Garfield clueless about TILA Rescission – Kansas USDC Tells how it works

Neil Garfield in his recent blog post https://livinglies.wordpress.com/2015/10/13/standing-will-ultimately-determine-what-happens-in-tila-rescission/, PRESUMES that because the notice of rescission voids the note and security instrument (which it in fact does not), therefore, lenders have no standing to challenge breach of the note (such as failing to make mortgage payments) EVEN if the rescission effort has no merit.   Neil is flat wrong as usual, and here I provide an excellent analysis of the matter a long time ago in an appeal from a bankruptcy proceeding, In Re Merriman.  I append the entire opinion below.

The Kansas USDC very concisely explained the chain of events that can follow accrual of a RIGHT to rescind under TILA, and it points out the difference between initiating and fully consummating (unwinding) a rescission.  The court’s faultless logic shows why the note and security instrument DO NOT BECOME VOID upon sending of a notice of rescission.  It explains that the full right to rescind obliges the borrower to have suffered a TILA breach in fact, to have given proper notice, and to have the ability to tender.  That and only that justifies tender and lien removal by the creditor.  And only when all of that has happened has rescission become fully consummated and the loan fully nullified.

The final section (D) of the In Re Merriman appellate opinion by the Kansas USDC BEAUTIFULLY explains why the court may not force the creditor to remove the security interest (lien) on the mortgaged property in a TILA rescission UNTIL the borrower has tendered or arranged a tender mechanism, such as proposal of alternate financing.
In re Ramirez, 329 BR 727 – Bankr. Court, D. Kansas 2005

https://scholar.google.com/scholar_case?case=12436550276985432132

In re Merriman, 329 BR 710 – Bankr. Court, D. Kansas 2005

https://scholar.google.com/scholar_case?case=6510952788647313169

Note:  The court ruled on these appeals from bankruptcy opinions at the same time.  The Ramirezes case had virtually the same text as Merriman in the section dealing with removal of the lien upon notice of rescission.

************ from in Re Merriman ************

329 B.R. 710 (2005)

In re Patricia Joan MERRIMAN, Debtor.
Patricia Joan Merriman, Plaintiff,
v.
Beneficial Mortgage Co. of Kansas, Inc., Defendant.

No. 03-4121-JAR, Bankruptcy No. 01-42851-13, Adversary No. 01-7142.United States Bankruptcy Court, D. Kansas.

September 7, 2005.711*711 712*712 713*713 Gary E. Hinck, Consumer Law Center, P.A., Topeka, KS, for Debtor/Plaintiff.

MEMORANDUM AND ORDER

ROBINSON, District Judge.

This is an appeal from an order of the bankruptcy court relating to a debtor’s right to rescind a home mortgage transaction for disclosure violations under the Truth in Lending Act (the “TILA”) and resulting statutory damages. For the reasons set forth below, the decision of the bankruptcy court is affirmed.

I. Background

The relevant facts are not disputed. In August 2000, Patricia Merriman entered into a non-purchase money loan transaction with Beneficial Mortgage Company of Kansas, Inc. (“Beneficial”), for $30,359.45 that was secured by a mortgage on her home. The transaction between Merriman and Beneficial was subject to Merriman’s right of rescission as described by § 1635 of the TILA[1] and Regulation Z.[2] Beneficial gave Merriman the appropriate loan information disclosures required by the TILA, and gave her at least one copy of a form called a “Notice of Right to Cancel” (“Notice”). The Notice was a “hybrid” form of Beneficial’s own design, which was drafted with alternative paragraphs in a “check-the-box” format. Neither of the alternative paragraphs had its corresponding box checked.

In October 2001, Merriman filed a Chapter 13 bankruptcy proceeding. On November 21, 2001, Merriman’s bankruptcy attorney sent correspondence to Beneficial stating that Merriman was exercising her right to rescind the loan transaction under the TILA. Beneficial took no action on Merriman’s notice of rescission.

On December 18, 2001, Merriman filed an adversary proceeding against Beneficial in her pending Chapter 13 bankruptcy case seeking relief under the TILA, including rescission of the loan transaction and the imposition of statutory damages against Beneficial. The bankruptcy court entered an order granting summary judgment in this case and a companion case, Marcelino Ramirez, et al. v. Household Finance Corporation III (In re Ramirez), Adversary No. 01-7122 (“the Order”).[3]

The bankruptcy court addressed three issues in the Order. First, the parties disputed whether Beneficial had given Merriman two copies of the Notice. The bankruptcy court refrained from deciding this issue of fact, and assumed that Beneficial had provided Merriman with only one copy of the Notice. The bankruptcy court determined that Beneficial’s assumed failure to provide Merriman with two copies of the Notice did not extend the date by which Merriman could rescind the transaction. The bankruptcy court further determined, however, that Beneficial’s failure to check a box on the Notice constituted inadequate notice to Merriman, such that the rescission period was extended to three years, pursuant to 15 U.S.C. § 1635(a).

Second, the bankruptcy court determined that rescission of the loan was appropriate and that the court was authorized to modify the parties’ respective reciprocal tender obligations under § 1635. Thus, the bankruptcy court concluded that Beneficial did not have to terminate its security interest and that 714*714 the amount Merriman owed Beneficial as a result of the rescission, was secured by Beneficial’s mortgage lien until paid. Finally, the bankruptcy court determined the amount of civil damages due Merriman based on Beneficial’s improper notice and rescission response pursuant to 15 U.S.C. § 1640.

Merriman filed a Notice of Appeal with respect to the Order and Beneficial filed a Cross-Appeal. Beneficial subsequently withdrew its appeal.[4]

II. Appellate Jurisdiction

The parties have opted to have the appeal heard by this Court.[5] The appeal was timely filed by the debtor, and the bankruptcy court’s Order is “final” within the meaning of 28 U.S.C. § 158(a)(1).[6]

III. Standard of Review

On appeal from the bankruptcy court, the district court sits as an appellate court.[7] The standards generally governing review of the bankruptcy court’s decision are well-settled: findings of fact are not to be set aside unless clearly erroneous; conclusions of law are reviewed de novo.[8] A finding is clearly erroneous if it is unsupported by any facts of record or if the district court, after reviewing all the evidence, is left with the definite and firm belief that a mistake was made.[9]

IV. Discussion

Merriman raises five issues on appeal addressing whether the bankruptcy court: (1) erred in holding that the rescission period was not extended from three days to three years by virtue of the lender’s failure to provide the debtor with two copies of the Notice describing her right to rescind the transaction; (2) erred in failing to award her twice the amount of any finance charge in connection with the transaction, with a maximum award of $2,000, for each violation of the TILA, and by reducing the amount owed Beneficial by that amount; (3) had discretion to condition or modify the consequences of a debtor’s rescission as specified in the TILA and Regulation Z; (4) was required to first find that Regulation Z is an irrational interpretation of the TILA before it could condition or modify the debtor’s remedy after a proper exercise of her right to rescind the transaction; and (5) erred by refusing to void the lender’s mortgage on the debtor’s home.

TILA Disclosures and Remedies

Congress enacted the TILA to regulate the disclosure of the terms of consumer credit transactions in order “to aid unsophisticated consumers and to prevent creditors from misleading consumers as to the actual costs of financing.”[10] Disclosure allows consumers to compare different financing options and their costs.[11] Indeed, the TILA recognizes that in the 715*715 marketplace of lending and financing, consumers should be armed with the appropriate information to make beneficial and sound decisions about the sources and terms of financing arrangements. To encourage lender compliance, TILA violations are measured by a strict liability standard, so even minor or technical violations impose liability upon the creditor.[12] The consumer-borrower can prevail in a TILA suit without showing that he or she suffered any actual damage as a result of the creditor’s violation.[13]

In TILA transactions such as this, involving non-purchase-money loans secured by consumer-borrowers’ homes, the borrower has a right to rescind the transaction, established by TILA § 1635. The right to rescind continues for three days so long as the lender gives the borrower the disclosures required by the TILA and a notice of the right to rescind; the right is extended up to three years if the lender fails to give the disclosure and notice. Section 1635(a) provides in relevant part:

Except as otherwise provided in this section, in the case of any consumer credit transaction . . . in which a security interest . . . is or will be retained or acquired 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 the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section.[14]

A. Number of Copies of Notice Provided to Merriman

Regulation Z states that a lender “shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind.”[15] The bankruptcy court concluded that it need not decide whether Beneficial had supplied Merriman with one or two copies of this Notice. Rather, the bankruptcy court held that the second physical copy of the Notice was not actually necessary to inform Merriman of her right to rescind; thus, her right to rescind the transaction was not extended on this basis.[16] The bankruptcy court further stated that while Regulation Z’s requirement that two copies be provided to the borrower is probably not irrational, it would be irrational to extend the rescission period to three years, simply because the borrower did not receive the extra copy of716*716 the Notice.[17]

Ultimately, the bankruptcy court concluded that irrespective of the number of copies provided to Merriman, the Notice was insufficient because none of the alternative paragraphs was marked with a checked box, and that this justified an extension of the rescission period to three years. Because the bankruptcy court found a TILA violation based on this insufficiency, this Court need not reach, on appeal, the issue of the effect of providing one, rather than two copies of the Notice.[18]

B. Calculation of Civil Damages for the Notice and Rescission Violations

The bankruptcy court found that Beneficial violated the TILA in two ways: (1) in failing to provide adequate disclosure to Merriman of her rescission rights by not checking a box on the Notice (the “Notice Violation”); and (2) in failing to respond to Merriman’s notice of rescission within 20 days (the “Rescission Violation”). The bankruptcy court imposed the minimum damages allowed by § 1640(a)(2)(A)(iii), awarding $200 for each violation for a total of $400, and reduced Beneficial’s post-rescission claim against Merriman by that amount. Merriman contends that the bankruptcy court erred, because it was required to award her the maximum $2,000 in statutory damages for each violation of the TILA. Merriman further argues that the civil damages due as a result of the Rescission Violation should be paid in cash by Beneficial, rather than credited against the post-rescission claim due Beneficial.

1. Amount Awarded

Under TILA § 1640(a)(2)(A)(iii), statutory damages may be awarded to Merriman for the TILA disclosure and rescission violations discussed above. That section provides in pertinent part:

Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part, including any requirement under section 1635 of this title, or part D or E of this subchapter with respect to any person is liable to such person in an amount equal to the sum of —

(1) any actual damage sustained by such person as a result of the failure;

[and]

(2)(A) . . . (iii) in the case of an individual action relating to a credit transaction not under an open end credit plan that is secured by real property or a dwelling, not less than $200 or greater than $2,000; . . . [19]

In light of “the substantial reduction of Beneficial’s claim as a result of the offsets,” the bankruptcy court imposed the minimum penalty for these violations, for a total of $400, which it credited against Beneficial’s claim against Merriman.[20]

Merriman argues that § 1640 must be read to require a court to award double the “finance charge” as used in subparagraph (i) or the maximum amount set forth in subparagraph (iii), in order to determine the amounts properly assessed under subparagraph (iii). Beneficial argues that the bankruptcy court had authority to exercise 717*717 its discretion to award damages between $200 and $2,000.[21]

The Court agrees with Beneficial. There is no ambiguity as to how statutory damages should be awarded in this case. Subparagraph (iii) plainly states that damages “not less than $200 or greater than $2,000” may be awarded. The plain language of subparagraph (iii) imposes no obligation to impose the lesser of: (1) the maximum penalty under (iii), or (2) double the “finance charge” under (i). The bankruptcy court’s award was consistent with that provision and is affirmed.

2. Manner of Payment

Merriman’s corollary issue is that the bankruptcy court improperly set off or recouped the statutory damages assessed against Beneficial for its Rescission Violation. Merriman concedes that the Notice Violation award was properly set off against Beneficial’s post-rescission claim. But, Merriman argues that the Rescission Violation damages cannot be set off against Beneficial’s claim because the claims do not arise out of the same transaction or occurrence.

Beneficial’s failure to respond to Merriman’s notice of rescission of the loan transaction within 20 days from the date of its receipt of the notice gave rise to a claim against Beneficial under § 1635(g).[22] It is that claim that resulted in the bankruptcy court’s assessment of a civil damage award pursuant to § 1640. Merriman argues that while the claim against Beneficial for the Rescission Violation arose post-petition on December 13, 2001, Beneficial’s claim against her for the mortgage loan proceeds arose pre-petition, at the time the loan was made in August 2000, and thus set off or recoupment is inappropriate. The Court disagrees.

Generally, recoupment, while similar to setoff, is a separate, equitable doctrine that is not subject to the setoff provisions and limitations of section 553 of the Bankruptcy Code.[23] Rather, a creditor is allowed to “recoup” its claim against the debtor or the bankruptcy estate so long as the claims of creditor and debtor arise out of the “same transaction,” without regard to the timing and mutuality restrictions of setoff.[24]Beneficial’s post-rescission claim as determined by the bankruptcy court did not arise in August 2000; it arose at the same time and as part of the same transaction that Merriman’s claim arose. Under § 1635(b), Merriman was obligated to tender property to Beneficial upon her rescission 718*718 of the loan and after Beneficial had returned all costs and interest. As recognized by the bankruptcy court, the parties had “reciprocal payment obligations under the TILA and § 1635(b) and Regulation Z § 226.23(d)(2) and (3).”[25] Merriman’s claim for damages accrued as a part of the Rescission Violation and Beneficial’s claim for the reciprocal payment obligation arose out of the same transaction, that is, Merriman’s rescission. Accordingly, the obligations were in fact part of the same transaction for purposes of recoupment, and the bankruptcy court properly exercised its discretion to deduct the Rescission Violation damages from the post-rescission balance due Beneficial. The bankruptcy court is affirmed as to this issue.

C. Voiding of Security Interest Under the TILA

In TILA transactions such as this, § 1635(a) creates the right of rescission; § 1635(b) explains the effect that rescission has on the consumer-borrower and lender. In short, upon rescission, the borrower is not liable for any finance or other charge, and any security interest given by the borrower becomes void.[26] After giving Beneficial notice of rescission and receiving no response, Merriman filed an adversary proceeding in bankruptcy court, seeking rescission and damages. The bankruptcy court ordered that the $5206.09 in closing costs and fees Beneficial charged Merriman, plus all amounts paid on the loan since the closing, $3,981.84, for a total of $9,187.93, be subtracted from the principal amount of the loan, $30,359.45, leaving a balance of $21,171.52 due Beneficial.

