TILA RESCISSION: Who Pays the Money?

The menu of items that are due to the borrower as a condition precedent to making a claim for repayment is expansive and frankly in many cases is equivalent or nearly equivalent to the total amount of the principal claimed as loan repayment. 

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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While everyone is resisting the idea of enforcing rescission, some are asking the right questions. Here is the answer.

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The rescission is effective on the date of mailing. The lender must comply within 20 days from date of notification. Compliance means (1) return of cancelled note (2) release of the encumbrance on record in tech county records and (3) return of all money paid by the borrower, directly or indirectly with certain minor exceptions.

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The answer to the question of how much is due is that there needs to be an accounting because the statute 15 USC §1635 requires the return of all money paid by the “borrower”, directly or indirectly.

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The fact that the fee or compensation or “profit” was not disclosed to the borrower does not remove it from the list of the charges paid by or on behalf of the borrower nor the liability to pay it to the borrower once rescission is effective (i.e., upon notice — mailing).

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This leads to some interesting issues that will need to be dragged out of the “lender”, including all the other “lenders” going back to the original transaction. Most of the money received as compensation by third parties was not disclosed to the borrower, hence the need for an accounting. Many of the charges were slipped in to the loan without the borrower’s knowledge or consent. This brings in possible violations of the FDCPA, the FTCA and the “little FTC” acts passed by individual states.

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The menu of items that are due to the borrower as a condition precedent to making a claim for repayment is expansive and frankly in many cases is equivalent or nearly equivalent to the total amount of the principal claimed as loan repayment. 

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And that in turn brings up the most interesting question of all: who is liable to return those fees, compensation and finance charges? You can be sure that once the accounting is ordered by a court there will be scrambling amongst the players in the “Securitization” market. The whole point of masking their scheme was to avoid liability for this sort of thing. Hence the obfuscation of the actual creditor or lender. And this is one of many break points where the securitization players will start sniping at each other rather than the borrower.

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Nobody wants to hand all that money that was “earned” through the hard work of chicanery. And nobody wants to assert that they are the actual creditor since that would be an admission against interest that they had been misrepresenting the true creditor all along. And it would be waiving the 5th Amendment right against self incrimination for criminal charges.

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In any event, here are the REG Z rules on what constitutes a finance charge, which by the way, means that they should ALL have been been disclosed without exception.

§226.4   Finance charge.

(a) Definition. The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.

(1) Charges by third parties. The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor:

(i) Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or

(ii) Retains a portion of the third-party charge, to the extent of the portion retained.

(2) Special rule; closing agent charges. Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor—

(i) Requires the particular services for which the consumer is charged;

(ii) Requires the imposition of the charge; or

(iii) Retains a portion of the third-party charge, to the extent of the portion retained.

(3) Special rule; mortgage broker fees. Fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge.

(b) Examples of finance charges. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:

(1) Interest, time price differential, and any amount payable under an add-on or discount system of additional charges.

(2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.

(3) Points, loan fees, assumption fees, finder’s fees, and similar charges.

(4) Appraisal, investigation, and credit report fees.

(5) Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer’s default or other credit loss.

(6) Charges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.

(7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.

(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.

(9) Discounts for the purpose of inducing payment by a means other than the use of credit.

(10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law.

FDUTPA:”Per Se” Violations of Deceptive or Unfair trade Practices Under Federal or State Law

a per se violation of TILA or any other Federal or State law makes the act also per se violations of the FTC act, (and the applicable little FTC acts passed in various states). Florida is used here as an example. 

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Anyone who has done even the most cursory research knows that a pattern of behavior in which the name of the creditor or lender is withheld is a “per se” predatory loan. While Judges don’t care whether the borrower knows the actual lender, clearly Congress, the U.S. Supreme Court and the executive branch DO care ( and so their state counterparts); the courts are required to follow the law not create it by inaction or action contrary to the express wording of statutes. As we have discussed this will be shortly revealed as the rescission cases go back to SCOTUS which has already ruled unanimously that there is nothing wrong with the rescission statute, it clearly states the procedures and nothing unconstitutional about its process or effect.
 
Pretender lenders are rushing as many cases to forced sale through foreclosure because their days are numbered in which they can continue to do so. One reason is that their violations of Federal and State statutes prohibiting unfair trade practices are violations per se and another is that their violations are still prosecutable even if they are not on some list somewhere in some statute or group of cases interpreting deceptive trade and lending practices. 
 
