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Ninth Circuit Dismisses TILA Rescission Claim When Plaintiff Reacquired Property He Previously Owned Banner Image

Ninth Circuit Dismisses TILA Rescission Claim When Plaintiff Reacquired Property He Previously Owned

Month: August 2019

Ninth Circuit Dismisses TILA Rescission Claim When Plaintiff Reacquired Property He Previously Owned

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The United States Court of Appeals for the Ninth Circuit recently held that the Truth in Lending Act’s (“TILA”) right to rescind did not apply when the loan at issue was issued by the borrower to reacquire a property he previously owned but had transferred to his wife.  See Barnes v. Chase Home Fin., LLC, 2019 WL 3808602 (9th Cir. Aug. 14, 2019).  In the case, plaintiff and his now ex-wife purchased the property at issue in 1990.  She deeded the property to plaintiff in 1997, and he then deeded it back to her in 2003.  She encumbered the property with deeds of trust in her name.  In 2007, they divorced.  As part of the divorce judgment, plaintiff took back title to the home and agreed to “refinance the mortgage owing on said property in order to remove Wife’s name from said financial obligation” and to pay the wife $100,000.  Plaintiff obtained the loan at issue in this action in November 2007 and, per the divorce judgment, paid off the existing deeds of trust on the property and paid the money judgment to his wife.  Plaintiff later brought this action seeking to rescind the November 2007 mortgage loan under TILA, among other relief.  The District Court initially found that the TILA claim was time-barred, but the Ninth Circuit reversed and remanded.  After remand, the District Court granted defendants’ motion for summary judgment and found that plaintiff did not have the right to rescind the mortgage under TILA because the loan was part of a residential mortgage transaction.  Plaintiff appealed.

On appeal, the Court affirmed.  First, it found that its prior decision did not constitute law of the case barring any further arguments regarding rescission.  At no point did the Court find that plaintiff had a right to rescind, just that the grounds for the District Court’s dismissal were incorrect.  Second, the Court found that plaintiff did not have a right to rescind. The right of rescission under TILA does not apply to residential mortgage transactions.  See 15 U.S.C. 1635.  TILA defines a “residential mortgage transaction” as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer’s dwelling to finance the acquisition or initial construction of such dwelling.”  See 15 U.S.C. 1602 (emphasis added).  Plaintiff argued that only a party’s initial acquisition of a property was exempted from the right to rescind, and that the exemption did not apply here because plaintiff previously had title to the property.  However, the Court found that the word “initial” only modified the word “construction” and not “acquisition,” which necessarily implies that any acquisition of the dwelling may constitute a residential mortgage transaction, even if it is a reacquisition.  Plaintiff also claimed that, under Oregon law, he reacquired an interest in the property when the petition for divorce was filed, and therefore that he “acquired” the dwelling at that point, and not when he entered into the November 2007 mortgage transaction at issue.  The Court found that, even if the claim about Oregon divorce law was true, it would not mean that the 2007 mortgage was not part of a residential mortgage transaction.  Although the Court acknowledged that the Official Staff Interpretations to Regulation Z recognize that some individuals may have a prior interest in the property that can make an acquisition “something more akin to a refinance” that would allow for a right to rescind, that situation only occurs when the individual’s prior interest was “purchased,” which was not the case here because plaintiff did not “purchase” the property when the divorce petition was filed.  Thus, plaintiff did not have a right to rescind.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New York Federal Court Denies Debt Collector’s Motion to Dismiss FDCPA Action, Holds Debt Collection Letters Did Not Comply with Safe Harbor Rule

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The United States District Court for the Eastern District of New York recently denied a debt collector’s motion to dismiss an action under the Fair Debt Collection Practices Act (“FDCPA”) alleging that collection letters sent—with no mention of interest accrual or late payment fees—violates the Act.  See Watson v. Midland Credit Mgmt., Inc., 2019 WL 2527295 (E.D.N.Y. June 19, 2019).  In the case, the defendant debt collector sent the plaintiffs three identical letters stating that the plaintiffs had been “pre-approved” for a “discount program” and by participating in the program the plaintiffs could “put the debt behind [them].”  The letters offered the plaintiffs three different options for debt repayment at a discounted rate and two of the three offers specified a precise amount to be paid and a payment due date.  The third option offered “Monthly Payments As Low As: $50 per month” with no mention of amount to be paid or payment due date.  The plaintiffs claimed that the letters were “deceptive” and, therefore, violate 15 U.S.C. § 1692e because the “discount” payment options failed to state whether acceptance of discounted rate would resolve plaintiffs’ outstanding debts, whether interest would continue to accrue on plaintiffs’ accounts, or whether plaintiffs would incur late payment fees.