Merriman contends that the bankruptcy court erred in ordering that this balance would remain secured by Beneficial’s mortgage lien until paid. Merriman argues that § 1635(b) mandates that the security interest become void upon rescission, such that the balance due is unsecured and subject to compromise, discharge, or both in the Chapter 13 bankruptcy proceeding. Merriman argues that § 1635(b) mandates the voiding of the security interest irrespective of the borrower’s payment of the principal balance due. Section 1635(b) provides:

When an obligor exercises his right to rescind under subsection (a) of this section, he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon rescission. Within 20 days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor’s obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within 20 days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part 719*719 to pay for it. The procedures prescribed by this subsection shall apply except when otherwise ordered by a court.[27]

Merriman suggests that the plain language of § 1635(b) effects a voiding of the security interest upon the giving of notice of rescission. The statute does not state, however, that the security interest becomes void upon the giving or receipt of notice. Rather, the statute states that the security interest “becomes void upon rescission.” Nothing in the statute suggests that giving notice of rescission is synonymous with “upon rescission.” Section 1635(b) expressly becomes operative “[w]hen an obligor exercises his right to rescind under subsection (a). . . .” Section 1635(a) goes on to provide that “the obligor shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so ….. The creditor shall also provide . . . appropriate forms for the obligor to exercise his right to rescind. . . .” Read together, these two subsections of § 1635 provide that the borrower exercises her right to rescind by giving notice; but the security interest becomes void only upon rescission. The plain language of the statute indicates that exercising the right to rescind is a discrete event; and rescission is a separate discrete event. If the drafters intended for exercise of the right to rescind to be rescission, they would not have used different terms for the same event.[28]

Nor does the language of Regulation Z,[29] the statutory mandate for courts to act with respect to the TILA, support Merriman’s argument that the security interest is void upon notice or the exercise of the right to rescind. Regulation Z mirrors § 1635(b) and details the rescission process.[30] Whereas the statute states that the security interest becomes “void upon rescission,” Regulation Z states that the security interest becomes void “[w]hen a consumer rescinds a transaction.” Although this language in the regulation is less than clear, it does not indicate that a 720*720 “consumer rescinds” merely by exercising the right to rescind through notice. As Judge Crow noted inQuenzer v. Advanta Mortgage Corp. U.S.A. (In re Quenzer),[31] rescission does not mean an annulment that is definitively accomplished by unilateral pronouncement.[32]

In Yamamoto v. Bank of New York,[33] the Ninth Circuit rejected the very argument that Merriman makes here, that the notice of rescission had the automatic and immediate effect of voiding the loan transaction. The Ninth Circuit observed that the borrower was essentially arguing that rescission could be accomplished automatically upon a borrower’s decision to rescind, communicated by a notice of rescission, and without regard to whether the law permits her to rescind upon the grounds asserted.[34] The court noted that, “this makes no sense when, as here, the lender contests the ground upon which the borrower rescinds.”[35] “Otherwise, a borrower could get out from under a secured loan simply by claiming TILA violations, whether or not the lender had actually committed any.”[36]

The First Circuit has observed under similar circumstances that “[n]either the statute nor the regulation establishes that a borrower’s mere assertion of the right of rescission has the automatic effect of voiding the contract.”[37] This occurs either because the lender acknowledges that the right of rescission is available or because the appropriate decision maker has so determined.[38] Of course, in this case Beneficial challenged the right to rescission, taking the position that it gave adequate disclosure under TILA, an issue adjudicated in the adversary proceeding in bankruptcy court.

Although the bankruptcy court declined to void Beneficial’s mortgage lien, it invited this Court to reverse that decision, in part because the bankruptcy court agreed with Merriman’s position that the security interest was void before, and irrespective of, the seriatim obligations of borrower and lender and borrower’s payment obligation, spelled out in § 1635(b) and Regulation Z.[39] As discussed above, because the plain language of § 1635(b) and Regulation Z demonstrates that rescission is not automatic upon the exercise of the right to rescind by giving notice, this Court affirms, in part because the mortgage lien was not automatically void upon Merriman giving notice to Beneficial.

D. Conditioning Voiding of Security Interest on Payment

Merriman contends that the bankruptcy court had no authority to condition 721*721 the voiding of Beneficial’s mortgage lien on Merriman satisfying her obligation to pay Beneficial the principal balance due. Noting that the district court had previously reversed the bankruptcy court on this issue in Quenzer III,[40] the bankruptcy court stated that it felt constrained to follow the district court on this issue as well, but invited this Court to reverse, in favor of Merriman’s position. This Court affirms the bankruptcy court’s decision, concluding, as Judge Crow concluded in Quenzer III, that a court has authority to condition voiding of the security interest on satisfaction of payment by the borrower.

Similar to her analysis concerning when the security interest becomes void, Merriman argues that the language of § 1635(b) and Regulation Z mandates the voiding of the security interest and precludes judicially imposed conditions or modifications. Merriman contends that language in the statute and regulation concerning court ordered modifications to the rescission process does not apply to the voiding of the security interest. The last sentence of § 1635(b) states, “[t]he procedures prescribed by this subsection shall apply except when otherwise ordered by a court.”[41] Merriman contends that the voiding of the security interest is not a “procedure,” but is substantive relief accorded by this statute. Regulation Z states in pertinent part, “[t]he procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.” Merriman contends that this language means that the court may modify only the lender’s obligation to return money in § 226.23(d)(2) and the borrower’s obligation to tender money or property in § 226.23(d)(3), but the court may not modify the voiding of the security interest in § 226.23(d)(1).

The premise of Merriman’s position is that the voiding of the security interest is substantive relief accorded by § 1635(b) and Regulation Z, rather than a procedural step in the rescission process. Indeed, in inviting this Court to reverse its decision, the bankruptcy court urged that the voiding of a lender’s security interest is substantive and punitive, a consequence of the lender’s violation of the TILA. The voiding of the security interest, however, is but a step in the rescission process; it is not the substantive relief, nor is it punitive. Rather, the TILA’s express punitive measures are that the lender loses its finance charges for the period of time that the borrower enjoyed the loan proceeds or property, which can range from three days to three years, and that the lender be subject to a fine for each violation. The voiding of the security interest is neither punitive in design nor effect.

Rescission, whether statutory or common law, is an equitable remedy. Its relief, in design and effect, is to restore the parties to their pre-transaction positions. The TILA authorizes the courts to apply equitable principles to the rescission process. As the court observed in Quenzer III, within the context of the TILA, rescission is a remedy that restores the status quo ante.[42] And, as the Eleventh Circuit noted in Williams v. Homestake Mortgage 722*722 Co.,[43] the last sentence of § 1635(b), which states that “[t]he procedures prescribed by this subsection shall apply except when otherwise ordered by a court,” is a reflection of this equitable goal.[44] The Eleventh Circuit further observed, “[t]he sequence of rescission and tender set forth in § 1635(b) is a reordering of common law rules governing rescission,” which “place[s] the consumer in a much stronger bargaining position than he enjoys under the traditional rules of rescission.”[45] The TILA’s statutory rescission procedures do not alter the equitable nature of the rescission remedy, nor the goal of returning the parties most nearly to the position they held prior to entering into the transaction.[46]

Merriman’s focus on the voiding of the security interest as a substantive, punitive measure is largely based on the TILA provision that the security interest becomes void, and the Regulation Z provision that within 20 days after receiving notice of rescission, the lender must return money or property to the borrower and “take any action necessary to reflect the termination of the security interest.”[47] Merriman argues that the seriatim reciprocal obligations of lender and borrower provided in the statute and fleshed out in Regulation Z, make clear that the lender must take steps to terminate the security interest before the borrower is required to tender money or property to the lender. Indeed, the lender’s obligation to return money or property (i.e., the finance charge) and take action to reflect termination of the security interest is found in § 226.23(d)(2) of Regulation Z, while the borrower’s payment obligation comes later, in § 226.23(d)(3).

The order of reciprocal obligations, however, is not indicative that the voiding of the security interest is substantive. Rather, this order of reciprocal obligations serves to place the borrower who seeks rescission in a position to obtain financing from another lender. Indeed, as the Eleventh Circuit has observed, TILA’s rescission process places the borrower in a stronger position than under traditional rules of rescission.[48] The TILA requires the lender to return the finance charge and take steps to terminate the security interest first, before requiring the borrower to pay off the principal balance. This allows the borrower to seek a new loan, having the benefit of cash in the amount of the refunded finance charge, which might be used for loan fees or charges. And, the borrower has property to pledge as security to the new lender, unencumbered with a lien from the rescinded lender, because the TILA requires the lender to terminate its security interest. With these benefits accorded under TILA’s rescission process, the borrower has the means to obtain a new loan, and thus the means to repay the principal balance due on the rescinded loan.

The TILA recognizes, in effect, that a borrower who wishes to rescind a loan may not have the means to repay the principal balance of the loan without first securing new financing. The TILA’s requirement that the lender terminate the security interest before the borrower pays off the principal balance due, simply recognizes the reality that a consumer-borrower rescinding 723*723 a loan, may need alternative financing to pay off that loan.

This underlying consideration, to allow the borrower the means to obtain financing to pay off the rescinded loan, is further illustrated in Regulation Z’s placing time limits on the lender’s obligations, but no time limit on the borrower’s obligation to repay the principal balance due. Regulation Z § 226.23(d)(2) requires that upon receiving notice of rescission, within 20 days the lender must refund all finance charge and fees and take action to terminate the security interest, yet the next seriatim obligation, the borrower’s obligation to tender the principal balance due in § 226.23(d)(3), has no time limit. This is surely in recognition that the borrower needs time to obtain alternative financing. Section 226.23(d)(3) requires the lender to accept the borrower’s tender of money within 20 days after tender. By placing time limits on the lender’s obligations, but no time limits on the borrower’s obligation to repay the principal balance, and by requiring that the lender refund finance charges and terminate the security interest first, Regulation Z effectuates rescission in a timely fashion, recognizing that the borrower needs the time and the means to obtain alternative financing.

Because the requirement that the lender terminate the security interest merely serves to provide a means for the rescinding borrower to obtain alternative financing, the voiding of the security interest is appropriately characterized as a procedural step in the rescission process, not substantive or punitive relief. Given that it is a merely part of the rescission procedures, § 1635(b) permits the court to condition or modify the voiding of the security interest, stating “[t]he procedures prescribed by this subsection shall apply except when otherwise ordered by a court.”[49] Notably, in 1980, Congress amended § 1635 by adding this last sentence to subsection (b), specifically giving the courts authority to change at least part of what happens when the borrower rescinds.[50] But even prior to the statute’s amendment, the majority of circuit courts that addressed this issue permitted judicial modification of the statutory rescission process.[51] The Tenth Circuit had previously held in Rachbach v. Cogswell[52] “that courts can alter the TILA’s statutory scheme because rescission is an equitable remedy.”[53]

Merriman asks the Court to reverse the ultimate conclusion reached by the bankruptcy court and order that Beneficial’s lien be voided, effectively allowing her to pay nothing or a very small portion of the post-rescission amount calculated by the bankruptcy court. Although the Tenth Circuit has not ruled on this precise issue, the majority of courts addressing this issue have held that the TILA authorizes them to modify the procedure for effecting the avoidance of a lender’s mortgage on the tender of the post-rescission amount by the borrower.[54] In Quenzer III, Judge 724*724 Crow concluded, based on the analysis in Rachbach, as well as the statutory revisions to the TILA and Regulation Z, that “although a debtor’s tender back is not mandated as a prerequisite to rescission, it may be an appropriate condition attached thereto under certain circumstances because of the equitable nature [of] that statutory remedy.”[55] Since then, bankruptcy courts in Kansas and Oklahoma have followed Quenzer III in concluding that courts do have equitable discretion to modify rescission under the TILA.[56]

Indeed, in the context of bankruptcy, where the borrower seeks to compromise or discharge the debt on the rescinded loan, judicial modification of the rescission process is well justified. At the time Merriman gave notice of rescission, the Federal Reserve Board of Governors (“FRB”) Official Staff Interpretation of Regulation Z provided, “The procedures outlined in § 226.23(d)(2) and (3) may be modified by a court. For example, when a consumer is in bankruptcy proceedings and prohibited from returning anything to the creditor, or when the equities dictate, a modification might be made.”[57]

And since the parties submitted their briefs in this appeal, the FRB has made “technical revisions” to its commentary with respect to § 226.23(d)(4), effective April 1, 2004. The revised Official Staff Commentary for Regulation Z § 226.23(d)(4) reads as follows:

1. Modifications. The procedures outlined in § 226.23(d)(2) and (3) may be modified by a court. For example, when a consumer is in bankruptcy proceedings and prohibited from returning anything to the creditor, or when the equities dictate, a modification might be made. The sequence of procedures under § 226.23(d)(2) and (3), or a court’s modification of those procedures under § 226.23(d)(4), does not affect a consumer’s substantive right to rescind and to have the loan amount adjusted accordingly. Where the consumer’s right to rescind is contested by the creditor, a court would normally determine whether the consumer has a right to rescind and determine the amounts owed before establishing the procedures for the parties to tender any money or property.[58]

This revised Official Staff Interpretation, which the FRB deems “technical,” does not correspond to any amendment of the regulation itself.[59] The Court notes that while commentators generally supported the revision, industry and consumer groups asked the FRB staff to address an issue not raised by the proposal, namely, whether a court could condition rescission and voiding of the lender’s security interest on tender by the borrower.[60] Comment 23(d)(4) did not address this issue, and instead clarifies only that the sequence of procedures under § 226.23(d)(2) and (3), or a court’s modifications of those procedures, under (d)(4), does not affect consumers’ substantive right to rescind.[61]

725*725 When an agency charged with enforcing a statute has promulgated a regulation that adopts a permissible construction of the statute, a court must defer to that interpretation and not impose its own.[62] The Supreme Court has indicated this rule is especially strong in the context of the TILA and Regulation Z, where even official staff interpretations of the statute and regulation should control unless shown to be irrational.[63] Regulation Z § 226.23(d)(1) recognizes the statutory mandate that a lender’s security interest is void when a borrower rescinds a loan transaction. Subparagraph (d)(4) restates the power given to courts under § 1635(b) to modify the statutory procedures outlined in subparagraphs (d)(2) and (d)(3), including the power to modify the procedure to effect the rescission. Rather than being in conflict with TILA § 1635(b), Regulation Z § 226.23(d)(4) supports the court’s authority to modify the rescission process, including allowing the lender to retain its security interest pending tender of the loan proceeds by the borrower. This manner of modification is especially relevant in the bankruptcy context. The Court finds nothing irrational about Regulation Z § 226.23(d)(4).[64]

Moreover, the legislative history regarding the amendment to § 1635(b) supports the modification of the rescission process in the context of a bankruptcy case, noting:

Upon application by the consumer or the creditor, a court is authorized to modify this section’s procedures where appropriate. For example, a court might use this discretion in a situation where a consumer in bankruptcy or wage earner proceedings is prohibited from returning the property. The committee expects that the courts, at any time during the rescission process, may impose equitable conditions to insure that the consumer meets his obligations after the creditor has performed his obligations as required under the Act.[65]

As one court noted, the legislative history’s reference to bankruptcy is significant and illustrates Congress intended to allow courts to condition the voiding of a lien or security interest on payment by the debtor:

Had Congress intended otherwise, there would be no reason to mention bankruptcy, as a creditor’s secured interest in a debtor’s homestead would be void upon rescission, relegating the debtor’s remaining obligations to an unsecured, often dischargeable status. The net effect, then, would be that a debtor receives the entire benefit of the credit transaction, often substantial sums of money or what amounts to a free house, while the creditor receives nothing, 726*726 which would be contrary to the purpose of rescission.[66]

In this case, Merriman is attempting to use an equitable remedy to create a legal right to effectively strip Beneficial’s mortgage lien, a right she is not accorded under bankruptcy law.[67] Thus, the bankruptcy court Order requiring Merriman to satisfy her reciprocal tender obligation prior to release of Beneficial’s mortgage is precisely the type of equitable condition contemplated by Congress. To hold otherwise would disproportionately punish Beneficial for a technical violation of the TILA while giving Merriman a windfall in excess of $20,000.