For along time, it has been known, accepted and understood that withholding the name of the actual lender as a matter of practice makes each such loan and each such practice “predatory per se” under Reg Z of the Federal truth in Lending Act. The purpose of this article is to suggest that a per se violation of TILA or any other Federal or State law makes the act also per se violations of the FTC act, (and the applicable little FTC acts passed in various states). Florida is used here as an example. 
 
While the recognition that the alleged loan transaction was by definition unto itself predatory, there has been no attempt or agreement to arrive at any consequences that should befall the “ pretender lender” violator because TILA has enforcement provisions and self executing punishment like TILA rescission but it does not specifically provide an easy route to assessing substantial damages by way of disgorgement, which probably cannot be barred by the defense of the statute of limitations. 
 
If a loan is predatory per se under Reg Z as a table funded loan then it is hard to imagine how that act of “lending” would not also be a per se violation of the FTCA and, in Florida, the FDUTPA 501.204 et seq. A table funded loan by definition withholds the identity of the true lender. Table funded loans were not only part of the pattern and practice of creating illusions they called “loans” but became industry standard.
 
 It is neither an exaggeration nor over-reaching to say that table funded loans that were predatory per se became industry practice from around 2001 through the present. In other words it became industry standard to violate the Federal Truth in Lending Act, the FTC Act, and the state versions of the FTC act (in Florida §501.204 et seq). As we have seen with construction defect lawsuits starting back in the 1970’s, the fact that it became custom and practice to violate the the local building codes does not in any way raise a valid defense to violating those codes. 
 
This would fall under the Florida FDUTPA category of “Per Se by Description. “ It doesn’t matter whether the judge “feels” that some bank or “lender” or “servicer” might be hurt. That question has been decided by the Federal legislative branch, the Federal Executive Branch and the Federal Judicial branch as enunciated by the highest court in the land. Under the powers vested in the Federal government laws were passed in which the Federal government pre-empted or restricted state action in circumstances where ordinary consumers were fooled by deceptive practices. And the test is whether the least sophisticated and most gullible consumer was tricked and hurt by the trick. The same line of thought applies to state laws like the little FTC act in Florida.
 
Once the violation becomes a per se violation, the question is not whether there is injury but rather how much should be awarded to the consumer as a punishment to the violator and as a means to settle the score with the consumer. This calls for disgorgement which is not considered to be “damages” since it is described as merely preventing the violator from keeping ill-gotten gains. Attorneys fees and court costs are almost always provided by the Federal and state FTC statutes. The violations under the FDCPA may be barred by the expiration of a statute of limitations but the per se violations of the of the FDCPA and its equivalent state statutes probably is a trigger for declaring the FDCPA violation a per se violation which in turn triggers the rest of the applicable statutes for disgorgement of ill-gotten gains. 
 
Per Se by Description
The reference in §501.203(3)(a) and (c) to FDUTPA violations based on FTC or FDUTPA rules, or “[a]ny law, statute, rule, regulation, or ordinance” can further be interpreted as a formal acknowledgment of violations of a second type of per se violation which occurs when a rule, statute, or ordinance is violated, and the rule, statute, or other ordinance expressly describes unfair, deceptive, or unconscionable conduct, without necessarily referring expressly to FDUTPA.
 
Rules Adopted by the FTC
Pursuant to the FTC act, the FTC has adopted rules which describe unfair or deceptive acts in several contexts, and which appear in 16 C.F.R. ch. 1, subch. D, entitled “Trade Regulation Rules.” Some of the more well known of these include the FTC rules governing door-to-door sales,16 franchises,17 holders in due course,18 negative option sales plans,19 funeral industry practices,20 and mail or telephone order sales.21 According to the definition of “violation of this part,” in §501.203(3)(a) a violation of FDUTPA can occur when federal administrative rules promulgated by the Federal Trade Commission pursuant to the FTC act are violated. Along these lines, the 11th Circuit has confirmed that §501.203(3)(a) of FDUTPA creates a private cause of action for violation of an FTC rule even though none exists under federal law.22
 
