payment date and every 6 months thereafter to the index value plus the margin . . . .“); nevertheless, the Commentary requires that the change be reflected in the calculation of the APR. Moreover, the Commentary requires that the APR reflect the later change to the variable interest rate even though the index rate in effect during the twenty-fourth month of the loan cannot be known with certainty. In sum, the Commentary attempts to give the debtor a complete picture of the interest rate over the life of the loan based on the terms of the loan documents and the market conditions at the time of the loan.
Incorporating the performance-based reduction into the APR calculation accomplishes this same goal. The performance-based rate reduction is set forth in the loan documents and affects the rate charged for interest after the second year. Its effect, like the index rate, could not be known with absolute certainty. Nevertheless, given the parties’ respective promises in the loan document, IndyMac was bound contractually to reduce the interest rate in accordance with those terms. Incorporating that reduction, therefore, gave the debtor a more complete picture of the lоng-term interest rate and was consistent with the intent of the Commentary.14
Mr. DiVittorio next maintains that, because some information on which the APR was based was unknown to the parties, IndyMac was required to calculate the APR “based on the best information reasonably available at the time the disclosure is provided to the consumer.”
We believe that the language on which Mr. DiVittorio relies, when read in context, does not apply to the present situation.
The determination of the APR based on the incentive provision, however, required no further information than what was contained in the terms of the loan. Mr. DiVittorio does not argue that IndyMac could not calculate accurately the impact of the incentive provision on the APR. Indeed, he acknowledges that “the lender knew the precise impact . . . on the interest charged that would have ensued in the event the borrower failed to meet the performance standard.” Appellant‘s Br. 34. Because all of the “information necessary for an accurate disclosure” of the APR based on the performance-based rate reduction in interest rate was available to both parties at the time of the consummation of the loan, resort to “the best information reasonably available” was unnecessary.
Finally, Mr. DiVittorio maintains that, even if the APR were numerically accurate, IndyMac‘s failure to disclose that the APR was based on the presumption of timely payments “served to mask the understated APR.” Id. at 44. “[A]s so calculated,” Mr. DiVittorio continues, the APR was “misleading, and not clearly and conspicuously disclosed.” Id. At bottom, Mr. DiVittorio‘s argument is that, even if the APR is calculated in accordance with Regulation Z and the correct APR is set forth on the TIL Disclosure, the disclosure may nonetheless violate the TILA or the MCCCDA.
Here, Mr. DiVittorio invites us to impose on lenders the requirement that, if they include a reduction-based feature in the calculation of the APR, they must disclose that feature on the TIL disclosure form. This may be a salutary suggestion because it may enhance consumers’ understanding of their loan instruments; however, it also may confuse consumers or detract from other disclosures that consumers historically have considered more important than the calculation of the APR. Furthermore, disclosing that the APR incorporates a performance-based reduction may be helpful or important only to certain categories of consumers. In short, determining whether further explanation of the APR calculation should be mandated is an inquiry “that entails investigation into consumer psychology and that presupposes broad experience with credit practices.” Ford Motor Credit Co., 444 U.S. at 568-69. Consequently, it is one best left to the FRB “as the primary source for interpretation and application of truth-in-lending law.” Id. at 566.
Apart from the calculation of the APR, Mr. DiVittorio believes that the TIL Disclosure here failed to disclosе accurately the finance charge. According to Mr. DiVittorio, the increase in interest rate that resulted from the debtor‘s failure to make the first twenty-two payments in a timely manner constituted an additional finance charge that the lender was required to include on the TIL Disclosure. Mr. DiVittorio acknowledges that “finance charges” do not include “[c]harges for actual unanticipated late payment.”
The Commentary makes clear that any increase in interest rate resulting from Mr. DiVittorio‘s failure to make timely payments was “unanticipated” and, therefore, properly excluded from the definition of “finance charge.” The relevant portion of the Commentary states:
1. Late payment charges.
i. Late payment charges can be excluded from the finance charge under §226.4(c)(2) whether or not the person imposing the charge continues to extend credit on the account or continues to provide property or services to the consumer. In dеtermining whether a charge is for actual unanticipated late payment on a 30-day account, for example, factors to be considered include:
A. The terms of the account. For example, is the consumer required by the account terms to pay the account balance in full each month? If not, the charge may be a finance charge.