Moreover, in this case, in Quenzer III, and in the majority of cases allowing the rescission process to be modified or conditioned, rescission was initiated after the initial three-day period-often years after. That circumstance factors highly in the majority decisions, and clearly alters the apparent equities between the parties. As the court stated in Quenzer III,

This court cannot accept the proposition that strict enforcement of TILA justifies rendering a debt in the amount at issue here [$48,000 or more] unpaid and completely unsecured, given the passage of time and other circumstances present. Even though the defendant violated TILA, automatically relegating its entire claim to unsecured status under these circumstances would be completely inequitable and would exact a penalty entirely disproportionate to its offense.[68]

In Quenzer III, the court recognized that courts should analyze all the surrounding circumstances in determining the appropriate effect of the borrower’s decision to rescind rather than disproportionately punishing the lender within the scope of remedies otherwise provided in the TILA. In this case, the bankruptcy court did precisely that by preserving the rights of Merriman and Beneficial with respect to rescission under the TILA and Regulation Z. The bankruptcy court’s exercise of equitable authority means that Merriman can exercise her rescission rights without being confronted with the dilemma of a lump sum payment to the lender that would otherwise be due under the TILA. It also avoids Merriman receiving the so-called “free house” benefit, while Beneficial receives little or nothing. Instead, the bankruptcy court structured repayment after adjustment of Beneficial’s claim, preserving the lender’s expectation of being paid the reciprocal tender by allowing Beneficial to retain its mortgage lien.

Conclusion

The Court concludes that Beneficial’s mortgage lien was not automatically void upon Merriman’s giving notice of rescission to Beneficial. In so ruling, the Court joins the majority of courts in concluding that TILA § 1635(b) and Regulation Z § 226.23(d)(4) authorize it to modify the procedure for rescission by conditioning the avoidance of a lender’s mortgage lien on tender of the post-rescission amount by the borrower. This comports with Congressional intent that “the courts, at any time during the rescission process, may impose equitable conditions to insure that the consumer meets his obligations after the creditor has performed his obligations 727*727 as required by the act.”[69] The bankruptcy court’s decision to allow Beneficial to retain its mortgage lien subject to payment of Merriman’s post-rescission obligation, as calculated by the bankruptcy court, is affirmed.[70]

IT IS THEREFORE ORDERED BY THE COURT that the Order of the bankruptcy court dated May 28, 2003, is AFFIRMED.

IT IS SO ORDERED.

[1] 15 U.S.C. § 1635.

[2] 12 C.F.R. § 226.23.

[3] An appeal of the Ramirez portion of the order is also pending before this Court, Case No. 03-4122-JAR.

[4] Case No. 03-4120 (Doc. 9).

[5] See 28 U.S.C. § 158(c); B.A.P. 10th Cir. R. 8001-1(a), (d).

[6] See Fed. R. Bankr.P. 8001-8002.

[7] See 28 U.S.C. § 1334(a).

[8] Va. Beach Fed. Sav. & Loan Ass’n v. Wood, 901 F.2d 849, 851 (10th Cir.1990); In re Barber, 191 B.R. 879, 882 (D.Kan.1996); see Fed. R. Bankr.P. 7052, 8013.

[9] Davidovich v. Welton (In re Davidovich), 901 F.2d 1533, 1536 (10th Cir.1990).

[10] Morris v. Lomas & Nettleton Co., 708 F.Supp. 1198, 1203 (D.Kan.1989) (citing Mourning v. Family Publ’ns Serv., Inc., 411 U.S. 356, 363-69, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973)).

[11] 15 U.S.C. § 1601(a).

[12] See, e.g., Mars v. Spartanburg Chrysler Plymouth, Inc., 713 F.2d 65, 67 (4th Cir.1983) (“To insure that the consumer is protected, as Congress envisioned, requires that the provisions of [the TILA and Regulation Z] be absolutely complied with and strictly enforced”).

[13] Herrera v. First N. Sav. & Loan Ass’n, 805 F.2d 896, 900 (10th Cir.1986).

[14] 15 U.S.C. § 1635(a) (emphasis added).

[15] 12 C.F.R. § 226.23(b)(1).

[16] Order at 11-12.

[17] Id. at 12.

[18] Specifically, the bankruptcy court held that the unmarked alternative paragraph in Beneficial’s “hybrid” Notice form was not sufficient notice of her right to rescind under the mandates of the TILA. Order at 12-14. Beneficial dismissed its cross-appeal, and the parties do not dispute this issue.

[19] 15 U.S.C. § 1640(a)(2)(A)(iii).

[20] Order at 23-24.

[21] Beneficial argues alternatively, in footnote 2 of its brief, that Merriman’s claim for damages related to the Notice violation is barred by the applicable statute of limitations. Beneficial did not preserve a statute of limitations affirmative defense in the bankruptcy court proceedings, and will not be allowed to raise it here, for the first time, on appeal. Moreover, Beneficial’s argument ignores the second sentence of 15 U.S.C. § 1640(e), which permits Merriman to recover statutory penalties “as a matter of defense by recoupment,” which is not barred by the statute of limitations.

[22] 15 U.S.C. § 1635(g) provides, “In any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this subchapter not relating to the right to rescind.”

[23] 11 U.S.C. § 553. Setoff is allowed where (1) the debts involved are between the same parties standing in the same capacity, (2) the debts are valid and enforceable, and (3) the debts are mutual, though they need not arise out of the same transaction. In re Davidovich, 901 F.2d at 1533. In the bankruptcy context, the claims must be pre-petition debts. In re Peterson Distrib., Inc., 82 F.3d 956, 963 (10th Cir.1996).

[24] Davidovich, 901 F.2d at 1537; Peterson Distrib., 82 F.3d at 959.

[25] Order at 21.

[26] 15 U.S.C. § 1635(b).

[27] 15 U.S.C. § 1635(b) (emphasis added).

[28] See Qwest Commc’ns Int’l, Inc. v. F.C.C., 398 F.3d 1222, 1232-33 (10th Cir.2005) (Explaining that generally, when Congress includes a specific term in one provision of a statute, but excludes it in another, it is presumed that the term does not govern the sections in which it is omitted) (citations omitted). The Court sees no reason to disturb this cannon of statutory construction here.

[29] 12 C.F.R. § 226.23(d).

[30] Sec. 226.23(d) Effects of rescission.

(1) When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.

(2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.

(3) If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer’s option, tender of property may be made at the location of the property or at the consumer’s residence. Tender of money must be made at the creditor’s designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer’s tender, the consumer may keep it without further obligation.

(4) The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.

[31] 288 B.R. 884 (D.Kan.2003) (“Quenzer III“).

[32] Id. at 888 (citing Ray v. Citifinancial, Inc., 228 F.Supp.2d 664 (D.Md.2002)).

[33] 329 F.3d 1167 (9th Cir.2003).

[34] Id. at 1172.

[35] Id.

[36] Id.

[37] Large v. Conseco Fin. Servicing Corp., 292 F.3d 49, 54-55 (1st Cir.2002); cf. Williams v. Homestake Mortgage Co., 968 F.2d 1137, 1141-42 (11th Cir.1992) (noting that rescission is automatic, but rejecting the argument that § 226.23(d)(4)’s lack of reference to subsection (d)(1) restricts a court’s ability to impose conditions that run with the voiding of a lender’s security interest upon terms that are equitable).

[38] Large, 292 F.3d at 54-55.

[39] In finding that Beneficial’s mortgage lien was not void, Bankruptcy Judge James A. Pusateri stated that he felt “constrained to follow” District Judge Crow’s decision in Quenzer III, which reversed Judge Pusateri’s decision on these same issues. See 266 B.R. 760 (Bankr.D.Kan.2001) (“Quenzer I“); 274 B.R. 899 (Bankr.D.Kan.2001) (“Quenzer II“).

[40] 288 B.R. at 884.

[41] 15 U.S.C. § 1635(b) (emphasis added). In 1980, Congress amended § 1635 by adding the last section to subsection (b), specifically giving the courts authority to change at least part of what happens when the borrower rescinds. See Truth in Lending Simplification and Reform Act, Title VI of Depository Institutions Deregulation and Monetary Control Act of 1980, Pub.L. No. 96-221, § 612(a)(4), 1980 U.S.C.C.A.N. (94 Stat.) 132, 175 (hereinafter “TILA Simplification Act”).

[42] 288 B.R. at 888.

[43] 968 F.2d 1137 (11th Cir.1992).

[44] Id. at 1140.

[45] Id. (quoting Note, Truth-in-Lending: Judicial Modification of the Right of Rescission, 1974 Duke L.J. 1227, 1234 (1974)).

[46] Id.

[47] 12 C.F.R. § 226.23(d)(2).

[48] Williams, 968 F.2d at 1140.

[49] 15 U.S.C. § 1635(b).

[50] See TILA Simplification Act, § 612(a)(4), 1980 U.S.C.C.A.N. (94 Stat.) at 175.

[51] Rudisell v. Fifth Third Bank, 622 F.2d 243 (6th Cir.1980); Powers v. Sims and Levin, 542 F.2d 1216 (4th Cir.1976); Rachbach v. Cogswell, 547 F.2d 502 (10th Cir.1976); LaGrone v. Johnson, 534 F.2d 1360 (9th Cir.1976). Contra Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir.1981) (refusing to permit judicial modification).

[52] 547 F.2d at 502.

[53] Id. at 505.

[54] See, e.g., Yamamoto, 329 F.3d at 1167; Williams, 968 F.2d at 1140; FDIC v. Hughes Development Co., 938 F.2d 889, 890 (8th Cir.1991), cert. denied, 502 U.S. 1099, 112 S.Ct. 1183, 117 L.Ed.2d 426 (1992); Quenzer III,288 B.R. at 888 (citing Black’s Law Dictionary on Westlaw (Garner, Ed., 7th ed.1999), defining “procedure” as “1. A specific method or course of action”);

[55] 288 B.R. at 888 (citing Rachbach, 547 F.2d at 505).

[56] In re Stanley, 315 B.R. at 602; In re Webster, 300 B.R. 787 (Bankr.W.D.Okla.2003).

[57] 12 C.F.R. Pt. 226, Supp. I, Paragraph 23(d)(4).

[58] Id. (2004) (emphasis added).

[59] 69 F.R. 16769-03 (March 31, 2004).

[60] Id. at 16772.

[61] Significantly, the new language as originally proposed read: “The consumer’s substantive right to rescind under § 226.23(a)(1) and § 226.23(d)(1) is not affected by the procedures referred to in § 226.23(d)(2) and (3), or the modification of those procedures by a court.” 68 F.R. 68799 (proposed December 10, 2003). This version, which might support Merriman’s position, was not the one ultimately adopted.

[62] Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).

[63] Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559-70, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980); Davison v. Bank One Home Loan Serv., No. 01-2511-KHV, 2003 WL 124542, at *5 (D.Kan. Jan.13, 2003).

[64] Cf. In re Stanley, 315 B.R. at 615-16 (concluding that Regulation Z § 226.23(d)(4) is manifestly contrary to TILA § 1635(b) and an irrational construction that did not bind that court).

[65] S.Rep. No. 96-368 at 29 (1980), U.S.Code Cong. & Admin.News 1980, 236, 264-65 (emphasis added).

[66] In re Stanley, 315 B.R. at 615 (citing In re Webster, 300 B.R. at 804 (rejecting debtor’s “free house” theory)).

[67] 11 U.S.C. § 1322(b)(2) (debtor’s Chapter 13 plan may not modify rights of a holder of a security interest in debtor’s principal residence).

[68] 288 B.R. at 889.

[69] S.Rep. No. 96-368, at 29 (1980), U.S.Code Cong. & Admin.News 1980, 236, 265.

[70] Merriman asks that the Court certify the question for immediate appeal to the Tenth Circuit pursuant to Fed.R.Civ.P. 54(b). Because the Court affirms the decision of the bankruptcy court, such certification, assuming it is appropriate, is not necessary.

Tender under Rescission of ANY Contract

Rescission means making a contract null. It requires unwinding of the deal so as to restore the parties to “status quo ante,” or “pre-contract condition.”  The unwinding requires the creditor to remove any lien and both creditor and borrower to tender (offer or present for acceptance) payment back to each other of what they received from each other.  See the below definitions, court opinions, and law references.

Definitions

RESCIND.  To abrogate, annul, avoid, or cancel a contract; particularly, nullifying a contract by the act of a party.  See Powell v Lince Co., 29 Misc. Rep. 419, 60 N. Y. Supp 1044; Hurst v. Trow Printing Co., 2 Misc. Rep. 361, 22 N. Y. Supp. 371.

Black’s Law Dictionary
2nd Edition (1910)

rescind (ri-sind), vb. (17c) 1. To abrogate or cancel (a contract) unilaterally or by agreement. [Cases: Contracts C=c249.] 2. To make void; to repeal or annul <rescind the legislation>. 3. Parliamentary law. To void, repeal, or nullify a main motion adopted earlier.
Also termed annul; repeal. rescindable, adj. rescind and expunge. See EXPUNGE (2).

rescission (ri-sizh-an), n. (17c) 1. A party’s unilateral unmaking of a contract for a legally sufficient reason, such as the other party’s material breach, or a judgment rescinding the contract; VOIDAKCE.• Rescission is generally available as a remedy or defense for a nondefaulting party and is accompanied by restitution of any partial performance, thus restoring the parties to their precontractual positions. Also termed avoidance. [Cases: Contracts G=’249.] 2. An agreement by contracting parties to discharge all remaining duties of performance and terminate the contract. – Also spelled recision; recission. – Also termed (in sense 2) agreement of rescission; mutual rescission; abandonment.

