Takushi v. BAC Home Loans Servicing, LP et al
Filing
26
ORDER DENYING PLAINTIFF'S 20 MOTION FOR RECONSIDERATION: "Plaintiff has until September 22, 2011 to file an amended complaint in accordance with the Court's 7/1/11 Order. The Court notes that the only claim dismissed without preju dice in the 7/1/11 Order was the portion of Count I concerning Plaintiff's present ownership rights to the Property. The Court CAUTIONS Plaintiff that, if he fails to file his amended complaint by September 22, 2011, this Court will dismiss Plai ntiff's remaining claim with prejudice. IT IS SO ORDERED." Signed by District JUDGE LESLIE E. KOBAYASHI on August 31, 2011. (bbb, )CERTIFICATE OF SERVICEParticipants registered to receive electronic not ifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
ROCKY FUJIO TAKUSHI,
Individually and as Trustee
of the Albert G. Takushi
Revocable Living Trust Dated
April 11, 2007,
)
)
)
)
)
)
)
Plaintiff,
)
)
vs.
)
BAC HOME LOANS SERVICING, LP, )
a Texas Limited Partnership; )
)
ALOHA ASSET SERVICING, LLC;
)
DOES 1-50,
)
)
Defendants.
_____________________________ )
CIVIL NO. 11-00189 LEK-KSC
ORDER DENYING PLAINTIFF’S MOTION FOR RECONSIDERATION
On July 1, 2011, this Court issued its Order Granting
in Part and Denying in Part Defendant BAC Home Loans Servicing,
LP’s Motion to Dismiss Plaintiff’s Complaint (“Order”).
On
July 12, 2011, Plaintiff Rocky Fujio Takushi (“Plaintiff”),
individually and as trustee of the Albert G. Takushi Revocable
Living Trust Dated April 11, 2007 (“Trust”), filed a motion
seeking reconsideration of the Order (“Motion”).
Defendants BAC
Home Loans Servicing, LP (“BAC”) and Aloha Asset Servicing, LLC
(“Aloha Asset Servicing”) (collectively, “Defendants”) each filed
a memorandum in opposition on July 26, 2011.
reply on August 9, 2011.
Plaintiff filed his
The Court finds this matter suitable
for disposition without a hearing pursuant to Rule LR7.2(d) of
the Local Rules of Practice of the United States District Court
for the District of Hawai`i (“Local Rules”).
After careful
consideration of the Motion, supporting and opposing memoranda,
and the relevant legal authority, Plaintiff’s Motion is HEREBY
DENIED for the reasons set forth below.
BACKGROUND
The parties and the Court are familiar with the factual
and procedural background of this case.
The Court therefore will
only discuss the background that is relevant to the instant
motion.
On or about September 19, 2007, Plaintiff’s father
obtained a refinance loan from MortgageIT, Inc. for $230,000 and
entered into a mortgage agreement (“Mortgage”) with MortgageIT,
Inc. regarding real property located at 98-1868 Nahele Street,
Aiea, Hawai`i 96701 (“the Property”).1
Mortgage at 2-3.]
[Complaint at ¶ 9;
On September 21, 2007, Plaintiff allegedly
conveyed the Property back to his father through a Warranty Deed.
[Complaint at ¶ 10; Warranty Deed at 1.]
The Mortgage was
recorded on September 27, 2007 in the Land Court, State of
Hawai`i, as document number 3660910 on certificate of title
number 878,571.
[Complaint at ¶ 9; Mortgage at 1.]
September 29, 2007, Plaintiff’s father died.
1
On
[Complaint at ¶
The Mortgage is attached to BAC’s Motion to Dismiss
Plaintiff’s Complaint (“Motion to Dismiss”) as Exhibit A to the
Declaration of Brandi J. Buehn. [Dkt. no. 6-3.]
2
12.]
On December 31, 2009, BAC recorded a Notice of
Mortgagee’s Intention to Foreclose Under Power of Sale
(“Foreclosure Notice”) in the Bureau of Conveyances, State of
Hawai`i, as document number 2009-198743.2
1.]
[Foreclosure Notice at
BAC served both Plaintiff and Plaintiff’s father with the
Foreclosure Notice on an unspecified date.
[Complaint at ¶ 15.]
On May 24, 2010, Plaintiff’s lawyer, Gary Dubin, Esq.,
sent a letter to BAC (“Dubin Letter”) stating, inter alia, that
Plaintiff sought to exercise his right to rescind the loan
transaction entered into by his father.3
[Dubin Letter at 1.]
In a letter dated June 8, 2010, BAC allegedly denied Plaintiff’s
request for rescission.
[Complaint at ¶ 18.]
On July 12, 2010, BAC foreclosed on the Property and
purchased it at auction.
[Id. at ¶ 20 (citing Mortgagee’s
Affidavit of Foreclosure Under Power of Sale (“Foreclosure
Affidavit”), recorded 7/15/10 as doc. no. 3979799).4]
On
December 6, 2010, the Land Court issued Aloha Asset Servicing a
2
The Foreclosure Notice is attached to Plaintiff’s
memorandum in opposition to the Motion to Dismiss as Exhibit 5.
[Dkt. no. 15-5.]
3
The Dubin Letter is attached to Plaintiff’s Complaint as
Exhibit A.
4
The Foreclosure Affidavit is attached to Plaintiff’s
memorandum in opposition to the Motion to Dismiss as Exhibit 8.