B. The practices of the creditor in handling the accounts. For example, regardless of the terms of the account, does the creditor allow consumers to pay the accounts over a period of time without demanding payment in full or taking other action to collect? If no effort is made to collect the full amount due, the charge may be a finance charge.
ii. Section 226.4(c)(2) applies to late payment charges imposed for failure to make payments as agreed, as well as failure to pay an account in full when due.
Commentary,
The Commentary gives only two examples of when charges for late payment might qualify as a finance charge: (1) when the terms of the agreement do not require full payment by a certain date and (2) when the lender has a practice of allowing delayed payments. That is, when the agreement of the parties or the practice of the lendеr suggests an understanding to deviate from a regular payment schedule, any fees attendant to the debtor‘s failure to make regular payments “may be a finance charge.”
Here, the legal obligations and expectations for timely payment were clearly set forth in the loan document. Mr. DiVittorio does not point to any practice of IndyMac to suggest that late payments were acceptable or that there would not be consequences for late payment. Any additional interest charged, therefore, was “unanticipated” and falls outside the definition of “finance charge.”
c. Failure to specify the payment period
Mr. DiVittorio also argues that IndyMac violated the TILA and the
In Hamm, the lender made disclosures with respect to the payment period that are almost indistinguishable from those made here. Specifically, the lender indicated there were to be 359 payments of $541.92 beginning on 03/01/2002, and one payment of $536.01 on 02/01/2032. The form did not specifically state that the payments were to be made monthly, nor was there an explicit reference to 360 months. The Seventh Circuit concluded that, because the TILA requires the lender to disclose the “due dates or period of payments scheduled to repay the total of payments,”
However, as Mr. DiVittorio acknowledges, “hypertechnicality” is not the rule in the First Circuit. See Santos-Rodriguez v. Doral Mortg. Corp., 485 F.3d 12, 17 n.6 (1st Cir. 2007). Instead, this court asks, “whether any reasonable person, in reading the form provided in this case, would so understand it.” Melfi v. WMC Mortg. Corp., 568 F.3d 309, 312 (1st Cir. 2009). Here, the TIL Disclosure, like the disclosures in Hamm, indicated that there were to be 360 payments spanning thirty years. Like the Seventh Circuit, we believe that a reasonable person reading the TIL Disclosure would have understood that his payments were to be made on a monthly basis. See Hamm, 506 F.3d at 530 (observing “that many (or most) borrowers would understand that a mortgage with 360 payments due over approximately 30 years contemplates a payment by the borrower each month during those 30 years“); cf. Melfi, 568 F.3d at 312 (holding that lender‘s failure to fill in the date of the transaction on the notice of rescission rights provided to the borrower did not confuse the borrower because borrower was present at closing and knew the date of the transaction from the date-stamp on the top of the form). Consequently, the form‘s failure to use the term “monthly” or to refer to the life of the loan over “360 months” does not result in a TILA violation in this circuit.19
Conclusion
For the foregoing reasons, we conclude that Mr. DiVittorio waived any rights he had under the MCCCDA when he signed the Modification. Alternatively, we believe that Mr. DiVittorio has failed to state a
AFFIRMED.
Notes
Article III of the Constitution provides that the judicial power of the United States may be vested only in courts whose judges enjoy the protections set forth in that Article. We conclude today that Congress, in one isolated respect, exceeded that limitation in the Bankruptcy Act of 1984. The Bankruptcy Court below lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor‘s proof of claim.Id. at 2620. Here, however, it first was necessary to resolve the validity of Mr. DiVittorio‘s claim under the MCCCDA to determine whether HSBC was entitled to relief from the automatic stay.
Appellant‘s Br. 57. Mr. DiVittorio, however, does not offer examples of what might constitute “appropriate circumstances,” he does not establish that this is a situation “where either of two individuals” have the right to take some action and he fails to show how Joseph‘s rescission is “otherwise well-founded.”Under appropriate circumstances, a non-party may affect the on-going legal rights or status of a party-litigant by what the non-party does or does not do. This would certainly be the case where either of two individuals had a right to take some action to alter the terms of a relationship which both may have had with a third party. The Debtor submits that Joseph DiVittorio‘s Notice of Rescission, if otherwise well-founded, resulted in a rescinded transaction as fully, and with the same consequence to the Debtor, as if he had been able to give, and had given, an effective notice himself.