Cf. REJECTION (2); REPUDIATION (2); REVOCATION (1). [Cases: Contracts G=252.] – rescissory (ri-sis-<lree or ri-siz-), adj.
“The [UCC] takes cognizance of the fact that the term ‘rescission’ is often used by lawyers, courts and businessmen in many different senses; for example, termination of a contract by virtue of an option to terminate in the agreement, cancellation for breach and avoidance on the grounds of infancy or fraud. In the interests of clarity of thought – as the consequences of each of these forms of discharge may vary the Commercial Code carefully distinguishes three circumstances. ‘Rescission’ is utilized as a term of art to refer to a mutual agreement to discharge contractual duties. ‘Termination’ refers to the discharge of duties by the exercise of a power granted by the agreement. ‘Cancellation’ refers to the putting an end to the contract by reason of a breach by the other party. Section 2-720, however, takes into account that the parties do not necessarily use these terms in this way.” John D. Calamari & Joseph M. Perillo, The Law of Contracts § 21-2. at 864-65 (3d ed. 1987).

equitable rescission. (1889) Rescission that is decreed by a court of equity. [Cases: Cancellation of Instruments (;::; 1.]

legal rescission. (1849) 1. Rescission that is effected by the agreement of the parties. [Cases: Contracts C=> 251.] 2. Rescission that is decreed by a court of law, as
opposed to a court of equity.
“The modern tendency is to treat rescission as equitable, but rescission was often available at law. If plaintiff had paid money, or had delivered goods. he could rescind by tendering whatever he had received from defendant and suing at law to recover his money or replevy his goods. But if he had delivered a promissory note or securities, or conveyed real estate, rescission required the court to cancel the instruments or compel defendant to reconvey. This relief was available only in equity. Many modern courts ignore the distinction …. But versions of the distinction are codified in some states:’ Douglas Laycock, Modern American Remedies 627-28 (3d ed. 2002).

Black’s Law Dictionary 9th Edition (2009)

Court Opinions

“There is no reason why a court that may alter the sequence of procedures after deciding that rescission is warranted, may not do so before deciding that rescission is warranted when it finds that, assuming grounds for rescission exist, rescission still could not be enforced because the borrower cannot comply with the borrower’s rescission obligations no matter what. Such a decision lies within the court’s equitable discretion, taking into consideration all the circumstances including the nature of the violations and the borrower’s ability to repay the proceeds. If … it is clear from the evidence that the borrower lacks capacity to pay back what she has received (less interest, finance charges, etc.), the court does not lack discretion to do before trial what it could do after. Determinations regarding rescission procedures shall be made on a “case-by-case basis, in light of the record adduced.”
Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003)

Courts have equitable discretion to allow borrowers to tender via monthly payments.  In re Stuart, 367 B.R. 541, 552 (Bankr.E.D.Pa.2007); Shepeard v. Quality Sliding & Window Factory, Inc., 730 F.Supp. 1295 (D.Del.1990) (allowing borrower to satisfy tender obligation by making monthly payments); Mayfield v. Vanguard Sav. & Loan Ass’n, 710 F.Supp. 143, 149 (E.D.Pa.1989) (allowing borrower to satisfy tender obligation by making monthly payment).

Law

15 U.S.C. §1635. Right of rescission as to certain transactions

http://www.gpo.gov/fdsys/pkg/USCODE-2010-title15/html/USCODE-2010-title15-chap41-subchapI-partB-sec1635.htm

(a) Disclosure of obligor’s right to rescind

Except as otherwise provided in this section, in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which 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 the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section.

(b) Return of money or property following rescission

When an obligor exercises his right to rescind under subsection (a) of this section, he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission. Within 20 days after receipt of a notice of rescission, the creditor shall return to the boligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor’s obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within 20 days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it. The procedures prescribed by this subsection shall apply except when otherwise ordered by a court.

(c) Rebuttable presumption of delivery of required disclosures

Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof.

(d) Modification and waiver of rights

The Board may, if it finds that such action is necessary in order to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of any rights created under this section to the extent and under the circumstances set forth in those regulations.

(e) Exempted transactions; reapplication of provisions

This section does not apply to—

(1) a residential mortgage transaction as defined in section 1602(w) of this title;

(2) a transaction which constitutes a refinancing or consolidation (with no new advances) of the principal balance then due and any accrued and unpaid finance charges of an existing extension of credit by the same creditor secured by an interest in the same property;

(3) a transaction in which an agency of a State is the creditor; or

(4) advances under a preexisting open end credit plan if a security interest has already been retained or acquired and such advances are in accordance with a previously established credit limit for such plan.

(f) Time limit for exercise of right

An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor, except that if (1) any agency empowered to enforce the provisions of this subchapter institutes a proceeding to enforce the provisions of this section within three years after the date of consummation of the transaction, (2) such agency finds a violation of this section, and (3) the obligor’s right to rescind is based in whole or in part on any matter involved in such proceeding, then the obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the earlier sale of the property, or upon the expiration of one year following the conclusion of the proceeding, or any judicial review or period for judicial review thereof, whichever is later.

(g) Additional relief

In any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this subchapter not relating to the right to rescind.

(h) Limitation on rescission

An obligor shall have no rescission rights arising solely from the form of written notice used by the creditor to inform the obligor of the rights of the obligor under this section, if the creditor provided the obligor the appropriate form of written notice published and adopted by the Board, or a comparable written notice of the rights of the obligor, that was properly completed by the creditor, and otherwise complied with all other requirements of this section regarding notice.

(i) Rescission rights in foreclosure

(1) In general

Notwithstanding section 1649 of this title, and subject to the time period provided in subsection (f) of this section, in addition to any other right of rescission available under this section for a transaction, after the initiation of any judicial or nonjudicial foreclosure process on the primary dwelling of an obligor securing an extension of credit, the obligor shall have a right to rescind the transaction equivalent to other rescission rights provided by this section, if—

(A) a mortgage broker fee is not included in the finance charge in accordance with the laws and regulations in effect at the time the consumer credit transaction was consummated; or

(B) the form of notice of rescission for the transaction is not the appropriate form of written notice published and adopted by the Board or a comparable written notice, and otherwise complied with all the requirements of this section regarding notice.

(2) Tolerance for disclosures

Notwithstanding section 1605(f) of this title, and subject to the time period provided in subsection (f) of this section, for the purposes of exercising any rescission rights after the initiation of any judicial or nonjudicial foreclosure process on the principal dwelling of the obligor securing an extension of credit, the disclosure of the finance charge and other disclosures affected by any finance charge shall be treated as being accurate for purposes of this section if the amount disclosed as the finance charge does not vary from the actual finance charge by more than $35 or is greater than the amount required to be disclosed under this subchapter.

(3) Right of recoupment under State law

Nothing in this subsection affects a consumer’s right of rescission in recoupment under State law.

(4) Applicability

This subsection shall apply to all consumer credit transactions in existence or consummated on or after September 30, 1995

TILA Regulation Z 12 C.F.R.§ 1026

Stay Up To Date here:
http://www.consumerfinance.gov/eregulations/1026

12 C.F.R. § 1026.23 Rescission under Regulation Z

http://www.gpo.gov/fdsys/pkg/CFR-2015-title12-vol9/pdf/CFR-2015-title12-vol9-sec1026-23.pdf

Appendix I.  Interpretation of Regulation Z by Consumer Financial Protection Burea (CFPB)

http://www.gpo.gov/fdsys/pkg/CFR-2015-title12-vol9/pdf/CFR-2015-title12-vol9-part1026-appI-id89.pdf

Garfield and Sickler in deep confusion over TILA Right to Rescind

Neil Garfield recently posted this:

Hat tip to Carol Molloy, Esq. in Tennessee in bringing this article to my attention. I think that the author, Alexandra P. Everhart Sickler associate Professor of Law at North Dakota School of Law, has done an excellent job in analyzing the legal precedent, the statutory provisions, the agency rules, and the general attitude of the Courts that seek to restrict the effect of TILA Rescission. Published by Rutgers Journal of Law and Public Policy, this is the best of what I have read thus far. I see many parts that could be quoted in briefs and memorandums of law.

see THE TRUTH SHALL SET YOU FREE

It looks like Garfield has finally found a fellow BOZO who cannot grok TILA rescission, and writes nonsense about it in a law journal. With opinions like hers, Sickler will never become a full professor. She clearly cannot read and comprehend either the law nor the SCOTUS opinion in Jesionski nor the myriad circuit opinions explaining the unwinding process of rescission in patient detail.

I don’t agree with Sickler’s obvious misunderstanding that “The Supreme Court ruled against the federal circuits’ majority-held view, holding that the statute does not require the filing of a lawsuit… That view holds that TILA implicitly requires a consumer borrower to file a lawsuit to exercise her right to rescind even though the statute expressly provides that written notice is sufficient. Five circuits imposed this requirement even though Congress did not, … ”

The SCOTUS in Jesinoski mentioned in its holding the unwinding process which the law requires, but Sickler, no stickler for reality, ignores it. The statute implies the unwinding and the Reg Z SPELLS OUT unwinding through mutual tender, and BOTH statute and reg explain that the court can modify the process of rescission.

Common sense tells us that a creditor has no obligation to accept the borrower’s rescission as some kind of command that applies regardless of whether the lender failed to give the borrower proper disclosures of the right to cancel and rescind, or if the borrower sent notice of rescission styled as some malformed indecipherable curiosity
instead of a proper notice, or whether the borrower sent the notice after the 3-year window had closed. That reasoning makes it obvious that only a court should determine the matter,

Thus a “RIGHT” to rescind begins with a failure of the lender to give the borrowers sufficient disclosures of the right to cancel the loan within 3 days, and the right to rescind it within 3 years. If the lender actually gave sufficient disclosure, then the “RIGHT” never accrues to the borrower, and the borrower might have the right to rescind under the common law, but has no such right under TILA.

In my humble opinion, only a bozo cannot comprehend the common sense that rescission differs from cancellation, and the ACCRUAL OF RIGHT TO RESCIND (through lender failure to give proper disclosures of the right), not written notice of rescission, ENABLES the START of the rescission process.  Then, if and only if a valid causes exists, the borrower initiates rescission by sending notice of rescission to the lender. If the creditor doesn’t agree, the creditor may with impunity ignore or deny the wrongful notice of rescission. Exactly such denials happen all over the USA, and borrowers have no choice but to sue or sleep on their rights. And when borrowers sue, the court determines the reality of the TILA violation, the sufficiency of notice of rescission, and the ability of the parties to tender. Then, IF and ONLY IF ALL of those determinations justify it, the court will order the rescission.

The Jesinoski opinion did NOTHING to change the TILA rescission unwinding process. Yes, rescission starts with mailing of notice, but the parties COMPLETE i ONLY by fulfillment of all the conditions the law and regulation require, which, incidentally, I mentioned above.

A plethora of post-Jesinoski opinions fully corroborate the unwinding requirement. Furthermore, USCCA TILA rescission opinions in Circuits 2, 3, 4, 5, 7, and 11 constitute stare decisis because the SCOTUS in Jesinoski did not overturn their opinions, for they had already supported rescission lawsuits after the 3-year notice of rescission limitation. However, ALL of the circuits had already supported the 1-year-and-20-days limit on the borrower’s right to sue to enforce the rescission following notice. Let us not forget that Jesinoski dealt only with the question of whether borrower may sue later than 3 years after loan consummation. The SCOTUS said yes, and now Jesinoski fights the issue of rescission back in trial court. I have predicted the rescission will not happen because he cannot tender.

Sickler seeks to inquire about federal circuit hostility to TILA rescission. She need look no further than to the common sense reality that the borrower MUST have accrued the right, then must give proper notice, and then must tender after the lender tenders, and if the lender denies the rescission, the borrower MUST SUE the lender under 15 USC 1640, or include rescission as an affirmative defense in a foreclosure proceeding or related action.

That explains how TILA rescission works, and Sickler clearly doesn’t grok it.

References:
15 USC § 1565
12 CFR § 1026.23
Jesinoski v. Countrywide Home Loans, Inc.
135 S. Ct. 790, 190 L. Ed. 2d 650, 574 US __ – Supreme Court, 2015

PRIME EXAMPLE OF CROOKED BORROWER (Learn from this)

The Shelton case shows EXACTLY why the courts feel so hostile toward borrowers who try to shake down lenders and get a free house or rescission money for nonsensical reasons.

American Mortg. Network, Inc. v. Shelton, 486 F. 3d 815 – Court of Appeals, 4th Circuit 2007

https://scholar.google.com/scholar_case?case=857794094684968730&q=shelton+mortgage+north+carolina&hl=en&as_sdt=40003

********** My Overview of the Issue

Real Estate Appraiser Shelton overvalued the property in an appraisal he oversaw, took out a loan for more than he could afford, and timely sent the lender notice of rescission because of understated loan cost. The lender agreed to unwind if Shelton would agree to tender, but Shelton responded that he could not tender. Instead Shelton suggested a deed in lieu of tender if the lender would pay the difference between the loan balance and the exorbitant appraised value. The lender refused because of the inflated appraisal. Shelton claimed the bank forfeited the loan proceeds by refusing to remove the lien within 20 days of cancellation.

The lender sued , seeking declaratory judgment that it had processed Shelton’s TILA rescission effort correctly (denying rescission). The trial court sided with the lender and denied rescission, and the 4th USCCA affirmed.

I have appended excerpts of the opinion. They show that scammer Shelton committed loan application fraud (felony), appraisal fraud (felony), and numerous other shenanigans.

************* From the opinion (SCAMMERS HEED THIS)

First, it appeared to the trial court that Shelton significantly overstated his income in the initial loan application submitted on his behalf by Waterford Financial Services, 819*819 Inc. (“Waterford Financial”). The application stated that Shelton’s annual income in 2004 was $97,200. Subsequent examination of Shelton’s 2004 tax return revealed an income of $34,236. According to Amnet, if Shelton’s application had disclosed his actual 2004 net income, he would not have qualified for the loan.

Second, the Uniform Residential Appraisal Report received from Waterford Financial and purportedly prepared by an independent appraiser was in fact prepared by an appraiser operating under Shelton’s supervision. Although the appraiser was technically an independent contractor, he had been trained by Shelton and worked exclusively for Shelton’s company. The report estimated the fair market value of the house as of November 15, 2004, to be $370,000. Amnet contends that the appraisal was inflated and that a “truly independent” appraiser assessed its fair market value at closer to $300,000. Irrespective of the numbers, it appeared to be uncontroverted that the Sheltons’ appraiser was not independent.

Third, despite signing an Occupancy Agreement at closing, representing that he intended to occupy the house as his primary residence throughout the twelve-month period immediately following the loan closing, Shelton was in fact in the process of building another home that would serve as his primary residence. The Sheltons could not afford to finance the custom home and continue payments on the Amnet loan.

The Sheltons argue that the above-described alleged misrepresentations, which were found by the district court to constitute inequitable conduct, were material facts “hotly in dispute.” The Sheltons maintain that the resolution of these factual disputes was critical to the issues of rescission and forfeiture. In their view, the trial court erred by refusing to conduct an evidentiary hearing to address these disputed facts. We disagree.

Despite the Sheltons’ protestation, many of the facts underlying the inequitable conduct were uncontroverted. For example, Shelton’s 2004 tax return reflected income far below that represented to Amnet. There is also no dispute that the appraiser who conducted the appraisal on the property was affiliated with Shelton and operated under his supervision. Although we do not believe that Shelton’s inequitable conduct necessarily controlled the outcome of this case, it was appropriately considered by the trial judge.[3] As the United States Court of Appeals for the District of Columbia noted in Brown v. National Permanent Federal Savings & Loan Ass’n, 683 F.2d 444 (1982), “[a]lthough the right to rescind is [statutory], it remains an equitable doctrine subject to equitable considerations.”[4] Id. at 447.