[Dkt. no. 15-8.]
3
transfer certificate of title (TCT) for the Property.
Court, TCT No. 1005781.5]
[Land
On January 21, 2011, Aloha Asset
Servicing filed a Complaint for Ejectment in the District Court
for the First Circuit, State of Hawai`i, claiming to be the owner
of the Property.
[Complaint at ¶ 21.]
On February 9, 2011, Plaintiff filed his two-count
Complaint in the Circuit Court for the First Circuit seeking: (1)
declaratory judgment as to the title of the Property (“Count I”);
and (2) rescission and cancellation under the Truth in Lending
Act (“TILA”), 15 U.S.C. § 1601 et seq. (“Count II”).
6.]
[Id. at p.
Pursuant to 28 U.S.C. §§ 1331, 1367, 1441, and 1446, BAC
timely removed the case to this district court on March 23, 2011.
[Notice of Removal at 2.]
BAC filed its Motion to Dismiss on March 30, 2011.
[Dkt. no. 6.]
On July 1, 2011, the Court issued its Order
Granting in Part and Denying in Part Defendant BAC Home Loans
Servicing, LP’s Motion to Dismiss Plaintiff’s Complaint (“7/1/11
Order”).
[Dkt. no. 19.]
The Court granted the Motion to Dismiss
insofar as it dismissed with prejudice Count II and Count I to
the extent that it concerned BAC’s alleged past wrongs.
The
Court denied the motion insofar as it dismissed without prejudice
the portion of Count I concerning Plaintiff’s present ownership
5
A copy of the TCT for the Property is attached to Aloha
Asset Servicing’s memorandum in opposition to the Motion as
Exhibit A. [Dkt. no. 23.]
4
rights to the Property.
I.
[Id. at 19-20.]
Motion
Plaintiff argues that the Court committed manifest
error by misinterpreting the applicable federal and state law
with respect to when a sale terminates a borrower’s TILA
rescission rights.
A.
Federal Law
Plaintiff first argues that, as a matter of federal
law, the cancellation letter was effective to cancel the mortgage
loan regardless of the occurrence of any subsequent sale, so long
as suit was filed within one year and twenty-one days following
the failure of the mortgagee to accept rescission.
[Mem. in
Supp. of Motion at 3.]
Plaintiff argues that a notice of cancellation of a
loan transaction is effective “‘when the right to rescind is
exercised’” if the notice is sent before the end of the
rescission period.
[Id. at 3 (citing Regulation Z, §§
226.15(a)(2) & 226.23(a)(2)).]
Plaintiff further argues that,
once a lender receives a notice of rescission, the lender has
twenty days to cancel the security interest or the underlying
mortgage is deemed void.
[Id. at 4 (citing Regulation Z, §§
226.15(d) & 226.23(d)).]
Plaintiff argues that, in Beach v. Ocwen Federal Bank,
523 U.S. 410 (1998), the Supreme Court rejected the argument that
5
§ 1635(f)’s rescission period acted as a statute of limitations
within which one must file suit.
According to Plaintiff, the
Supreme Court held that the right of rescission under § 1635(f)
was intended by Congress to be an “election” given to borrowers.
[Id. (citation omitted).]
As a result, Plaintiff contends that
the right of rescission, under Beach, need only be “exercised”
within § 1635(f)’s three-year rescission period, and the borrower
need not file suit in order to exercise that right.
[Id.
(citations omitted).]
Plaintiff argues that the Ninth Circuit’s decision in
Miguel v. Country Funding Corp., 309 F.3d 1161 (9th Cir. 2002),
further supports his position.
According to Plaintiff, the Ninth
Circuit in Miguel held that “a TILA cancellation during the
extended three-year rescission period allows borrowers one
additional year thereafter pursuant to § 1640 to file for
rescission twenty-one additional days after cancellation where
the mortgage wrongfully refuses cancellation.”
[Id. at 5
(citation omitted).]
Finally, Plaintiff argues that the Court misinterpreted
Peyton v. Option One Mortgage Corp., Civil No. 10-00186 SOM-KSC,
2011 WL 1327028 (D. Hawai`i Mar. 31, 2011), in its 7/1/11 Order
by finding that only a damage claim survives § 1635(f)’s threeyear rescission period.
Rather, Plaintiff contends that both
damages and rescission claims may be filed in the additional year
6
afforded by § 1640(e).
*5).]
[Id. (citing Peyton, 2011 WL 1327028, at
According to Plaintiff, at least seven other district
courts within and outside of the Ninth Circuit have embraced this
position.
B.
[Id. at 6 (citations omitted).]
State Law
Plaintiff’s second argument is that the foreclosure
sale was never finalized because a “sale” is determined by state
law, and in Hawai`i, a non-judicial sale is not final and not an
adjudication on the merits until confirmed by a state court.
[Id. at 7.]
Plaintiff contends that a foreclosure sale conducted
pursuant to Hawai`i Revised Statutes § 667-5 is void and
unenforceable where the foreclosure sale is contrary to the
mortgage or contrary to a statute.
[Id. (citing Lee v. HSBC Bank
USA, 121 Haw. 287, 218 P.3d 775 (2009)).]
Plaintiff argues that,
since the non-judicial foreclosure sale of the Property was never
confirmed by a state court, the sale should be treated as void
and his claim for rescission deemed proper.
