Financial Freedom Acquisition, LLC v. Standard Bank and Trust Co. ( 2014 )

Illinois Official Reports
Appellate Court
Financial Freedom Acquisition, LLC v. Standard Bank & Trust Co.,
2014 IL App (1st) 120982
Appellate Court FINANCIAL FREEDOM ACQUISITION, LLC, Plaintiff-Appellee,
Caption v. STANDARD BANK AND TRUST COMPANY, as Trustee u/t/a
Dated March 18, 1991, a/k/a Trust No. 5193, Defendant-Appellant
(Unknown Beneficiaries of Standard Bank and Trust Company u/t/a
Dated March 18, 1991, a/k/a Trust No. 5193, Lawncastle Cove
Condominium Association, United States of America–Secretary of
Housing and Urban Development, Unknown Owners and Nonrecord
Claimants, Defendants).
District & No. First District, Sixth Division
Docket No. 1-12-0982
Filed June 13, 2014
Held In a mortgage foreclosure action, the counterclaim filed by defendant
(Note: This syllabus trustee, as the owner of the property, alleging violations of the Truth in
constitutes no part of the Lending Act by the mortgagee and seeking damages and rescission of
opinion of the court but the transaction was properly dismissed, since the Act only allows
has been prepared by the obligors to seek rescission of a consumer credit transaction, the
Reporter of Decisions exculpatory clause the trustee executed precluded the trustee from
for the convenience of being an obligor with the right to seek rescission, and the trustee’s
the reader.) right to statutory damages was forfeited when it failed to raise the
issue on appeal.
Decision Under Appeal from the Circuit Court of Cook County, No. 10-CH-44740; the
Review Hon. Robert E. Senechalle, Jr., Judge, presiding.
Judgment Affirmed.
Counsel on John K. Wheeler, of Wheeler & Wheeler, of Westmont, for appellant.
Appeal
Louis J. Manetti, Jr., of Codilis & Associates, P.C., of Burr Ridge, for
appellee.
Panel JUSTICE REYES delivered the judgment of the court, with opinion.
Justice Lampkin concurred in the judgment and opinion.
Justice Gordon dissented, with opinion.
OPINION
¶1 This appeal arises from a mortgage foreclosure action filed by plaintiff, Financial
Freedom Acquisition, LLC (Financial Freedom), against defendant, Standard Bank and Trust
Company, as trustee u/t/a dated March 18, 1991, a/k/a Trust No. 5193 (Standard Bank).
Thereafter, Standard Bank filed a counterclaim against Financial Freedom alleging violations
of the Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (2006)). The counterclaim
sought damages as well as rescission of the loan transaction. Financial Freedom filed a
motion to dismiss the counterclaim pursuant to section 2-619.1 of the Code of Civil
Procedure (Code) (735 ILCS 5/2-619.1 (West 2010)). Standard Bank now appeals from an
order of the circuit court of Cook County granting Financial Freedom’s motion to dismiss the
counterclaim. Standard Bank contends on appeal the circuit court erred because it did not
consider: (1) a land trust is a “natural person” under TILA; (2) it timely exercised its right to
rescission; and (3) it has a contractual right to rescind the loan. For the reasons that follow,
we affirm the decision of the circuit court.
¶2 BACKGROUND
¶3 On October 14, 2010, Financial Freedom filed a complaint to foreclose the mortgage on
10420 S. Circle Drive, Unit No. 21B, in Oak Lawn, Illinois (the property), against Standard
Bank, a land trust and current owner of the property.1 Financial Freedom alleged the original
lender was Marquette National Bank. Subsequently, Marquette National Bank transferred its
interest to Financial Freedom.2 Financial Freedom complained the mortgage was in default
1
Unknown beneficiaries of Standard Bank and Trust Company, Lawncastle Cove Condominium
Association, United States of America–Secretary of Housing and Urban Development, and unknown
owners and nonrecord claimants were named as defendants in the underlying foreclosure suit, but they
are not parties on this appeal.