Specifically, the Sheltons allege that pertinent portions of the Notice of Right to Cancel were obstructed by removable “Sign Here” stickers. They assert that the stickers obscured the cancellation signature blocks and the language indicating where to sign in order to rescind the transaction. It is, however, interesting to note that the Sheltons executed the cancellation documents almost immediately upon receipt and returned them to Amnet in a timely manner. The Sheltons also complain that they received only one copy of the new Notice of Right to Cancel as opposed to the four copies they argue are required by statute—two for each of the Sheltons. See 12 C.F.R. § 226.23(b) (“[A] creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind.”)

Although this Court believes that Amnet substantially complied with all requirements of TILA in notifying the Sheltons of their right of rescission, this Court need not address each alleged hyper-technical violation. Here, Amnet had no obligation under TILA to provide a renewed notice of right of rescission or to reopen the cancellation 822*822 period. This obligation is only triggered under TILA when the financial discrepancy is over $100. See 15 U.S.C. § 1605(f)(1)(A); 12 C.F.R. § 226.18(d)(1)(i). The notice provided to the Sheltons in this case was strictly voluntary and therefore needed not meet the technical requirements of 12 C.F.R. § 226.23(b).

Florida 1st District Affirms $250K Punitive Damage Award in Pate v BOA

All of you who simply cannot believe that borrowers can beat the bank by proving the bank and its agents and allies injured the borrower, TAKE HEART.  Here I present a crystal clear example of the MORTGAGE ATTACK methodology:

Bank of America, NA v. Pate, 159 So. 3d 383 – Fla: Dist. Court of Appeals, 1st Dist. 2015

https://scholar.google.com/scholar_case?case=9278967945135979893

Don’t waste your time whining about the banking industry, fractional reserve lending, the Federal Reserve, the money system, securitization, and such irrelevancies.  Get a mortgage examination if necessary to find the causes of action, and use them to HAMMER the lender, creditor, servicer, appraiser, loan broker, closer, title company, etc (whoever hurt you) IN COURT.

As you can see, the Florida appeals court upheld the BENCH TRIAL (not jury) award of $250,000 in PUNITIVE DAMAGES and over $60,000 in compensatory damages for the INJURIES the BANK did to the BORROWER.  The Pates could probably have won much more in a jury trial.
If you want to deploy the MORTGAGE ATTACK strategy in your own mortgage dispute, visit http://MortgageAttack.com to learn what works and what does not.

159 So.3d 383 (2015)

BANK OF AMERICA, N.A., and Third-Party Defendant, Homefocus Services, LLC, Appellants,
v.
Phillip V. PATE and Barbara Pate, Robert L. Pohlman and Marcia L. Croom, Appellees.

No. 1D14-251.District Court of Appeal of Florida, First District.

March 16, 2015.J. Randolph Liebler and Tricia J. Duthiers of Liebler, Gonzalez & Portuondo, Miami, for Appellants.

384*384 Jonna L. Bowman of Law Office of Jonna Bowman, Blountstown, for Appellees.

PER CURIAM.

AFFIRMED.

ROWE and OSTERHAUS, JJ., concur; THOMAS, J., CONCURS SPECIALLY WITH OPINION.

THOMAS, J., Specially Concurring.

In this civil foreclosure case, the trial court found that Appellant Bank of America (the Bank) engaged in egregious and intentional misconduct in Appellee Pates’ (Pate) purchase of a residential home. Thus, based on the trial court’s finding that the Bank had unclean hands in this equity action, it did not reversibly err in denying the foreclosure action and granting a deed in lieu of foreclosure. In addition, the trial court did not err in ruling in favor of the Pates in their counterclaims for breach of contract and fraud, and awarding them $250,000 in punitive damages and $60,443.29 in compensatory damages, against the Bank and its affiliate, Homefocus Services, LLC, which provided the flawed appraisal discussed below. Finally, the trial court did not reversibly err in granting injunctive relief and thereby ordering the Bank to take the necessary measures to correct the Pates’ credit histories.

In the bench trial below, the trial court found that the Bank assured the Pates, based on the appraisal showing the home’s value far exceeded the $50,000 mortgage loan, that it would issue a home equity loan in addition to the mortgage loan. This was a precondition to the Pates’ agreement to purchase the home, which was in very poor condition but had historical appeal for the Pates. The Pates intended to restore the home, but needed the home equity loan to facilitate restoration.

Before the closing on the property, the Bank informed the Pates that it would close on the home equity loan “later,” after the mortgage loan was issued. The Bank later refused to issue the home equity loan, in part on the ground that the appraisal issued by Homefocus was flawed. The Pates were forced to invest all of their savings and much of their own labor in extensive repairs. Thus, the trial court found that the Pates detrimentally relied on the representations of the Bank that it would issue the home equity loan. The record supports the trial court’s conclusion that the Bank acted with reckless disregard constituting intentional misconduct by the Bank. See generally,Lance v. Wade, 457 So.2d 1008, 1011 (Fla.1984) (“[E]lements for actionable fraud are (1) a false statement concerning a material fact; (2) knowledge by the person … that the representation is false; (3) the intent … [to] induce another to act on it; and (4) reliance on the representation to the injury of the other party. In summary, there must be an intentional material misrepresentation upon which the other party relies to his detriment.”).

The trial court further found that the Pates complied with the Bank’s demand to obtain an insurance binder to provide premiums for annual coverage, and that the Bank agreed to place these funds in escrow, utilizing the binder to pay the first year of coverage and calculate future charges to the Pates. Although the Pates fulfilled this contractual obligation, the Bank failed to correctly utilize the escrow funds. Consequently, the Pates’ insurance policy was ultimately cancelled due to nonpayment. The Pates attempted to obtain additional coverage but were unsuccessful due to the home’s structural condition. The Bank then obtained a force-placed policy with $334,800 in coverage and an annual premium of $7,382.98, which was 385*385 included on the mortgage loan, quadrupling the Pate’s mortgage payment.

The Pates offered to pay the original $496.34 monthly mortgage payment, but the Bank refused, demanding a revised mortgage payment of $2,128.74. The trial court found it “disturbing that Bank of America could financially profit due to [the Bank’s] failure to pay the home insurance…. [T]he profits for one or more months of forced place insurance would have been substantial.”

The trial court further found that during the four years of litigation following the Pates’ default, the Bank’s agents entered the Pate’s home several times while the Pates resided there, attempted to remove furniture, and placed locks on the exterior doors. Following the Bank’s action, the Pates had to have the locks changed so their family could enter the residence. During two of the intrusions, the Pates were required to enlist the aid of the sheriff to force the Bank’s agent to leave their home. The trial court found as fact that, due to the Bank’s multiple intrusions into their home, the Pates were forced to obtain alternative housing for 28 months, at a cost of thousands of dollars.

The Bank’s actions supported the trial court’s finding that punitive damages were awardable. In Estate of Despain v. Avante Group, Inc., 900 So.2d 637, 640 (Fla. 5th DCA 2005), the court held that “[p]unishment of the wrongdoer and deterrence of similar wrongful conduct in the future, rather than compensation of the injured victim, are the primary policy objectives of punitive damage awards.” See also Owens-Corning Fiberglas Corp. v. Ballard, 749 So.2d 483 (Fla.1999); W.R. Grace & Co.-Conn. v. Waters, 638 So.2d 502 (Fla.1994).

In Estate of Despain, the court held that “[t]o merit an award of punitive damages, the defendant’s conduct must transcend the level of ordinary negligence and enter the realm of willful and wanton misconduct….” 900 So.2d at 640. Florida courts have defined such conduct as including an “entire want of care which would raise the presumption of a conscious indifference to consequences, or which shows… reckless indifference to the rights of others which is equivalent to an intentional violation of them.” Id. (quoting White Constr. Co. v. Dupont, 455 So.2d 1026, 1029 (Fla.1984)). Here, the Bank’s intent to defraud was shown by its reckless disregard for its actions. The facts showing the Bank’s “conscious indifference to consequences” and “reckless indifference” to the rights of the Pates is the same as an intentional act violating their rights. See White Constr. Co., 455 So.2d at 1029. The record evidence provides ample support for the trial court’s ruling in favor of the Pates’ claim for punitive damages against the Bank.

The learned trial judge found that the Bank’s actions demonstrated its unclean hands; therefore, the Bank was not entitled to a foreclosure judgment in equity. Unclean hands is an equitable defense, akin to fraud, to discourage unlawful activity. SeeCongress Park Office Condos II, LLC v. First-Citizens Bank & Trust Co., 105 So.3d 602, 609 (Fla. 4th DCA 2013) (“It is a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief[.]”) (quoting Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 814 (1945)). The totality of the circumstances established the Bank’s unclean hands, precluding it from benefitting by its actions in a court of equity. Thus, the trial court did not err by denying the foreclosure action.

CA court affirms $250K for dual tracking in Bergman v JPMCB

Read the opinion here (also appended below):

http://www.courts.ca.gov/opinions/nonpub/E060148.PDF

This California 4th District appellate opinion contains a treasure trove of virtual advice for borrowers whom the lender scammed with a fake loan mod while foreclosing on him at the same time (“dual tracking.”

The panel fully supported the opinion of the trial court which awarded Bergman $250,000 in damages plus legal fees.  The court would have awarded him much more had Bergman’s attorney hired Law Partner On Call (http://lawpartneroncall.com) to manage the litigation, write the pleadings, and write the jury instructions.

Bergman got his payday for breach of contract by his creditor, but he made a bunch of mistakes.

For example, he did not include an attorney fees provision in his loan security instrument (that standard form only says the creditor can recover legal fees and costs) in the event the court finds that the creditor or servicer or other agent engaged in wrongdoing that injured the borrower.  The court awarded Bergman fees anyway, but against great opposition by the creditor.  Most borrowers make the same mistake.

And, Bergman failed to add to the security instrument that a special penalty attaches to dual tracking, a scam that virtually every lender has run on desperate borrowers who want a loan mod.

Furthermore, Bergman made the same mistake many do in loan mod negotiations – he failed to record the name and ID# of everyone he talked to at the bank, and he failed to get a signed writing saying he had to miss payments in order to qualify for the loan mod, and that if he missed them, then made proper trial payments, the lender would grant the loan mod.  Everything was oral leading up to the actual mod.  And oral agreements have no more value than the paper on which the parties wrote them.  The lender’s attorney blustered about it, but the court ruled that the parties had indeed make that agreement, then failed to give Bergman a loan mod.  I believe many courts, faced with similar facts, have ruled that no agreement existed.

Bergman’s most monumental mistake:  he failed to hire a competent professional to examine his loan documents for evidence of torts, contract and regulatory breaches, and legal errors.  Had he done that, and lodge those as claims in his complaint, he could have won gargantuan damages award because, almost certainly, fraud underlay his loan.

Bergman while in the right, found uncommon good luck in this litigation.  Many borrowers have lost using his paper-thin arguments.

READ THE OPINION thoroughly, especially if you have a mortgage and consider a loan mod.

But if you really want to win, call me right now at 727 669 5511 and schedule a mortgage examination, whether or not you face foreclosure.  Read all about what wins and what does not win at http://mortgageattack.com.

————– Court Opinion ————–

Filed 9/30/15 Bergman v. JP Morgan Chase Bank, N.A. CA4/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT

DIVISION TWO

E060148

(Super.Ct.No. RIC10014015) OPINION

APPEAL from the Superior Court of Riverside County. Ronald L. Taylor, Judge. (Retired judge of the Riverside Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.) Affirmed.

AlvaradoSmith, John M. Sorich, S. Christopher Yoo, Jacob M. Clark; Parker Ibrahim & Berg, John M. Sorich and Mariel Gerlt-Ferraro for Defendant and Appellant.

Burkelegal and Gregory Burke for Plaintiff and Appellant.

I INTRODUCTION

Plaintiff and respondent Jeffrey A. Bergman (Bergman) sued defendant and appellant JPMorgan Chase Bank, N.A. (Chase) on claims involving a residential loan modification. A jury found in favor of Bergman on his causes of action for intentional misrepresentation and breach of the implied covenant of good faith and fair dealing.

Chase appeals from a $250,000 judgment in favor of Bergman, and the posttrial orders denying Chase’s motion for judgment notwithstanding the verdict (JNOV) and granting attorney’s fees to Bergman.

Chase argues the verdict is not supported by substantial evidence because no evidence shows Chase made misrepresentations to Bergman. Additionally, Chase argues the trial court erred in evidentiary rulings and jury instructions. Finally, Chase contends the judgment’s award of damages was duplicative, and the attorney’s fees provision under the subject deed of trust and promissory note did not include recovery of fees.

Bergman has filed a cross-appeal, raising issues of instructional and evidentiary error, and additional claims by Bergman for breach of contract and attorney’s fees.

We presume the judgment is correct if it is supported by substantial evidence. (Ermoian v. Desert Hospital (2007) 152 Cal.App.4th 475, 494; Denham v. Superior

Court (1970) 2 Cal.3d 557, 564; San Diego Metropolitan Transit Development Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 528.) To warrant reversal, an error in jury instructions must result in a miscarriage of justice. (Mize-Kurzman v. Marin

Community College Dist. (2010) 202 Cal.App.4th 832, 862; Soule v. General Motors

Corp. (1994) 8 Cal.4th 548, 580.) Evidentiary error must also be “arbitrary, capricious, or patently absurd . . . resulting in a manifest miscarriage of justice.” (Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1685.) On a motion for judgment notwithstanding the verdict, an appellate court must decide whether any substantial evidence supports the verdict unless the verdict raises purely legal questions. (Trujilllo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 284; Wolf v. Walt Disney Pictures

& Television (2008) 162 Cal.App.4th 1107, 1138.) An award of attorney’s fees is

reviewed de novo. (Conservatorship of Whitley (2010) 50 Cal.4th 1206, 1212.) Based on the various appropriate standards of review, we affirm the judgment:

“The ultimate determination is whether a reasonable trier of fact could have found for the respondent based on the whole record.” (Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.)

II

FACTUAL AND PROCEDURAL BACKGROUND

In 2005, Bergman purchased the subject residential real property located at 22330 Foxhall Drive in Corona, making a down payment of $250,000. Bergman proceeded to make improvements to the property costing about $291,000.

In 2007, Bergman refinanced the property with an adjustable rate mortgage of

$937,500, based on a value of $1.25 million. Bergman testified he thought the loan was a conventional loan. Instead, the monthly payments in the fixed amount of $5,273.44 were interest-only for the first 10 years until 2017.

Bergman made the monthly payments from January until October 2008. Chase acquired the beneficial interest in the loan in September 2008. In December 2008, Bergman asked for a loan modification with a lower interest rate. He paid the loan modification fee of $1,582. The bank agreed to reduce the interest rate to 3 percent and the monthly payment to $4,112.74, while increasing the loan balance by an additional

$9,000. In the third year, the monthly payment would increase to $5,417.64, applied to both principal and interest.

