FINANCIAL FREEDOM ACQUISITION, LLC, Plaintiff-Appellee, v. STANDARD BANK AND TRUST COMPANY, as Trustee u/t/a Dated March 18, 1991, a/k/a Trust No. 5193, Defendant-Appellant (Unknown Beneficiaries of Standard Bank and Trust Company u/t/a Dated March 18, 1991, a/k/a Trust No. 5193, Lawncastle Cove Condominium Association, United States of America-Secretary of Housing and Urban Development, Unknown Owners and Nonrecord Claimants, Defendants).
Docket No. 1-12-0982
Appellate Court of Illinois, First District, Sixth Division
June 13, 2014
2014 IL App (1st) 120982
Appellate Court
Financial Freedom Acquisition, LLC v. Standard Bank & Trust Co., 2014 IL App (1st) 120982
Appellate Court Caption
FINANCIAL FREEDOM ACQUISITION, LLC, Plaintiff-Appellee, v. STANDARD BANK AND TRUST COMPANY, as Trustee u/t/a Dated March 18, 1991, a/k/a Trust No. 5193, Defendant-Appellant (Unknown Beneficiaries of Standard Bank and Trust Company u/t/a Dated March 18, 1991, a/k/a Trust No. 5193, Lawncastle Cove Condominium Association, United States of America-Secretary of Housing and Urban Development, Unknown Owners and Nonrecord Claimants, Defendants).
District & No.
First District, Sixth Division Docket No. 1-12-0982
Filed June 13, 2014
Held (Note: This syllabus constitutes no part of the opinion of the court but has been prepared by the Reporter of Decisions for the convenience of the reader.)
In a mortgage foreclosure action, the counterclaim filed by defendant trustee, as the owner of the property, alleging violations of the Truth in Lending Act by the mortgagee and seeking damages and rescission of the transaction was properly dismissed, since the Act only allows obligors to seek rescission of a consumer credit transaction, the exculpatory clause the trustee executed precluded the trustee from being an obligor with the right to seek rescission, and the trustee‘s right to statutory damages was forfeited when it failed to raise the issue on appeal.
Decision Under Review
Appeal from the Circuit Court of Cook County, No. 10-CH-44740; the Hon. Robert E. Senechalle, Jr., Judge, presiding.
Judgment Affirmed.
John K. Wheeler, of Wheeler & Wheeler, of Westmont, for appellant.
Louis J. Manetti, Jr., of Codilis & Associates, P.C., of Burr Ridge, for appellee.
Panel
JUSTICE REYES delivered the judgment of the court, with opinion. Justice Lampkin concurred in the judgment and opinion. Justice Gordon dissented, with opinion.
OPINION
¶ 1 This appeal arises from a mortgage foreclosure action filed by plaintiff, Financial Freedom Acquisition, LLC (Financial Freedom), against defendant, Standard Bank and Trust Company, as trustee u/t/a dated March 18, 1991, a/k/a Trust No. 5193 (Standard Bank). Thereafter, Standard Bank filed a counterclaim against Financial Freedom alleging violations of the Truth in Lending Act (TILA) (
¶ 2 BACKGROUND
¶ 3 On October 14, 2010, Financial Freedom filed a complaint to foreclose the mortgage on 10420 S. Circle Drive, Unit No. 21B, in Oak Lawn, Illinois (the property), against Standard Bank, a land trust and current owner of the property.1 Financial Freedom alleged the original lender was Marquette National Bank. Subsequently, Marquette National Bank transferred its interest to Financial Freedom.2 Financial Freedom complained the mortgage was in default
¶ 4 Attached to the complaint were copies of the mortgage and note. The mortgage at issue was an adjustable rate home equity conversion mortgage, a type of reverse mortgage insured by the federal government through the Secretary of Housing and Urban Development. The mortgage provided the mortgagor was Standard Bank. In exchange for an amount up to $237,000, Marquette National Bank was given a security interest in the property. Standard Bank was the sole signatory on the mortgage.