2
The record on appeal did not contain an assignment from Marquette National Bank to Financial
Freedom. The parties, however, do not contest this assignment occurred.
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due to the death of the borrower, Mary Jane Muraida, which occurred on May 20, 2010.
Financial Freedom further alleged the amount due was $38,269.15.
¶4 Attached to the complaint were copies of the mortgage and note. The mortgage at issue
was an adjustable rate home equity conversion mortgage, a type of reverse mortgage insured
by the federal government through the Secretary of Housing and Urban Development. The
mortgage provided the mortgagor was Standard Bank. In exchange for an amount up to
$237,000, Marquette National Bank was given a security interest in the property. Standard
Bank was the sole signatory on the mortgage.
¶5 The mortgage contained an exculpatory clause executed by Standard Bank. The
exculpatory clause provided in full:
“This MORTGAGE is executed by STANDARD BANK & TRUST COMPANY,
not personally but as Trustee as aforesaid in the exercise of the power and authority
conferred upon and vested in it as such Trustee (and said STANDARD BANK &
TRUST COMPANY, hereby warrants that it possesses full power and authority to
execute this instrument), and it is expressly understood and agreed that nothing herein
or in said Note contained shall be construed as creating any liability on the said
Trustee or on said STANDARD BANK AND TRUST COMPANY personally to pay
the said Note or any interest that may accrue thereon, or any indebtedness accruing
hereunder, or to perform any covenant either express or implied herein contained, or
on account of any warranty or indemnification made hereunder, all such liability, if
any, being expressly waived by Mortgagee and by every person now or hereafter
claiming any right or security hereunder, and that so far as the Trustee and its
successors and said STANDARD BANK & TRUST COMPANY personally are
concerned, the legal holder or holders of said Note and the owner or owners of any
indebtedness accruing hereunder should look solely to the premises hereby conveyed
for the payment thereof, by the enforcement of the lien hereby created, in the manner
herein and in said Note provided or by action to enforce the personal liability of any
guarantor, if any.”
¶6 The note was executed on June 9, 2009, and signed by Muraida and Standard Bank. The
note provided Muraida would not be personally liable for the amounts due on the note;
instead the future sale of the property itself would be payment of the note. Sale of the
property through the lender would only occur upon Muraida’s death, if all of Muraida’s title
in the property were transferred, or if Muraida failed to use the property as her principal
residence for more than 12 consecutive months.
¶7 On July 19, 2011, Standard Bank, with leave of court, filed an answer to the complaint
and a counterclaim. Standard Bank asserted that it entered into a consumer credit transaction
with Financial Freedom’s predecessor in interest, Marquette National Bank. Standard Bank
alleged Financial Freedom failed to deliver material disclosures to Standard Bank as required
by TILA. Standard Bank also asserted Financial Freedom failed to respond to the notice of
rescission it sent on June 2, 2011, in violation of section 1635 of TILA. 15 U.S.C. § 1635
(2006).3 Standard Bank sought rescission of the loan, termination of the security interest,
3
The most recent published version of this statute which applies to this matter is from 2006. The
section of the statute cited and relied on in this opinion was not affected by any subsequent
supplemental amendments.
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statutory damages of $4,000 for the disclosure violations, statutory damages of $4,000 for
failure to respond to the rescission notice, return of the loan proceeds, and reasonable
attorney fees.
¶8 On August 9, 2011, Financial Freedom filed a combined motion under section 2-615 and
2-619 of the Code to dismiss Standard Bank’s counterclaim. 735 ILCS 5/2-619.1 (West
2010).
¶9 On November 2, 2011, OneWest Bank, FSB was allowed to substitute as party plaintiff.4
¶ 10 On January 5, 2012, the circuit court conducted a hearing and entered an order which
stated, “It is hereby ordered that Defendant Standard Bank and Trust Company, as Trustee
u/t/a dated 03-18-1991 a/k/a Trust No. 5193’s Counterclaim is dismissed with prejudice.”