The Court denied the defendant’s motion to dismiss.  In Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), the Second Circuit held that a debt collector does not violate the FDCPA for failing to inform the debtor of accruing interest or late payment fees if the letter either (i) “accurately informs the consumer that the amount of the debt stated in the letter will increase over time,” or (ii) “clearly states that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date.”  Here, the letters at issue contained two offers that met this second prong of the Avila safe harbor by setting forth the amount the defendant would accept as of a specified date, but the letters also offered a third option which failed to state the precise amount of the settlement offer.  Therefore, the “plaintiffs’ complaint contained a plausible claim for relief” and survived the defendant’s motion to dismiss.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Anthony Lombardo at alombardo@riker.com.

Third Circuit Affirms Decision Holding That Title Insurance Company Did Not Have Duty to Defend Encroachment Claim

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The United States Court of Appeals for the Third Circuit recently affirmed a lower court and held that an insured was not entitled to coverage for a litigation involving a portion of the insured’s property that encroached onto a neighbor’s property.  See 631 N. Broad St., LP v. Commonwealth Land Title Ins. Co., 2019 WL 3383878 (3rd Cir. July 26, 2019).  The case concerned an insured property owner who discovered that a wall on the southern border of its property encroached onto a neighbor’s property by about five inches.  The insured was conducting renovations, and brought an action against its neighbor in which it sought a declaratory judgment that it had the right to demolish the wall.  The insured also filed a claim with the title insurance company who had issued a policy on the property, but the title insurance company denied the claim.  When the court in the underlying action held that the insured could not demolish the wall, the insured brought this action against the title insurance company for breach of contract.  The District Court granted the title insurance company’s motion for summary judgment.

On appeal, the Court affirmed.  First, the Court found that there was no coverage under the policy because the dispute concerned the neighbor’s property, not the insured’s property.  “The Policy’s coverage extended only to the borders of the . . . Property, as described in Schedule A of the Policy, and ‘does not include any property beyond the lines of the area described in Schedule A.’”  Second, the Court found that the policy had a survey exception that excepted “easements, encroachments, overlaps, shortages of area, boundary line disputes and other matters affecting title that an accurate and complete survey would disclose” from coverage.  Because “the underlying litigation involved an encroachment or boundary dispute that a complete and accurate survey would have disclosed,” coverage was barred under this exception.  Finally, the Court found that there was no issue with the fact that the title insurance company defended the neighbor in the underlying action, and that the coverage of the neighbor was not an “inconsistent provision” that would give rise to a quasi-estoppel claim.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Seventh Circuit Holds Secure Email Did Not Constitute a Communication Under the FDCPA, and Link to Validation Notice Was Improper

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The United States Court of Appeals for the Seventh Circuit recently held that a debt collector’s secure emails did not constitute an initial communication under the Fair Debt Collection Practices Act (“FDCPA”) and, even if they did, that the validation notices linked from the emails were not effectively given to the debtor.  See Lavallee v. Med-1 Sols., LLC, 2019 WL 3720875 (7th Cir. Aug. 8, 2019).  In the case, plaintiff incurred two debts that were referred to defendant for collection.  Defendant sent emails to plaintiff on each debt in April and May 2015 that stated “Med-1 Solutions has sent you a secure message” and contained a hyperlink that would have brought plaintiff to a website operated by defendant’s sister company.  Plaintiff never opened either email.  Had she done so, she would have had to click on a number of links and download a PDF to view the validation notice that defendant was required to send under the FDCPA.  See 15 U.S.C. § 1692g (requiring the debt collector to provide a validation notice to the debtor within five days of the “initial communication with a consumer in connection with the collection of any debt.”).  In November 2015, plaintiff learned about these debts and called defendant about the same, but defendant never sent any more validation notices.  Plaintiff then brought this action, claiming defendant violated the FDCPA by failing to send the required notices.  Defendant argued that the April and May emails constituted “initial communications” under the FDCPA and linked the notices, which was all that was required.  The District Court granted plaintiff’s motion for summary judgment.

