Tulumbuta et al
Filing
247
MEMORANDUM Opinion and Order Signed by the Honorable Joan B. Gottschall on 3/16/2015.(mjc, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JEAN PIERRE TULUMBUTA and
CLAUDINE KAMANGO,
)
)
)
Plaintiffs,
)
v.
)
)
WILMINGTON FINANCE, INC., a
)
Delaware corporation, MORTGAGE
)
ELECTRONIC REGISTRATION
)
SYSTEMS, INC., a Delaware Corporation; )
and WILSHIRE CREDIT CORPORATION, )
a Nevada corporation,
)
)
Defendants.
)
No. 09 C 4123
Judge Joan B. Gottschall
MEMORANDUM OPINION & ORDER
Plaintiffs Jean Pierre Tulumbuta and Claudine Kamango (collectively,
“Plaintiffs”) brought this suit arising from the 2006 refinance of a mortgage on their
Streamwood, Illinois home. Plaintiffs allege that they were provided incomplete or
illegible copies of the disclosures required by the Truth in Lending Act (“TILA”), 15
U.S.C. § 1601, and that they were wrongfully denied rescission of the refinanced loan.
Plaintiffs named as defendants Wilmington Finance, Inc. (“Wilmington”), which
according to the complaint was the relevant creditor in the refinancing, as well as
Mortgage Electronic Registration Systems, Inc. and Wilshire Credit Corporation, each of
which allegedly owns an interest in the subject loan.
Now before the court is Wilmington’s motion for summary judgment and
Plaintiffs’ motion to strike the reply brief Wilmington submitted in support of its motion.
For the reasons set forth below, both motions are denied.
I.
BACKGROUND
Plaintiffs reside at 1204 Alexander Place in Streamwood, Illinois 60107 (the
“Property”). In July 2006, Plaintiffs refinanced the Property with a loan from
Wilmington in exchange for Plaintiffs’ execution of a mortgage in the amount of
$208,800.00 in favor of Wilmington.
The transaction closed on July 19, 2006. Tulumbuta and a representative of
Wilmington’s closing agent, Netco Title (“Netco”), attended the closing.1 Neither
Wilmington nor Kamango were present.
Although Kamango did not attend the closing, both Plaintiffs signed several
documents that were used in the closing. Two of those documents have since given rise
to this litigation: the Notice of Right to Cancel (“Notice”) and the TILA Disclosure
Statement.
A. The Notices
It is undisputed that both Plaintiffs signed two copies of the Notice and
acknowledged receipt thereof. Above the Plaintiffs’ signatures on the Notice form is an
acknowledgment stating, “The undersigned each acknowledge receipt of two copies of
NOTICE OF RIGHT TO CANCEL and one copy of the Federal Truth In Lending
Disclosure Statement.” (Wilmington’s Mot. Ex. K.) The Notice informed Plaintiffs that
they could cancel the transaction within three days from the last occurrence of (1) “[t]he
date of the transaction, which is July 19, 2008,” (2) “[t]he date [they] received [their]
1
Before the closing, Wilmington provided a package of documents, the “Lender Closing
Package,” to Netco for its representative to use in the closing. The Lender Closing
Package included the documents Plaintiffs would sign, a list of the enclosed documents,
and instructions for the representative.
2
Truth in Lending disclosures,” or (3) “[t]he date [they] received [the] notice of [their]
right to cancel.” (Id.)
B. The Disclosure Statement
The Disclosure Statement consisted of four pages. Plaintiffs signed two of them,
pages 1 and 4. Page 1 contains a box that identifies the “annual percentage rate,”
“finance charge,” “amount financed,” and “total of payments.” (See Wilmington’s Mot.
Ex. L.) The box appears in the following format:
ANNUAL
PERCENTAGE
RATE
The cost of your credit
as a yearly rate.
AMOUNT
FINANCED
The amount of credit
provided to you or on
your behalf.
FINANCE
CHARGE
The dollar amount
the credit will cost
you.
11.251%
TOTAL OF
PAYMENTS
The amount you will
have paid after you
have made all
payments as scheduled.
$204,218.58
$736,700.76
$532,482.18
Beneath the box are three additional columns, one of which sets forth a “payment
schedule.” Id. It appears as follows:
Payment Schedule:
PMT(S)
24
6
330
AMOUNT(S)
$1,678.55
$1,977.26
$2,074.40
BEGINNING DATE
09/01/2006
09/01/2008
03/01/2009
Page 4 of the disclosure includes additional payment figures in a column titled
“Total Estimated Monthly Payment.” The format for this column is:
Total Estimated Monthly Payment
Principal & Interest
Total Real Estate Taxes
Flood & Hazard Insurance
Mortgage Insurance
Total Other Impounds
TOTAL MONTHLY PAYMENT
$
$
$
$
$
$
3
1,678.55
0.00
0.00
0.00
0.00
1,678.55
Similar to the Notice, the Disclosure Statement contains an acknowledgment
above Plaintiffs’ signatures. The acknowledgement provides, “I [WE] HEREBY
ACKNOWLEDGE RECEIVING AND READING A COPY OF THIS DISCLOSURE.”
(Id.)
C. The Dispute
Although Plaintiffs admit to having signed the Notices and Disclosure Statement,
the parties dispute whether Plaintiffs received copies of them. After Tulumbuta finished
signing his respective documents at the closing office, he returned home to bring the
pages that required Kamango’s signatures to Kamango (since she did not attend).
Kamango signed those pages. Tulumbuta then went back to the closing office to deliver
the executed copies to the closing agent. The closing agent gave Tulumbuta an envelope
and told him that it contained copies of the documents he and Kamango had signed.
Wilmington contends that the envelope included two signed copies of the Notice
and one copy of the Disclosure Statement for each plaintiff. Absent from the record,
however, is any testimonial evidence from the agent who closed the transaction and
presumably would have personal knowledge regarding the documents he or she did or did
not put into the envelope.
Plaintiffs aver that Tulumbuta brought the envelope back home from the closing
office and kept it in storage, untampered, until he gave it to their counsel before they filed
suit in July 2009. (Pls.’ Interrog. Resp. No. 16; Tulumbuta Dep. 44:19-45:4.) When
Plaintiffs’ counsel opened the envelope, it did not contain a copy of the Disclosure
Statement or two complete copies of the Notice. (Id.) Instead, the envelope contained
4
unexecuted portions of each Plaintiff’s Notice. (See 2d Am. Compl., Ex. C, ECF No.
131-1 at 20-23).
By letter dated May 19, 2009, Plaintiffs notified defendants of their “election to
cancel the subject transaction.” (Def.’s Mot. Ex. Q.) Plaintiffs ostensibly sought to
cancel the loan “to allow them to refinance at a better interest rate.” (Pls.’ Statement of
Additional Facts ¶ 6, ECF No. 204.)
On June 2, 2009, Wilmington received Plaintiffs’ letter. Wilmington responded
to the letter on June 8, 2009. In its response, Wilmington declined to honor the requested
rescission, claiming that it was untimely.
II.
LEGAL STANDARD
Summary judgment is appropriate when the movant shows there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56; Smith v. Hope Sch., 560 F.3d 694, 699 (7th Cir. 2009). “[A] factual
dispute is ‘genuine’ only if a reasonable jury could find for either party.” SMS Demag
Aktiengesellschaft v. Material Scis. Corp., 565 F.3d 365, 368 (7th Cir. 2009). The court
construes all facts and makes all reasonable inferences in the light most favorable to the
nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Summary
judgment is warranted when the nonmoving party cannot establish an essential element of
its case on which it will bear the burden of proof at trial. Kidwell v. Eisenhauer, 679 F.3d
957, 964 (7th Cir. 2012).
III.
DISCUSSION
Under TILA, a borrower has the right to rescind a mortgage loan, but only within
a limited period of time. 15 U.S.C. § 1635(a). Section 1635(a) specifies that a borrower
5
seeking to rescind a qualifying transaction must do so by “midnight on the third business
day following the consummation of the transaction or the delivery of the information and
rescission forms required under this section together with a statement containing the
[requisite] material disclosures. . . .” Id. “However, certain violations of TILA may
extend the [borrower’s] right to cancel” from three business days to three years. Lippner
v. Deutsche Bank Nat’l Tr. Co., 544 F. Supp. 2d 695, 700 (N.D. Ill. 2008); see 15 U.S.C.
§ 1635 (f); 12 C.F.R. § 226.23(a)(3).
It is undisputed in this case that Wilmington refinanced Plaintiffs’ mortgage loan,
and that the loan is subject to TILA. In their Second Amended Complaint, Plaintiffs
allege that Wilmington committed three violations of TILA that extended their right to
rescind from three days to three years. The alleged violations are Wilmington’s failure
(a) to provide each Plaintiff with two copies of the Notice, (b) to provide each Plaintiff
with a Disclosure Statement that complies with TILA, and (c) to honor Plaintiffs’
rescission request. Wilmington now moves for summary judgment on all of these alleged
violations. The court addresses each one in turn.
A. Wilmington’s Alleged Notice Violation
Section 1635(a) of TILA “requires the creditor to provide the consumer with
‘clear and conspicuous’[] notice of [the borrower’s] right to rescind . . . within three days
following the transaction.” Marr v. Bank of Am., N.A., 662 F.3d 963, 966 (7th Cir. 2011)
(citing 15 U.S.C. § 1635(a) and 12 C.F.R. § 226.23(b)(1)). “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.”
Marr, 662 F.3d at 964-65 (citing 12 C.F.R. § 226.23(b)(1) (emphasis in original)).
6
Wilmington contends that, contrary to their allegations, Plaintiffs each received
two copies of the Notice and signed a written acknowledgement of receipt at closing.
Wilmington correctly points out that a borrower’s written acknowledgment of receipt of
the Notice creates a presumption of delivery. See Briggs v. Provident Bank, 349 F. Supp.
2d 1124, 1129 (N.D. Ill. 2004).
This presumption, however, is rebuttable. Where a borrower testifies or submits
other evidence to show that the acknowledgement was incorrect, courts have rejected
lenders’ attempts to move for summary judgment on the borrower’s TILA claim on the
basis of the acknowledgment. See, e.g., Iroanyah v. Bank of Am., N.A., 851 F. Supp. 2d
1115, 1122 (N.D. Ill. 2012) (“The record does not indisputably answer, one way or the
other, whether the Iroanyahs received two copies of the Notice for each loan at the
closing—Defendants point to the Iroanyahs’ written acknowledgment that they received
two copies, while the Iroanyahs point to evidence that the envelope they received at the
closing contained only one copy. It follows that neither side is entitled to summary
judgment on the question whether a Notice violation occurred.”) (citations omitted);
accord Christensen v. Fifth Third Bank, No. 10-cv-2177, 2012 U.S. Dist. LEXIS 153190,
at *9-10 (N.D Ill. Oct. 24, 2012).
Here, a genuine issue of material fact exists as to whether each Plaintiff received
two copies of the Notice. There is no dispute that Wilmington’s closing agent gave
Tulumbuta an envelope. Wilmington, however, repeatedly asserts that the envelope
included two sets of copies of the Notice for each plaintiff, but Wilmington does not offer
any evidence to prove this assertion. The only evidence from someone who has personal
knowledge of the closing comes from Tulumbuta, who testified that he took the envelope
7
home, did not disturb its contents, and later delivered it to his attorney. When
Tulumbuta’s attorney reviewed the documents inside the envelope, he saw that there
were no copies of the Disclosure Statement and only unexecuted portions of each
Plaintiff’s notice. Construing these facts in a light most favorable to Plaintiffs, the court
cannot conclude from the record that Wilmington is entitled to summary judgment.
Wilmington argues that, even if its closing agent failed to provide each Plaintiff
with two copies of the Notice, Wilmington prevails because any error in copying was a
bona fide error under 15 U.S.C. § 1640(c). This subprovision of Section 1640 provides a
defense to violations of TILA brought under Sections 1635 or 1640 where “the creditor
or assignee shows by a preponderance of evidence that the violation was not intentional
and resulted from a bona fide error notwithstanding the maintenance of procedures
reasonably adapted to avoid any such error.” Id. Subprovision (c) further indicates that
“[e]xamples of bona fide error include, but are not limited to, clerical, calculation,
computer malfunction and programming, and printing errors, except that an error of legal
judgment with respect to a person’s obligations under this subchapter is not a bona fide
error.” Id.
Plaintiffs object to Wilmington’s assertion of the bona fide error defense as
untimely. Wilmington acknowledges that it pled three affirmative defenses in response
to the Second Amended Complaint, and that none of them in the bona fide error defense.
But Wilmington claims that it put Plaintiffs on notice of the defense when it argued in its
motion to dismiss briefing that its closing agent simply must have misfed the Notice
when making copies for Plaintiffs. Plaintiff counter that there is a difference between
suggesting a fact in a brief on a motion to dismiss and amending an answer to add an
8
affirmative defense in accordance with the Federal Rules of Civil Procedure. Plaintiffs
argue that Wilmington has waived the bona fide error defense by formally raising it for
the first time in its motion for summary judgment.
Two issues emerge from Wilmington’s assertion of a new defense on summary
judgment: (1) whether Wilmington has waived the defense; and (2) whether the defense
would entitle Wilmington to summary judgment.
As a threshold matter, the court finds that Wilmington has not waived the bona
fide error defense. It is true that Federal Rule of Civil Procedure 8(c) “requires
affirmative defenses to be raised in the pleadings.” See Curtis v. Timberlake, 436 F.3d
709, 711 (7th Cir. 2005). But “a delay in raising an affirmative defense only results in
waiver if the other party is prejudiced as a result.” Schmidt v. Eagle Waste & Recycling,
Inc., 599 F.3d 626, 633 (7th Cir. 2010); see Curtis, 436 F.3d at 711 (holding that a
plaintiff was not prejudiced by a defendant’s first-time assertion of an affirmative defense
in a motion for summary judgment because the plaintiff had an opportunity to
“confront[ ] the defense in responding to the motion”). Here, Plaintiffs claim they were
prejudiced because they were unable to take discovery on Wilmington’s newly asserted
defense. While Plaintiffs’ concern may be valid, it ultimately does not make a difference
at this stage because the lack of discovery cuts both ways: Wilmington has not submitted
the evidence necessary to establish the defense on summary judgment.
Wilmington predicates its bona fide error defense on two facts. One is that it sent
instructions to its closing company for it to use in closing the transaction. The other is
that Plaintiffs admit to having signed the Notice and Disclosure Statement. But these
facts are insufficient to bring Wilmington’s TILA violations within the safe harbor
9
provision of Section 1640(c) as a matter of law. To avail itself of the bona fide error
exception, Wilmington needed to “show not only that the error was unintentional and
clerical in nature, but also that it maintained procedures reasonably adapted to prevent the
type of error that occurred.” Horton v. Country Mortg. Servs., No. 07-cv-6530, 2010 U.S.
Dist. LEXIS 67, at *15 (N.D. Ill. Jan. 4, 2010); see also Handy v. Anchor Mortg.
Corp., 464 F.3d 760, 764 (7th Cir. 2006) (rejecting assertion of bona fide error defense
because defendant failed to demonstrate that it “had [procedures] in place to prevent the
type of mix-up that occurred”).
Here, Wilmington has offered no evidence other than the packet of closing papers
it sent to its closing agent to show that maintained any procedures—much less the
procedures needed to verify that its closing agents comply with TILA in a given
transaction. In fact, Wilmington has not even provided an affidavit from the
representative who closed Plaintiffs’ transaction or the company who employed the
representative, Netco Title. For the bona fide error defense to apply, Wilmington at least
had to answer through evidence how its agent could have provided Plaintiffs with an
envelope containing only a single miscopied Notice form.
Moreover, the court questions whether the bona fide error defense could act to
insulate Wilmington from liability for its alleged violations of TILA. The Seventh
Circuit has “repeated[ly] direct[ed] [district courts] to hold lenders to hypertechnical
compliance with TILA . . . .” Laseter v. Climateguard Design & Installation, LLC, 931 F.
Supp. 2d 862, 869 (N.D. Ill. 2013) (citing Hamm, 506 F.3d at 529). Wilmington makes
no attempt to reconcile its invocation of the bona fide error defense with the
“hypertechnical” standard that applies to alleged TILA violations in this circuit.
10
Although the court need not resolve this issue, other courts have determined that Section
1640(c) does not immunize a lender from the types of TILA violations alleged here. See
Horton, 2010 U.S. Dist. LEXIS at *15-16 (“In light of TILA’s purpose, this court cannot
find as a matter of law that failure to deliver two copies of a notice to cancel and one
copy of a disclosure statement can be a clerical error such that [a lender] may be excused
from TILA liability pursuant to the bona fide error exception); Abubo v. Bank of New
York Mellon, 977 F. Supp. 2d 1037, 1047-1050 (D. Hawaii 2013) (canvassing federal
case law, including Seventh Circuit authority, in rejecting application of bona fide error
defense to a lender’s failure to comply with disclosure requirements).
B. Wilmington’s Alleged Disclosure Statement Violation
15 U.S.C. § 1638(a)(6) requires a lender to disclose “[t]he number, amount, and
due dates or period of payments scheduled to repay the total of payments. . . .” The
Seventh Circuit has construed this provision to require a lender “to state clearly on the
Disclosure Statement either the due dates or period of payments scheduled.” Hamm v.
Ameriquest Mortg. Co., 506 F.3d 525, 529 (7th Cir. 2007).
Hamm involved two borrowers who filed separate suits against their original
lender for failing to state the payment period in their TILA Disclosure Statements. Id. at
526. See Hamm v. Ameriquest Morg. Co., No. 05-cv-227, 2005 U.S. Dist. LEXIS 21755
(N.D. Ill. Sept. 27, 2005); Jones v. Ameriquest Mortg. Co., No. 05-cv-0432, 2006 U.S.
Dist. LEXIS 3788 (N.D. Ill. Jan. 31, 2006). The two district courts that had resolved
each individual plaintiff’s claims reached different conclusions: one granted summary
judgment to the lenders on the borrower’s “theory of liability related to the payment
periods,” Hamm, 2005 U.S. Dist. LEXIS 21755, at *12, while the other granted summary
11
judgment to the borrower on a TILA claim based on the same theory of liability. Jones,
2006 U.S. Dist. LEXIS 3788, at *28-29.
At issue on appeal was the language in the Disclosure Statement, which both
plaintiffs had signed, related to the payment schedule. In particular, the disclosure (1)
“listed a specific date as the due date for the first payment and another specific date for
the final payment” and (2) identified “the number of payments” and “amount of
payments,” as shown in the following illustration:
NUMBER OF AMOUNT OF PAYMENTS
PAYMENTS PAYMENTS ARE DUE
BEGINNING
359
$ 541.92
03/01/2002
1
$ 536.01
02/01/2032
Hamm, 506 F.3d at 527.
After reviewing the table in the context of the whole Disclosure Statement, the
Seventh Circuit recognized that it would not take much for a borrower “to realize that the
time between the first entry in the third column and the last entry is just shy of thirty
years, or 360 months.” Id. Nevertheless, the court explained, what matters in assessing a
lender’s TILA violation is not whether “the borrower in a particular transaction made the
right assumptions about the terms and documents presented to her. . . .” Id. at 529.
Rather, “the question is whether TILA is satisfied if the form provides only enough
information from which the consumer might infer either the due dates or the payment
period.” Id.
With the issue framed in this light, the Seventh Circuit resolved the conflicting
results in Jones and Hamm by finding that the lenders had, indeed, “committed a
technical TILA violation by failing explicitly to state the payment period of [the
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borrowers’] loans on the Disclosure statement.” Id. at 529-530. The court had no “doubt
that many (or most) borrowers would understand that a mortgage with 360 payments due
over approximately 30 years contemplates a payment by the borrower each month during
those 30 years.” Id. at 530. But the lender’s Disclosure Statement did not inform the
borrowers “that the transaction [was] for a ‘360-month loan’ or anything similar.” Id.
All a borrower knew for certain from the Disclosure Statement was that (i) 359 payments
needed to be made, (ii) “the first one [was] due on a particular date,” and (iii) “after all
359 payments [were] made, one more payment in a slightly different amount [would] be
due on another particular date.” Id. In the court’s view, “A borrower reading this form
alone would have to make assumptions and take some steps in order to determine . . . that
her payments were evenly spaced over the 30 years and that each payment was due at the
first of the month.” Id.
The concern, however, was that a borrower might not make the necessary
assumptions. For example, a borrower could have construed the lender’s Disclosure
Statement as allowing her to “postpone payments 2-359 until approximately the last year
of the loan and make one payment per day.” Id. Although this possibility might “seem
unrealistic,” “[t]he key point is that [a] borrower should not have to make any
assumptions; she should be told her payment period in explicit terms.” Id. at 532.
Because the lender’s Disclosure Statement required the borrowers to make such
assumptions, the court found that it violated TILA.
Given this guidance from Hamm, the court cannot find that Wilmington is entitled
to summary judgment on Plaintiffs’ TILA claim for violations of Section 1638(a)(6). As
an initial matter, Plaintiffs allege that Wilmington did not provide them with copies of the
13
Disclosure Statement. According to Plaintiffs, the envelope Wilmington’s closing agent
gave to Tulumbuta was missing not only the completed Notices, but the Disclosure
Statement as well. Viewing the facts in a light most favorable to Plaintiffs, the court
finds a genuine issue of material fact exists as to whether they received copies of the
Disclosure Statement from Wilmington’s closing agent. See Horton, 2010 U.S. Dist.
LEXIS 67, at *12-14 (denying lender’s motion for summary judgment on borrower’s
TILA claim stemming from lender’s purported failure to provide copy of disclosure).
Second, Plaintiffs allege that the copy of the Disclosure Statement Wilmington
produced in discovery contains material deficiencies that independently violate TILA, as
construed in Hamm. The court agrees with Plaintiffs. Page 1 of the Disclosure Statement
indicates the number of payments, the payment amounts, and the due dates for three
payments, but it does not specify “either the frequency of payments or the specific due
date for each individual payment.” Iroanyah v. Bank of Am., N.A., 851 F. Supp. 2d 1115,
1122 (N.D. Ill. 2012) (denying lender’s motion for summary judgment on borrower’s
TILA claim arising from lenders’ non-complaint disclosure statement). Although page 4
uses the word “monthly” to describe a payment, that page confusingly informs the
borrower that the “Total Estimated Monthly Payment” is $1,678.55, notwithstanding the
information on the first page showing that the payment amounts vary. Moreover, the
reference to some of the payments being “monthly” was outside of the “Federal Box”
located on page 1, “where the TILA-mandated disclosures are typically listed.” See
Laseter, 931 F. Supp. 2d at 867; Leathers v. Peoria Toyota-Volvo, 824 F. Supp. 155, 158
(C.D. Ill. 1993) (“Compliance with [the TILA] regulations is satisfied when the creditor
14
places all the disclosures on one side of one document (unless there is not enough room)
or groups the disclosures together within the Federal Box.”).
C. Wilmington’s Alleged Failure to Rescind
“Under TILA, if a borrower timely elects to rescind the loan, within 20 days, the
creditor must return to the borrower any earnest money, down payment, or otherwise, and
take all necessary action to reflect termination of any security interest created by the
transaction.” Christensen, 2012 U.S. Dist. LEXIS 153190, at *16-17 (citation and
quotation marks omitted). A creditor’s failure to take these steps in response to a timely
rescission election by the borrower constitutes a violation of TILA. See 15 U.S.C.
§ 1635(b).
Here, there is no dispute that Plaintiffs attempted to rescind after the three-day
time frame that TILA prescribes elapsed. Plaintiffs argue that their request automatically
obligated Wilmington to rescind the transaction, but surely that cannot be case. See
Christensen, 2012 U.S. Dist. LEXIS 153190, at *17 (only a timely rescission request
“trigger[s]” a creditor’s “obligation under § 1635(b)”); Iroanyah v. Bank of Am.,
N.A., 851 F. Supp. 2d 1115, 1124 (N.D. Ill. 2012) (“A rescission notice is invalid, and
thus cannot possibly effectuate a complete rescission, unless it is timely and unless the
creditor did something that actually gives the borrower a right to rescind.”). Otherwise,
any meritless, untimely request to cancel a qualifying transaction would mandate
rescission. Instead, a more sensible interpretation of Section 1635(b) is that
Wilmington’s refusal to rescind would provide an additional ground for statutory
damages if Plaintiffs can establish through a separate violation that they were subject to
the three-year time frame and thus submitted a timely cancellation request. Id. at 1128
15
(“A creditor’s failure to properly respond to a valid rescission notice gives rise to a
damage claim.”)
As explained above, issues of fact remain as to whether Wilmington violated
TILA so as to extend Plaintiffs’ rescission period to three years. Consequently, it is
possible that the longer cancellation window applies, in which case Wilmington’s refusal
to honor Plaintiffs’ cancellation request would constitute an additional violation.
Wilmington’s motion for summary judgment is therefore denied as to Plaintiffs’ claim for
a violation of Section 1635(b).
D. Plaintiffs’ Ability to Tender
Finally, Wilmington asserts that regardless of whether it violated TILA, the court
should grant its motion for summary judgment because Plaintiffs cannot immediately pay
back the principal to complete their requested rescission.
Plaintiffs respond that they will be able to make the necessary tender if the court
rules in their favor after a bench trial. From Plaintiffs’ perspective, it is immaterial
whether they can tender the principal now, since they would have additional time to raise
funds between the court’s ruling on Wilmington’s motion for summary judgment and
trial. Plaintiffs also assert that Wilmington puts the proverbial “cart before the horse”
because a determination as to whether borrower can tender comes after, not before, an
adjudication of the lender’s alleged TILA violation.
The court again agrees with Plaintiffs. Requiring a borrower to prove his or her
ability to tender before the creditor’s underlying TILA violation has been proven would
be premature. Here, not only could Plaintiffs save additional funds between now and any
entry of judgment against Wilmington. A finding of liability would also decrease the
16
amount that Plaintiffs owe. “[W]hen a lender is found to have violated TILA, a plaintiff
in a private action is entitled to recover from the lender “any actual damage sustained by
such person as a result of the failure”; “twice the amount of any finance charge in
connection with the transaction”; or “in the case of an individual action relating to a
credit transaction not under an open end credit plan that is secured by real property or a
dwelling, not less than $400 or greater than $4,000 . . . .’”). Christensen v. Fifth Third
Bank, No. 10-cv-2177, 2014 U.S. Dist. LEXIS 7577, at *83-84 (N.D. Ill. Jan. 22, 2014
(citing 15 U.S.C. § 1640(a)(1), (2)(A)(I), (2)(A)(iv)). In addition, “[w]hen an obligor
exercises his right to rescind under subsection (a) of this section, he is not liable for any
finance or other charge, and any security interest given by the obligor, including any such
interest arising by operation of law, becomes void upon such a rescission.” 15 U.S.C.
§ 1635(b).
A more prudent course is for the parties to meet and confer to determine the
amount Plaintiffs will have to tender to effect the rescission, if Plaintiffs prevail at trial.
See Id. at *3. The court then would assess any disagreements over the tender amount or
Plaintiffs’ ability (or inability) to pay it.
IV.
PLAINTIFFS’ MOTION TO STRIKE WILMINGTON’S REPLY BRIEF
Plaintiffs move to strike Wilmington’s reply brief to preclude Wilmington from
raising the bona fide error defense. However, Plaintiffs offer no legal support to strike
Wilmington’s entire brief. Plaintiffs have already asked the court to find that Wilmington
waived the defense. As discussed above, although Wilmington failed to raise the defense
in its answer, there has been no waiver. Plaintiffs’ motion is denied.
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V.
CONCLUSION
Wilmington’s motion for summary judgment is denied. Wilmington has until
March 23, 2015, to amend its answer to add the bona fide error defense. Discovery shall
be reopened for the limited purpose of allowing Plaintiffs to conduct discovery into
Wilmington’s assertion of the bona fide error defense. Status set for April 15, 2015 at
9:30 a.m.
The parties should present an agreed plan for this limited reopening of
discovery.
The court offers one final thought in closing. To borrow a line from Judge Keys,
who dealt with a similar set of facts in a TILA dispute, “this case cries out for a
settlement and resolution by the parties.” Christensen, 2012 U.S. Dist. LEXIS 153190, at
*20. Plaintiffs contend that they seek rescission to refinance their mortgage loan. They
stress that they can make their monthly mortgage payments. Wilmington is open to
rescinding the transaction, but only if Plaintiffs make a lump sum payment. The court
strongly encourages the parties to meet and confer either before or while they prepare the
joint pretrial order to discuss settlement. Or, if the parties wish, they may call the court to
refer the case to Magistrate Judge Valdez for a settlement conference.
ENTER:
/s/
JOAN B. GOTTSCHALL
United States District Judge
DATED: March 16, 2015
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