The order did not indicate under which section of the Code the motion was granted.5
¶ 11 On February 12, 2012, Financial Freedom filed a motion to voluntarily dismiss the
foreclosure complaint. On March 2, 2012, the circuit court dismissed the foreclosure action
with prejudice.6 This appeal was timely filed on March 30, 2012. Accordingly, we have
jurisdiction pursuant to Illinois Supreme Court Rule 301 (eff. Feb. 1, 1994).
¶ 12 ANALYSIS
¶ 13 Standard Bank asserts three issues on appeal: (1) the circuit court erred in dismissing the
counterclaim because Standard Bank, as a land trust, has a right to rescind the consumer
credit transaction under TILA; (2) it timely exercised its right to rescind the loan; and (3) it
has a contractual right to rescind the transaction. Financial Freedom argues Standard Bank’s
counterclaim failed to state a cause of action under TILA, as it contains legal conclusions and
did not allege any facts which would establish it is entitled to rescission. Particularly,
Standard Bank cannot allege it is a consumer under TILA because Standard Bank is a land
trust and not a consumer. Financial Freedom further contends Standard Bank cannot allege
the property is its principal dwelling. Lastly, Financial Freedom asserts Standard Bank was
not a party to the loan transaction and therefore has no right to rescind.
¶ 14 Standard Bank’s counterclaim was dismissed pursuant to a motion brought under section
2-619.1 of the Code. 735 ILCS 5/2-619.1 (West 2010). This section permits section 2-615
and section 2-619 motions to be filed together as a single motion, but the combined motion
shall be divided into parts which are limited to and specify the single section of the Code
under which relief is sought. 735 ILCS 5/2-619.1 (West 2010). In this case, the circuit court
did not indicate under which section of the statute it was dismissing Standard Bank’s
counterclaim. Thus, we note a trial court may be affirmed on any basis that appears in the
record. Gunthorp v. Golan, 184 Ill. 2d 432, 438 (1998). Under either section 2-615 or 2-619,
4
The plaintiff will be referred to as Financial Freedom throughout this opinion for the purpose of
convenience due to the fact the notice of appeal lists Financial Freedom as the plaintiff-appellee.
5
No transcript of this proceeding was included in the record.
6
Neither plaintiff’s motion nor the order included a reason for the voluntary dismissal. As stated in
its brief on appeal, Financial Freedom received funds sufficient to pay off the loan on January 18, 2012.
Standard Bank then deeded its interest in the subject property to a third party, which was recorded on
January 26, 2012.
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our review is de novo. Mauvais-Jarvis v. Wong, 2013 IL App (1st) 120070, ¶ 64. De novo
consideration means we perform the same analysis that a trial court would perform. Khan v.
BDO Seidman, LLP, 408 Ill. App. 3d 564, 578 (2011).
¶ 15 A motion to dismiss pursuant to section 2-619 of the Code admits the legal sufficiency of
a plaintiff’s complaint but raises defects, defenses, or other affirmative matters appearing on
the face of the complaint or which are established by external submissions acting to defeat
the complaint’s allegations. 735 ILCS 5/2-619 (West 2010); Kedzie & 103rd Currency
Exchange, Inc. v. Hodge, 156 Ill. 2d 112, 115 (1993); Russell v. Kinney Contractors, Inc., 342
Ill. App. 3d 666, 670 (2003). In contrast, a motion to dismiss pursuant to section 2-615 of the
Code attacks the legal sufficiency of a complaint by alleging defects on the face of the
complaint. 735 ILCS 5/2-615 (West 2010); Vitro v. Mihelcic, 209 Ill. 2d 76, 81 (2004).
¶ 16 When ruling on a section 2-615 motion, the relevant question is whether, taking all
well-pleaded facts as true, the allegations in the complaint, construed in a light most
favorable to the plaintiff, are sufficient to state a cause of action upon which relief may be
granted. Canel v. Topinka, 212 Ill. 2d 311, 317 (2004). A motion to dismiss should not be
granted “unless it is clearly apparent that no set of facts can be proved that would entitle the
plaintiff to relief.” Tedrick v. Community Resource Center, Inc., 235 Ill. 2d 155, 161 (2009).
