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LATHAM v. RESIDENTIAL LOAN CENTERS OF AMERICA

May 5, 2004.

EDDIE LATHAM, Plaintiff
v.
RESIDENTIAL LOAN CENTERS OF AMERICA, INC., PROVIDENT BANK, doing business as Provident Consumer Financial Services, LITTON LOAN SERVICING LP, LAKE SHORE TITLE AGENCY, a limited liability company, also known as Murray Title Agency, and DOES 1-5 Defendants



The opinion of the court was delivered by: PAUL PLUNKETT, Senior District Judge

MEMORANDUM OPINION AND ORDER

Plaintiff Eddie Latham ("Latham") has sued defendants for violations of the Truth in Lending Act("TILA"), 15 U.S.C. § 1601 et seq. and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"), 815 ILCS 505/1 et seq. Defendants Residential Loan Centers of America, Inc. ("RLCA"), Provident Bank ("Provident") and Lakeshore Title Agency ("Lakeshore") have filed motions to dismiss the claims asserted against them pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). For the reasons set forth below, the motions are granted in part and denied in part. I. Facts

Latham is an Illinois resident, residing at a home he owns in Markham, Illinois. (Compl. ¶ 4.) Latham purchased his home in 1979. (Id.) Defendant RLCA is an Illinois corporation with offices in Des Plaines, Illinois. (Id. ¶ 5.) It is engaged in the business of originating mortgages, including many "subprime" mortgages.*fn1 (Id.) Defendant Provident is a bank with offices in Cincinnati., Ohio. (Id. ¶ 6.) Defendant Litton Loan Servicing LP ("Litton") is a limited partnership entity with its principal place of business in Houston, Texas.*fn2 (Id. ¶ 7.) Defendant Lakeshore, a title company, is a limited liability company with its principal place of business in Elk Grove Village, Illinois. (Id. ¶ 10.) It may also be known as Murray Title Agency. (Id.) There are persons or entities unknown to Latham (Does 1-5), who have or claim an interest in his loan. (Id. ¶ 11.)

  On or about February 28, 2001, Latham obtained a $55,250 adjustable rate mortgage loan from RLCA, secured by his home ("Loan"). The Loan has an initial interest rate of 9.375% and a maximum interest rate of 16.375%. (Id. ¶ 12.) Latham used the Loan proceeds for personal, family or household purposes, namely, the payment of prior debts. (Id. ¶ 13.) The following documents were signed by Latham in connection with the Loan transaction: (1) a note; (2) a mortgage; (3) a HUD-1 settlement statement; (4) a TILA disclosure statement (disclosing an annual percentage rate of 10.537%); (5) an itemization of the amount financed; and (6) an "affirmation on non-cancellation" ("Election to Not Cancel")*fn3 (together, "Loan Documents"). (Id. ¶¶ 14, 18.) Lakeshore closed the Loan transaction; the closing occurred at Latham's home. (Id. ¶¶ 15, 16.) RLCA regularly uses Lakeshore to handle its closings. (Id. ¶ 24.) Lakeshore regularly closes loan transactions at the borrower's home. (Id. ¶ 17.) The Loan Documents were taken away after the closing, copied and sent to Latham at a later time. (Id. ¶ 19.) A check for the Loan proceeds was sent to Latham by courier service. (Id. ¶ 20.) RLCA eventually assigned the Loan to Provident. (Id. ¶ 26.)

  Latham alleges that signing an Election to Not Cancel at the closing interferes with a borrower's right to cancel a loan transaction because the borrower signs the document, which states he is not exercising his right to cancel, at the same time he is notified of his right to cancel.*fn4 (Id. ¶ 21.) According to Latham, the only lawful way an Election to Not Cancel can be used is to have the closing agent or other person in possession of the loan proceeds meet with the borrower three business days after the closing, have the borrower execute the Election to Not Cancel and then deliver the loan proceeds. (Id. ¶ 22.)