[Id. at 7-8
(citations omitted).]
As a final matter, Plaintiff contends that the portion
of § 1635(f) stating that borrowers may cancel loans within the
three-year TILA rescission period except “‘upon the earlier sale
of the property’” means that “borrowers may exercise that right
to rescind up to and until final judicial confirmation,
notwithstanding a prior auction sale, which in Hawaii as
7
elsewhere vests no title in the high bidder until confirmation of
sale.”
[Id. at 8-9 (citing Brent v. Staveris Development Corp.,
7 Haw. App. 40, 45, 741 P.2d 722 (1987)).]
II.
BAC’s Memorandum in Opposition
BAC argues that the Court did not commit manifest error
of law or fact because the sale of the Property extinguished
Plaintiff’s TILA right of rescission.
BAC further contends that
the Court should disregard Plaintiff’s arguments regarding
enlargement of § 1635(f)’s three-year rescission period pursuant
to § 1640(e) because the statute of limitations is not relevant
to the Court’s 7/1/11 Order.
A.
Sale of the Property and the Right to Rescind
First, BAC argues that the Court correctly determined
that the TILA right of rescission was extinguished by the sale of
the Property.
BAC argues that “[i]t is well-settled that
rescission under TILA is absolutely terminated upon the close of
the foreclosure sale.”
[BAC’s Mem. in Opp. at 7 (citing Valdez
v. Flexpoint Funding Corp., 2010 WL 3001922, at *7 (D. Haw.
2010)).]
BAC refutes Plaintiff’s argument that a non-judicial
foreclosure in Hawai`i “‘is not final and not an adjudication of
the merits until subsequently confirmed by a State Court[.]’”
[Id. at 8 (quoting Mem. in Supp. of Motion at 7).]
BAC claims
that this district court has imposed no such requirement.
8
Instead, this district court, and others, have found that a nonjudicial foreclosure sale, like the one in the instant case,
terminates an unexpired right to rescind.
[Id. (citations
omitted).]
BAC distinguishes the cases cited by Plaintiff on the
ground that they are judicial – as opposed to non-judicial –
foreclosures.
BAC also claims that such cases did not adjudicate
the issue of the finality of a non-judicial foreclosure sale in
the context of a TILA rescission claim by the borrower.
[Id. at
8-9.]
BAC argues that it is well-settled that a non-judicial
foreclosure sale terminates an unexpired right to rescind.
As a
result, BAC contends that the Court was correct in holding that
rescission is unavailable in the instant case because the
Property was sold on July 12, 2010.
[Id. at 8 (citations
omitted).]
B.
Three-year TILA Rescission Period
Second, BAC argues that the Court need not address
Plaintiff’s statute of limitations arguments because the statute
of limitations was not the basis for the Court’s decision in the
7/1/11 Order.
Rather, BAC explains, the Court found that
rescission is unavailable because the Property had already been
sold.
[Id. at 10 (citations omitted).]
BAC argues that, even if the Court considers
9
Plaintiff’s statute of limitations argument, it fails because
there is an absolute limitation on rescission actions which bars
any claims filed more than three years after the consummation of
the transaction.
BAC argues that, while § 1640(e) provides that
a borrower has one year from the refusal of cancellation to file
suit, any such suit must be for damages, not rescission.
[Id. at
10-11 (citations omitted).]
BAC argues, moreover, that none of the cases cited by
Plaintiff “stand for the proposition that a claim for rescission
may be brought outside of the three year statute of limitations
period.”
[Id. at 12.]
Rather, BAC argues that such cases
involve TILA claims for damages due to the lenders’ failures to
respond to borrowers’ rescission requests.
[Id. (citations
omitted).]
Finally, BAC argues that Plaintiff mischaracterized the
Supreme Court’s holding in Beach v. Ocwen Federal Bank, 523 U.S.
410 (1998).
BAC argues that the Supreme Court in Beach
“determined that TILA permits no federal right to rescind,
defensively or otherwise, after the 3-year period of § 1635(f)
has run.”
[Id. at 14.]
III. Aloha Asset Servicing’s Memorandum in Opposition
Aloha Asset Servicing first contends that the Court did
not misinterpret the law because the sale of the Property
extinguished Plaintiff’s right of rescission.
10
According to Aloha
Asset Servicing, “‘a mortgagor’s right to impeach any foreclosure
proceeding is expressly limited to the period before entry of a
new certificate of title.’”
[Aloha Asset Servicing’s Mem. in
Opp. at 6 (some citations omitted) (quoting Aames Funding Corp v.
Mores, 107 Haw. 95, 101, 110 P.3d 1042, 1048 (2005)).]
Aloha
Asset Servicing therefore argues that Plaintiff can no longer
seek to impeach the foreclosure proceedings or rescind the loan
because of the TCT that the Land Court issued to Aloha Asset
Servicing on December 6, 2008.
[Id.]
Second, Aloha Asset Servicing argues that Plaintiff has
misconstrued the case law interpreting TILA’s three-year
rescission period.
[Id.]
Aloha Asset Servicing contends that
the Supreme Court’s holding in Beach lends no support to
Plaintiff’s position that the right to impeach a foreclosure
continues even after a sale and issuance of a new certificate of
title because it “did not address the effect of a subsequent
sale[.]”
[Id. at 7-8.]
