Gaydos v. Ocwen ( 2017 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT
PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
SHAWN MICHAEL GAYDOS, Plaintiff/Appellant,
v.
OCWEN LOAN SERVICING, LLC, Defendant/Appellee.
No. 1 CA-CV 16-0072
FILED 3-23-2017
Appeal from the Superior Court in Maricopa County
No. CV2015-009162
The Honorable Joshua D. Rogers, Judge
AFFIRMED
COUNSEL
Shawn Michael Gaydos, Phoenix
Plaintiff/Appellant
McCarthy Holthus & Levine PC, Scottsdale
By Paul M. Levine
Counsel for Defendant/Appellee
GAYDOS v. OCWEN
Decision of the Court
MEMORANDUM DECISION
Judge Patricia K. Norris delivered the decision of the Court, in which
Presiding Judge Kenton D. Jones and Judge Paul J. McMurdie joined.
N O R R I S, Judge:
¶1 Shawn Michael Gaydos appeals the superior court’s
judgment dismissing his claims for rescission and quiet title against Ocwen
Loan Servicing, LLC. Because Gaydos grounded both claims on an
argument that he had rescinded a loan modification agreement under the
federal Truth in Lending Act—when he had not—we affirm the superior
court’s judgment in Ocwen’s favor.
FACTS AND PROCEDURAL BACKGROUND1
¶2 In 2005, Gaydos obtained a loan from Downey Savings and
Loan Association, F.A. The loan was evidenced by a promissory note
secured by a deed of trust encumbering real property in Phoenix, Arizona.
¶3 In 2012, Gaydos entered into a Loan Modification Agreement
with Ocwen, the servicer of the loan. In 2015, Gaydos notified Ocwen of his
“official election to rescind” the Loan Modification Agreement pursuant to
the Truth in Lending Act (“TILA”). See 15 U.S.C.A. § 1635(a) (West 2011).
Despite his election to rescind, Ocwen neither returned to Gaydos any
“money or property” it had received from him nor terminated its security
interest in the property.2 See 15 U.S.C.A. § 1635(b).
¶4 Subsequently, Gaydos sued Ocwen, alleging claims for
rescission and quiet title. Both claims rested on Gaydos’s allegation that he
1We assume the truth of, and indulge all reasonable inferences
from, the well-pled factual allegations. Cullen v. Auto-Owners Ins. Co., 218
Ariz. 417, 419, ¶ 7, 189 P.3d 344, 347 (2008) (citation omitted).
2“[R]escissiontriggers an unwinding process.” Paatalo v.
JPMorgan Chase Bank, 146 F. Supp. 3d 1239, 1243 (D. Or. 2015) (discussing
15 U.S.C.A. § 1635(b)).
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GAYDOS v. OCWEN
Decision of the Court
had rescinded the Loan Modification Agreement under the TILA. Ocwen
moved to dismiss Gaydos’s complaint, and argued Gaydos had no right to
rescind under the TILA. The superior court granted Ocwen’s motion.
DISCUSSION
I. TILA Rescission—General Principles
¶5 The broad purpose of the TILA is to promote “the informed
use of credit by assuring meaningful disclosure of credit terms to
consumers.”3 Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559, 100 S. Ct.
790, 794, 63 L. Ed. 2d 22 (1980) (quotations and citations omitted); see also
Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 235, 124 S. Ct. 1741, 1744,
158 L. Ed. 2d 1741 (2004). “TILA . . . does not substantively regulate
consumer credit but rather requires disclosure of certain terms and
conditions of credit before consummation of a consumer credit
transaction.”4 Hauk v. JPMorgan Chase Bank USA, 552 F.3d 1114, 1120 (9th
Cir. 2009) (quotations and citations omitted).
¶6 A borrower may rescind a transaction under the TILA
unconditionally within three business days “following the consummation
of the transaction or the delivery of the information and rescission forms
required under this section together with a statement containing the
material disclosures required under this subchapter, whichever is later [.]”5
15 U.S.C.A. § 1635(a); see also Jesinoski v. Countrywide Home Loans, Inc., __
3The adjective “consumer” characterizes a credit transaction
“as one in which the party to whom credit is offered or extended is a natural
person, and the money, property, or services which are the subject of the
transaction are primarily for personal, family, or household purposes.” 15
U.S.C.A. § 1602(i) (West 2010); see also 12 C.F.R. § 226.2(a)(12) (West 2011).
4TILA requires a lender to provide a borrower “with clear and
accurate disclosures of terms dealing with things like finance charges,
annual percentage rates of interest, and the borrower’s rights.” Beach v.
Ocwen Fed. Bank, 523 U.S. 410, 412, 118 S. Ct. 1408, 1410, 140 L. Ed. 2d 566
(1998); see also 12 C.F.R. § 226.23(a)(3) n. 48 (West 2009) (defining “material
disclosures”).