When Bergman realized how much the monthly payment would increase in the third year, he immediately contacted Chase about another modification. He testified Chase offered proposed terms for a new loan modification with a 40-year term, a fixed interest rate at 3 percent, and a $3,000 monthly payment. Bergman had the ability to pay

$3,000 a month.

Bergman testified he did not make a payment on the first loan modification in January 2009 or later because the Chase bank staff1 told him that to qualify for another loan modification he would need to be in default. Bergman did not remember making a payment that was reversed and returned in February 2009, for nonsufficient funds, or “NSF.”

A notice of default (NOD) was recorded in April 2009. Although Bergman contacted Chase about the NOD, Bergman did not realize in July 2009 that the

  • Bergman could not name most of the bank staff to whom he Almost none of the correspondence he received from Chase included individual names.

foreclosure was proceeding. A notice of trustee’s sale was mailed to Bergman, posted on the property, and recorded on August 3, 2009.

In the meantime, in August 2009, Bergman consulted with a real estate broker about a short sale. Bergman also finally received information about a HAMP2 loan modification from Chase. Bergman submitted a HAMP hardship affidavit and financial information to Chase on August 20, 2009. Bergman had suffered financial difficulties from a divorce, a downturn in his limousine business, and two surgeries. He stated the property was worth $578,000 and the outstanding loan was $946,000. However, Bergman could not qualify for a HAMP loan because of the limit of $729,750 on loan modifications.

Bergman identified one Chase employee, Hifa Boolori, whose name appears on correspondence dated August 28, 2009, approving a trial plan agreement. A trial plan agreement was not a HAMP loan but a Chase internal loan modification program.

Bergman agreed to the plan and made three trial plan payments of $2,775 in September, October, and November 2009. He provided additional information, anticipating he would receive a second loan modification.

Bergman testified he did not know the foreclosure was proceeding at the same time the second loan modification was being evaluated. He was told the foreclosure

would be “frozen.” In his fifth amended complaint, he alleged he was informed on November 17, 2009, that he had been denied a loan modification and a sale was

  • Home Affordable Modification

scheduled for January 5, 2010. At trial, he testified he did not know the trustee’s sale was scheduled for December 2, 2009, but had been rescheduled for January 15, 2010.

On December 17, 2009, Bergman signed a listing agreement for a short sale. He drafted a letter on December 22, 2009, asking Chase to let him sell the property in a short sale.

On the same date, December 22, 2009, Chase wrote Bergman a letter asking him to provide two recent paystubs to support his loan modification request. After receiving that letter, Bergman called Chase—because he had already been told his loan modification was denied—but Chase told him the loan was still under review. Bergman provided copies of his bank statements for October and November 2009.

On January 12, 2010, Chase again wrote Bergman, stating his loan modification was being reviewed. On February 11, 2010, Bergman wrote Chase, asking to cancel the loan modifications and to proceed with a short sale. Bergman continued to receive conflicting information about his loan from Chase until July 2010.

The property was sold at a trustee’s sale in July 2010 to defendant Mark Mraz, a friend of Bergman’s. One appraised fair market value was $595,000. The unpaid principal balance was $1,022.265.92. Bergman continued to receive notices about loan modification after the sale.

After the property was sold, Bergman was sued for unlawful detainer. Bergman posted a cash bond of $30,000 with money borrowed from his parents. Bergman incurred additional attorney’s fees defending the unlawful detainer action.

The jury completed the special verdict forms on all seven causes of action and punitive damages. The jury awarded Bergman damages of $125,000 on the cause of action for breach of the implied covenant of good faith and fair dealing and $125,000 on the cause of action for intentional misrepresentation.

III

PROPERTY IMPROVEMENTS

At trial Chase objected to Bergman’s testimony about the $291,000 he spent on property improvements on the grounds that information had not been disclosed during discovery. Chase argues the trial court abused its discretion by allowing Bergman to testify. (Evid. Code, § 352.) Chase contends it was prejudiced by “surprise at the trial” because Chase could not adequately challenge Bergman’s testimony regarding the property upgrades. (Chronicle Pub. Co. v. Superior Court (1960) 54 Cal.2d 548, 561.)

Chase’s pretrial motion in limine sought to exclude any documentary evidence and witnesses not previously disclosed. Bergman was not an undisclosed witness and he did not submit documentary evidence about the property upgrades at trial. Furthermore, we have reviewed Chase’s record citations to its discovery requests and those requests do not support Chase’s contention that it “specifically requested all documents in support of Bergman’s claims.” Chase’s requests for admission, form and special interrogatories, and document requests do not ask generally or particularly for any documents in support of Bergman’s claim for damages based on the cost of the property improvements.

Therefore, the predicate for Chase’s argument—that Bergman did not comply with

discovery requests—is not supported by the record. The trial court did not abuse its

discretion in allowing Bergman’s testimony, which did not involve undisclosed documents or witnesses. (Boeken v. Phillip Morris, Inc., supra, 127 Cal.App.4th at p. 1685.)

IV

JURY INSTRUCTION ON CORPORATE FRAUD

The trial court gave the jury a standard instruction based on CACI No. 1900, concerning intentional misrepresentation: “Jeffrey Bergman claims that [Chase] made a false representation that harmed him.” Chase contends the court erred by not giving its proposed Special Instruction No. 11: “To assert a fraud action against a corporation, a plaintiff must also allege [the] names of the person or persons who allegedly made the

fraudulent representation, their authority to speak, to whom they spoke, what they said or

wrote, and when it was said or written.”

The special instruction requested by Chase is based on heightened pleading requirements for corporate fraud, requiring a plaintiff to allege specifically the name of the person who made the alleged misrepresentations, his authority to speak, and what he said or wrote, and when it was said or written. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645; Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153,

157; Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1469.) However, “[l]ess specificity in pleading fraud is required ‘when “it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy . . . .”’ (Committee on Children’s Television, Inc. v. General

Foods Corp. (1983) 35 Cal.3d 197, 217.)” (Cansino, at p. 1469.)

In the present case, Bergman specifically alleged and testified that he knew the name of one Chase employee in particular, Hifa Boloori, who made representations to him, although he spoke to many Chase employees during many phone calls between 2008 and 2010. Additionally, Chase had extensive records of contacts and conversations with Bergman which included information about which Chase employees contacted him, including the period between October 2008 and February 2009. Under the category of “USR,” the Chase delinquency notes identified the Chase employee by his or her initials, allowing Chase to determine who contacted Bergman far more easily than Bergman could do so. Even if Chase’s records do not expressly document an oral promise for a

40-year loan at 3 percent interest with $3,000 monthly payments, the records still include information about the employees who talked to Bergman.

Under these circumstances, it was not error or prejudicial for the trial court to instruct the jury according to the standard jury instruction and not to use Chase’s

proposed special instruction. The instruction to the jury was not required to be as specific as the pleading. Nevertheless, Bergman identified one person by name and Chase had to know its own employees based on its own records. (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 793.) There was no error causing a miscarriage of justice and no prejudice in refusing Chase’s special instruction. (Mize-Kurzman v. Mann Community College Dist., supra, 202 Cal.App.4th at p. 862, citing Soule v. General Motors Corp., supra, 8 Cal.4th at p. 580.)

V SUBSTANTIAL EVIDENCE

Chase argues there is not substantial evidence to support the jury’s verdict on the causes of action for fraud by intentional misrepresentation and breach of the covenant of good faith and fair dealing. In our review, we are guided by well-established principles: “It is for the trier of fact to determine the weight of the evidence and the credibility of the witnesses and resolve all conflicts. Where disputed facts are presented to and resolved by the trial judge, unless clearly erroneous his findings will not be disturbed by the reviewing court; it is not the province of this court to substitute its judgment for that of                   the trier of fact. On appeal the evidence and all reasonable inferences to be drawn therefrom must be viewed in a light most favorable to the findings and judgment. [Citations.] ‘Such a judgment, when attacked on evidentiary grounds, must be affirmed when there is any evidence, direct or circumstantial, to support the findings of the trial court. Stated negatively, such a judgment cannot be reversed unless there is no evidence, direct or circumstantial, to support the findings. These rules are elementary.’

[Citations.]” (Ach v. Finkelstein (1968) 264 Cal.App.2d 667, 674.)

  1. Intentional Misrepresentation

 Chase contends there is not substantial evidence of the elements of intentional misrepresentation: 1) a false representation of a material fact; 2) knowledge of the falsity; 3) intent to induce another to rely on the misrepresentation; 4) reliance on the misrepresentation; and 5) resulting damage. (Ach v. Finkelstein, supra, 264 Cal.App.2d

at p. 674; Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1111.) Chase argues substantial

evidence does not show that Chase made any misrepresentation to Bergman or that Bergman was induced to default on a loan as a result of a misrepresentation by Chase.

Bergman asserts that Chase was liable for two separate misrepresentations: 1) that, if his loan was in default, he could obtain a loan modification; and 2) if Bergman made three trial plan payments he could obtain a loan modification. The jury found the former was true and the latter was not.

“‘In its broad, general sense the concept of fraud embraces anything which is intended to deceive, including all statements, acts, concealments and omissions involving a breach of legal or equitable duty, trust or confidence which results in injury to one who justifiably relies thereon. . . . There is no absolute or fixed rule for determining what  facts will constitute fraud; whether or not it is found depends upon the particular facts of the case under inquiry. Fraud may be proved by direct evidence or it may be inferred from all of the circumstances in the case. [Citation.] “Actual fraud is always a question of fact.” (Civ. Code, § 1574.)’ [Citations.]” (Ach v. Finkelstein, supra, 264 Cal.App.2d at p. 675.)

Chase’s argument is primarily that Bergman is inconsistent in his testimony about exactly what he was told and when. However, Bergman’s testimony and other evidence certainly supports his contention that Chase informed him that in order to qualify for a second loan modification, he would have to be in default. Based on the evidence, the jury could have reasonably found that, beginning in December 2008 and continuing through 2010, Bergman had many conversations with Chase about modifying his loan.

Although Chase wants to pin Bergman down to precise dates and times, the general tenor

of the evidence was consistent. Because Bergman hoped to obtain a second loan modification, he defaulted on payments under the first modification. His default continued as he waited to complete the second modification, including making the additional three trial payments in late 2009, and investigating a short sale as an alternative if the second loan modification was not completed. We conclude substantial evidence supported the jury verdict that Chase made intentional misrepresentations to Bergman. (Ach v. Finkelstein, supra, 264 Cal.App.2d at pp. 673-676.)

  1. Breach of Covenant of Good Faith and Fair Dealing

 Chase also argues there was not substantial evidence of breach of the covenant of good faith and fair dealing and the special jury verdicts were inconsistent. We disagree.

The court gave the jury the following instructions on breach of contract: 1) Bergman claims that he and Chase “entered into an oral contract for a loan modification  at fixed payments under $3,000.00”; 2) Chase “breached this contract by not providing him a permanent loan modification after he made the three trial plan payments”; and 3) to prove breach of contract, Bergman must prove Chase “failed to do something that the

contract required it to do.” The court gave the jury additional instructions on the breach of the covenant of good faith and fair dealing: 4) Bergman must prove the parties entered into a valid contract; and 5) Chase “interfered with” Bergman’s “right to receive the benefits of the contract.”

The instructions are confusing but the jury apparently reconciled any conflicts by finding that Bergman and Chase had a binding oral contract for a loan modification with

$3,000 payments. However, the jury did not find the oral contract was conditioned on

defendant making three trial plan payments. Therefore, the jury found Chase did not “fail to do something that the oral contract required it to do,” namely provide a loan modification after Bergman made the three payments. Nevertheless, the jury also found Chase interfered with “Bergman’s right to receive benefits of the contract,” i.e. the promise of a loan modification.

In other words, the jury did not find Chase was required to give Bergman a loan modification if he made the three trial plan payments; Chase did not breach the contract for that reason. But Chase did interfere with Bergman’s benefits under the contract by not giving him the promised loan modification. Therefore, as already discussed, sufficient evidence showed that there was a contract for a loan with $3,000 payments and that Chase interfered with the contractual benefit to Bergman.

VI DUPLICATIVE DAMAGES

Bergman testified that his damages included his original down payment of

$250,000 and the property improvements of $291,000. Chase argues the damages award was duplicative and the intent of the jury was not to award $250,000 but to award a total of only $125,000 for both causes of action found in his favor.

The court gave the jury multiple, somewhat contradictory, instructions on damages. Ultimately, the jury awarded damages of $125,000 for breach of the implied covenant and $125,000 for intentional misrepresentation. The trial court entered a judgment of $250,000. The trial court reasoned:

“It’s the Court’s opinion that the jury did intend to award separate damages to the plaintiff for the improvements that the plaintiff testified that he made to his home . . . and the down payment which he made for the home. [¶] So my interpretation of the jury verdict was they intended to award damages for both of those injuries incurred by the plaintiff and not just one sum of the $125,000. So, in other words, I agree . . . as to how the jury reached its verdict on these two separate causes of action, which were based upon different losses incurred by the plaintiff.”

There is no evidence in the record of the “intent” of the jury. Instead, the record shows the jury was given special verdict forms for each of the seven causes of action and the claim for punitive damages. The jury was instructed to award separate damages for each cause of action. It was not instructed to award damages collectively. The amount of damages claimed by Bergman was at least $541,000, the combined amount of his down payment and the property improvements. The jury’s verdict awarding him damages of

$125,000 each on two causes of action is within the realm of damages.

Chase’s argument that the jury meant to award only $125,000 is speculative and the cases relied upon by Chase are distinguishable. Shell v. Schmidt (1954) 126 Cal.App.2d 279, 291, involved a single cause of action, not two causes of action as here. In DuBarry Internat., Inc. v. Southwest Forest Industries, Inc. (1991) 231 Cal.App.3d 552, 564, the court acknowledged a plaintiff could be entitled to recover separate damages on two causes of action: “They do involve, after all, alleged invasions of different rights.” Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1158, held that a party “is

not entitled to more than a single recovery for each distinct item of compensable damage

supported by the evidence.” However, “[i]n contrast where separate items of compensable damage are shown by distinct and independent evidence, the plaintiff is entitled to recover the entire amount of his damages, whether that amount is expressed by the jury in a single verdict or multiple verdicts referring to different claims or legal theories.” (Id. at p. 1159.)

The present case involves two separate causes of action, different theories, and two distinct items of compensable damages. Under these circumstances, no duplicative damages were awarded by the jury.

VII

CHASE’S MOTION FOR JUDGMENT NOTWITHSTANDING THE VERDICT

Chase contends the trial court should have granted its motion for JNOV for two reasons. Chase repeats the argument that Bergman did not identify the employee who made the misrepresentation—an argument we have already rejected.