Next, Aloha Asset Servicing argues that
the Ninth Circuit’s holding in Miguel is equally unhelpful
because the court rejected the plaintiff’s argument that, after
the expiration of the three-year TILA rescission period, she had
an additional year to file a suit pursuant to § 1640(e).
8.]
[Id. at
Aloha Asset Servicing contends that the Hawai`i Supreme
Court’s holding in Lee is similarly unhelpful because the
plaintiffs in that case, unlike Plaintiff in the instant case,
11
managed to cure their default.
Aloha Asset Servicing notes,
moreover, that the court in Lee did not find that non-judicial
sales are never final or that non-judicial sales require
confirmation by a court.
[Id. at 9.]
Finally, Aloha Asset
Servicing argues that the Hawai`i Intermediate Court of Appeals’
Brent decision is unpersuasive because the case contained no
discussion of TILA and lends no support to the argument that nonjudicial sales require a state court confirmation.
IV.
[Id.]
Reply
In his reply, Plaintiff first reiterates his argument
that, under Hawai`i state law, a non-judicial foreclosure does
not terminate an unexpired TILA right to rescind “if borrowers
rescind based on TILA violations within the rescission period and
prior to any Hawaii state court approval of that non-judicial
foreclosure sale.”
[Reply at 2-3.]
Plaintiff relies on a
Hawai`i state trial court decision in Tabuyo v. Reish, Civ. No.
09-1-2029 BIA, which found that a “nonjudicial foreclosure sale
is not a final adjudication on the merits.”
[Id. at 3 (quoting
Tabuyo v. Reish, Civ. No. 09-1-2029 BIA, Order Denying
Defendants’ Motion for Order Expunging Notice of Pendency of
Action Filed September 14, 2009 (Cir. Ct. Nov. 4, 2009), at 2).6]
Second, Plaintiff restates his argument that a borrower
6
The Tabuyo order is attached to the Motion as Exhibit A to
the Declaration of Gary Victor Dubin. [Dkt. no. 20-2.]
12
need not file suit within § 1635(f)’s three-year rescission
period so long as he or she timely provides the lender with
notice of rescission within that period.
Plaintiff argues that
an “overwhelming amount of federal case law”, including the Ninth
Circuit’s Miguel decision, supports this interpretation of §
1635(f).
[Id. at 4 (citation omitted).]
Third, Plaintiff argues that the issuance of a TCT does
not automatically extinguish the previous titleholder’s right of
rescission.
[Id. at 5.]
Plaintiff contends that, in In re
Estate of James Campbell, a Hawai`i Land Court judge in the First
Circuit ruled that a TCT did not preclude the previous
titleholder from asserting a fraud defense to the TCT following a
non-judicial foreclosure.
[Id. (citing In re Estate of James
Campbell, 1LD No. 10-1-3068, Trans. of Proceedings for
Respondent’s Motion for Summary Judgment as to Frederick Antoine
Waller & Tanya Davelyn-Santiago Waller’s Petition to Amend
Transfer Certificate of Title 806,482 & to Strike & Expunge
Transfer Certificate of Title 970,858 Filed 9/28/10, dated
2/28/11, 3/2/11, & 3/16/11 (collectively “Campbell Estate
Transcripts”)).7]
As a result, Plaintiff contends that Aames
should not be read as barring the presentation of similar
7
The Campbell Estate Transcripts are attached to the Reply
as Exhibits D (2/28/11), [dkt. no. 25-5,] E (3/2/11), [dkt. no.
25-6,] and F (3/16/11) [dkt. no. 25-7] to the Declaration of Gary
Victor Dubin.
13
defenses in the instant case.
[Id. at 4-5.]
STANDARD
“[A] successful motion for reconsideration must
accomplish two goals.
First, a motion for reconsideration must
demonstrate reasons why the court should reconsider its prior
decision.
Second, a motion for reconsideration must set forth
facts or law of a strongly convincing nature to induce the court
to reverse its prior decision.”
Donaldson v. Liberty Mut. Ins.
Co., 947 F. Supp. 429, 430 (D. Hawai`i 1996); accord Tom v. GMAC
Mortg., LLC, CIV. NO. 10–00653 SOM/BMK, 2011 WL 2712958, at *1
(D. Hawai`i July 12, 2011) (citations omitted).
This district
court recognizes three grounds for granting reconsideration of an
order: “(1) an intervening change in controlling law; (2) the
availability of new evidence; and (3) the need to correct clear
error or prevent manifest injustice.”
White v. Sabatino, 424 F.
Supp. 2d 1271, 1274 (D. Hawai`i 2006) (citing Mustafa v. Clark
County Sch. Dist., 157 F.3d 1169, 1178–79 (9th Cir. 1998)); see
also Local Rule LR60.1.
Courts generally do not grant reconsideration based on
legal arguments that could have been raised in connection with
the original motion.
See Hawaii Stevedores, Inc. v. HT & T Co.,
363 F. Supp. 2d 1253, 1269-70 (D. Hawai`i 2005) (citing Kona
Enter., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir.
2000)) (some citations omitted).
14
“Whether or not to grant
reconsideration[,]” however, “is committed to the sound
discretion of the court.”
Navajo Nation v. Confederated Tribes &
Bands of the Yakama Indian Nation, 331 F.3d 1041, 1046 (9th Cir.
