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Wilson Iroanyah and Joy Iroanyah v. Bank of America

March 14, 2012

WILSON IROANYAH AND JOY IROANYAH, PLAINTIFFS,
v.
BANK OF AMERICA, N.A., A NATIONAL BANKING ASSOCIATION, BANK OF NEW YORK MELLON F/K/A THE BANK OF NEW YORK, AS TRUSTEE FOR TBW MORTGAGE PASS- THROUGH CERTIFICATES, SERIES 2007-1, GREEN TREE SERVICING, LLC, A DELAWARE LIMITED LIABILITY COMPANY, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., A DELAWARE CORPORATION, TAYLOR, BEAN & WHITAKER MORTGAGE CORP., A FLORIDA CORPORATION, AND JOHN DOE, DEFENDANTS.



The opinion of the court was delivered by: Judge Feinerman

MEMORANDUM OPINION AND ORDER

In November 2006, Plaintiff Wilson Iroanyah received loans from Defendant Taylor Bean & Whitaker Mortgage Corporation ("TBW") for $192,000 ("First Loan") and $36,000 ("Second Loan"). Both loans were secured by mortgages on a home belonging to Wilson and his wife, Plaintiff Joy Iroanyah. TBW assigned the Second Loan to Defendant Bank of America, N.A. ("BOA"), and Defendant Bank of New York Mellon ("BNY") acquired the First Loan following TBW's bankruptcy. Defendant Green Tree Servicing, LLC, services the Second Loan, and Defendant Mortgage Electronic Registration Systems, Inc. ("MERS") is a nominee mortgagee on both loans.

The Iroanyahs filed this action seeking rescission of the loans and statutory damages under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. The Iroanyahs have moved for summary judgment. Doc. 82. BOA and Green Tree together have moved for summary judgment or, in the alternative, for the court to establish reasonable rescission procedures. Doc. 76. BNY and MERS filed a motion similar to the one filed by BOA and Green Tree. Doc. 79. All three summary judgment motions are granted in part and denied in part.

Background

The following facts are undisputed or indisputable, except where noted. The Iroanyahs are a married couple who reside in a single family home in Illinois. Wilson is the home's sole owner. On November 16, 2006, Wilson entered into agreements with TBW for the First Loan, a 30-year loan for $192,000, and the Second Loan, a 15-year loan for $36,000. The loans were secured by mortgages on the home. At the closing, the Iroanyahs received certain documents, two categories of which are relevant here.

First, the Iroanyahs received at least one copy of a Notice of the Right to Cancel under TILA for each loan. The Iroanyahs contend that they received only one copy of the Notice for each loan, while Defendants contend that the Iroanyahs received two copies for each loan. The Iroanyahs signed written acknowledgments on the Notices that they received two copies of the Notice for each loan. Doc. 77 at 55; Doc. 93 at ¶ 11; Doc. 94 at ¶ 25.

Second, the Iroanyahs received a Truth-In-Lending Disclosure Statement for each loan. For the First Loan, the section of the Disclosure Statement labeled "Your Payment Schedule Will Be" had two rows, with the first row indicating that there would be 359 payments of $1,261.30 and the second row indicating that there would be one payment of $1,265.45. In a column labeled "When Payments Are Due," the Disclosure Statement said "1/1/2007" in the row indicating 359 payments of $1261.30 and "12/1/2036" in the row indicating one payment of $1265.45. Doc. 84-9. The "Your Payment Schedule Will Be" section of the Disclosure Statement for the Second Loan also had two rows, with the first row indicating that there would be 179 payments of $306 and the second row indicating that there would be one payment of $29,397.53. In the "When Payments Are Due" column, the Disclosure Statement said "1/1/2007" in the row indicating 179 payments of $306 and "12/1/2021" in the row indicating one payment of $29,397.53. Doc. 84-10. Neither Disclosure Statement says that the payments were to be made monthly, and neither lists each individual payment date. Wilson testified, however, that he understood that the payments were to be made monthly. Doc. 77 at 20-21; Doc. 93 at ¶ 9.