5“Consummation means the time that a consumer becomes
contractually obligated on a credit transaction.” 12 C.F.R. § 226.2(a)(13).
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U.S. __, 135 S. Ct. 790, 792, 190 L. Ed. 2d 650 (2015); Paatalo v. JPMorgan Chase
Bank, 146 F. Supp. 3d 1239, 1243 (D. Or. 2015). This right to rescind,
however, does not last indefinitely. Even if a lender never makes the
required disclosures, the “right of rescission shall expire three years after
the date of consummation of the transaction or upon the sale of the
property, whichever [occurs] first.” Jesinoski __ at __, 135 S. Ct. at 792 (citing
15 U.S.C.A. § 1635(f)); see also Paatalo, 146 F. Supp. 3d at 1243; Kelley v.
Mortg. Elec. Registration Sys., Inc., 642 F. Supp. 2d 1048, 1059 (N.D. Cal. 2009)
(citing 12 C.F.R. § 226.23(a)(3)).
¶7 A right of rescission does not extend, however, to, as relevant
here, (i) “a residential mortgage transaction,”6 or (ii) “a transaction which
constitutes a refinancing or consolidation (with no new advances) of the
principal balance then due and any accrued and unpaid finance charges of
an existing extension of credit by the same creditor secured by an interest
in the same property.” 15 U.S.C.A. § 1635(e)(1), (2).
II. Gaydos’s Rescission Claim
¶8 Although Gaydos conceded in the superior court that he
could not have rescinded the 2005 loan transaction because it constituted a
residential mortgage transaction, see 15 U.S.C.A. § 1635(e)(1), he argues on
appeal, as he did in the superior court, that he had a right to rescind the
Loan Modification Agreement under the TILA. Because his argument rests
on applying the TILA as a matter of law, we exercise de novo review.
Coleman v. City of Mesa, 230 Ariz. 352, 355, ¶ 7, 284 P.3d 863, 866 (2012). We
reject this argument.
¶9 Although a loan refinancing of a residential mortgage by a
different creditor, rather than the original creditor, can create new
disclosure requirements and a right of rescission, see 15 U.S.C.A. §
1635(e)(2), the new obligation must also completely satisfy and replace the
old obligation. See 12 C.F.R. § 226.20(a) (West 2013); 12 C.F.R. § 226.20(a)
Supp I (West 2011). “Thus, mere changes to the terms of an existing
obligation do not give rise to a right of rescission unless accomplished by
the cancellation of that obligation and the substitution of a new obligation.”
6A residential mortgage transaction is “a transaction in which
a . . . deed of trust . . . is created or retained against the consumer’s dwelling
to finance the acquisition or initial construction of such dwelling.” 15
U.S.C.A. § 1602(x) (West 2010).
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Castrillo v. Am. Home Mortg. Servicing, Inc., 670 F. Supp. 2d 516, 527 (E.D. La.
2009) (quotation and citation omitted); see also In re Sheppard v. GMAC
Mortg. Corp., 299 B.R. 753, 763-64 (Bankr. E.D. Pa. 2003) (citing cases).
¶10 By its terms, the Loan Modification Agreement did not
satisfy the 2005 loan or replace it with a new obligation; it merely modified
an existing obligation and amended certain payment terms.7 Therefore, the
Loan Modification Agreement did not give rise to disclosure requirements
or rescission rights under U.S.C.A. § 1635(a). Accordingly, the superior
court properly dismissed Gaydos’s rescission and his quiet title claims as
both claims were predicated on his argument he had rescinded the Loan
Modification Agreement.8
7The Modification Agreement provided:
[I agree that] all terms and provisions of the
Loan Documents, except as expressly modified
by this Agreement, remain in full force and
effect; nothing in this Agreement shall be
understood or construed to be a satisfaction or
release in whole or in part of the obligations
contained in the Loan Documents; and that
except as otherwise specifically provided in,
and as expressly modified by, this Agreement,
the Servicer and I will be bound by, and will
comply with, all of the terms and conditions of
the Loan Documents.
8Although the superior court did not dismiss Gaydos’s
complaint for this reason, we may affirm the superior court’s dismissal of
Gaydos’s complaint because 12 C.F.R. § 226.20(a) is dispositive. See Evenstad
v. State, 178 Ariz. 578, 582, 875 P.2d 811, 815 (App. 1993).
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CONCLUSION
¶11 For the foregoing reasons, we affirm. In our discretion, we
deny Ocwen’s request for attorneys’ fees pursuant to A.R.S. § 12-341.01
(2016). As the prevailing party on appeal, however, we award Ocwen its
costs on appeal contingent upon its compliance with Arizona Rule of Civil
Appellate Procedure 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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