2003) (citing Kona Enter., Inc. v. Estate of Bishop, 229 F.3d
877, 883 (9th Cir. 2000)).
DISCUSSION
I.
Effect of a Foreclosure Sale on the TILA Right of Rescission
In its 7/1/11 Order, the Court found that, pursuant to
15 U.S.C. § 1635(f) and 12 C.F.R. § 226.23(a)(3), the sale of the
Property extinguished Plaintiff’s rescission claim.
As explained
by the Court:
[E]ven assuming, arguendo, that Plaintiff has
standing as a trustee, heir, or successor-ininterest to bring his TILA claim, rescission is
unavailable because the Property has already been
sold. See 15 U.S.C. § 1635(f) (“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 . . . .”); see also 12 C.F.R. § 226.23(a)(3)
(“If the required notice or material disclosures
are not delivered, the right to rescind shall
expire 3 years after consummation, upon transfer
of all of the consumer’s interest in the property,
or upon sale of the property, whichever occurs
first.”). As explained by this Court in
Rodenhurst v. Bank of America:
Even an involuntary sale of the subject
property terminates a borrower’s right to
rescind. According to the Official Staff
Commentary to Regulation Z, “[a] sale or
transfer of the property need not be
voluntary to terminate the right to rescind.
For example, a foreclosure sale would
terminate an unexpired right to rescind.”
--- F. Supp. 2d ----, Civil No. 10–00167 LEK–BMK,
2011 WL 768674, at *7 (D. Hawai`i Feb. 23, 2011)
15
(alteration in original) (quoting Official Staff
Commentary to Reg. Z, 12 C.F.R. § 226.23(a)(3)).
In the instant case, the Property was sold at
a foreclosure auction on July 12, 2010, over six
months before Plaintiff filed this lawsuit.
[Complaint at ¶ 20 (citation omitted).] The Court
therefore FINDS that, even if Plaintiff has
standing to bring his claim for rescission under
TILA, Count II fails to state a claim upon which
relief can be granted. Since Plaintiff’s claim
for rescission cannot be “saved by any
amendment[,]” Harris v. Amgen, Inc., 573 F.3d 728,
737 (9th Cir. 2009) (citations and quotation marks
omitted), the Court GRANTS BAC’s Motion as to
Count II and DISMISSES Count II WITH PREJUDICE.
2011 WL 2610208, at *6-7 (footnote omitted) (some alterations in
original).
Plaintiff argues that, because he sent BAC a notice of
rescission within § 1635(f)’s three-year rescission period and
before the sale of the property, his claim for rescission is both
timely and valid.
Plaintiff contends that this exercise of his
right of rescission was sufficient to preserve his claim, and
that the subsequent sale of the Property did not extinguish his
right to rescind.
BAC argues that the Court did not commit manifest error
because the sale of the Property extinguished Plaintiff’s right
of rescission.
According to BAC, the sale of a property
completely terminates a borrower’s right of rescission with
respect to that property.
BAC relies on Valdez v. Flexpoint
Funding Corp., Civ. No. 09-00296 ACK-BMK, 2010 WL 3001922 (D.
Hawai`i July 30, 2010), in which this district court found that:
16
Even an involuntary sale of the subject
property terminates a borrower’s right to rescind.
According to the Official Staff Commentary to
Regulation Z, “[a] sale or transfer of the
property need not be voluntary to terminate the
right to rescind. For example, a foreclosure sale
would terminate an unexpired right to rescind.”
Official Staff Commentary to Reg. Z, 12 C.F.R. §
226.23(a)(3). Indeed, the cases are legion that a
foreclosure sale terminates a borrower’s right to
rescind under TILA. Hallas v. Ameriquest Mortg.
Co., 406 F. Supp. 2d 1176, 1183 (D. Or. 2005)
(foreclosure sale terminated plaintiff’s right of
rescission); Fonua v. First Allied Funding, No.
09-0497, 2009 WL 816291 (N.D. Cal. Mar. 27, 2009)
(same); Worthy v. World Wide Fin. Servs., Inc.,
347 F. Supp. 2d 502, 506 (E.D. Mich. 2004) (same);
Hall v. Fin. Enter. Corp., 188 B.R. 476, 483-84
(D. Mass. Br. 1995) (“[E]ven if the statute of
limitations had not expired, the [borrower’s]
claim is barred by the foreclosure sale.”).
2010 WL 3001922, at *7 (alterations in original).
As explained in the 7/1/11 Order, under TILA, a
borrower’s right of rescission expires either three years after
the consummation of the loan transaction or upon the sale of the
property, whichever occurs first.
§ 226.23(a)(3).
15 U.S.C. § 1635(f); see also
It does not matter if the sale was not voluntary
- the Official Staff Commentary to Regulation Z explains that
“[a] sale or transfer of the property need not be voluntary to
terminate the right to rescind.
For example, a foreclosure sale
would terminate an unexpired right to rescind.”
Official Staff
Commentary to Reg. Z, § 226.23(a)(3); see also Rodenhurst v. Bank
of Am., –-- F. Supp. 2d ----, Civil No. 10–00167 LEK–BMK, 2011 WL
768674, at *7 (D. Hawai`i Feb. 23, 2011).
17
This district court has repeatedly found that, where a
property has been sold, rescission is no longer possible.
