Anand v. O'Sullivan ( 2017 )

Circuit Court for Montgomery County
Case No. 413367V
REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 00818
September Term, 2016
CHANDRA ANAND, et al.
v.
LAURA H. G. O’SULLIVAN, et al.,
SUBSTITUTE TRUSTEES
Meredith,
Beachley,
Zarnoch, Robert A.
(Senior Judge, Specially Assigned),
JJ.
Opinion by Meredith, J.
Filed: August 30, 2017
In January 2007, Chandra and Renu Anand (the “Anands”), appellants, refinanced
the indebtedness they owed on their home by borrowing funds from Saxon Home Mortgage
(“Saxon”). Saxon advanced total funds of $729,100, of which $500,000 was evidenced by
a promissory note secured by a first lien deed of trust on the Anands’ property. Saxon
subsequently transferred the first lien deed of trust note to Deutsche Bank National Trust
Company (“Deutsche Bank”), as trustee for Saxon Asset Securities Trust 2007-2.
In August 2008, the Anands defaulted on their loans from Saxon. Following the
default, in an effort to avoid a foreclosure sale of their property, the Anands litigated in
several proceedings, including cases with Saxon, Deutsche Bank, the previous substitute
trustees, and the current substitute trustees, as well as other parties not involved in this
appeal. At various points during their efforts to avoid foreclosure, the Anands alleged that
they had rescinded their loans from Saxon pursuant to the federal Truth in Lending Act
(sometimes referred to as “TILA”), 15 U.S.C. § 1635, via letters mailed to Saxon on March
4, 2009, and August 19, 2009.
This appeal stems from an order to docket foreclosure of the first lien deed of trust,
filed in the Circuit Court for Montgomery County on December 30, 2015, by the current
substitute trustees (Laura H.G. O’Sullivan, Erin M. Shaffer, Diana C. Theologou, Chasity
Brown, Lauren Bush, and Rachel Kiefer, appellees). Prior to any sale, the Anands moved
to dismiss the foreclosure proceedings and sought injunctive relief to prevent further
foreclosure efforts, contending that their loans from Saxon had been rescinded in 2009, and
that the deed of trust lien was therefore void pursuant to the federal Truth in Lending Act.
On April 18, 2016, the circuit court denied the Anands’ motions, holding that their claims
of rescission were barred by the doctrine of res judicata, and there was no reason to stay
the foreclosure. The Anands moved for reconsideration of the circuit court’s order, and that
motion was denied on June 1, 2016. In the meantime, on May 27, 2016, the Anands filed
an ex parte motion for a temporary restraining order and a preliminary injunction to prevent
the foreclosure sale of their property during their appeal. On June 9, 2016, the circuit court
denied the Anands’ motion for a preliminary injunction during their appeal.
This appeal followed.
QUESTIONS PRESENTED
The Anands frame their questions for our review as follows in their brief:
Whether the Circuit Court committed errors of law and/or clearly
erroneous findings of fact in its denial of Defendant’s Motion to Dismiss,
Motion for Reconsideration of the same, and the Preliminary Injunction
aspects of the Ex Parte Motion for Injunctive Relief [and] for Preliminary
Injunction for the following reasons:
A. The alleged lender, through the Substitute Trustees, is not
entitled to enforce a lien previously rendered void by virtue
of Defendants having tendered a notice of rescission under
and pursuant to the Federal Truth in Lending Act and
Regulation Z and in accordance with Jesinoski v.
Countrywide Home Loans, Inc., 135 S.Ct. 790 (2015).
B. The doctrines of res judicata and/or collateral estoppel are
inapplicable so as to give preclusive effect to any argument
that the lien imposed by virtue of a Deed of Trust has been
rendered irremediably void.
Because we agree with the circuit court’s conclusion that the Anands’ present claims
relative to rescission are barred by the doctrine of res judicata, we affirm the judgments of
the Circuit Court for Montgomery County.
2
FACTUAL & PROCEDURAL BACKGROUND
On January 24, 1996, Chandra Anand acquired real property located at 19909
Knollcross Drive, Germantown, Maryland 20876 (the “Property”), for $308,600. On April
8, 1997, Chandra Anand conveyed his interest in the Property to himself and his wife, Renu
Anand, as tenants by the entireties. The Anands have held title to the Property as tenants
by the entireties since that time.
On January 24, 2007, the Anands refinanced the debt they owed on the Property by
borrowing $729,100 from Saxon Home Mortgage, evidenced, in part, by a $500,000
promissory note that was secured by a first lien deed of trust. As part of the refinancing
transaction, the Anands also entered into a second mortgage with Saxon in the amount of
$182,100, and received $47,000 cash. Only the first lien deed of trust is at issue in this
appeal. Saxon subsequently transferred the first lien deed of trust note to Deutsche Bank,
as trustee for Saxon Asset Securities Trust 2007-2.
In August 2008, the Anands defaulted on their loans.
On December 30, 2008, in an effort to have the lien on the Property adjudicated to
be unenforceable, the Anands filed suit in the Circuit Court for Montgomery County
against Deutsche Bank, Saxon, and the predecessor substitute trustees, asserting causes of
action for negligence, federal Truth in Lending Act violations, and mortgage fraud. On
January 20, 2009, while the Anands’ first suit was pending, the predecessor substitute
trustees initiated foreclosure proceedings against the Property by filing an order to docket
foreclosure pursuant to the first deed of trust.