  Because the Loan was secured by Latham's home and not entered into for the purposes of the initial acquisition or construction of that home, Latham alleges the Loan was subject to the right to cancel under 15 U.S.C. § 1635 and 12 C.F.R. § 226.23.*fn5 (Id. ¶ 27.) Asking him to sign the Election to Not Cancel at the closing violated 15 U.S.C. § 1635 and 12 C.F.R. § 226.23. (Id. ¶ 28.) Latham notified RLCA and Provident of his election to rescind the Loan by letter dated August 20, 2003. He notified Litton by letter dated and August 27, 2003. (Id. Exs. H, I.) On August 26, 2003, RLCA, through its agent, sent a letter to Latham's attorney, stating that the Loan proceeds check was sent to Latham by overnight courier on March 5, 2001, and that Latham's demand for rescission was rejected. (Id. Ex. J, ¶ 31.) Latham has been instructed to send payments to Litton. (Id. ¶ 32.)

  Latham has asserted a class claim against RLCA and Provident for violations of TILA ("Count I"), an individual claim against RLCA and Provident for violations of TILA ("Count II") and a class claim against RLCA, Lakeshore and other defendants for violations of the Consumer Fraud Act ("Count III").

  The Legal Standard

  On a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded factual allegations of the complaint, drawing all reasonable inferences in plaintiff's favor. Forseth v. Village of Sussex, 199 F.3d 363, 368 (7th Cir. 2000). No claim will be dismissed unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

  Discussion

 I. Claims Against RLCA

 A. Class Action TILA Claim

  RLCA seeks to dismiss Count I on the basis that a TILA claim seeking rescission under section 1635 is not amenable to class action status. Specifically, RLCA asserts that "the need to inquire into factually-based allegations for each borrower makes a class action judicially, procedurally, and financially improper." (RLCA Mot. to Dismiss at 5.) It argues that Latham cannot possibly satisfy the class action status requirements of Rule 23 because common issues of law and fact cannot predominate and therefore a class claim would be unmanageable. (Id. at 6.) Latham responds by saying that, because an objective standard determines whether the presentation of two conflicting documents (the Notice of Right to Cancel and the Election to Not Cancel) violates TILA, a class claim under 15 U.S.C. § 1635(b) is entirely appropriate. (Pl.'s Consol. Resp. at 7.)

  Courts are divided on whether TILA claims for rescission are appropriate for class action treatment. See Williams v. Empire Funding Corp., 183 F.R.D. 428, 435 n. 10 (E.D. Pa. 1998) (listing cases in which courts have both denied and granted class action status for rescission remedy under TILA). In Jefferson v. Security Pac. Fin. Servs., Inc., 161 F.R.D. 63 (N.D. Ill. 1995), Judge Castillo denied a motion for class certification because he found that "rescission is a purely personal remedy for technical violations of TILA." Id. at 68. Particularly relevant to his conclusion was the language in section 1635(b) itself, which gives a creditor twenty days to act on a borrower's request for rescission before the claim can be filed in court. He said: "This requirement cuts strongly in favor of treating rescission as a personal, rather than a class, remedy. Under Section 1635, individuals must choose to assert the right to rescind, on an individual basis and within individual time frames, before filing suit." Id. at 69. In concluding as he did, Judge Castillo relied in part on the decision in James v. Home Constr. Co., 621 F.2d 727 (5th Cir. 1980), in which the court found the twenty-day cure period persuasive evidence that rescission is a personal remedy and that a rescission class cannot be certified.*fn6 See James, 621 F.2d at 731. Other courts have found that rescission claims under TILA could be maintained as class claims. In Hickey v. Great W. Mortgage Corp., 158 F.R.D. 603 (N.D. Ill. 1994), Judge Conlon granted a motion to certify a class seeking damages and a declaration that the class had a right to rescind its transactions under TILA. Id. at 613-14. She gave little weight to the James court's argument that allowing a class action for rescission would conflict with the twenty-day cure period provided for in the statute. Id. at 613 n.5 (noting that some authority suggests that a written complaint can serve as notice to a creditor that a borrower seeks rescission). In Williams, the court found "nothing in the language of TILA which precludes the use of the class action mechanism provided by Rule 23 to ...


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