¶ 5 The mortgage contained an exculpatory clause executed by Standard Bank. The exculpatory clause provided in full:
“This MORTGAGE is executed by STANDARD BANK & TRUST COMPANY, not personally but as Trustee as aforesaid in the exercise of the power and authority conferred upon and vested in it as such Trustee (and said STANDARD BANK & TRUST COMPANY, hereby warrants that it possesses full power and authority to execute this instrument), and it is expressly understood and agreed that nothing herein or in said Note contained shall be construed as creating any liability on the said Trustee or on said STANDARD BANK AND TRUST COMPANY personally to pay the said Note or any interest that may accrue thereon, or any indebtedness accruing hereunder, or to perform any covenant either express or implied herein contained, or on account of any warranty or indemnification made hereunder, all such liability, if any, being expressly waived by Mortgagee and by every person now or hereafter claiming any right or security hereunder, and that so far as the Trustee and its successors and said STANDARD BANK & TRUST COMPANY personally are concerned, the legal holder or holders of said Note and the owner or owners of any indebtedness accruing hereunder should look solely to the premises hereby conveyed for the payment thereof, by the enforcement of the lien hereby created, in the manner herein and in said Note provided or by action to enforce the personal liability of any guarantor, if any.”
¶ 6 The note was executed on June 9, 2009, and signed by Muraida and Standard Bank. The note provided Muraida would not be personally liable for the amounts due on the note; instead the future sale of the property itself would be payment of the note. Sale of the property through the lender would only occur upon Muraida‘s death, if all of Muraida‘s title in the property were transferred, or if Muraida failed to use the property as her principal residence for more than 12 consecutive months.
¶ 7 On July 19, 2011, Standard Bank, with leave of court, filed an answer to the complaint and a counterclaim. Standard Bank asserted that it entered into a consumer credit transaction with Financial Freedom‘s predecessor in interest, Marquette National Bank. Standard Bank alleged Financial Freedom failed to deliver material disclosures to Standard Bank as required by TILA. Standard Bank also asserted Financial Freedom failed to respond to the notice of rescission it sent on June 2, 2011, in violation of section 1635 of TILA.
¶ 8 On August 9, 2011, Financial Freedom filed a combined motion under section 2-615 and 2-619 of the Code to dismiss Standard Bank‘s counterclaim.
¶ 9 On November 2, 2011, OneWest Bank, FSB was allowed to substitute as party plaintiff.4
¶ 10 On January 5, 2012, the circuit court conducted a hearing and entered an order which stated, “It is hereby ordered that Defendant Standard Bank and Trust Company, as Trustee u/t/a dated 03-18-1991 a/k/a Trust No. 5193‘s Counterclaim is dismissed with prejudice.” The order did not indicate under which section of the Code the motion was granted.5
¶ 11 On February 12, 2012, Financial Freedom filed a motion to voluntarily dismiss the foreclosure complaint. On March 2, 2012, the circuit court dismissed the foreclosure action with prejudice.6 This appeal was timely filed on March 30, 2012. Accordingly, we have jurisdiction pursuant to Illinois Supreme Court Rule 301 (eff. Feb. 1, 1994).
¶ 12 ANALYSIS
¶ 13 Standard Bank asserts three issues on appeal: (1) the circuit court erred in dismissing the counterclaim because Standard Bank, as a land trust, has a right to rescind the consumer credit transaction under TILA; (2) it timely exercised its right to rescind the loan; and (3) it has a contractual right to rescind the transaction. Financial Freedom argues Standard Bank‘s counterclaim failed to state a cause of action under TILA, as it contains legal conclusions and did not allege any facts which would establish it is entitled to rescission. Particularly, Standard Bank cannot allege it is a consumer under TILA because Standard Bank is a land trust and not a consumer. Financial Freedom further contends Standard Bank cannot allege the property is its principal dwelling. Lastly, Financial Freedom asserts Standard Bank was not a party to the loan transaction and therefore has no right to rescind.
¶ 14 Standard Bank‘s counterclaim was dismissed pursuant to a motion brought under section 2-619.1 of the Code.