The Iroanyahs stopped making payments on both loans in April 2008. On August 27, 2008, TBW filed a foreclosure action on the First Loan against the Iroanyahs in state court. BNY was substituted for TBW as the plaintiff in the state case, which has been stayed pending the outcome of this litigation. On September 2, 2008, the Iroanyahs (through counsel) sent a rescission notice to TBW saying that they were exercising their right to rescind the First Loan, with the justification being that the Disclosure Statement did not set forth a complete payment schedule. Doc. 84-11. By letter dated September 22, 2008, TBW denied any TILA violation, but agreed to a rescission, stating that "TBW has begun the process to release its security interest per your client's request." Doc. 89-3 at 5-6. The letter said that to accomplish a rescission, the Iroanyahs first had to tender $169,015.30, which according to TBW was the principal balance minus the principal, interest, and closing costs that the Iroanyahs had paid.

In a letter dated September 23, 2008, the Iroanyahs refused TBW's offer. Id. at 8-9. They maintained that TILA's rescission procedures provide that a creditor may demand tender from a borrower only after releasing its security interests and returning to the borrower all interest payments and charges that the borrower had paid. The Iroanyahs also maintained that rescission was justified on the independent ground that Wilson was provided only one Notice rather than two. Finally, the Iroanyahs asked TBW for a response to their rescission notice on the Second Loan, which was materially identical to the rescission notice for the First Loan and which had been sent to TBW as well to BOA because BOA by then had acquired an interest in the Second Loan. Doc. 84-12. Nothing in the record indicates that BOA or TBW ever responded to the rescission notice regarding the Second Loan.

The Iroanyahs filed this action in January 2009, alleging that they are entitled to rescission and statutory damages under TILA. TBW filed for bankruptcy in August 2009, resulting in a stay of the proceedings as to that defendant only. Docs. 50, 57. The case continued as to the remaining parties, who all filed summary judgment motions. Their various arguments are considered below.

Discussion

I. Green Tree and MERS

Green Tree and MERS contend that as a servicer of one loan and nominee mortgagee on both loans, respectively, they are not the loans' originators or assignees and therefore cannot be held liable for damages under TILA. The Iroanyahs do not dispute these contentions, and Green Tree and MERS have the law on their side. See 15 U.S.C. § 1641(f)(1) ("A servicer of a consumer obligation arising from the consumer credit transaction shall not be treated as an assignee of such obligation for purposes of this section unless the servicer is or was the owner of the obligation."); Kesten v. Ocwen Loan Servicing, LLC, 2012 WL 426933, at *4-5 (N.D. Ill. Feb. 9, 2012) (rejecting liability against the loan servicer); Pagtalunan v. Reunion Mortg. Inc., 2009 WL 961995, at *3 (N.D. Cal. Apr. 8, 2009) (rejecting liability against the nominee); Lippner v. Deutsche Bank Nat'l Trust Co., 544 F. Supp. 2d 695, 699 (N.D. Ill. 2008) (rejecting liability against the loan servicer).

Although Green Tree and MERS are safe from damages under TILA, they should remain parties to this litigation. If the Iroanyahs obtain rescission-a matter that, as shown below, is not yet resolved-Green Tree may be prohibited from reporting adverse information to credit bureaus, and MERS may be subject to an order requiring the mortgages' release to be recorded. Accordingly, Green Tree and MERS are entitled to summary judgment on the Iroanyahs' damage claims, but they are not dismissed from the case. See Stewart v. BAC Home Loans Servicing, LP, 2011 WL 862938, at *3 (N.D. Ill. Mar. 10, 2011) (declining to dismiss MERS given the possibility of rescission).

