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Jimmie Calvin v. American Fidelity Mortgage Services

May 3, 2011


The opinion of the court was delivered by: Judge Sharon Johnson Coleman


Jimmie Calvin executed a mortgage loan agreement with American Fidelity Mortgage on December 29, 2006. On December 18, 2009, she informed American Fidelity that at the time of the mortgage, she had not received the loan disclosures required by the Truth In Lending Act, and that she desired to exercise the Act's mortgage rescission option. She sent the same notification to Bank of America and BAC Home Loans Servicing, entities who appeared to have acquired her note or interests therein after the transaction closed. None of the notice recipients honored her request, and on November 8, 2010, Calvin filed this action, seeking rescission of the mortgage, damages, and other relief. The defendants contend that Calvin's rescission claim must be dismissed as untimely. They assert that the Act's statute of repose requires a borrower to bring suit for rescission, not merely request that action, within three years of the loan's consummation, and also argue that any action for damages under the Act must be brought within one year of the loan's closing. American Fidelity contends that Calvin's claim for damages for disclosure failures is untimely because it was subject to a one-year limitation period after the closing of the loan. The Bank of America entities argue that the Act shields them from damages liability for any violation of the Act because they acquired an interest in Calvin's loan without notice of any disclosure defect.

This court finds that the Act requires only notice of rescission, not suit, within three years, and accordingly denies the defendants' motion to dismiss the rescission claims as untimely. The court finds that Calvin's damage claims for disclosure deficiencies are time-barred, but also finds that the Act permits the award of damages for such violations if the defendants are found to have violated their rescission obligations. Finally, the court finds that the allegations of Calvin's complaint are insufficient to subject the Bank of America defendants to damages liability for their failure to rescind the mortgage.


Calvin's complaint alleges that on December 29, 2006, she received a mortgage loan from American Fidelity to refinance outstanding debt, and that the loan was governed by the Truth In Lending Act, 15 U.S.C. § 1601 et seq. ( Complaint, Docket #1, pars. 9, 14.) The complaint further alleges that in violation of the Act's disclosure requirements, she "was not provided with any documentation of the loan." (Complaint, Docket #1, pars. 10, 21-23.) The complaint specifically notes American Fidelity's failure to provide Calvin with a disclosure statement or a notice of a right to rescind the mortgage, both of which are required by the Act.

According to the complaint, BAC Home Loans contacted her and asserted a right to collect payments due on the loan. On December 18, 2009, her attorney contacted BAC Home Loans, one of its affiliates, Bank of America, and American Fidelity and advised them that she elected to cancel the December 2006 loan as a result of American Fidelity's failure to make disclosures under the Act. The defendants did not respond. Calvin filed this action on November 8, 2010, seeking rescission of the mortgage, damages for the initial failure to make disclosures required by the Act, damages for the failure to rescind, a requirement that the defendants delete adverse credit reports relating to the loan, and attorneys' fees.

Timeliness of Rescission Claim

The defendants filed motions to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. They argue that Calvin's claim for rescission is made untimely by 15 U.S.C. § 1635(f), which provides that "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 . . . " They assert that in failing to file this action within three years of the consummation of the loan, Calvin did not assert her right to rescind as required by the Act and thus lost any right to relief. Calvin responds that the Act merely required her to notify the defendants of her intent to rescind within three years of consummation, which she did by sending the December 2009 letter.

The defendants argue that the Supreme Court resolved the issue in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998). But Beach determined only that the right to rescission expired after three years for purposes of its assertion as a defense as well as for bringing suit. 523 U.S. at 419. Beach did not discuss how the right must be asserted within the three-year period.

No Seventh Circuit precedent has addressed the issue. Other courts have reached differing conclusions, some holding that the borrower must bring suit within three years (Williams v. Wells Fargo Home Mortgage, Inc., 2011 WL 395978 (3rd Cir. 2011)) and others holding that only a notice to the creditor is necessary (Stewart v. BAC Home Loans Servicing, LP, 2011 WL 862938 (N.D. Ill. 2011)).

This court notes that the Section 1635(f) of the Act, which provides that the "right of rescission" expires three years after consummation of the loan transaction, does not define that right and does not indicate how it is to be exercised. Instead, Section 1635(f) merely extends the duration of the right of rescission when the borrower has not been informed of its existence by the creditor. The method of the right's exercise is established in Section 1635(a) of the Act, which provides:

"[T]he 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." 15 U.S.C. § 1635(a).

The details of the procedure for exercise of the right of rescission are thus established by regulations of the Federal Reserve Board. The Board's Regulation Z, which governs the Truth

In Lending Act, identifies the duration of the rescission right in a single paragraph that includes both the three-day and three-year duration periods. 12 C.F.R. ยง 226.23(a)(3). In a separate paragraph, the regulation defines how the right is to be ...

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