¶ 15 A motion to dismiss pursuant to section 2-619 of the Code admits the legal sufficiency of a plaintiff‘s complaint but raises defects, defenses, or other affirmative matters appearing on the face of the complaint or which are established by external submissions acting to defeat the complaint‘s allegations.
¶ 16 When ruling on a section 2-615 motion, the relevant question is whether, taking all well-pleaded facts as true, the allegations in the complaint, construed in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief may be granted. Canel v. Topinka, 212 Ill. 2d 311, 317 (2004). A motion to dismiss should not be granted “unless it is clearly apparent that no set of facts can be proved that would entitle the plaintiff to relief.” Tedrick v. Community Resource Center, Inc., 235 Ill. 2d 155, 161 (2009). Illinois is a fact-pleading state; conclusions of law and conclusory allegations unsupported by specific facts are not sufficient to survive dismissal. Anderson v. Vanden Dorpel, 172 Ill. 2d 399, 408 (1996). Section 2-616 of the Code provides that at any time before final judgment amendments to pleadings may be allowed on just and reasonable terms.
¶ 17 I. Statutory and Regulatory Framework of TILA
¶ 18 In order to assess the sufficiency of Standard Bank‘s TILA claim against Financial Freedom, we must first examine the statutory and regulatory framework under which it arises. The purpose behind the enactment of TILA was “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, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.”
¶ 19 To aid in the understanding and application of TILA, the Federal Reserve Board was vested with the power to implement regulations regarding TILA. U.S. Bank National Ass‘n v. Manzo, 2011 IL App (1st) 103115, ¶ 25. TILA‘s implementing regulation is known as Regulation Z.
¶ 20 “Under the Truth in Lending Act, 82 Stat. 146,
¶ 21 II. Rescission
¶ 22 Standard Bank‘s counterclaim seeks rescission of the June 9, 2009, loan transaction. TILA includes guidelines with respect to the method of rescission. Section 1635(a) provides “the obligor shall have the right to rescind *** by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.”
¶ 23 Standard Bank contends its filing was timely, as it did not receive disclosures and therefore it is allowed to file its counterclaim within three years of the consummation of the loan transaction. Standard Bank‘s counterclaim was filed on July 19, 2011, more than three days but less than three years from the consummation of the loan transaction and, therefore, was timely.
¶ 24 Although the counterclaim was timely filed, Standard Bank is not entitled to rescind the loan transaction because it is not an “obligor.” Neither TILA nor Regulation Z defines “obligor.” Black‘s Law Dictionary defines “obligor” as “[o]ne who has undertaken an obligation; a promisor or debtor.” Black‘s Law Dictionary 1181 (9th ed. 2009). “The right to rescind may be exercised only by the obligor, i.e. the person to whom credit is extended. [Citation.] Thus, an individual who is not named on the Note executed by his or her spouse is not an ‘obligor’ and does not have a right to rescind.” (Emphasis added.) Ferreira v. Mortgage Electronic Registration Systems, Inc., 794 F. Supp. 2d 297, 302-03 (D. Mass. 2011).
¶ 25 In Barash v. Gale Employees Credit Union, 659 F.2d 765 (7th Cir. 1981), the court considered a guarantor on the note to be an obligor for the purposes of TILA. In that case, the husband sought to borrow money from the defendant credit union. To obtain the loan, the wife signed as guarantor on the note and executed a wage assignment in favor of the defendant. The court stated the wife undertook “substantial obligations” to the defendant and allowed her to recover statutory damages. Id. at 766. To hold otherwise, the court concluded,
¶ 26 In this case, both Muraida and Standard Bank signed the note. Standard Bank, however, executed an exculpatory clause expressly disclaiming:
“any liability on the said Trustee or on said STANDARD BANK AND TRUST COMPANY personally to pay the said Note or any interest that may accrue thereon, or any indebtedness accruing hereunder, or to perform any covenant either express or implied herein contained, or on account of any warranty or indemnification made hereunder, all such liability, if any, being expressly waived by Mortgagee and by every person now or hereafter claiming any right or security hereunder ***.”