[Whether  or not the facts alleged by the consumer are sufficient for rescission, damages remain available under the FTC act and little FTC acts in various states. The damages extend up to and including all money paid by the debtor. And according to recent case law following a long prior tradition, the statute of limitations does not apply to petitioners for disgorgement of ill-gotten gains.  16 CFR 433 — Preservation of consumer claims and defenses, unfair or deceptive acts or practices]

120510advisoryopinionholderrule

Much of the material for this article has been inspired by the following article:
Florida Bar Journal May, 2002, Volume LXXVI, No. 5 Page 62 by Mark S. Fistos. “Per Se Violations of Florida Deceptive and Unfair Practices Act §501.204(1)”
Relevant passages quoted:
 
FDUTPA broadly declares in §501.204(1) that “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce” are unlawful. By design, FDUTPA does not contain a definition or “laundry list” of just which acts can be “deceptive,” “unfair,” or “unconscionable.” No specific rule or regulation is required to find conduct unfair or deceptive under the statute.1
 
There is, however, an entire body of state and federal rules, ordinances, and statutes which serves to identify specific acts that constitute automatic violations of FDUTPA’s broad proscription in §501.204(1). These rules, ordinances, and statutes, if violated, constitute “per se” violations of FDUTPA, and could automatically expose parties to actual damages, injunctions, and civil penalties up to $15,000 per violation. An assessment of potential per se FDUTPA violations, therefore, should play a part in any commercial law practice, and is imperative for any lawyer bringing or defending against a claim for deceptive or unfair trade practices.
 
Approaches to FDUTPA Liability
There are two basic approaches to analyzing FDUTPA liability: one is to determine whether an act or practice in trade or commerce violates broadly worded standards relating to unfairness, deception, unconscionable acts or practices, or unfair methods of competition; a second is to assess whether conduct in trade or commerce constitutes a per se violation.2
FDUTPA tracks the broad language of the Federal Trade Commission Act (FTC act)3and declares “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce” to be unlawful. Subsection 501.204(2) of FDUTPA in turn provides that “due consideration and great weight” be given interpretations by federal courts and the Federal Trade Commission of what constitutes unfairness and deception.
 
Based on FTC interpretations and federal case law dating from the 1960s, Florida courts have adopted and applied in various contexts a broadly worded standard of unfairness under which a practice is unfair, “if it offends public policy and is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”4

Categories of Per Se Violations

The rules, regulations, ordinances, and statutes referenced in the above-quoted §501.203(3) refer to sources which may serve as a basis for a per se FDUTPA violation. These sources can be broken down into three categories:
1) Per se violations whereby a statute, ordinance, or rule expressly refers to FDUTPA and provides a violation thereof to be a violation of FDUTPA; [per se by reference]
2) Per se violations whereby a statute, ordinance, or rule expressly describes deceptive, unconscionable, or unfair conduct without referring expressly to FDUTPA and when violated constitutes a per se violation of FDUTPA; [per se by description] and
3) Per se violations whereby a court, in the absence of any such reference or description, construes a statute, ordinance, or rule to be a per se violation of FDUTPA.
 
Examples from Footnotes: Fla. Stat. §§210.185(5) (cigarette distribution), 320.03(1) (DHSMV agents), 320.27(2) (vehicle dealer licensing), 624.125(2) (service agreements), 681.111 (lemon law), 501.97(2) (location advertising), 400.464(4)(b) (home health agencies), 400.93(6)(b) (home medical equipment providers), 483.305(3) (multiphasic health testing centers), 496.416 (charitable contributions), 501.160(3) (price gouging), 501.0579 (weight loss centers), 501.34 (aftermarket crash parts), 509.511 (campground memberships), 559.934 (sellers of travel), 624.129(4) (location and recovery services), 817.62(3)(c) (credit card factoring);Code of Ordinances, City of Ft. Walton Beach, Florida §23-145(a) (title loans).

CHECKLIST — FDCPA Damages and Recovery: Revisiting the Montana S Ct Decision in Jacobson v Bayview

What is unique and instructive about this decision from the Montana Supreme Court is that it gives details of each and every fraudulent, wrongful and otherwise illegal acts that were committed by a self-proclaimed servicer and the “defective” trustee on the deed of trust.