Illinois is a fact-pleading state; conclusions of law and conclusory allegations unsupported by
specific facts are not sufficient to survive dismissal. Anderson v. Vanden Dorpel, 172 Ill. 2d
399, 408 (1996). Section 2-616 of the Code provides that at any time before final judgment
amendments to pleadings may be allowed on just and reasonable terms. 735 ILCS 5/2-616
(West 2010). “Leave to amend should be granted unless it is apparent that, even after the
amendment, no cause of action can be stated.” Platinum Partners Value Arbitrage Fund, Ltd.
Partnership v. Chicago Board Options Exchange, 2012 IL App (1st) 112903, ¶ 30. Our
review will focus on the dismissal of Standard Bank’s counterclaim pursuant to section 2-615
of the Code.
¶ 17 I. Statutory and Regulatory Framework of TILA
¶ 18 In order to assess the sufficiency of Standard Bank’s TILA claim against Financial
Freedom, we must first examine the statutory and regulatory framework under which it
arises. The purpose behind the enactment of TILA was “to assure a meaningful disclosure of
credit terms so that the consumer will be able to compare more readily the various credit
terms available to him and avoid the uninformed use of credit, and to protect the consumer
against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601(a)
(2006); see Beach v. Ocwen Federal Bank, 523 U.S. 410, 412 (1998).
¶ 19 To aid in the understanding and application of TILA, the Federal Reserve Board was
vested with the power to implement regulations regarding TILA. U.S. Bank National Ass’n v.
Manzo, 2011 IL App (1st) 103115, ¶ 25. TILA’s implementing regulation is known as
Regulation Z. 12 C.F.R. § 226 et seq. (2006). “Regulation Z and the official staff
commentary are generally dispositive unless contrary to the express language of TILA or
otherwise irrational.” Manzo, 2011 IL App (1st) 103115, ¶ 27 (citing Household Credit
Services, Inc. v. Pfennig, 541 U.S. 232 (2004)).
¶ 20 “Under the Truth in Lending Act, 82 Stat. 146, 15 U.S.C. § 1601 et seq., when a loan
made in a consumer credit transaction is secured by the borrower’s principal dwelling, the
borrower may rescind the loan agreement if the lender fails to deliver certain forms or to
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disclose important terms accurately.” Beach, 523 U.S. at 411 (citing 15 U.S.C. § 1635
(1994)). TILA requires creditors to provide borrowers with “clear and accurate disclosures of
terms dealing with things like finance charges, annual percentage rates of interest, and the
borrower’s rights.” Beach, 523 U.S. at 412 (citing 15 U.S.C. §§ 1631, 1632, 1635, 1638
(1994)). Failure by the lender to deliver these disclosures permits an obligor to rescind the
loan transaction. 15 U.S.C. § 1635(a) (2006). TILA provides two types of remedies for
violations of the statute: (1) rescission; and (2) damages. 15 U.S.C. §§ 1635, 1640 (2006).
For the reasons which follow, under no set of facts can Standard Bank assert a claim of
rescission under TILA. As to statutory damages, we find Standard Bank has forfeited the
argument.
¶ 21 II. Rescission
¶ 22 Standard Bank’s counterclaim seeks rescission of the June 9, 2009, loan transaction.
TILA includes guidelines with respect to the method of rescission. Section 1635(a) provides
“the obligor shall have the right to rescind *** by notifying the creditor, in accordance with
regulations of the Board, of his intention to do so.” 15 U.S.C. § 1635(a) (2006). The obligor
has three business days following the consummation of the transaction to rescind the loan
“until midnight of the third business day 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, by notifying the creditor, in accordance with regulations of the Board, of his intention
to do so.” 15 U.S.C. § 1635(a) (2006). However, if the obligor is not provided the required
disclosures, with exceptions not relevant here, “An obligor’s 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 ***.” 15 U.S.C. § 1635(f) (2006).