Second, Chase argues Bergman was not damaged because the proper measure of damages for the wrongful foreclosure of real property is the value of the equity in the property at the time of the foreclosure. (Munger v. Moore (1970) 11 Cal.App.3d 1, 11; Civ. Code, § 3333.) At the time of the foreclosure sale in July 2010, the unpaid principal balance, along with costs, totaled $1,022,256.92, leaving no equity.

Chase’s argument about wrongful foreclosure is not pertinent, however, because the jury rejected the wrongful foreclosure claim and did not award damages on that cause of action. Instead, the jury awarded damages for intentional misrepresentation and

breach of the covenant of good faith and fair dealing. The jury was instructed Bergman

could prove damages for breach of contract based on what would reasonably compensate for the breach. (CACI No. 350.) The jury was also instructed it could award Bergman reasonable compensation for harm. (CACI No. 1923.) The instructions to the jury, as reasonably construed did not prohibit the jury from awarding damages for the original down payment or for the property improvements, even if the losses for those items of damage were not sustained until after Chase committed its breach or made its misrepresentations. The damages awarded were not for wrongful foreclosure and the measure of such damages is not relevant.

VIII ATTORNEY’S FEES

The trial court awarded Bergman attorney’s fees—reduced from $454,772.23 to

$188,100—finding that he could recover fees under both contract and tort based on the attorney’s fees provision in the original note and trust deed under which the foreclosure was conducted. The same result occurred in Smith v. Home Loan Funding, Inc. (2011) 192 Cal.App.4th 1331, 1337-1338. (Civ. Code, § 1717; Code Civ. Proc., § 1021.)

The subject note provides: “. . . the Note Holder will have the right to be paid back by me for all of its costs and expenses in enforcing this Note [including] reasonable attorneys’ fees.” The subject trust deed provides: “Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided . . . including, but not limited to,

reasonable attorneys’ fees . . . .”

The Smith court construed the very same language and found that that “breach of the implied covenant can sometimes support an award of fees under section 1717.”

(Smith v. Home Loan Funding, Inc., supra, 192 Cal.App.4th at p. 1337.) Smith distinguished Sawyer v. Bank of America (1978) 83 Cal.App.3d 135, 140, 145, and held that, where one party had a fiduciary obligation and made an express oral promise, it was justifiable to treat the oral agreement and the loan documents as a single agreement because they were all part of the same transaction. (Smith, at pp. 1337-1338, citing Civ.

Code, § 1642 [“Several contracts relating to the same matters, between the same parties, . . . are to be taken together”].)

The oral contract between Bergen and Chase was part of a single agreement, including the note and deed of trust; the trial court found the oral contract was intended to effect a modification of the original obligation. Therefore, the trial court’s award of attorney’s fees was proper, allowing the prevailing party to recoup attorney’s fees under the intertwined tort and contract claims. (Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1341-1343.)

IX

BERGMAN’S CROSS-APPEAL

  1. Special Verdict on Wrong Foreclosure

 The special verdict on the cause of action for wrongful foreclosure asked: Did Chase “violate any law or regulation governing foreclosure?” Bergman contends the special verdict should have read: Did Chase Bank “cause an illegal, fraudulent or oppressive sale of the real property located at 22330 Foxhall Drive, Corona, CA 92883?” Bergman argues his claim is not for wrongful foreclosure based on a statutory violation

but “Chase’s fraudulent practice of inducing borrowers into default with the promise of a

loan modification.” The basis for this instruction is thus exactly the same as Bergman’s causes of action for intentional misrepresentation and breach of the covenant of good faith and fair dealing, for which he recovered damages. Under these circumstances, there was no miscarriage of justice in refusing Bergman’s alternative instruction. (Mize- Kurzman v. Marin Community College Dist., supra, 202 Cal.App.4th at p. 862, citing Soule v. General Motors Corp., supra, 8 Cal.4th at p. 580.)

  1. Special Verdict on Punitive Damages

 Bergman claims the jury should have been instructed that Chase could be directly liable for fraud and punitive damages. A corporate employer may only be liable for punitive damages as a result of its employees’ acts where it somehow ratified the behavior. (Civ. Code, § 3294, subd. (b); Weeks v. Baker & McKenzie (1978) 63 Cal.App.4th 1128, 1153.) The special verdict on punitive damages was based on CACI No.VF-3904: “Did an agent or employee of [Chase] engage in the conduct of malice, oppression, or fraud against Plaintiff?” The jury was also given an instruction based on CACI No. 3936 about liability for punitive damages for a corporate entity based on the acts of its agents. Chase could not be found directly liable for punitive damages for its own conduct. (Davis v. Kiewit Pacific Co. (2013) 220 Cal.App.4th 358, 365.) The jury was properly instructed on punitive damages.

  1. Motion to Amend

At the end of trial, the court denied Bergman’s request for leave to amend to add a claim for breach of a written contract under HAMP or the Chase trial payment plan. An appeal from a trial court’s decision in granting or denying a request to amend the

pleadings is reviewed for a clear showing of an abuse of discretion. (Garcia v. Roberts (2009) 173 Cal.App.4th 900, 909.) The guiding principles are: “(1) whether facts or  legal theories are being changed and (2) whether the opposing party will be prejudiced by the proposed amendment.” (City of Stanton v. Cox (1989) 207 Cal.App.3d 1557, 1563.)

Throughout the trial, Bergman had relied on a theory of an oral promise, not a written contract. The trial court properly denied Bergman’s oral motion to amend, and subsequent motion for JNOV, because the introduction of new facts and theories would cause prejudice to Chase. There was no reason for Bergman to wait years to amend his claims. We reject Bergman’s contentions on this issue.

  1. Attorney’s Fees

 Bergman argues he should have been allowed to offer evidence of the attorney’s fees he incurred in the unlawful detainer action and he was entitled to recover those fees under the note and trust deed. We conduct a de novo review on whether there is a legal basis for a fee award. (Conservatorship of Whitley, supra, 50 Cal.4th at p. 1212.)

After Chase objected to the submission of evidence on attorney’s fees for the unlawful detainer action, Bergman’s counsel stated he would raise it later. Bergman’s counsel did not raise the issue again. The record shows Bergman waived this issue. (Estate of Odian (2006) 145 Cal.App.4th 152, 168.) Furthermore, Bergman’s claim was for attorney’s fees sustained in a separate unlawful detainer action by Mraz, the third party who purchased the property at trustee’s sale. Bergman cites no authority for the recovery of attorney’s fees under these circumstances. In fact, he concedes there is no

authority but asks this court to resolve the issue in a published opinion. We decline to do so.

X DISPOSITION

We reject both appeals and affirm the judgment. In the interests of justice, we order the parties to bear their own costs on appeal.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

CODRINGTON                     

J.

We concur:

RAMIREZ                             

  1. J.

HOLLENHORST                  

J.

In Re Brown Denies TILA Rescission post-Jesinoski

The US Supreme Court opinion in Jesinoski has confused many foreclosure defense pundits, like Neil Garfield, into thinking that the loan suddenly becomes void upon filing of a notice of TILA rescission.  Such people don’t have a clue about rescission.

As the court for In Re Brown, below, explains, TILA rescission doesn’t happen UNLESS a TILA violation occurred, and it always requires an unwinding of the loan including a tender of payment by both creditor and borrower.

Furthermore, the court all but called Brown scammers for trying to use Bankruptcy to stave off foreclosure.

In re: BARBARA MURPHY BROWN, Chapter 13, Debtor.

Case No. 15-12027-RGM.United States Bankruptcy Court, E.D. Virginia, Alexandria Division.

September 21, 2015.

MEMORANDUM OPINION

ROBERT G. MAYER, Bankruptcy Judge.

This case was before the court on September 3, 2015, on the chapter 13 trustee’s motion to dismiss this case because the debtor was not eligible to be in chapter 13. The trustee argued that she was over the debt limit of $1,149,525 for secured debts. 11 U.S.C. §109(e).

The debtor attempted to show that the outstanding balance of the loan was less than the §109(e) eligibility limit. She testified that she and her non-filing husband borrowed $1,265,000 on June 27, 2008. They made payments until March 2010 when they sought to rescind the loan. The debtor presented two documents showing, she said, an outstanding loan balance of $1,143,404.28 as of September 1, 2013, and — notwithstanding that neither she nor her husband had made any payments on the loan — $1,078,513.03 as of September 1, 2015.[1] The documents show, in addition to the principal balances the debtor relies on, that the loan is a variable interest rate loan; that the interest rate changes annually as of August 1; that the payment changes annually as of September 1; and that the interest rate is the 1 Year LIBOR published daily in the Wall Street Journal plus a margin of 2.25%. In fact, the two documents are the 2013 and 2015 annual notices from the lender showing the calculation of the new monthly payment and giving the debtor notice of the amount of the new monthly payment.

A change in the monthly payment of an adjustable rate mortgage is calculated in advance of the payment change date based on the contractually due principal balance as of the payment change date.[2] This is, in fact, what the June 24, 2013, letter shows. It states:

  Projected Principal Balance as of the Payment Change Date:         $1,143,404.28

  Remaining Loan Term as of the Payment Change Date:                 300 months

There were, contractually, 300 payments due from September 1, 2013, to the end of the loan. Five years had elapsed on the 30-year loan made on June 27, 2008, and on which the first payment was due on September 1, 2008. Put another way, 60 months had elapsed out of a total of 360 months.

The second payment change letter was dated June 19, 2015. It states:

Your new payment is based on the 1 YEAR LIBOR, your margin, your loan balance of $1,078,513.03, and your remaining loan term of 276.

There were, contractually, 276 payments due from September 1, 2015, to the end of the loan. Twenty-four months elapsed from the effective date of the June 24, 2013 payment change letter to the effective date of the June 19, 2015 payment change letter.

This is the proper manner in which to calculate the new payment. The contractually due principal balance as of the change date is the appropriate number rather than the principal balance actually due as of the change date. The actual outstanding principal balance cannot be known when the new payment is calculated about six weeks before the payment change date. Payments could be missed or late. (In this case, no payments were made after March 2010.) If the payment change were calculated on the actual principal balance, the monthly payment would necessarily be higher than if it were calculated on the contractually due principal balance. If the debtor and her husband made all of the missed payments after receiving the payment change notification and continued with the higher monthly payments calculated on the actual outstanding principal balance, the monthly payments would payoff the loan in less than 30 years, depriving the debtor and her husband of the benefit of the longer loan term. By using the contractually due principal balance, if the debtor and her husband reinstated the loan and continued with the monthly payments, the loan would payoff at the end of the 30-year term as agreed by the parties. The principal balances shown on the payment change letters reflect what the principal balance would have been had the debtor made all contractually due mortgage payments. She admittedly stopped making payments after March 2010, and the principal balances shown on the two payment change letters understate the actual principal balances as of the date of the letters.

The court can estimate the principal balance as of March 2010 from the information presented by the debtor. The original loan amount was $1,265,000. It was a 30-year note. The interest rate was a variable rate which was prime plus a margin of 2.25%. The lowest interest rate possible is 2.25%, which assumes that the prime rate was zero, which it was not. Using a loan rate of 2.25% from June 27, 2008 through March 2010, the principal balance due as of April 1, 2010, can be computed. It was $1,217,394.45. This is simply a mathematical calculation. It makes assumptions in the light most favorable to the debtor. The resulting principal balance is above the §109(e) eligibility limit. In fact, the loan payoff is higher that this calculated principal balance because the 1 Year LIBOR was not zero during this period. In addition, interest accrued on the loan from March 1, 2010 through the petition date of June 11, 2015. Interest at the minimal rate of 2.25% per annum as of the petition date would be about $141,500. The interest rate and the interest due when the petition was filed were higher. There are also late charges and other fees and costs. But, the principal balance calculation is sufficient to put the debtor over the §109(e) eligibility limit.

Debtor’s counsel argues that the debtor and her husband rescinded the loan in March 2010. It is not entirely clear what counsel was arguing. If she was arguing that rescission ipso facto changed the secured loan to an unsecured loan, the debtor is significantly over the unsecured limit. If her argument is that rescission eliminates that loan, she overlooks the debtor’s rescission obligation to put the lender in the same position, less certain fees and costs, as the lender was in before the transaction. It appears that debtor’s counsel relies on Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. ___, 135 S.Ct. 790 (2015). She appears to focus on that portion of the opinion discussing the elements of the common law right of rescission. Reliance is misplaced. The sole issue in that case was whether the borrowers timely rescinded the loan, not the effect of the rescission notice on the borrowers’ obligations when they rescinded the transaction. They gave their rescission notice within the three-year period but did not file suit until after the three-year period. The lender argued that they were time-barred and that the transaction was, therefore, not rescinded. The lender argued that the common law doctrine of rescission applied and required that the borrower tender the loan amount at the time of rescission for there to be a valid rescission. The borrowers gave notice of the rescission but did not tender the rescission payment. The Supreme Court acknowledged the elements of the common law rescission but held that Congress created a new right of rescission that superceded common law rescission and that notice of the rescission was all that the statute required. Debtor’s counsel appears to be arguing that because the common law element of rescission — making a tender of the rescission amount — is not required, the loan is rescinded on notice and the debtor has no further obligation. In fact, the debtor has a further obligation upon giving notice of rescission and that is to make the appropriate rescission payment. This obligation is a claim in bankruptcy. 11 U.S.C. §101(5). Nor does it matter in this case whether the claim is a secured claim or an unsecured claim. Either way, the amount of the claim exceeds the applicable limit.

Debtor’s counsel also appeared to argue that the deed of trust was invalid. There was no evidence that the deed of trust was defective or void.[3] Again, if it were, the debtor would be substantially over the unsecured debt limit of §109(e).

To the extent that debtor’s counsel was arguing that the lender forfeited its loan, its right to repayment or its rescission payment, there was simply no evidence to support the argument.

Having determined that the debtor exceeds the eligibility limits in §109(e), the question is whether the case should be dismissed or the debtor be given time to consider conversion to chapter 11. The case will be dismissed because conversion would be futile — the debtor cannot formulate an effective chapter 11 plan — and because this case was filed in bad faith.

Gilbert v. Residential Funding LLC, 678 F.3d 271 (4th Cir. 2012) makes plain that there is a difference between giving notice of rescission and determining whether the loan is properly rescinded. Anticipating Jesinoski v. Countrywide Home Loans, the Court of Appeals held that notice of rescission was required to be given within three years of the closing but suit to enforce the rescission was not required to be filed within the three-year period. Id. at 277. Giving notice of rescission does not, however, mean that the transaction must be unwound. The Court of Appeals stated:

We must not conflate the issue of whether a borrower has exercised her right to rescind with the issue of whether the rescission has, in fact, been completed and the contract voided. . . . At this stage of the litigation, we are not concerned with whether the contract has been effectively voided. A court must make a determination on the merits as to whether that should occur.

Id.