See,
e.g., Rodenhurst, 2011 WL 768674 at *7 (“[R]escission is no
longer possible because the Property has been sold.” (citations
omitted)); Rey v. Countrywide Home Loans, Inc., Civil No.
11–00142 JMS/KSC, 2011 WL 2160679, at *6 (D. Hawai`i June 1,
2011) (“[R]escission is not possible because as the Complaint
alleges, the subject property has been sold.”); Letvin v. Amera
Mortg. Corp., Civil No. 10–00539 JMS/KSC, 2011 WL 1603635, at *5
(D. Hawai`i Apr. 27, 2011) (“[R]escission is not possible because
the subject property has been sold.”); Peelua v. Imac Funding
Corp., Civ No. 10-00090-JMS/KSC, 2011 WL 1042559, at *9 (D.
Hawai`i Mar. 18, 2011) (“Rescission is not possible because the
subject property has been sold.”); Valdez, 2010 WL 3001922, at *7
(D. Hawai`i July 30, 2010) (“Even an involuntary sale of the
subject property terminates a borrower’s right to rescind.”).
Whether a timely TILA rescission request that predates
the foreclosure sale of a property automatically preserves the
borrower’s right to seek rescission post-sale is an issue of
first impression for this district court.
The Ninth Circuit,
however, addressed this issue in Meyer v. Ameriquest Mortgage
Co., stating that, under § 226.23(a)(3), the sale of a property
extinguishes the borrower’s right to rescind that property.
F.3d 899, 903 (9th Cir. 2003).
18
342
In Meyer, the plaintiff-borrowers received a loan from
the defendant-lender secured by their residence in March 1999.
In May 2000, the plaintiff-borrowers demanded rescission of the
loan.
The following month, they filed suit, seeking, inter alia,
rescission and damages for TILA violations.
In December 2000,
the plaintiff-borrowers sold their home and paid off the loan.
Id. at 901-02.
While the Ninth Circuit ultimately affirmed the
district court’s summary judgment order dismissing their TILA
claim as time-barred, the Ninth Circuit observed that, “[o]nce
the Meyers sold their home, took control of the loan proceeds and
paid off the loan, the TiLA rescission provision no longer
applied and only the damages provision remained as a cause of
action.”
Id. at 902 (citing 12 C.F.R. § 226.23(a)(3) (right to
rescind expires when property is sold)).
As further explained by
the Ninth Circuit:
The regulation is clear: the right to rescind ends
with the sale. “If the required notice or
material disclosures are not delivered, the right
to rescind shall expire 3 years after
consummation, upon transfer of all of the
consumer’s interest in the property, or upon sale
of the property, whichever occurs first.” 12 CFR
§ 226.23(a)(3).
Id. at 903.
District courts interpreting Meyer have treated the
Ninth Circuit’s interpretation of § 226.23(a)(3) as completely
terminating a borrower’s right of rescission, even where the
19
lender – rather than the borrower - sold the property.
See Mehta
v. Wells Fargo Bank, N.A., 737 F. Supp. 2d 1185, 1192 (S.D. Cal.
2010) (“The Ninth Circuit has unequivocally stated that the sale
of property is an absolute bar to rescission.
This tracks the
statute’s and regulation’s language which offer no flexibility in
this requirement.” (citations omitted)); Benemie v. Countrywide
Home Loans, Inc., No. CV 09-7870-GHK (MANx), 2010 WL 4228339, at
*2 (C.D. Cal. Oct. 26, 2010) (finding that Meyer is a “binding
precedent” that the TILA right of rescission is extinguished upon
the sale of the property, “even if the sale occurs after notice
of a rescission claim”); Brown v. GMAC Mortg., LLC, No.
2:09-cv-03293-GEB-KJM, 2010 WL 3341834, at *2 (E.D. Cal. Aug. 23,
2010) (citation omitted) (suggesting that the sale of a Property
extinguishes a borrower’s right of rescission despite timely
notice of rescission).
Even if the Ninth Circuit’s statement in Meyer about
the availability of TILA rescission after the sale of the
property is not considered binding precedent, the practice of at
least one district court in the Ninth Circuit - the District
Court for the Southern District of California - independently
suggests that the Ninth Circuit’s interpretation of §
226.23(a)(3) applies to the instant case.
See, e.g., Ibarra v.
Loan City, No. 09-CV-02228-IEG (POR), 2010 WL 1573811 (S.D. Cal.
Apr. 20, 2010); Jacobson v. Balboa Arms Drive Trust No. 5402 HSBC
20
Fin. Tr., No. 10–CV–2195–JM (RBB), 2011 WL 3328487 (S.D. Cal.
Aug. 1, 2011).
In Ibarra, the plaintiff-borrower obtained a
refinancing loan on September 6, 2006.
In July 2009, the
plaintiff-borrower sent notices of rescission to his original
lender, the loan broker, and Aurora, the company that had since
assumed the loan.
In August 2009, the plaintiff-borrower
initiated his lawsuit seeking, inter alia, rescission of the loan
agreement and monetary damages for the defendants’ violation of
15 U.S.C. § 1635(b).
On September 8, 2009, Aurora purchased the
property at a trustee’s sale.
Ibarra, 2010 WL 1573811 at *1-2.
The court in Ibarra dismissed the plaintiff-borrower’s
rescission claim with prejudice, finding that his “right to
rescind under TILA expired on September 8, 2009 when the Property
was sold at the trustee’s sale.”