On appeal, the Seventh Circuit affirmed.  First, the Court found that the April and May emails did not constitute “initial communications” under the FDCPA.  A “communication” is defined as “the conveying of information regarding a debt directly or indirectly to any person through any medium.”  See 15 U.S.C. § 1692g.  In this case, no information about the debt was conveyed to plaintiff, because the email only said “Med-1 Solutions has sent you a secure message” and contained a hyperlink.  Thus, the initial communication between the parties was the November phone call, and defendant failed to send the validation notice within five days after that call.  Second, even if those emails were initial communications, the Court found that they did not contain the proper disclosures.  The emails contained a link to another site that itself contained a link to download a PDF that included the disclosures.  The Court found that “[a]t best, the emails provided a digital pathway to access the required information” and a communication does not properly include the disclosures “when it merely provides a means to access them.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Sixth Circuit Affirms Dismissal of RESPA Claim, Holds Plaintiff Homeowner Had No Standing Because She Was Not Obligated Under the Loan

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The United States Court of Appeals for the Sixth Circuit recently affirmed the dismissal of a homeowner’s claims under the Real Estate Settlement Procedures Act (“RESPA”), finding that the plaintiff-mortgagor was not obligated under the loan and therefore had no standing to bring the claim.  See Keen v. Helson, 930 F.3d 799 (6th Cir. 2019).  In the case, a husband and wife received a loan to purchase a home.  Although both signed the mortgage securing the loan, only the husband was obligated under the loan.  The husband later conveyed title to the wife after they divorced, and she continued making payments on the loan.  She later defaulted and, after the property was sold via a foreclosure sale, brought this action against defendants claiming they violated RESPA by not properly reviewing her loan modification requests.  The District Court dismissed the action, finding that the plaintiff-wife was not a borrower and therefore could not bring a RESPA claim.

On appeal, the Court affirmed.  RESPA states that “[w]hoever fails to comply with any provision of this section shall be liable to the borrower for each such failure . . .” 12 U.S.C. § 2605(f).  Although RESPA does not define “borrower,” the Court referred to dictionary definitions that borrowers are those obligated on loans.  Moreover, Section 2605 states that it applies to a “federally related mortgage loan[s]” not “federally related mortgages.”  Therefore, because plaintiff signed the mortgage but was not obligated under the loan, she had no standing to bring a RESPA claim.  The Court also rejected plaintiff’s reliance on the Consumer Financial Protection Bureau’s regulation 12 CFR § 1024.30, which defines “borrower” to include a “successor in interest”.  Although the Court agreed that plaintiff seemed to meet this definition because her husband transferred his interest in the property to her, these regulations did not become effective until April 2018, which was after the events at issue in this action.  More importantly, the Court found that RESPA’s text was clear and that there was no need to look at any other regulations for further guidance.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Nevada Supreme Court Affirms Dismissal of Insured’s Complaint Against Title Insurer When Insured Discovered Property Was Not Lakefront

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The Nevada Supreme Court recently affirmed the dismissal of an action against a title insurance company brought by the insured property owner after he discovered that his property was not lakefront, as he had thought when he purchased the property.  See Schiller v. Fid. Nat’l Title Ins. Co., 444 P.3d 459 (Nev. 2019).  In the case, the plaintiff insured bought a property that the seller had represented as being on Lake Tahoe.  In 2008, in an action to which the insured was not a party, the Court determined that the County owned an 18-foot strip of land separating a number of properties, including the insured’s, from the lake based on a 1921 subdivision plat.  The insured then brought a claim with the title insurance company based on the property’s reduced value.  After the title insurance company denied the claim, the insured brought this action for breach of contract and bad faith.  The trial court dismissed the action.

On appeal, the Court affirmed.  The Court found that the property description in the policy referenced the 1921 plat, which “distinctly depicts a strip of land, designated 18 feet wide, separating lots 2 and 3 [the insured property] from the meander line (Lake Tahoe).”  Additionally, the Court rejected the insured’s argument that the property could have bordered the lake at the time he bought the property, noting that he had not obtained a survey.  Thus, the plat was the only recorded document relating to the boundary.  “Because neither the plat nor textual description identifies [the insured’s] interest as having a water boundary, [the insured’s] interest was not waterfront; any possible unrecorded facts to the contrary would be of no avail, for the policy’s description is unambiguous.”  Finally, the Court found that “a title insurance policy does not insure against losses due to a seller’s misrepresentations or a buyer’s failed expectations.  It was [the insured’s] duty to confirm that the advertised land was waterfront.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Connecticut Court Dismisses Native American Tribe’s Claim to Mortgages on Property Previously Owned by the Tribe

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The Superior Court of Connecticut recently dismissed a takings complaint brought by a Native American tribe in which the tribe claimed that it owned certain mortgages on land that the State took from it.  See Schaghticoke Tribal Nation v. State, 2019 WL 2872304 (Conn. Super. Ct. May 22, 2019).  The Native American tribe originally brought a complaint seeking just compensation for the government’s alleged taking of the tribe’s land.  After the trial court dismissed that claim, the tribe brought this claim alleging that the tribe at least owned the mortgages on the land and that the government owed the tribe just compensation for its taking of the land.  The tribe’s claim was based on an 1801 General Assembly resolution that authorized a committee to sell the land and take back mortgages for the benefit of the tribe.  Under the resolution, a government-appointed tribal overseer would use the proceeds to pay off the tribe’s debts and to otherwise assist the tribe.