II. The Alleged Disclosure Statement and Notice Violations

The Iroanyahs' two loans indisputably are subject to TILA. "TILA was intended to ensure that consumers are given 'meaningful disclosure of credit terms' and to protect consumers from unfair credit practices." Marr v. Bank of Am., N.A., 662 F.3d 963, 966 (7th Cir. 2011) (quoting 15 U.S.C. § 1601(a)). Among other things, TILA "requires the creditor to provide the consumer with 'clear[] and conspicuous[]' notice of his right to rescind . within three business days following the transaction." Id. at 964 (citing 15 U.S.C. § 1635(a) and 12 C.F.R. § 226.23(b)(1)) (alterations in original). "Regulation Z, issued by the Federal Reserve Board to implement TILA, elaborates on this rule by requiring the lender to give the consumer two copies of the notice of his three-day right to cancel at closing." Id. at 964-65 (citing 12 C.F.R. § 226.23(b)(1)). TILA also requires the creditor to provide a Disclosure Statement disclosing, among other things, "the number, amount, and due dates or period of payments scheduled to repay the total of payments." 15 U.S.C. § 1638(a)(6); see also Hamm v. Ameriquest Mortg. Co., 506 F.3d 525, 528-31 (7th Cir. 2007); 12 C.F.R. § 226.18(g)(1); 12 C.F.R. § 226.23(a)(3) n.48.

If the creditor fails to comply with these notice and disclosure requirements, the rescission period is extended from three business days to three years. See 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3); Marr, 662 F.3d at 965; Bonte v. U.S. Bank, N.A., 624 F.3d 461, 463 (7th Cir. 2010). Failure to provide the necessary notices and disclosures also gives rise to a claim for damages against the creditor. See 15 U.S.C. § 1640(a). Rescission and damage claims may be brought in the same action. See id. § 1635(g). Although a three-year limitations period governs rescission claims based on a failure to comply with TILA's notice and disclosure requirements, a damage claim must be brought within one year of the alleged violation. See id. § 1640(e).

The Iroanyahs seek statutory damages and rescission for TBW's failure to provide them with the required number of Notices and failure to include a payment schedule on the Disclosure Statements. Those alleged violations took place at the November 2006 closing, and the Iroanyahs did not file this suit until January 2009, more than one year but less than three years later. Accordingly, the rescission claims are timely, but the damage claims are barred by the one-year statute of limitations. See Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1045 (9th Cir. 2011) (the one-year limitations period "began to run when the plaintiffs executed their loan documents, because they could have discovered the alleged disclosure violations and discrepancies at that time"); Taggart v. Chase Bank USA, N.A., 353 F. App'x 731, 732 (3d Cir. 2009) (same).

In an attempt to avoid the one-year limitations period, the Iroanyahs contend that when a single lawsuit seeks both damages and rescission, the three-year limitations period applicable to the rescission claim also governs the damage claim. In support, they cite § 1635(g), which 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 [governing damages] of this title for violations of this subchapter not relating to the right to rescind.

15 U.S.C. § 1635(g). The Iroanyahs note that McIntosh v. Irwin Union Bank & Trust Co., 215 F.R.D. 26 (D. Mass. 2003), interpreted § 1635(g) to provide not only that a consumer may seek rescission and damages in a single suit, but also that all claims in such a suit, including the damage claim, are governed by the three-year statute of limitations. Id. at 30.

The court respectfully disagrees with the interpretation of § 1635(g) set forth in McIntosh. Nothing in the text of § 1635(g) speaks to the statute of limitations or indicates any intent to modify the one-year limitations period for damage claims set forth in § 1640(e); all § 1635(g) says is that TILA plaintiffs seeking rescission also may seek damages. See Andrews v. Chevy Chase Bank, 545 F.3d 570, 573 (7th Cir. 2008) ("Section 1635(g) is a simple remedial cross-reference; it provides that rescission plaintiffs may also seek damages under § 1640. It does no more."). It therefore is not surprising that most courts considering the issue have rejected the notion that damage claims in a suit seeking rescission and damages are subject to a three-year limitations period. See, e.g., Cocroft v. HSBC Bank USA, NA, 2011 WL 1630142, at *2 (N.D. Ill. Apr. 27, 2011); Vietor v. Commonwealth Land Title, 2010 WL 545856, at *3 (N.D. Cal. Feb. 11, 2010); Douglas v. Wilmington Fin., Inc., 2009 WL 3852458, at *2 (N.D. Ill. Nov. 18, 2009); Cazares v. Household Fin. Corp., 2005 WL 6418178, at *9 (C.D. Cal. July 26, 2005); Brown v. Nationscredit Fin. Servs. Corp., 349 F. Supp. 2d 1134, 1136-37 (N.D. Ill. 2005); ...


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