Id. at *2.
The court relied on
the portion of § 1635(f) stating that the right of rescission
expires upon the sale of the property.
Id. (citation omitted).
The court found that, even though the plaintiff-borrower
exercised his right of rescission through a notice of rescission
and the filing of a lawsuit, the subsequent sale of the property
barred the plaintiff-borrower from seeking rescission.
The
court, however, did permit the plaintiff-borrower to proceed with
his claim for damages as a result of Aurora’s failure to comply
with § 1635(b).
Id. at *3.
21
The District Court for the Southern District of
California reached a similar conclusion in Jacobson.
In that
case, the plaintiff-borrowers obtained loans secured by deeds of
trust on their property in August 2006.
In February 2008, they
sent notices of rescission to their defendant-lender and another
bank requesting cancellation and rescission.
In July 2010,
defendant Balboa Arms Drive Trust No. 5402 HSBC Financial Trustee
purchased the property at a trustee’s sale.
The plaintiff-
borrowers commenced their suit in October 2010.
Jacobson, 2011
WL 3328487, at *1-2 (citations omitted).
The court in Jacobson found that, although the
plaintiff-borrowers exercised their right of rescission within §
1635(f)’s three-year rescission period, “any right of rescission
under TILA is terminated upon foreclosure sale of the property.”
Id. at *6 (citation omitted).
As a result, the court concluded
that the plaintiff-borrowers’ rescission claim was barred and the
court dismissed it with prejudice.
Id.
In the instant case, even assuming, arguendo, that the
sale of the Property did not extinguish Plaintiff’s right of
rescission, the issuance of the TCT to Aloha Asset Servicing on
December 6, 2010 bars Plaintiff from now challenging the
foreclosure sale.
Hawai`i Revised Statute § 501-118 provides, in
pertinent part:
Mortgages of registered land may be foreclosed
like mortgages of unregistered land.
22
. . . .
In case of foreclosure by exercising the power of
sale without a previous judgment, the affidavit
required by chapter 667 shall be recorded with the
assistant registrar. The purchaser or the
purchaser’s assigns at the foreclosure sale may
thereupon at any time present the deed under the
power of sale to the assistant registrar for
recording and obtain a new certificate. Nothing
in this chapter shall be construed to prevent the
mortgagor or other person in interest from
directly impeaching by action or otherwise, any
foreclosure proceedings affecting registered land,
prior to the entry of a new certificate of title.
After a new
no judgment
balance due
foreclosure
land.
certificate of title has been entered,
recovered on the mortgage note for any
thereon shall operate to open the
or affect the title to registered
Haw. Rev. Stat. § 501-118 (emphasis added).
In Aames Funding Corp. v. Mores, the Hawai`i Supreme
Court held that “a mortgagor’s right to ‘impeach[ ] . . . any
foreclosure proceeding’ is expressly limited to the period before
entry of a new certificate of title.”
107 Hawai`i 95, 101, 110
P.3d 1042, 1048 (2005) (alterations in original) (quoting Haw.
Rev. Stat. § 501-118).
The court further explained:
HRS § 501-118 clearly recognizes a mortgagor’s
right to challenge a foreclosure proceeding,
stating that “[n]othing . . . shall . . . prevent
the mortgagor . . . from directly impeaching . . .
any foreclosure proceedings.” [Haw. Rev. Stat. §
501-118.] However, the statute directs that such
a right is to be exercised “prior to the entry of
a new certificate of title.” Id. Consistent with
this proposition, HRS § 501-118 provides that
“[a]fter a new certificate of title has been
entered, no judgment recovered on the mortgage
23
note for any balance due thereon shall operate to
open the foreclosure or affect the title to
registered land.” Id. (emphasis added). This
indicates that conclusive effect is to be given
the certificate of title on the question of title
to land.
Accordingly, it may be surmised from the text
of HRS § 501-118 that a mortgagor’s right to
“impeach[ ] . . . any foreclosure proceeding” is
expressly limited to the period before entry of a
new certificate of title. This proposition
appears to be buttressed by HRS § 501-88 (1993),
which provides that the matters stated in the
certificate are to be given conclusive effect in
the courts.
Id. (some alterations in original); accord Caraang v. PNC Mortg.,
--- F. Supp. 2d ----, Civil No. 10–00594 LEK–BMK, 2011 WL
2470637, at *17 (D. Hawai`i, June 20, 2011) (“[E]ven assuming,
arguendo, that Plaintiffs had valid defenses to the propriety of
the non-judicial foreclosure sale, the defenses are time-barred
because Plaintiffs failed to raise them before the new
certificate of title was issued.” (citations omitted)); 143 Nenue
Holdings, LLC v. Bonds, No. 28505, 2010 WL 2126481, at *2
(Hawai`i Ct. App. May 27, 2010) (finding that, because the
defendant failed to challenge the foreclosure sale until after
the issuance of the TCT, the new title, pursuant to Hawai`i
Revised Statute § 501-118, was “conclusive and unimpeachable”),
cert. rejected by, 2010 WL 4227723 (Hawai`i Oct 26, 2010), cert.
denied by, 2011 WL 289986 (U.S. May 2, 2011)) (alterations in
original) (quoting Haw. Rev. Stat. § 501-118).
