Fuller v. Deutsche Bank National Trust Co. (In re Fuller)
- Summarized by Bruce Harwood , US Bankruptcy Court - District of New Hampshire
- 13 years 8 months ago
- Citation:
- 1st Circuit Court of Appeals, Docket No. 10-1642, April 21, 2011
- Tag(s):
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- Ruling:
- The First Circuit (1) holds untimely the Debtors' request (first made in a motion to reconsider) to certify questions construing a Massachusetts consumer loan rescission statute to the Massachusetts Supreme Judicial Court; and (2) rules that certain documentary deficiencies in rescission disclosures in a residential mortgage transaction were not fatal to the disclosures' adequacy. Echoing both courts below, the First Circuit held that the Massachusetts Consumer Credit Cost Disclosure Act was sufficiently patterned upon and congruous with the federal Truth in Lending Act that the two statutes should be construed similarly, and that federal court opinions under TILA provided sufficient guidance to obviate any need to certify questions concerning the deficiencies and discrepancies concerning the Debtors’ rescission rights under Massachusetts law. The Court also found flaw in the timeliness of the Debtors’ certification request, noting that the “Fullers chose the federal forum and waited until they lost before asking for certification. This is almost always fatal unless the court sees strong policy reasons to insist on certification itself, which is not the case here.” [Editor’s note: compare Hundley v. Marsh (In re Hundley), 603 F.3d 95 (1st Cir. 2010)(granting request to certify questions to Massachusetts Supreme Judicial Court concerning allocation of debtor and non-debtor spouses’ respective interests in federal income tax refund on jointly filed tax returns).]
On the merits of the adequacy of the rescission disclosures in the loan documents, the First Circuit reaffirmed its standard of objective reasonableness from the standpoint of a hypothetical average consumer. Under that standard, the Court found it unnecessary to reconcile the stark conflicts in the parties’ versions of the closing documents. Following its own precedent, including its recent ruling in Melfi v. WMC Mortgage Corp., 568 F. 3d 309 (1st Cir. 2009), cert. denied 130 S. Ct. 1058 (2010), the Court ruled that even under the Debtors’ version of the facts, the information contained in the loan documents gave the Debtors effective notice of the three-day period after the August 12, 2003 closing in which they were required to exercise their right of rescission, if at all. In so doing, it further distinguished itself from cases in three other circuits (catalogued by Judge Rosenthal in the Bankruptcy Court’s summary judgment opinion) which hold that strict compliance with the disclosure requirements under TILA is mandated. See In re Porter, 961 F.3d 1066 (3rd Cir. 1992); Semar v. Platte Valley Fed. Sav. & Loan Ass’n, 791 F.2d 699 (9th Cir. 1986); Williamson v. Lafferty, 698 F.3d 767 (5th Cir. 1983).
Although the Bankruptcy Court noted that the three-year limitations period for rescission claims under the Massachusetts statute is identical to the corollary three-year period under TILA, the Bankruptcy Court did not specifically address the limitations issue. The First Circuit did note that under some circumstances, a right of rescission can arise long after the three-day rescission period expires. 209 Mass. Code Regs 32.23(8)(a)(2) provides that in the event of an initiated foreclosure on a consumer’s principal dwelling securing a covered credit obligation, the consumer “shall have a right to rescind the transaction if . . . the creditor did not provide an [adequate] notice of rescission.” Since the notice given to the Debtors was found to be adequate, that separate right of rescission did not arise, and the Debtors were bound by the original three-day period that expired on August 15, 2003.
- Procedural context:
- Chapter 13 debtors sued mortgagee for rescission of residential mortgage under Massachussets corrollary of the federal Truth in Lending Act ("TILA"). Bankruptcy court granted sumamry judgment in favor of mortgagee and against debtors (cross-motions), and denied debtors' request to certify questions concerning construction of Massachusetts statute to Massachusetts Supreme Judicial Court. District court affirmed. Debtors appealed, and renewed request to certify questions to Massachusetts SJC.
- Facts:
- On April 11, 2008, shortly after they filed their joint chapter 13 petition in Massachusetts, the debtors commenced a related adversary proceeding to rescind the mortgage on their primary residence. The mortgage secured a refinancing loan which the debtors did not dispute had closed on August 12, 2003 (over four and a half years earlier). The loan had subsequently been assigned to Deutsche Bank National Trust Co, which had commenced foreclosure proceedings and rejected the debtors’ pre-petition rescission demand. Their complaint alleged that the original lender’s inadequate disclosure of their rescission rights at the time their loan was applied for and closed violated the Massachusetts Credit Cost Disclosure Act, which the trial and appellate courts found was closely patterned after TILA. The parties' produced strikingly different evidence of the loan documents containing the disclosures. The debtors introduced an unsigned copy of the rescission notice, on which the closing date was incorrectly stated as “8/11/03” and the rescission deadline of three business days later was left blank. The bank produced signed copies of the same notice, on which the incorrect “11” in the closing date was crossed out and replaced with the correct “12,” and the correct three-day rescission deadline of “8/15/03” was handwritten in the appropriate blank. The debtors denied any knowledge of how those corrections/insertions were made, and also claimed not to have received a separately required notice that their loan was a “high cost mortgage loan” at the time they applied for the loan. The bank produced duly signed copies of closing documents containing that disclosure, which the debtors claimed not to have remembered receiving, and claimed that a regulatory exception permitted that disclosure to occur at the closing, rather than in the loan application itself.
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