You need to read the case to see how many different times the same court in the same case awarded damages, attorney fees and sanctions against Bayview who persisted in their behavior even after the judgment was entered.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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This case overall stands for the proposition that the violations of federal law by self proclaimed servicers, trusts, trustees, substituted trustees, etc. are NOT insignificant or irrelevant. The consequences of merely applying the law in a fair and balanced way could and should be devastating to the TBTF banks, once the veil is pierced from servicers like Bayview, Ocwen et al and the real players are revealed.

I offer the following for legal practitioners as a checklist of issues that are usually present, in one form or another, in virtually all foreclosure cases and the consequences to the bad actors when the law is actually applied. The interesting thing is that this checklist does not just represent my perspective. It comes directly from the Jacobson decision by the high court in Montana. That decision should be read, studied and analyzed several times. You need to read the case to see how many different times the same court in the same case awarded damages, attorney fees and sanctions against Bayview who persisted in their behavior even after the judgment was entered.

One additional note: If you think about it, you can easily see how this case represents the overall infrastructure employed by the super banks. It is obvious that all of Bayview’s actions were at the behest of Citi, who like any other organized crime figure, sought to avoid getting their hands dirty. The self proclamations inevitably employ the name of US Bank whose involvement is shown in this case to be zero. Nonetheless the attorneys for Bayview and Peterson sought to pile up paper documents to create the illusion that they were acting properly.

  1. FDCPA —abusive debt collection practices by debt collectors
  2. FDCPA who is a debt collector — anyone other than the creditor
  3. FDCPA Strict Liability 
  4. FDCPA for LEAST SOPHISTICATED CONSUMER
  5. FDCPA STATUTORY DAMAGES
  6. FDCPA COMPENSATORY DAMAGES
  7. FDCPA PUNITIVE DAMAGES
  8. FDCPA INHERENT COURT AUTHORITY TO LEVY SANCTIONS
  9. CUMULATIVE BAD ACTS TEST — PATTERN OF CONDUCT
  10. HAMP Modifications Scam — initial and incentive payments
  11. Estopped and fraud: 90 day delinquency disinformation — fraud and UPL
  12. Rejected Payment
  13. Default Letter: Not authorized because sender is neither servicer nor interested party.
  14. Default letter naming creditor
  15. Default letter declaring amount due — usually wrong
  16. Default letter with deadline date for reinstatement: CURE DATE
  17. Late charges improper
  18. Extra interest improper
  19. Fees even after they lose added to balance “due.”
  20. Notice of acceleration based upon default letter which contains inaccurate information. [Not authorized because sender is neither servicer nor interested party.]
  21. Damages: Negative credit rating — [How would bank feel if their investment rating dropped? Would their stock drop? would thousands of stockholders lose money as a result?]
  22. damages: emotional stress
  23. Damages: Lost opportunities to save home
  24. Damages: Lost ability to receive incentive payments for modification
  25. FDCPA etc: Use of nonexistent or inactive entities
  26. FDCPA Illegal notarizations
  27. Illegal notarizations on behalf of nonexistent or uninvolved entities.
  28. FDCPA naming self proclaimed servicer as beneficiary (creditor/mortgagee)
  29. Assignments following self proclamation of beneficiary (creditor/mortgagee)
  30. Falsely Informing homeowner they cannot reinstate
  31. Wrongful appointment of Trustee under deed of trust
  32. Wrongful and non existent Power of Attorney
  33. False promises to modify
  34. False representations to the Court
  35. Musical entities
  36. False and fraudulent utterance of a document
  37. False and fraudulent recording of a false document
  38. False representations concerning “US Bank, Trustee” — a whole category unto itself. (the BOA deal and others who “sold” trustee position of REMICs to US Bank.) 

9th Circuit: Trustee is Not Debt Collector But Reverses Trial Court on Rescission

This decision could be a lot worse for the banks and servicers than it might appear. The Trustee for a valid REMIC trust that owns the debt (and doesn’t just control the paper) is clearly NOT a debt collector. But considering that no Trustee has EVER claimed to be a holder in due course and that the Trust is in fact a holographic image of an empty paper bag, they most certainly are debt collectors. The catch is you have to plead correctly and undermine the assumption that they own the debt.