¶ 23 Standard Bank contends its filing was timely, as it did not receive disclosures and
therefore it is allowed to file its counterclaim within three years of the consummation of the
loan transaction. Standard Bank’s counterclaim was filed on July 19, 2011, more than three
days but less than three years from the consummation of the loan transaction and, therefore,
was timely.
¶ 24 Although the counterclaim was timely filed, Standard Bank is not entitled to rescind the
loan transaction because it is not an “obligor.” Neither TILA nor Regulation Z defines
“obligor.” Black’s Law Dictionary defines “obligor” as “[o]ne who has undertaken an
obligation; a promisor or debtor.” Black’s Law Dictionary 1181 (9th ed. 2009). “The right to
rescind may be exercised only by the obligor, i.e. the person to whom credit is extended.
[Citation.] Thus, an individual who is not named on the Note executed by his or her spouse is
not an ‘obligor’ and does not have a right to rescind.” (Emphasis added.) Ferreira v.
Mortgage Electronic Registration Systems, Inc., 794 F. Supp. 2d 297, 302-03 (D. Mass.
2011).
¶ 25 In Barash v. Gale Employees Credit Union, 659 F.2d 765 (7th Cir. 1981), the court
considered a guarantor on the note to be an obligor for the purposes of TILA. In that case, the
husband sought to borrow money from the defendant credit union. To obtain the loan, the
wife signed as guarantor on the note and executed a wage assignment in favor of the
defendant. The court stated the wife undertook “substantial obligations” to the defendant and
allowed her to recover statutory damages. Id. at 766. To hold otherwise, the court concluded,
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“would be to countenance a practice under which a creditor would be the beneficiary of
substantial, albeit contingent, obligations running from a guarantor, but would be free of any
reciprocal responsibilities whatever.” Id.
¶ 26 In this case, both Muraida and Standard Bank signed the note. Standard Bank, however,
executed an exculpatory clause expressly disclaiming:
“any liability on the said Trustee or on said STANDARD BANK AND TRUST
COMPANY personally to pay the said Note or any interest that may accrue thereon,
or any indebtedness accruing hereunder, or to perform any covenant either express or
implied herein contained, or on account of any warranty or indemnification made
hereunder, all such liability, if any, being expressly waived by Mortgagee and by
every person now or hereafter claiming any right or security hereunder ***.”
In executing this document, Standard Bank retained no obligation under the note. This
complete disclaimer of all liability left Standard Bank “free of any reciprocal responsibilities
whatever” and thus with no obligations under the loan documents. Barash, 659 F.2d at 766.
Further, the record is devoid of any evidence Standard Bank received a benefit from the loan
transaction. See Aurora Firefighter’s Credit Union v. Harvey, 163 Ill. App. 3d 915, 920
(1987). Standard Bank’s disclaimer of all liability left Muraida as the only obligor. Because
TILA only provides the right of rescission to the obligor of the consumer credit transaction,
Standard Bank does not have a right to rescind the loan transaction. 15 U.S.C. § 1635(a)
(2006).7 Consequently, there are no set of facts Standard Bank can assert which would state
a claim for rescission pursuant to TILA.
¶ 27 III. Statutory Damages
¶ 28 Standard Bank’s counterclaim also requests statutory damages pursuant to section 1640
of TILA. 15 U.S.C. § 1640 (2006). Financial Freedom contends Standard Bank forfeited this
argument by not raising it on appeal. Illinois Supreme Court Rule 341(h)(7) (eff. Feb. 6,
2013) states in relevant part, “Points not argued are waived and shall not be raised in the
reply brief, in oral argument, or on petition for rehearing.” Due to Standard Bank’s failure to
7
We note Regulation Z states, a “consumer whose ownership interest is or will be subject to the
security interest shall have the right to rescind the transaction.” 12 C.F.R. § 226.23 (2006). Courts have
found this use of the word “consumer” in Regulation Z, instead of the word “obligor,” irrational in the
context of a right to rescission. In re Smith-Pena, 484 B.R. 512, 528 (Bankr. D. Mass. 2013).