The Court dismissed the complaint, holding that “[t]he trouble is that [the tribe’s] claim to own the mortgages at issue suffers from the same flaw as its land claim: there is no express grant to the tribe of the ownership of the mortgages, and without one the tribe has no property right it can allege was wrongly taken from it.”  According to the Court, the 1801 resolution only gave the tribe “the hope of future charity” from the State and nothing more.  The resolution “doesn't mean the tribe owned the mortgages or even had any irrevocable rights in the income stream from them. The state elected to help the tribe. It was not required by law or contract to help the tribe.”  Because the Court found that the tribe had no legal interest in the mortgages, it dismissed the takings claim.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

The Devil Is in the Details (Or Lack Thereof): A Costly Lesson in Allocating Environmental Responsibility in Contracts

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A seller of a car wash property located in North Bergen, New Jersey recently learned the hard way that its failure to understand the nature and magnitude of contamination found on its property, and to clearly define in a contract of sale the scope of its obligations associated therewith, can be quite costly.  In June, the Appellate Division of the New Jersey Superior Court upheld a trial court’s order directing the seller to fully remediate previously undiscovered environmental contamination at the property in accordance with its contractual obligations, which according to seller, was more than it had bargained for.  Hector v. Super Car Wash LLC, et al., Docket No. A-3131-17T1 (N.J. App. Div. Jun. 10, 2019). 

In Hector, the purchaser performed pre-purchase due diligence sampling that revealed the presence of soil contamination.  As a result of these findings, the parties negotiated a rider to the contract of sale whereby seller agreed to “remediate all such contamination prior to closing … at the expense of seller” and to “cleanup any additional contamination that may be discovered during the course of [the] remediation.”  After amending the agreement with the rider, seller began to remediate the soil contamination, but when further investigation by seller’s own environmental consultant revealed the presence of groundwater contamination, seller refused to clean it up.

After a bench trial, the trial judge concluded that the rider was unambiguous and required seller to clean up not only the known soil contamination, but also the groundwater contamination that was subsequently discovered during the course of the remediation.  On appeal, seller argued that the rider was unenforceable because there was no consideration and no meeting of the minds between the parties.  The Appellate Division rejected seller’s arguments and affirmed the trial court’s ruling.   The court found that seller’s agreement to forego termination of the contract, despite the discovery of environmental contamination, was appropriate consideration for seller’s agreement to the rider.  It also found that seller’s internal belief that its obligations were limited to remediation of soil contamination could not change the rider’s unambiguous terms, which plainly required seller to remediate “any additional contamination that may be discovered during the course of the [soil] remediation.”

This case is a stark reminder of the importance of hiring experienced and competent environmental professionals (including environmental legal counsel) to assist in the purchase and sale of contaminated or potentially contaminated property.  In fact, purchaser’s due diligence report revealed that the soil contamination was in excess of the applicable impact to groundwater standards (“IGWS”).  Although the IGWS is technically a soil standard, it indicates whether soil contamination may reach, and therefore, impact groundwater.  An experienced environmental consultant or attorney likely would have recognized that the contamination could extend to the groundwater.  With this understanding, the seller could have more carefully crafted the language of the rider to limit its remediation obligations.  Unfortunately for seller, the language in the rider obligating seller to remediate was extremely broad, and thus exposed seller to additional, costly liabilities that it did not intend to assume.

For more information, please contact the author Jaan M. Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

New Jersey Appellate Court Reverses Trial Court, Finds There Are Issues of Fact Preventing Summary Judgment in Perpetual Easement Dispute

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The New Jersey Appellate Division recently reversed a trial court’s summary judgment order and found that there were genuine issues of material fact regarding whether plaintiff had a perpetual parking easement on defendant’s property.  See Congregation Sons of Israel v. Congregation Meorosnosson, Inc., 2019 WL 2591309 (N.J. Super. Ct. App. Div. June 25, 2019).