But the 9th Circuit reversed the trial court on the issue of TILA rescission. As to TILA Rescission, the 9th Circuit was merely restating the obvious after the unanimous Jesinoski decision render by SCOTUS. “The Court noted that it recently held in Merritt v. Countrywide Fin. Corp., 759 F.3d 1023, 1032-33 (9th Cir. 2014), that a mortgagor need not allege the ability to repay the loan in order to state a rescission claim under TILA. However, this was the basis of the trial court’s dismissal of the TILA claim.”

Apparently restating the obvious is what is necessary to get trial courts to fall in line with the fact that rescission is effective when mailed and is legally a perfect defense to foreclosure. But trial courts keeping adding caveats that are not in the statute even after the Supreme Court made it crystal clear that trial courts had no such option. The statute is clear on its face. Trial courts have no right to re-write the statute as they think it should have been written.

The failure of the banks to contest the rescission within the 20 day window is not the fault of the homeowner. And the inability of the banks to file such an action to vacate the rescission is a problem for the banks who have nothing to lose anyway in most of the foreclosures.

As for the three year “expiration” or “statute of limitations” there is still a simple answer. Once you mail the rescission it is effective. Once you record it in the public records, the whole world knows that the mortgage or deed of trust is void. Once you mail it using US Postal Service the parties claiming through the note and mortgage or deed of trust have no further claim unless and until they either perform the three duties specified by statute or they file an action to vacate the rescission.THAT they won’t do because they are not really the owners of the debt.

So THEY have a choice — either go along with the rescission or file something in court contesting the rescission. And the fact that they can’t file anything is testimony that they are not the owners of the debt and do not have any authority to pursue the claim on behalf of the owner(s) of the debt. If that were not true they would gleefully produce the proof to establish the identity of the creditor and their authority to pursue claims on behalf of that creditor. And so far I have seen no lawsuit or even a motion that seeks to vacate the TILA rescission. Foreclosures that proceeded despite the rescission and without the ruling by the court that the rescission was void ab initio are themselves void as of the date of mailing the rescission notice.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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see http://www.insidearm.com/news/00042303-9th-cir-holds-foreclosure-trustee-not-fdc/

Rescission Redo: 9th Circuit AGAIN Rules that Tender is Not Necessary

Judicial Arrogance and Intolerance Keeps leading back to the same point — that TILA Rescission is not common law rescission. Yet Judges continue to rule on TILA rescission as though it were common law rescission. Here again the 9th Circuit confirms what the Supreme Court of the United States has already said — neither tender nor lawsuit is required for rescission to be effective. Any other holding is directly contrary tot eh wording of the statute, which as a matter of law is clear and NOT subject to interpretation.

The second important part of this decision is that the Court may not lay down conditions or advice concerning the filing of an amended complaint. The corollary is that the fact that an amended complaint was filed without the rescission count does not prevent the homeowner from preserving the issue on appeal — if the lower court said don’t file it unless you plead and prove tender of money.

And the third implied issue is what Congress intended when they passed TILA and the rescission statute, to wit: The whole notion of “tender” is ridiculous in the face of the legal conclusion that the note and mortgage no longer exist (void) and the factual basis that the whole issue of identification fo the creditor may not subverted. Hence the question “Tender to whom?”

Lastly the issue of whether a Trustee is a debt collector appears to be answered in the affirmative. Yes they are and not just because of the reasons set forth in the decision (see concurring opinion). Creditors are not normally regarded as debt collectors. But there is a growing awareness that the REMIC trusts are empty; hence the trustee of the REMIC Trust cannot be anything but a debt a collector unless they can prove that they are indeed the creditor — i.e., the party to whom the debt is owed. Likewise the Trustee on a Deed of Trust MUST be a debt collector because by definition it is an intermediary seeking to collect money.

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Hat tip to stopforeclosurefraud.com, whose article is republished in part.