In executing this document, Standard Bank retained no obligation under the note. This complete disclaimer of all liability left Standard Bank “free of any reciprocal responsibilities whatever” and thus with no obligations under the loan documents. Barash, 659 F.2d at 766. Further, the record is devoid of any evidence Standard Bank received a benefit from the loan transaction. See Aurora Firefighter‘s Credit Union v. Harvey, 163 Ill. App. 3d 915, 920 (1987). Standard Bank‘s disclaimer of all liability left Muraida as the only obligor. Because TILA only provides the right of rescission to the obligor of the consumer credit transaction, Standard Bank does not have a right to rescind the loan transaction.
¶ 27 III. Statutory Damages
¶ 28 Standard Bank‘s counterclaim also requests statutory damages pursuant to section 1640 of TILA.
¶ 29 We note the circuit court dismissed Standard Bank‘s counterclaim with prejudice. Section 2-616 of the Code provides at any time before final judgment amendments to pleadings may be allowed on just and reasonable terms.
¶ 30 CONCLUSION
¶ 31 Accordingly, the decision of the circuit court granting Financial Freedom‘s motion to dismiss with prejudice is affirmed.
¶ 32 Affirmed.
¶ 33 JUSTICE GORDON, dissenting.
¶ 34 I must dissent because Standard Bank has alleged sufficient facts to support each element required in its claim for rescission.
¶ 35 As the majority observes, when ruling on a section 2-615 motion to dismiss, we must accept all well-pleaded facts as true and must construe them in the light most favorable to the claimant. Supra ¶ 16 (citing Canel v. Topinka, 212 Ill. 2d 311, 317 (2004)).
¶ 36 To assert a claim for rescission under the TILA, Standard Bank must allege that, (1) “in the case of any consumer credit transaction,” (2) “a security interest *** is or will be retained or acquired in any property” and (3) the property “is used as the principal dwelling of the person to whom credit is extended.”
“Except as otherwise provided in this section, [(1)] in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which [(2)] a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as
[(3)] the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction ***.” (Emphases added.)
15 U.S.C. § 1635(a) (2006).
¶ 37 When interpreting a statute, we turn first and foremost to the plain language of the statute itself. People v. Chapman, 2012 IL 111896, ¶ 23. When the language is clear, we apply it as written. Chapman, 2012 IL 111896, ¶ 23.
¶ 38 First, while Standard Bank must allege that it is acting “in the case of any consumer credit transaction” (
¶ 39 Second, Standard Bank alleges that a “security interest” was “retained or acquired” in the property.
¶ 40 Third, while Standard Bank must allege that the property in which the security interest is retained “is used as the principal dwelling of the person to whom credit is extended” (
¶ 41 Although all three elements are satisfied, the majority denies Standard Bank‘s claim on the ground that it is not an obligor as that term is used in the statute. Supra ¶ 24. As discussed in the last paragraph, the statute uses different terms to refer to the obligor and to the consumer, thus indicating that they are separate entities. Cf. In re Smith-Pena, 484 B.R. 512, 525 (Bankr. D. Mass. 2013) (rejecting the argument that the word “consumer” was “the de facto definition of ‘obligor,’ ” the court found the word ” ‘obligor’ to differ from consumer“). The statute states that, in a consumer credit transaction where a security interest is retained “in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind.” (Emphasis added.)
¶ 42 Nonetheless, the majority concludes that the “obligor” is the consumer. Supra ¶ 26 (the consumer is “the only obligor“). However, this is a reverse mortgage. The consumer does not pay anything to the bank; it is the bank that has an obligation to the consumer. After the mortgage is triggered, then the consumer certainly has no obligation. At that point, the consumer cannot be obliged to do anything, at least not by a court of law.
¶ 43 For these reasons, I would find that Standard Bank has alleged sufficient facts to survive a dismissal motion under the express language of the TILA, and I must respectfully dissent.