The law of the Fourth Circuit is that after the borrower gives notice of rescission, the borrower must have the ability to tender the rescission amount within a reasonable time. The Court of Appeals stated that “[t]he equitable goal of rescission under [the Truth in Lending Act] is to restore the parties to the `status quo ante.'” Am. Mortg. Network, Inc. v. Shelton, 486 F.3d 815, 820 (4th Cir. 2007). To achieve this, the borrower seeking rescission must be able to tender the borrowed funds back to the lender. Rescission is effected in a 3-step process under 15 U.S.C. §1635(b). First, the security interest in the home is voided and the borrower is not liable for any further payments. Second, the creditor has 20 days to refund any payments made in connection with the loan. Third, the borrower must tender the proceeds of the loan. Rescission should not be granted where it is clear that the borrower cannot or will not tender the borrowed funds to the creditor. 15 U.S.C. §1635(b); Shelton, 486 F.3d at 819-20. To do so would simply convert the secured lender to an unsecured lender with a claim against the borrower. That result would be inequitable and does not achieve the purpose of the statute which is to put the parties back into the position they were in prior to the loan.

If the borrower cannot tender the rescission payment within a reasonable time, the loan will not be unwound. In Haas v. Falmouth Financial, LLC, 783 F.Supp.2d 801 (E.D.Va. 2011), the District Court stated:

Because rescission entails restoring the parties to the status quo ante, rescission cannot be granted where, as here, the borrower fails to demonstrate that he has the ability to meet his tender obligation. If plaintiff were allowed to achieve rescission without meeting his tender obligation, the lender would be reduced to an unsecured creditor. Such a result is not only inequitable, but it is inconsistent with the intent of Congress in drafting TILA.

Id. at 808.

Giving notice of rescission does not void the loan or cause the lender to ipso factoforfeit its loan. It only requires that the loan be unwound. The debtor must have the ability to tender the rescission amount within a reasonable time. This obligation is a claim in bankruptcy and, absent any other applicable factor, is a secured claim.[4] It is a claim that must be addressed in a chapter 11 plan. In this case, the debtor would not be able to tender a rescission payment or address it in a chapter 11 plan.

The debtor testified that neither she nor her husband had the ability to tender a rescission amount within 60 days. This testimony — and the fair inference from their circumstances that if they would ever be able to tender the rescission amount, it would be far in the future — is corroborated by the debtor’s testimony, schedules and statement of affairs. The debtor’s husband is a dentist. He suffered a back injury that prevents him from practicing dentistry because of the necessity to stand for long periods. He is receiving significant disability payments. She works in his dental practice in a non-medical capacity. They have no savings. The house is underwater — the debtor valued it at $900,000 on her schedules.

A chapter 11 plan based on a March 2010 rescission of the transaction will not work. They cannot pay the rescission amount from savings because they have none. They cannot sell the property and pay the rescission amount from the proceeds of sale because the house is worth less than the payoff of the loan. They cannot reasonably be expected to qualify for a loan to refinance the lender in their present circumstances because they do not have enough income to support the required mortgage payment and because there is no equity in the property to support a refinance loan.

Nor does the debtor have the ability to cure the present mortgage arrearage in a chapter 11 plan. The debtor, even with the assistance of her co-debtor husband, does not have sufficient income to make the current mortgage payment and an arrearage payment.[5] Conversion to chapter 11 would be futile.

The case was filed in bad faith. There is only one creditor. The plan proposed monthly payments to the chapter 13 trustee of $3,000; however, he was to hold the payments until the debtor concluded her litigation with the lender. The current mortgage payment was not to be made. At the end of the plan, the arrearage might be cured, but there would be a new post-petition arrearage. The plan cannot be confirmed. See n.5.

The plan is illusory. The debtor has the right to dismiss her chapter 13 case at any time. 11 U.S.C. §1307(b). Upon dismissal, all funds that the trustee holds are repaid to the debtor. Harris v. Viegelahn, ___ U.S. ___; 135 S.Ct. 1829 (2015). The debtor does not have the ability, even with her husband’s assistance, to propose a traditional 60-month plan to repay the arrearage and make current mortgage payments. Nor does she have the ability to propose a plan providing that the lender would be paid from the sale of her property. In reality, the debtor simply seeks to obtain the benefit of the automatic stay while she litigates or negotiates with the lender.[6] In light of the debtor’s bad faith and futility of conversion to chapter 11, the court is not required to convert the case to chapter 11 if the debtor requested conversion under §1307.[7] See Marrama vs. Citizen Bank of Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166, L.Ed. 2d 956 (2007) (a chapter 7 debtor acting in bad faith does not have an absolute right to convert to chapter 13); In re Mitrano, 472 B.R. 706 (E.D.Va. 2012) (a chapter 13 debtor acting in bad faith does not have an absolute right to dismissal of his case).

The debtor’s case will be dismissed because she is not eligible to be a chapter 13 debtor and because the case was filed in bad faith.

[1] Debtor’s counsel argued that the reduction of the principal loan balance from September 1, 2013 to September 1, 2015, resulted from the debtor and her husband paying the real estate taxes and insurance which, she argued, were in that same approximate — although not precise — amount. That argument is frivolous. A principal balance is reduced by payment to the lender, not by payment to third parties of real estate taxes and insurance.

[2] Interest is paid in arrears. This means that the September payment includes interest that accrued during August. In this case, the loan was made on June 27, 2008. Interest due from June 27, 2008 through June 30, 2008 was paid at closing. The first monthly mortgage payment was due on September 1, 2008 at which included the interest that accrued in August 2008.

[3] Debtor’s counsel raised this argument in her closing statement, but there were no facts in the record to support it.

[4] Another applicable factor could be that the deed of trust was defective in some manner or, perhaps, not recorded. In these instances, the lender would not have a secured claim, but it would have an unsecured claim.

[5] The proposed chapter 13 plan proposes to pay $3,000 a month as the cure payment but no regular monthly payment. The debtor’s budget show that she and her husband have sufficient income to pay the proposed $3,000 chapter 13 plan payment, but, there is no payment to the lender on the mortgage in the budget. The debtor proposes to pay real estate taxes and insurance, $1,340 and $500, respectively, but not the note payment. The combined payment as proposed by the debtor — $3,000, $1,340 and $500 for a total of $4,840 — is significantly smaller than that new payment amount shown on the June 19, 2015 change payment letter. The new monthly payment is $7,514.40. The budget does not have sufficient net disposable income to make the monthly mortgage payment and the arrearage payment. The debtor and her husband would need an additional $5,674 in monthly income to make the mortgage payment and the arrearage payment.

[6] The debtor’s husband unsuccessfully sued the lender in the District Court. The details of the suit were not presented.

[7] Although the practice is to grant a debtor’s motion to convert a chapter 13 cases to chapter 11, especially if there is a §109(e) problem, §1307(a) does not give a debtor the right to convert from chapter 13 to chapter 11. It only gives a debtor the right to convert to chapter 7.

Nationstar v Brown – Statute of Limitations No Defense Against Foreclosure

Statute of Limitations Applies to Whole Payment Stream

By Bob Hurt, 18 September 2015

Florida’s 1st District Appellate Court gave Germaine and Andrea Brown a rude awakening by telling them the Florida foreclosure 5-year statute of limitations does not apply a 30-year stream of mortgage payments even after the creditor accelerates the loan, making the entire balance immediately due and payable.  The panel cited the Florida Supreme Court opinion in Singleton v Greymar (2004) as the controlling authority (“the unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship.”).  The panel held that “the subsequent and separate alleged default created a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.”  In other words, every default of a scheduled payment provides a new right to sue, throughout the original term of the loan.

The panel admitted that Florida’s 3rd District had reached a contrary conclusion in Deutsche Bank v Beauvais (2014).  But the panel harked to the USDC adverse opinion in Stern v BOA (2015) which claimed that Beauvis opinion went against ”overwhelming weight of authority.”  Now the Beauvais court plans to review its decision.

This should make it abundantly clear that the foreclosure statute of limitations in Florida does not constitute a valid defense against foreclosure, except on payments more than 5 years overdue on which the creditor has failed to take action.

Why should this matter to mortgage victims facing foreclosure?  Because you cannot depend on Foreclosure Defense to defeat foreclosure.  The court/trustee will NOT give you a free house.

ONLY ONE methodology gives home loan borrowers a reliable chance beat the appraiser, mortgage broker, title company, servicer, and creditor in a mortgage dispute:  MORTGAGE ATTACK.  Borrowers must ATTACK THE VALIDITY OF THE LOAN, and to do that, they must get a comprehensive mortgage examination.

If you have a mortgage dispute, contact Mortgage Attack NOW for a full explanation of the ONLY WINNING METHODOLOGY.

Mortgage Attack Logo


NATIONSTAR MORTGAGE, LLC v. Brown, Fla: Dist. Court of Appeals, 1st Dist. 2015

https://scholar.google.com/scholar_case?case=9222404951266369639

NATIONSTAR MORTGAGE, LLC, Appellant,
v.
GERMAINE R. BROWN a/k/a GERMAINE R. BROWN; ANDREA E. BROWN, Appellees.

Case No. 1D14-4381.

District Court of Appeal of Florida, First District.

Opinion filed August 24, 2015.

Nancy M. Wallace of Akerman LLP, Tallahassee; William P. Heller of Akerman LLP, Fort Lauderdale; Celia C. Falzone of Akerman LLP, Jacksonville, for Appellant.

Jared D. Comstock of John F. Hayter, Attorney at Law, P.A., Gainesville, for Appellees.

KELSEY, J.

Appellant challenges a final summary judgment holding that the statute of limitations bars appellant’s action to foreclose the subject mortgage. We agree with appellant that the statute of limitations did not bar the action. Thus, we reverse.

It is undisputed that appellees have failed to make any mortgage payments since February 2007, the first month in which they defaulted. In April 2007, appellant’s predecessor in interest gave notice of its intent to accelerate the note based on the February 2007 breach, and filed a foreclosure action. However, the trial court dismissed that action without prejudice in October 2007, after counsel for the lender failed to attend a case management conference.

The next relevant event occurred in November 2010, when appellant sent appellees a new notice of intent to accelerate, based on appellees’ breach in March 2007 and subsequent breaches. Appellees took no action to cure the default, and appellant filed a new foreclosure action in November 2012. Appellees asserted the statute of limitations as an affirmative defense, arguing that the new action and any future foreclosure actions were barred because they were not filed within five years after the original 2007 acceleration of the note. § 95.11(2)(c), Fla. Stat. (2012) (establishing five year statute of limitations on action to foreclose a mortgage).

The principles set forth in Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), apply in this case. In Singleton, the Florida Supreme Court recognized “the unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship.” 882 So. 2d at 1007 (emphasis added). The court sought to avoidboth unjust enrichment of a defaulting mortgagor, and inequitable obstacles “prevent[ing] mortgagees from being able to challenge multiple defaults on a mortgage.” Id. at 1007-08. Giving effect to those principles in light of the continuing obligations of a mortgage, the court held that “the subsequent and separate alleged default created a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.” Id. at 1008. The court found it irrelevant whether acceleration had been sought in earlier foreclosure actions. Id. The court’s analysis in Singleton recognizes that a note securing a mortgage creates liability for a total amount of principal and interest, and that the lender’s acceptance of payments in installments does not eliminate the borrower’s ongoing liability for the entire amount of the indebtedness.

The present case illustrates good grounds for the Singleton court’s concern with avoiding both unjust enrichment of borrowers and inequitable infringement on lenders’ remedies. Judgments such as that under review run afoul of Singleton because they release defaulting borrowers from their entire indebtedness and preclude mortgagees from collecting the total debt evidenced by the notes securing the mortgages they hold, even though the sum of the installment payments not made during the limitations period represents only a fraction of the total debt. See GMAC Mortg., LLC v. Whiddon, 164 So. 3d 97, 100 (Fla. 1st DCA 2015) (dismissal of earlier foreclosure action “did not absolve the Whiddons of their responsibility to make mortgage payments for the remaining twenty-five years of their mortgage agreement”). We further observe that both the note and the mortgage at issue here contain typical provisions reflecting the parties’ agreement that the mortgagee’s forbearance or inaction do not constitute waivers or release appellees from their obligation to pay the note in full. These binding contractual terms refute appellees’ arguments and are inconsistent with the judgment under review.

We have held previously that not even a dismissal with prejudice of a foreclosure action precludes a mortgagee “from instituting a new foreclosure action based on a different act or a new date of default not alleged in the dismissed action.” PNC Bank, N.A. v. Neal, 147 So. 3d 32, 32 (Fla. 1st DCA 2013); see also U.S. Bank Nat. Ass’n v. Bartram, 140 So. 3d 1007, 1014 (Fla. 5th DCA), review granted, 160 So. 3d 892 (Fla. 2014) (Case No. SC14-1305) (dismissal of earlier foreclosure action, whether with or without prejudice, did not bar subsequent foreclosure action based on a new default);Evergrene Partners, Inc. v. Citibank, N.A., 143 So. 3d 954, 955 (Fla. 4th DCA 2014)(foreclosure and acceleration based on an earlier default “does not bar subsequent actions and acceleration based upon different events of default”). The dismissal in this case was without prejudice, so much the more preserving appellant’s right to file a new foreclosure action based on appellees’ breaches subsequent to the February 2007 breach asserted as the procedural trigger of the earlier foreclosure action. We find that appellant’s assertion of the right to accelerate was not irrevocably “exercised” within the meaning of cases defining accrual for foreclosure actions, when the right was merely asserted and then dismissed without prejudice. See Olympia Mortg. Corp. v. Pugh, 774 So. 2d 863, 866-67 (Fla. 4th DCA 2000) (“By voluntarily dismissing the suit, [the mortgagee] in effect decided not to accelerate payment on the note and mortgage at that time.”); see also Slottow v. Hull Inv. Co., 129 So. 577, 582 (Fla. 1930) (a mortgagee could waive an acceleration election in certain circumstances). After the dismissal without prejudice, the parties returned to the status quo that existed prior to the filing of the dismissed complaint. As a matter of law, appellant’s 2012 foreclosure action, based on breaches that occurred after the breach that triggered the first complaint, was not barred by the statute of limitations. Evergrene, 143 So. 3d at 955 (“[T]he statute of limitations has not run on all of the payments due pursuant to the note, and the mortgage is still enforceable based upon subsequent acts of default.”).

We are aware that the Third District has reached a contrary conclusion in Deutsche Bank Trust Co. Americas v. Beauvais, 40 Fla. L. Weekly D1, 2014 WL 7156961 (Fla. 3d DCA Dec. 17, 2014) (Case No. 3D14-575). A federal district court has refused to follow Beauvais, noting that it is “contrary to the overwhelming weight of authority.” Stern v. Bank of America Corp., 2015 WL 3991058 at *2-3 (M.D. Fla. June 30, 2015) (No. 2:15-cv-153-FtM-29CM). The court in Beauvais acknowledges that its conclusion is contrary to the weight of authority on the questions presented. 2014 WL 7156961, at *8-9. That court’s docket shows that the court has set the case for rehearing en banc; it remains to be seen whether the merits disposition will change.

Accordingly, we reverse and remand for further proceedings on appellant’s foreclosure action.

THOMAS and MARSTILLER, JJ., CONCUR.

NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED.