Johnson v. Washington Mutual Bank, FA,

Filing 55

Judge Joseph L. Tauro: ORDER entered. MEMORANDUM AND ORDER.(Geraldino-Karasek, Clarilde)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
BENJAMIN J. JOHNSON,

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Plaintiff, Defendant-in-Counterclaim,
v.
JPMORGAN CHASE BANK, N.A.,
Plaintiff-in-Counterclaim,

Civil Action No. 08-10003-JLT

MEMORANDUM
May 3, 2011
TAURO, J.
I.

Introduction
Benjamin J. Johnson, Plaintiff and Defendant-in-Counterclaim (“Plaintiff”) brought a

number of claims against JPMorgan Chase Bank, N.A., Plaintiff-in-Counterclaim (“Chase”),1 for
damages and attorneys fees stemming from a dispute over the rescission of a mortgage
transaction.2 These claims have since been disposed of, leaving the enforceability of a 2006
mortgage as the sole remaining question.3 Presently at issue are Chase’s Motion for Summary
Judgment on Counterclaim [#30] and Plaintiff’s Cross Motion for Summary Judgment on

1

Plaintiff originally sued Washington Mutual Bank. The U.S. Office of Thrift Supervision
placed Washington Mutual Bank in the receivership of the Federal Deposit Insurance Corporation
(“FDIC”). The FDIC then sold the assets and some liabilities to Chase, pursuant to a Purchase
and Assumption Agreement. Chase intervened as Plaintiff-in-Counterclaim in place of
Washington Mutual. The FDIC intervened as Defendant in place of Washington Mutual Bank
and Chase, but has since settled with Plaintiff and was dismissed with prejudice. The only
remaining parties in the present case are Chase and Plaintiff.
2

See Am. Compl. ¶¶ 18–27 [#4].

3

Order Dismissal ¶¶ 1–3 [#51].
1

Counterclaim [#46, incorporated in #35]. For the following reasons, Chase’s Motion for
Summary Judgment is ALLOWED IN PART and DENIED IN PART, and Plaintiff’s Cross
Motion for Summary Judgment is DENIED.
II.

Background4
On July 24, 2006, Plaintiff granted to Washington Mutual Bank (“WaMu”) a mortgage

(the “2006 Mortgage”) on a property located at 19 Aborn Street, Salem, Massachusetts (the
“Property”).5 On July 26, 2007, Plaintiff executed two promissory notes and two mortgages (the
“2007 Mortgages”) for the purpose of paying off the 2006 Mortgage.6 Plaintiff mailed notices of
the right to rescind the 2007 Mortgages on July 28, 2007 and Defendant received the notices two
days later.7
Beginning on August 1, 2007, WaMu was in contact with Plaintiff concerning Plaintiff’s
notices of rescission, which WaMu was unable to locate.8 On August 8, 2007, while WaMu was

4

This court presents these facts in the light most favorable to the party that does not
prevail on summary judgment, here, Plaintiff. See Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d
30, 34 (1st Cir. 2005) (“[L]ike the district court, we must scrutinize the record in the light most
favorable to the summary judgment loser and draw all reasonable inferences therefrom to that
party’s behoof.” (citation omitted)).
5

Statement Material Facts Which There Is No Genuine Issue Supp. Mot. Def. JPMorgan
Chase Bank, N.A., Summ. J. ¶ 2 [#32] [hereinafter Facts]; Resp. Statement Material Facts, 1
[#36] [hereinafter Resp. Facts]. The 2006 Mortgage was to secure repayment of Plaintiff’s
promissory note (the “2006 Note”) in favor of WaMu. Facts ¶¶ 1–2 [#32].
6

Facts ¶¶ 3, 4 [#32]; Resp. Facts, 1 [#36].

7

Facts ¶¶ 5, 6 [#32]; Resp. Facts, 1 [#36].

8

Facts ¶¶ 7, 10 [#32]; Resp. Facts, 1 [#36].
2

looking for the notices, the 2006 Mortgage was discharged.9
WaMu interacted regularly with Plaintiff over the following three weeks,10 eventually
offering a $5,000 credit in lieu of rescission on August 23, 2007.11 Plaintiff rejected this offer on
August 27, 2007.12 He tendered to WaMu all the checks he had been provided as part of the
2007 Mortgage and a personal check for an amount of funds that had been wired to his account.13
On August 28, 2007, Plaintiff e-mailed WaMu and informed it that he expected the 2006
Mortgage to be reinstated.14 Plaintiff claims that he subsequently asked WaMu if he should
resume payments on the 2006 Mortgage and received no response.15
The settlement agent, Apex Title (“Apex”) and WaMu entered into a dispute about the
proper procedure to effect the rescission.16 During this time Apex refused to return the funds on
which Plaintiff’s checks had been drawn.17 This dispute ended in December 2007, when WaMu
mailed Plaintiff’s checks to Apex.18 On January 10, 2008, Apex (via an escrow agent) sent a new

9

Facts ¶ 9 [#32]; Resp. Facts, 1 [#36].

10

See Facts ¶ 8 [#32]; Resp. Facts, 1 [#36].

11

Facts ¶ 11 [#32]; Resp. Facts, 1 [#36].

12

Facts ¶ 12 [#32]; Resp. Facts, 1 [#36].

13

Facts ¶ 13 [#32]; Resp. Facts, 1 [#36].

14

Facts ¶ 18 [#32]; Resp. Facts, 1 [#36].

15

Opp’n Mot. Summ. J. & Cross Mot. Summ. J., 10 [#35] [hereinafter Opp’n Mot.
Summ. J.].
16

See Facts ¶ 17 [#32]; Resp. Facts, 1 [#36].

17

Facts ¶ 17 [#32]; Resp. Facts, 1 [#36].

18

Facts ¶ 20 [#32]; Resp. Facts, 1 [#36].
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check to WaMu for the funds in question.19 Six days later WaMu discharged the 2007
Mortgages.20
Plaintiff has not made any payments on the 2006 Mortgage since July 2007.21
III.

Discussion
The Truth in Lending Act (“TILA”)22 sets forth a specific procedure for rescission: (1) the

borrower notifies the creditor of his intent to rescind; (2) within twenty days after receipt of a
notice of rescission, the creditor returns “any money or property given as earnest money,
downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the
termination of any security interest created under the transaction;”23 (3) the borrower tenders
property to the creditor, which the creditor had delivered to the borrower; and (4) if the creditor
does not take possession of the property within twenty days after the borrower’s tender,
“ownership of the property vests in the obligor without obligation on his part to pay for it.”24
Plaintiff contends that TILA allows the borrower to tender any property received from the
creditor back to the creditor and that the 2006 Mortgage counts as such property.25 Plaintiff
contends that when he informed WaMu that he expected the 2006 Mortgage to be reinstated, he
19

See Facts ¶¶ 19, 21 [#32]; Resp. Facts, 1 [#36].

20

Facts ¶ 22 [#32]; Resp. Facts, 1 [#36].

21

Facts ¶ 23 [#32]; Resp. Facts, 1 [#36]. Combining the 2006 Note and Mortgage, there
is an outstanding balance of $290,217.25. Facts ¶ 24 [#32].
22

15 U.S.C. § 1635 et seq.

23

15 U.S.C. § 1635(b).

24

Id.

25

Opp’n Mot. Summ. J., 14 [#35].
4

tendered the mortgage back to WaMu.26 Plaintiff asserts that by failing to respond to Plaintiff’s
questions about resuming payments, WaMu failed to accept Plaintiff’s tender within the statutorily
required twenty days.27 Accordingly, Plaintiff argues that TILA voids the 2006 Mortgage, leaving
him with no obligation in connection with the 2006 Mortgage.28 Chase disagrees, arguing that the
duty to tender relates to the new advance secured from the 2007 Mortgage, not the 2006
Mortgage.29
Plaintiff’s argument fails as a matter of law. Although TILA is silent on what may be
considered “property” for the purpose of rescission, Regulation Z30 provides that the right of
rescission applies in refinancings only “to the extent the new amount financed exceeds the unpaid
principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed
solely to the costs of the refinancing or consolidation.”31 Rescission is therefore only available for
the “new money” portion of the loan proceeds and has nothing to do with prior obligations.32
26

Opp’n Mot. Summ. J., 10 [#35].

27

Opp’n Mot. Summ. J., 10 [#35].

28

Opp’n Mot. Summ. J., 19–20 [#35].

29

Mem. Law Supp. Opp’n JPMorgan Chase Bank Pl./Def. Counterclaim’s Cross-Mot.
Summ. J., 5–6 [#48].
30

Regulation Z is promulgated by the Board of Directors of the Federal Reserve System
pursuant to its authority under 15 U.S.C. § 1604(a) to carry out the purposes of TILA.
31

12 C.F.R. § 226.23(f)(2). The Official Staff Commentary confirms this view. See 12
C.F.R. pt. 226, Supp. I, § 226.23(f)-4 at 688 (2009) (“If the refinancing involves a new advance
of money, the amount of the new advance is rescindable.”).
32

This conclusion is further buttressed by a First Circuit case. In Santos-Rodriguez v.
Doral Mortgage Corp., 485 F.3d 12 (1st Cir. 2007), the court analyzed whether a creditor’s form
was misleading because it outlined the effects of rescission of an original loan and not a samelender refinance loan. Id. at 16–18. The plaintiffs complained that the form did not disclose that,
5

Accordingly, Plaintiff’s 2006 Mortgage remained unaffected by the rescission of the 2007
Mortgage and WaMu retained a valid security interest in the Property. Plaintiff therefore could
not tender the 2006 Mortgage, which he remained obligated to satisfy. Because Plaintiff could
not tender this obligation, his argument that he has the right to keep the property free and clear of
the 2006 Mortgage is erroneous. Furthermore, because the 2006 Mortgage could not be tendered
back to WaMu and because the funds for its discharge were to be provided by the rescinded 2007
Mortgage, this court holds that the 2006 Mortgage was erroneously discharged and is
enforceable.33
Plaintiff also argues that WaMu failed to begin the rescission process within the statutorily
required twenty days because initial discussions concerned WaMu’s failure to locate the notices of
rescission, not rescission itself.34 Chase argues that these discussions concerning the location of

in a rescission of a same-lender refinance, the original loan is not cancelled, the creditor retains a
security interest in the property under the original loan, and the consumer “reverts” to paying off
that original loan. Id. at 16. In discussing whether the plaintiffs were misled by the use of the
wrong form, the court made clear that rescission of a same-lender refinance loan does not rescind
the original mortgage. Id. at 17–18.
33

Massachusetts common law provides that, under the doctrine of unjust enrichment, a
mortgage that is accidentally discharged may be reinstated. See, e.g., Progressive Consumers
Fed. Credit Union v. United States, 79 F.3d 1228, 1236 (1st Cir. 1996) (“‘[W]here a mortgage
has been discharged by mistake, equity will set the discharge aside and reinstate the mortgage to
the position which the parties intended it to occupy, if the rights of the intervening lienholders
have not been affected.’” (quoting N. Easton Co-op. Bank v. MacLean, 300 Mass. 285, 292
(1938)) (remaining citations omitted)).
34

Opp’n Mot. Summ. J., 3–4 [#35]. The relevant part of the statute provides that
“[w]ithin 20 days after receipt of a notice of rescission, the creditor shall return to the obligor any
money or property given as earnest money, downpayment, or otherwise, and shall take any action
necessary or appropriate to reflect the termination of any security interest created under the
transaction.” 15 U.S.C. § 1635(b) (emphasis added). Plaintiff’s dispute appears to involve only
6

the notices constitute a “beginning” sufficient to satisfy the statute.35 This court agrees with
Chase.
The Official Staff Commentary to Regulation Z, which the Supreme Court has declared
dispositive unless demonstrably irrational,36 explains that the “20-day period for the creditor’s
action refers to the time within which the creditor must begin the process. It does not require all
necessary steps to have been completed within that time.”37 This court holds that the numerous
communications between Plaintiff and WaMu concerning the notice of rescission constitute a
beginning to the process sufficient to satisfy the statute.
Finally, this court notes that the foregoing discussion concerned Chase’s counterclaim for
a declaratory judgment on the validity of the 2006 Mortgage.38 In its Memorandum, Chase
summarily references a counterclaim for breach of contract but does not argue the elements of
that claim.39 Plaintiff fails to respond specifically to this counterclaim, arguing only the validity of
the 2006 Mortgage. This court therefore reserves judgment on Chase’s counterclaim for breach

the last clause, which requires a creditor to take action to terminate the security interest.
35

Mem. Supp. Opp’n Cross-Mot. Summ. J., 4 [#48].

36

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980) (“Unless demonstrably
irrational, Federal Reserve Board staff opinions construing [TILA or its Regulations] should be
dispositive.”).
37

12 C.F.R. pt. 226, Supp. I, § 226.23(d)(2)-3 at 687 (2009).

38

See Answer & Countercl. Washington Mutual Bank, 9–10 [#6].

39

See Mem. Law Supp. Mot. Summ. J., 2, 20 [#31] (generally making note of the
counterclaim, asking for judgment on the breach of contract count because it “does not appear
that Plaintiff has any defense to the breach of contract count,” and saying that Plaintiff has
allegedly breached the 2006 Note).
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of contract pending further filing by the Parties.
IV.

Conclusion
For the foregoing reasons, Chase’s Motion for Summary Judgment on Counterclaim [#30]

is ALLOWED IN PART and DENIED IN PART, and Plaintiff’s Cross Motion for Summary
Judgment on Counterclaim [#46, incorporated in #35] is DENIED.
AN ORDER HAS ISSUED.
/s/ Joseph L. Tauro
United States District Judge

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