The U.S. Court of Appeals for the Ninth Circuit recently held that a TILA rescission claim that does not allege an ability to tender or an attempt the tender the non-rescindable balance due will survive a motion to dismiss, and that equitable tolling applies to the one year statute of limitations under Section 8 of RESPA, contrary to precedent from other courts.
A copy of the opinion is available at:http://cdn.ca9.uscourts.gov/datastore/opinions/2014/07/16/09-17678.pdf
Two mortgagors sued their mortgagee to rescind their mortgage loan, claiming that they were supposedly not provided with their TILA disclosures until three years after closing. Upon receipt of the TILA disclosures, mortgagors sued to rescind the mortgage under TILA.
The mortgagors also alleged that the seller from whom the mortgagors purchased the home allegedly falsely represented himself as a real estate agent, and also that there was an allegedly fraudulently inflated appraisal. The mortgagors argued that the allegedly inflated appraisal was a “thing of value” provided to the lender in exchange for more referrals of appraisal business from the lender to the appraiser, in alleged violation of Section 8 of RESPA.
The district court dismissed the TILA claim because mortgagors did not tender the value of their home equity loan before filing the lawsuit for rescission, and did not allege an ability to tender. The lower court dismissed the mortgagors RESPA claim because it was not filed within one year of the closing. There is no discussion in the opinion of the fact that the mortgage loan apparently was a purchase money loan.
The Ninth Circuit recognized that under established Ninth Circuit case law (e.g., Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003)), a trial court may require an obligor to tender or provide evidence of an ability to tender at the summary judgment stage.
However, rejecting the opinions of a number of other courts, the Ninth Circuit also held that it is not necessary for a mortgagee to allege an attempt to tender or the ability to tender the non-rescindable balance due under TILA, in order to survive a motion to dismiss. The Court stated that a mortgagee “can state a claim for rescission under TILA without pleading that they have tendered, or that they have the ability to tender, the value of their loan.”
The Court noted that dismissal is different than summary judgment because at the dismissal stage of a lawsuit, the lower court is without evidentiary development, whereas they have such evidence at the summary judgment stage. Thus, at the dismissal stage, the lower court is unable to determine if tender is necessary. The Ninth Circuit reversed the lower court’s dismissal of the mortgagors’ TILA rescission claim and remanded for further proceedings.
The Ninth Circuit further held that RESPA allows for equitable tolling, which acts to suspend the one year limitations period until the mortgagor discovers or had a reasonable opportunity to discover the violation. The court noted that equitable tolling is to be decided on a “case-by-case” basis. Accordingly, the Court reversed and remanded on this issue as well.
The issue of equitable tolling was one of first impression for the Ninth Circuit and this decision conflicts with other courts’ opinions, including the D.C. Circuit Court of Appeals in Hardin v. City Title & Escrow Co., 797 F.2d 1037 (D.C. Cir. 1986).
In addressing the RESPA allegations, the Ninth Circuit also expressly declined to rule on the issue of whether or not markups for settlement services provided by a third party are actionable under Section 8 of RESPA, as the issue was not first addressed in the lower court.
In addition, the Ninth Circuit also expressly declined to rule on the issue of whether an inflated appraisal would qualify as a “thing of value” under Section 8 of RESPA.
Eric Tsai
McGinnis Wutscher Beiramee LLP
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