In 1962, defendant’s predecessor executed a deed conveying a portion of its property to plaintiff.  In 1963, the predecessor signed an agreement with plaintiff that stated: “[the predecessor] agrees to permit [plaintiff] to utilize for parking purposes the vacant lands it owns on Madison Avenue and also on Sixth Street and to permit use of lands on Sixth Street for boiler room use and for a water cooling tower.”  Defendant purchased the property in 2010, and plaintiff brought this action regarding its alleged easement.  The trial court granted plaintiff’s motion for partial summary judgment, finding that it had a perpetual easement on defendant’s property pursuant to the 1963 agreement.

On appeal, the Court reversed.  First, the Court found that there are issues of fact regarding whether the 1963 agreement created an easement because the term “agrees to permit . . . to utilize for parking purposes” is ambiguous as to what type of right was conferred.  Second, the Court found that even if the agreement did create an easement, there were factual questions about whether it was perpetual.  The Court noted that other areas of the agreement used words like “perpetually” or “shall [n]ever.”  The paragraph at issue, however, “does not include language establishing a right in perpetuity nor does it include language limiting performance to [the predecessor] when the drafters demonstrated they were capable of making these distinctions.”  Finally, even if the agreement created a perpetual easement, the Court found that there was an issue of material fact as to whether plaintiff had abandoned the easement by failing to use it for parking until recently.  Thus, the Court vacated the summary judgment order and remanded.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Third Circuit Finds That Each Separate Mortgage Payment That Resulted in a Kickback Constitutes a Separate RESPA Violation for Limitations Purposes, But That Prior Class Action Did Not Toll Limitations Period for New Class Action

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The United States Court of Appeals for the Third Circuit recently affirmed the dismissal of a Real Estate Settlement Procedures Act (“RESPA”) kickback claim, holding that a 2011 class action in California did not toll the limitations period for this new class action making the same allegations.  See Blake v. JP Morgan Chase Bank NA, 927 F.3d 701 (3d Cir. 2019).  In the case, the two plaintiffs took out mortgages from the defendant lender in 2005 and 2006.  In 2013, they brought this class action alleging that defendant violated RESPA by referring them to mortgage insurers in exchange for kickbacks.  Specifically, they alleged that the lender referred them to mortgage insurers who used one of the lender’s subsidiaries to provide reinsurance as a disguise of the kickbacks, in violation of 12 U.S.C. § 2607.  Defendant moved to dismiss the action as untimely because RESPA has a one-year statute of limitations that runs “from the date of the occurrence of the violation,” which defendant claimed was when the loans were given in 2005 and 2006.  See 12 U.S.C. § 2614.  Plaintiffs responded with two arguments.  First, they claimed that each monthly payment constituted a separate RESPA violation, because each payment would result in a kickback to defendant’s subsidiary.  However, although they continued making payments after 2005 and 2006, they had not made any payments since 2010—i.e., more than one year before this 2013 action.  Their second argument was that the limitations period was then tolled from 2011 until 2013.  This argument was because in 2011, plaintiffs were part of a putative class who brought a suit against defendant in California based on these same allegations.  The District Court in California dismissed the action as untimely in 2013, and plaintiffs commenced this action while the California appeal was pending.  Plaintiffs argued that their membership in the putative class tolled the limitation period under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974).  Although the District Court here agreed with their first argument that each payment constituted a separate violation, it disagreed with the second argument and dismissed the action.

On appeal, the Court affirmed.  First, it agreed with plaintiffs’ argument that each kickback is a separately-accruing violation based on the plain text of RESPA.  “As the text says, the precise conduct that violates the Act is giving or accepting a kickback. The [2005/2006] agreement to make referrals is only an attendant circumstance. . . . a party violates the Act anew each time it takes the discrete act of giving or receiving a kickback under an agreement to make referrals.”  The Court further rejected defendant’s defense that the separate accrual rule would extend the statute of limitations indefinitely:  “If a defendant fears indefinite liability, it need only cease its illegal conduct.”  Second, the Court did not agree with plaintiffs’ argument that their claims were tolled during the pendency of the 2011 California action.  Although American Pipe holds that a timely class action tolls the claims of class members who later bring individual actions, the Supreme Court later clarified that the tolling does not apply to new class actions.  See China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (2018).  Among other issues, if plaintiffs’ argument were accepted, “new class actions would re-toll all class actions, letting class claimants stack their claims forever.”  Accordingly, the Court affirmed the dismissal.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

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