The ruling upholds the ability to rescind despite ability to repay- Split court ruling of FDCPA applying to Trustee- dissenting judge vigorously argues that the FDCPA should apply to Trustee’s for all the right reasons. See below……

http://stopforeclosurefraud.com/2016/11/03/vien-phuong-ho-v-recontrust-company-n-a-et-a-9th-cir-holds-foreclosure-trustee-not-fdcpa-debt-collector/ 

Vien-Phuong Ho v. ReconTrust Company, N.A., et a | 9th Cir. Holds Foreclosure Trustee Not FDCPA ‘Debt Collector’

stopforeclosurefraud.com

Seeking damages under the FDCPA, the plaintiff alleged that the trustee of the deed of trust on her property sent her a notice of default and a notice of sale

I

The district court twice dismissed Ho’s TILA rescission claim without prejudice, and Ho didn’t replead it in her third complaint. We have held that claims dismissed without prejudice and not repleaded are not preserved for appeal; they are instead considered “voluntarily dismissed.” See Lacey v. Maricopa Cty., 693 F.3d 896, 928 (9th Cir. 2012). Here, however, the district court didn’t give Ho a free choice in whether to keep repleading the TILA rescission claim.

Rather, the court said that if Ho wished to replead the claim she “would be required to allege that she is prepared and able to pay back the amount of her purchase price less any downpayment

she contributed and any payments made since the time of her purchase.” The judge concluded that if Ho “is not able to make that allegation in good faith, she should not continue to maintain a TILA rescission claim.” It’s unclear whether the judge meant this as benevolent advice or a stern

command. But a reasonable litigant, particularly one proceeding pro se, could have construed this as a strict condition, one that might have precipitated the judge’s ire or even invited a sanction if disobeyed. Ho could not or would not commit to pay back the loan, and dropped the claim in her third complaint.

The district court based its condition on Yamamoto v. Bank of N.Y., which gave courts equitable discretion to “impose conditions on rescission that assure that the borrower meets her obligations once the creditor has performed its obligations.” 329 F.3d 1167, 1173 (9th Cir. 2003). But, after

the district court dismissed Ho’s claims, we held that a mortgagor need not allege the ability to repay the loan in order to state a rescission claim under TILA that can survive a motion to dismiss. Merritt v. Countrywide Fin. Corp., 759 F.3d 1023, 1032–33 (9th Cir. 2014). Ho argues that her rescission claims were properly preserved for appeal and should be reinstated.

Where, as here, the district court dismisses a claim and instructs the plaintiff not to refile the claim unless he includes certain additional allegations that the plaintiff is unable or unwilling to make, the dismissed claim is preserved for appeal even if not repleaded. A plaintiff is the master of his claim and shouldn’t have to choose between defying the district court and making allegations that he is unable or unwilling to bring into court.

This rule is a natural extension of our holding in Lacey. The Lacey rule—which displaced our circuit’s longstanding and notably harsh rule that all claims not repleaded in an amended complaint were considered waived—was motivated by two principal concerns: judicial economy and fairness to the parties. 693 F.3d at 925–28. Those concerns apply here. We see no point in forcing a plaintiff into a drawn-out contest of wills with the district court when, for whatever reason, the plaintiff chooses not to comply with a court-imposed condition for repleading. We remand to the district court for consideration of Ho’s TILA rescission claim in light of Merritt v. Countrywide Fin. Corp., 759 F.3d at 1032–33.

AFFIRMED in part, VACATED and REMANDED in

part. No costs.

KORMAN, District Judge, dissenting in part and concurring

in part:

The majority opinion opens with the principal question presented by this case: “[W]hether the trustee of a California deed of trust is a ‘debt collector’ under the Fair Debt Collection Practices Act (FDCPA).” Maj. Op. at 6. After a discussion of the issue, the majority concludes by observing that the phrase “debt collector” is “notoriously ambiguous” and that, given this ambiguity, we should refuse to construe it in a manner that interferes with California’s arrangements for conducting nonjudicial foreclosures. Maj. Op. at 18–19. My reading of the Fair Debt Collection Practices Act (“FDCPA”), consistent with the manner in which it has been construed by every other circuit that has addressed whether foreclosure procedures are debt collection subject to the FDCPA, suggests that the only reasonable reading is that a trustee pursuing a nonjudicial foreclosure proceeding is a debt collector. See Kaymark v. Bank of Am., N.A., 783 F.3d 168, 179 (3d Cir. 2015), cert. denied, 136 S.Ct. 794 (2016); Glazer v. Chase Home Fin. LLC, 704 F.3 453, 461–63 (6th Cir. 2013); Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376–77 (4th Cir. 2006); see also Alaska Tr., LLC v. Ambridge, 372 P.3d 207, 213–216 (Alaska 2016); Shapiro & Meinhold v. Zartman, 823 P.2d 120, 123–24 (Colo. 1992) (en banc). The same is true of a judicial foreclosure proceeding—an alternative available in California. See Coker v. JPMorgan Chase Bank, N.A., 364 P.3d 176, 178 (Cal. 2016). Both are intended to obtain money by forcing the sale of the property being foreclosed upon.