“Congress’s use of the term ‘obligor’ and the legislative history relating to the rescission provision
evidence a clear intent to protect the interests of consumers who incur an obligation with respect to the
credit transaction. [Citation.] Even if Congress’s failure to define ‘obligor’ could be taken as an
invitation to fill a legislative gap [citation], the Board’s use of the term ‘consumer’ in 12 C.F.R.
§ 226.23 is manifestly contrary to U.S.C. § 1635. *** Regulation Z predicates a person’s right to
rescind on whether he or she has an ownership interest in the property subject to the security interest.
Moreover, it excludes ‘obligors’ who have not encumbered their ownership interest. To the extent 12
C.F.R. § 226.23(a) grants a right of rescission to a person who incurred no obligations on the
transaction, it is an irrational construction of 15 U.S.C. § 1635(a) that does not bind this court.”
Smith-Pena, 484 B.R. at 528.
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raise the issue of statutory damages on appeal, we find the argument to be forfeited. 8
Berggren v. Hill, 401 Ill. App. 3d 475, 479 (2010).
¶ 29 We note the circuit court dismissed Standard Bank’s counterclaim with prejudice. Section
2-616 of the Code provides at any time before final judgment amendments to pleadings may
be allowed on just and reasonable terms. 735 ILCS 5/2-616 (West 2012). A cause of action
should not be dismissed pursuant to section 2-615 unless it is clearly apparent that no set of
facts can be alleged which would entitle the plaintiff to recovery. Tedrick, 235 Ill. 2d at 161.
In this case, Standard Bank cannot allege a cause of action for rescission as it is not an
obligor on the loan. For these reasons, we affirm the decision of the circuit court dismissing
the counterclaim with prejudice.
¶ 30 CONCLUSION
¶ 31 Accordingly, the decision of the circuit court granting Financial Freedom’s motion to
dismiss with prejudice is affirmed.
¶ 32 Affirmed.
¶ 33 JUSTICE GORDON, dissenting.
¶ 34 I must dissent because Standard Bank has alleged sufficient facts to support each element
required in its claim for rescission.
¶ 35 As the majority observes, when ruling on a section 2-615 motion to dismiss, we must
accept all well-pleaded facts as true and must construe them in the light most favorable to the
claimant. Supra ¶ 16 (citing Canel v. Topinka, 212 Ill. 2d 311, 317 (2004)).
¶ 36 To assert a claim for rescission under the TILA, Standard Bank must allege that, (1) “in
the case of any consumer credit transaction,” (2) “a security interest *** is or will be retained
or acquired in any property” and (3) the property “is used as the principal dwelling of the
person to whom credit is extended.” 15 U.S.C. § 1635(a) (2006).9 These three elements are
taken straight from the language of the statute which provides in relevant part:
“Except as otherwise provided in this section, [(1)] in the case of any consumer
credit transaction (including opening or increasing the credit limit for an open end
credit plan) in which [(2)] a security interest, including any such interest arising by
operation of law, is or will be retained or acquired in any property which is used as
8
Despite Standard Bank’s forfeiture, we note in passing the claim for damages is potentially barred
by the statute of limitations in TILA. See Carthan-Ragland v. Standard Bank & Trust Co., 897 F. Supp.
2d 706, 713 (N.D. Ill. 2012). Section 1640(e) requires a borrower to assert a claim for damages within
one year from the date of the occurrence of the violation. 15 U.S.C. § 1640(e) (2006). In the present
case, the alleged violation occurred on June 9, 2009, when the disclosure statements were not delivered.
The counterclaim was filed July 19, 2011. Because the counterclaim was filed more than one year after
the alleged violation Standard Bank’s claim is potentially barred by TILA’s statute of limitations. See
id.
9
The reverse mortgage at issue in this case was entered into on July 9, 2009, and defendant claims
that it was this event that triggered its right to notice. Thus, I cite the statutes and regulations in effect on
that date.
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[(3)] the principal dwelling of the person to whom credit is extended, the obligor shall
have the right to rescind the transaction ***.” (Emphases added.) 15 U.S.C. § 1635(a)
(2006).
