Pleading Tender not required in TILA rescission claim

The Truth in Lending Act provides rescission as a remedy for obligors subject to lender loan disclosure violations. Under 15 U.S.C. §1635(a), the right is available until midnight of the third day after closing or after delivery of the lending documents and rescission forms required under TILA; at the latest, the right expires after three years. Unlike common law rescission, where tender is required, the obligor need only notify the creditor of rescission and it is automatically effectuated under TILA. In Merritt v. Countrywide Financial Corp. (2014 WL 3451299), Plaintiffs David and Salma Merritt sued Countrywide under various federal statutes based on their mortgage and home equity line issued by Countrywide. During the application process, Countrywide engaged in many questionable actions. After the closing, the Merritt’s requested their loan documentation but did not receive it until three years later. By then, the Merritts had made $200,000 worth of interest only payments to Countrywide. They requested to rescind the loan, Countrywide ignored the request and offered to modify the agreement. After suit was filed, the District Court dismissed the TILA claim and RESPA (Real Estate Settlement Practices Act) claims, respectively, for failure to plead tender and as beyond the statute of limitations.

On appeal, the Ninth Circuit reversed. The district court erred extending Yamamoto v. Bank of New York (329 F.3d 1167) to require plaintiffs to plead the ability of tender. Although TILA allows the court discretion to modify rescission procedures, the exercise thereof must be warranted under the circumstances. Yamamoto’s decision occurred at summary judgment, where more evidence was available to determine whether to condition rescission on tender. The Court held that the statutory scheme may be changed only at summary judgment, as determined in a case-by-case basis, after the creditor establishes a viable defense. TILA does not require the plaintiff to plead tender or the ability to tender.

The Court also held that RESPA §8 claims are subject to equitable tolling. The Merritt’s alleged two claims: Countrywide violated §8(b) by passing on third party service charges substantially marked up, and violated §8(a) by referring the appraisal in exchange for an inflated value. The Court declined to decide the §8(b) claim because it involved complicated first impression issues of administrative law and statutory interpretation. The court also declined to hold that an inflated appraisal constituted a “thing of value” under §8(a). However, the Court stated the double negative, declining to hold an inflated value as not a “thing of value”. Altogether the court found equitable tolling to apply to claims under RESPA; the language of the statute, location of the rule in the statute, and historical treatment all favored equitable tolling similar to the provision in TILA. Under RESPA, the applicable limitations period begins when the borrower discovers or had reasonable opportunity to discover the violation.

The Court remanded with the recommendation that the district court permit substantial amendment.