FDCPA and FCCPA: Temperatures rising

FDCPA and FCCPA (or similar state legislation) claims are getting traction across the country. Bank of America violated the federal Fair Debt Collection Practices Act (“FDCPA”) and the related Florida Consumer Collection Practices Act (“FCCPA”). (Doc. 26). The Goodin case is a fair representation of the experience of hundreds of thousands of homeowners who have tried to reconcile the numbers given to them by Bank of America and others.

In a carefully worded opinion from Federal District Court Judge Corrigan in Jacksonville, the Court laid out the right to damages under the FDCPA and FCCPA. The Court found that BOA acted with gross negligence because they continued their behavior long after being put on notice of a mistake on their part and awarded the 2 homeowners:

  • Statutory damages of $2,000
  • Actual damages for emotional distress of $100,000 ($50,000 per person)
  • Punitive damages of $100,000
  • Attorneys fees and costs

 

See http://www.leagle.com/decision/In%20FDCO%2020150623E16/GOODIN%20v.%20BANK%20OF%20AMERICA,%20N.A.

The story is the same as I have heard from thousands of other homeowners. The “servicer” or “bank” misapplies payments, negligently posts payments to the wrong place and refuses to make any correction despite multiple attempts by the homeowners to get their account straightened out. Then the bank refuses to take any more payments because the homeowners are “late, ” “delinquent”, or in “default”, following which they send a default notice, intent to accelerate and then file suit in foreclosure.

The subtext here is that there is no “default” if the “borrower” tenders payment timely with good funds. The fact that the servicer/bank does not accept them or post them to the right ledger does not create a default on the part of the borrower, who has obviously done nothing wrong. There is no default and there is no delinquency. The wrongful act was clearly committed by the servicer/bank. Hence there is no default by the borrower in any sense by any standard. It might be said that if there is a default, it is a default by Bank of America or whoever the servicer/bank is in another case.

Using the logic and law of yesteryear, we frequently make the mistake of assuming that if there is no posting of a payment, no cashing of a check or no acceptance of the tender of payment, that the borrower is in default but it is refutable or excusable — putting the burden on the borrower to show that he/she/they tendered payment. In fact, it is none of those things. When you parse out the “default” none of the elements are present as to the borrower.

This case stands out as a good discussion of damages for emotional distress — including cases, like this one, where there is no evidence from medical experts nor medical bills resulting from the anguish of trying to sleep for years knowing that the bank or servicer is out to get your house. The feeling of being powerless is a huge factor. If an institution like BOA fails to act fairly and refuses to correct its own “errors,” it is not hard to see how the distress is real.

I of course believe that BOA had no procedures in place to deal with calls, visits, letters and emails from the homeowner because they want the foreclosure in all events — or at least as many as possible. The reason is simple: the foreclosure judgment is the first legally valid instrument in a long chain of misdeeds. It creates the presumption that all the events, documents, letters and claims were valid before the judgment was entered and makes all those misdeeds enforceable.

The Judge also details the requirements for punitive damages — i.e., aggravating circumstances involving gross negligence and intentional acts. The Judge doesn’t quite say that the acts of BOA were intentional. But he describes BOA’s actions as so grossly negligent that it must approach an intentional, malicious act for the sole benefit of the actor.

 

PRACTICE NOTE ON MERGER DOCTRINE AND EXISTENCE OF DEFAULT:

It has always been a basic rule of negotiable instruments law that once a promissory note is given for an underlying obligation (like the mortgage contract), the underlying obligation is merged into the note and is suspended while the note is still outstanding. Discharge on the note would (due to the rule that the two are merged) result in discharge discharge of the underlying obligation. Thus paying the note would also pay the obligation. Because of the merger rule, the underlying obligation is not available as a separate course of action until the note is dishonored.