¶ 37 When interpreting a statute, we turn first and foremost to the plain language of the statute
itself. People v. Chapman, 2012 IL 111896, ¶ 23. When the language is clear, we apply it as
written. Chapman, 2012 IL 111896, ¶ 23.
¶ 38 First, while Standard Bank must allege that it is acting “in the case of any consumer
credit transaction” (15 U.S.C. § 1635(a) (2006)), that is different from requiring it to show
that it is the consumer in the transaction. The statute expressly states that the word
“consumer” is used as an adjective to describe the type of credit transaction to which the
TILA applies, and there is no dispute that the case at bar involves a reverse mortgage or that
a reverse mortgage is a type of “consumer credit transaction” to which the TILA applies. 15
U.S.C. § 1602(h) (2006) (“The adjective ‘consumer’, used with reference to a credit
transaction, characterizes the transaction ***.”). Thus, under the plain language of the
statute, Standard Bank has alleged the first element.
¶ 39 Second, Standard Bank alleges that a “security interest” was “retained or acquired” in the
property. 15 U.S.C. § 1635(a) (2006). The term “security interest” is used as part of the
definition of a reverse mortgage transaction: “The term ‘reverse mortgage transaction’ means
a nonrecourse transaction in which a mortgage, deed of trust, or equivalent consensual
security interest is created against the consumer’s principal place of dwelling ***.” 15 U.S.C.
§ 1602(bb) (2006). As part of its counterclaim, Standard Bank attached a copy of the
mortgage which showed the security interest, so the second element is satisfied.
¶ 40 Third, while Standard Bank must allege that the property in which the security interest is
retained “is used as the principal dwelling of the person to whom credit is extended” (15
U.S.C. § 1635(a) (2006)), that is different from requiring it to show that this property is “the
principal dwelling of the obligor.” If the drafters had meant to state “the principal dwelling of
the obligor,” then they could have stated that instead of “the principal dwelling of the person
to whom credit is extended.” The statute uses the word “obligor” to describe the entity that
has the right to rescind, and the words “the person to whom credit is extended” to denote the
consumer who lives in the dwelling as his or her principal dwelling place. Id. The use of two
very different terms indicates–contrary to the majority’s assumption–that these terms are not
interchangeable. People v. Chapman, 2013 IL 113510, ¶ 23 (a statute should be construed so
that no word is rendered meaningless or superfluous). Thus, under the plain language of the
statute, Standard Bank has alleged the third element. Since Standard Bank has alleged all
three elements, I must respectfully dissent.
¶ 41 Although all three elements are satisfied, the majority denies Standard Bank’s claim on
the ground that it is not an obligor as that term is used in the statute. Supra ¶ 24. As discussed
in the last paragraph, the statute uses different terms to refer to the obligor and to the
consumer, thus indicating that they are separate entities. Cf. In re Smith-Pena, 484 B.R. 512,
525 (Bankr. E.D. Mass. 2013) (rejecting the argument that the word “consumer” was “the de
facto definition of ‘obligor,’ ” the court found the word “ ‘obligor’ to differ from consumer”).
The statute states that, in a consumer credit transaction where a security interest is retained
“in any property which is used as the principal dwelling of the person to whom credit is
extended, the obligor shall have the right to rescind.” (Emphasis added.) 15 U.S.C. § 1635(a)
(2006). In this sentence, the statute juxtaposes the term “the person to whom credit is
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extended” against the term “the obligor,” indicating that they are completely separate and
different terms.
¶ 42 Nonetheless, the majority concludes that the “obligor” is the consumer. Supra ¶ 26 (the
consumer is “the only obligor”). However, this is a reverse mortgage. The consumer does not
pay anything to the bank; it is the bank that has an obligation to the consumer. After the
mortgage is triggered, then the consumer certainly has no obligation. At that point, the
consumer cannot be obliged to do anything, at least not by a court of law.
¶ 43 For these reasons, I would find that Standard Bank has alleged sufficient facts to survive
a dismissal motion under the express language of the TILA, and I must respectfully dissent.
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