Plaintiff argues that a TCT does not preclude the
24
previous titleholder from asserting defenses against the TCT
following a non-judicial foreclosure.
Campbell Estate Transcripts).]
[Reply at 5 (citing
In permitting the plaintiffs in
Campbell Estate to proceed with their defense of fraud, the Land
Court found:
The Court views as controlling authority in this
case HRS 501-118 and the Hawaii Supreme Court
decisions in Aames Funding. . . . Aames Funding
holds that HRS 501-118 provides that defenses to
mortgages foreclosed upon by the power of sale
must be raised prior to the entry of a new
certificate of title in the name of the mortgagor
as the new owner of the property foreclosed upon.
An exception to this rule is found in cases of
fraud to which the mortgagor was a party.
. . . .
However, all other defenses are barred by HRS
501-118.
[Campbell Estate Transcript, dated 3/16/11, at 30-31.]
The Hawai`i Intermediate Court of Appeals appears to
have reached a similar conclusion in Provident Funding
Associates, L.P. v. Vimahi, No. 29797, 2010 WL 4491364 (Hawai`i
Ct. App. Nov. 10, 2010).
The court in that case found that,
following the issuance of a TCT, the new titleholder’s title is
“conclusive and unimpeachable.”
2010 WL 4491364 at *2 (citing
Haw. Rev. Stat. § 501-118; Aames Funding Corp. v. Mores, 107
Hawai`i 95, 110 P.3d 1042 (2005)).
The court noted, however,
that “[i]n cases where registration was allegedly procured by
fraud, the owner may pursue all remedies against the parties to
the fraud.”
Id. (citing Haw. Rev. Stat. § 501-106(b)).
25
Hawai`i Revised Statute § 501.106(b) provides, in
pertinent part:
The new certificate [of title] or memorandum shall
be binding upon the registered owner and upon all
persons claiming under the registered owner, in
favor of every purchaser for value and in good
faith; provided that in all cases of registration
procured by fraud the owner may pursue all the
owner’s remedies against the parties to the fraud,
without prejudice however to the rights of any
innocent holder for value of a certificate of
title . . . .
Section 501.106(b), however, has no bearing on the
instant case because Plaintiff has neither alleged fraud nor made
any showing of fraud.
The Court, moreover, finds no reason for
treating the fraud defense to Hawai`i Revised Statute § 501-118
as a justification for entertaining other defenses, as advocated
by Plaintiff.
[Reply at 5.]
In summary, the Court reaffirms its finding that the
sale of the Property extinguished Plaintiff’s right of
rescission.
The Court further FINDS that the TCT issued to Aloha
Asset Servicing after the foreclosure sale bars Plaintiff from
subsequently challenging the sale.
II.
Effect of a notice of rescission on
the three-year TILA rescission period
Plaintiff argues that, since he submitted a rescission
notice to BAC within § 1635(f)’s three-year rescission period, he
is entitled to an additional year, pursuant to § 1640(e), to file
a lawsuit for rescission.
The Court declines to consider the
26
parties’ arguments with respect to this issue because the
relationship between § 1635(f) and § 1640(e) does not affect this
Court’s finding that the sale of the Property terminated
Plaintiff’s right of rescission.
III. Requirement that a state court confirm a
non-judicial sale in order for it to be deemed final
Finally, Plaintiff argues that the non-judicial sale of
the Property is void because it was never confirmed by a state
court.
Plaintiff argues that, notwithstanding a prior
foreclosure sale, he is entitled to exercise his right to rescind
until final judicial confirmation.
As this district court has previously explained, a
“motion for reconsideration may not present evidence or raise
legal arguments that could have been presented at the time of the
challenged decision.”
White v. Sabatino, 424 F. Supp. 2d 1271,
1274 (D. Hawai`i 2006).
Plaintiff’s argument regarding the
confirmation requirement is a new legal argument that could have
been made in his opposition to BAC’s Motion to Dismiss.
As a
result, this argument is untimely and cannot be used as a basis
for reconsideration of the 7/1/11 Order.
In summary, Plaintiff failed to either: set forth new
material facts that were not previously available; identify an
intervening change in law; or demonstrate that the Court made a
manifest error of law or fact in its 7/1/11 Order.
The Court
therefore FINDS that Plaintiff is not entitled to reconsideration
27
of the 7/1/11 Order.
CONCLUSION
On the basis of the foregoing, Plaintiff’s Motion for
Reconsideration of this Court’s July 1, 2011 Order Granting in
Part and Denying in Part Defendant BAC Home Loans Servicing, LP’s
Motion to Dismiss Plaintiff’s Complaint, filed July 12, 2011, is
HEREBY DENIED.
Plaintiff has until September 22, 2011 to file an
amended complaint in accordance with the Court’s 7/1/11 Order.
The Court notes that the only claim dismissed without prejudice
in the 7/1/11 Order was the portion of Count I concerning
Plaintiff’s present ownership rights to the Property.
The Court
CAUTIONS Plaintiff that, if he fails to file his amended
complaint by September 22, 2011, this Court will dismiss
Plaintiff’s remaining claim with prejudice.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, August 31, 2011.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
ROCKY FUJIO TAKUSHI, ETC. V. BAC HOME LOANS SERVICING, LP, ET AL;
CIVIL NO. 11-00189 LEK-RLP; ORDER DENYING PLAINTIFF’S MOTION FOR
RECONSIDERATION
28
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