 

The problem here is that most lawyers and most judges are not very familiar with the UCC even though it constitutes state law in whatever state they are in. They see the UCC as a problem when in fact it is a solution. it answers the hairy details without requiring any interpretation. It just needs to be applied. But just then the banks make their “free house” argument and the judge “interprets a statute that is only vaguely understood.

The banks know that judges are not accustomed to using the UCC and they come in with a presumed default simply because they show the judge that on their own books no payment was posted. And of course they have no record of tender and refusal by the bank. The court then usually erroneously shifts the burden of proof, as to whether tender of the payment was made, onto the homeowner who of course does not  have millions of dollars of computer equipment, IT platforms and access to the computer generated “accounts” on multiple platforms.

This merger rule, with its suspension of the underlying obligation until this honor of the note cut is codified in §3-310 of the UCC:

(b) unless otherwise agreed and except as provided in subsection (a), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instruments were taken, and the following rules apply:

(2) in the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in the discharge of the obligation to the extent of the payment.

thus until the note is dishonored there can be no default on the underlying obligation (the mortgage contract). All foreclosure statutes, whether permitting self-help or requiring the involvement of court, forbid foreclosure unless the underlying debt is in”Default.” That means that the maker of the promissory note must have failed to make the payments required by the note itself, and thus the node has been dishonored. Under UCC §3-502(a)(3) a hello promissory note is dishonored when the maker does not pay it when the footnote first becomes payable.

FDCPA Claims Upheld in 9th Circuit Class Action

The court held that the FDCPA unambiguously requires any debt collector – first or subsequent – to send a section 1692g(a) validation notice within five days of its first communication with a consumer in connection with the collection of any debt.

THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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If anyone remembers the Grishom book “The Firm”, also in movies, you know that in the end the crooks were brought down by something they were never thinking about — mail fraud — a federal law that has teeth, even if it sounds dull. Mail fraud might actually apply to the millions of foreclosures that have taken place — even if key documents are sent through private mail delivery services. The end of month statements and other correspondence are definitely sent through US Mail. And as we are seeing, virtually everything they were sending consisted of multiple layers of misrepresentations that led to the detriment of the receiving homeowner. That’s mail fraud.
Like Mail Fraud, claims based on the FDCPA seem boring. But as many lawyers throughout the country are finding out, those claims have teeth. And I have seen multiple cases where FDCPA claims resulted in the settlement of the case on terms very favorable to the homeowner — provided the claim is properly brought and there are some favorable rulings on the initial motions.
Normally the banks settle any claim that looks like it would be upheld. That is why you don’t see many verdicts or judgments announcing fraudulent conduct by banks, servicers and “trustees.”And you don’t see the settlement either because they are all under seal of confidentiality. So for the casual observer, you might see a ruling here and there that favors the borrower, but you don’t see any judgments normally. Here the banks thought they had this one in the bag — because it was a class action and normally class actions are difficult if not impossible to prosecute.
It turns out that FDCPA is both a good cause of action for damages and a great discovery tool — to force the banks, servicers or anyone else that is a debt collector to respond within 5 days giving the basic information about the loan — like who is the actual creditor. Discovery is also much easier in FDCPA actions because it is forthrightly tied to the complaint.
This decision is more important than it might first appear. It removes any benefit of playing musical chairs with servicers, and other debt collectors. This is a core of bank strategy — to layer over all defects. This Federal Court of Appeals holds that it doesn’t matter how many layers you add — all debt collectors in the chain had the duty to respond.
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Justia Opinion Summary

Hernandez v Williams, Zinman and Parham, PC No 14-15672 (9th Cir, 2016)

Plaintiff filed a putative class action, alleging that WZP violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692(g)(a), by sending a debt collection letter that lacked the disclosures required by section 1692(g)(a) of the FDCPA. Applying well-established tools of statutory interpretation and construing the language in section 1692g(a) in light of the context and purpose of the FDCPA, the court held that the phrase “the initial communication” refers to the first communication sent by any debt collector, including collectors that contact the debtor after another collector already did. The court held that the FDCPA unambiguously requires any debt collector – first or subsequent – to send a section 1692g(a) validation notice within five days of its first communication with a consumer in connection with the collection of any debt. In this case, the district court erred in concluding that, because WZP was not the first debt collector to communicate with plaintiff about her debt, it had no obligation to comply with the statutory validation notice requirement. Accordingly, the court reversed and remanded.

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