3
On March 4, 2009, Chandra Anand mailed Saxon a document captioned “Actual
Notice to Rescind; Request for Accounting, Notice Pursuant to R.E.S.P.A.” In the notice
purporting to rescind the loans from Saxon, Mr. Anand asserted that he had not been
provided certain disclosures required under TILA and Regulation Z -- the regulations
promulgated pursuant to TILA -- and stated in part:
I have conducted a reasonable investigation and inquiry into this matter and
concluded that SAXON MORTGAGE, INC., the originator of this
transaction, provided one “acknowledge receipt of two copies of NOTICE
OF RIGHT TO CANCEL” and said document is patently false. . . . The
failure to provide all material disclosures correctly made as that term is
defined and under 15 U.S.C. § 1635(a); Reg. Z §§ 226.23(a) in a form that I
may keep subjects this transaction to the unconditional right to rescind within
three days which has not yet begun to run due to your failure to provide
accurate notices of my right to cancel.
On April 2, 2009, Saxon responded to Mr. Anand’s March 4 notice to rescind. Saxon
asserted that the notice did not constitute a “Qualified Written Request” under the Real
Estate Settlement Procedures Act, and that Saxon was not obligated to respond to the
notice. Nevertheless, Saxon responded to some of the requests made in Mr. Anand’s letter
for additional information, and also stated: “Our review of your account indicates that the
servicing of your mortgage loan has been entirely lawful and appropriate.” But Saxon’s
letter did not specifically address Mr. Anand’s allegation regarding Saxon’s failure to
provide the Anands with all required disclosures outlining their right to rescind their loans
under TILA.
On August 19, 2009, the Anands sent Saxon a second notice to rescind their loans.
In their second notice to rescind, the Anands did not expressly contend that Saxon’s failure
to supply the notices required by TILA provided the basis for rescinding their loans, as the
4
Anands had contended in their first notice to rescind. Rather, in their second notice to
rescind, the Anands asserted grounds not previously outlined in their first notice as the
basis for rescinding their loans from Saxon, stating in relevant part:
We hereby exercise our right to rescind the loan transaction in its entirety
under the three day rule, the three year limitation, and under the usury and
general claims theories and causes of action. By failing to disclose the true
lender and using subterfuge to hide the fact that the “lender” at closing was
paid to pose as the lender when in fact an undisclosed unregistered third party
had rented the charter or lending license of the “lender,[”] the limitation on
our rights to rescind was extended indefinitely. Under state and federal law,
the mortgage is now extinguished and your rights under the trustee deed have
terminated. We hereby rescind the above referenced loan and/or declare it to
be Null and Void and demand treble damages for the face value of the note,
on the grounds set forth below . . . .
(Bold emphasis and all-caps omitted.) The letter summarily set forth five “grounds” in
paragraphs labeled: 1. Appraisal Fraud; 2. Fraud in the inducement; 3. Fraud in the
execution; 4. Usury; and 5. PAYMENT.
On April 22, 2010, the circuit court granted a motion to dismiss the Anands’ first
suit against Deutsche Bank, Saxon, and the predecessor substitute trustees, with prejudice.
That judgment was not appealed by the Anands.
The Property was scheduled to be sold at auction on June 16, 2010. But, on June
10, 2010, the Anands filed a second suit against Deutsche Bank, Saxon, and the predecessor
substitute trustees, asserting negligence claims against Saxon, and mortgage fraud claims
against all the defendants, in addition to seeking declaratory and injunctive relief to prevent
the foreclosure sale of the Property. The Anands’ second suit did not include claims under
TILA or contend that the loans from Saxon had previously been rescinded.
5
On June 14, 2010, two days prior to the scheduled foreclosure sale of the Property,
Mr. Anand filed an ex parte motion for a temporary restraining order to prevent the
foreclosure sale. On June 15, 2010, the circuit court determined that it would treat the
motion as one for a preliminary injunction, and scheduled a hearing on the matter. As a
result, the foreclosure sale did not occur on June 16, 2010, as scheduled. Following a
hearing, during which Mr. Anand’s counsel conceded that, in the Amands’ second suit, the
claims against Saxon for negligence and mortgage fraud were barred by the dismissal with
prejudice of the Anands’ first suit, the court ruled that it would grant Saxon’s motion
requesting that Saxon be dismissed. Further, with respect to Deutsche Bank and the then
substitute trustees, the court ruled that “all of those matters which were or could have been
litigated in that case [i.e., the Anands’ first suit] are barred by the doctrine of res []judicata,
that is to say, claim preclusion in the words of the Restatement (Second) of Judgments.”
The court denied the motion for a preliminary injunction. Mr. Anand appealed the circuit
court’s denial of the motion.
On October 31, 2011, Renu Anand individually filed a voluntary petition for
bankruptcy under Chapter 7 of Title 11 of the United States Code. Ms. Anand’s bankruptcy
petition did not dispute the validity of the lien on the Property or assert that it had been
rescinded. As a result of Ms. Anand’s bankruptcy petition, however, the foreclosure
proceedings were dismissed by the predecessor substitute trustees.
On April 3, 2012, this Court filed an unreported opinion in which we affirmed the
circuit court’s denial of the Anands’ motion for a temporary restraining order and
preliminary injunction. See Chandra Anand v. Deutsche Bank National Trust Company,
6
etc., et al., No. 1871, Sept. Term 2010, slip op. at 11 (filed April 3, 2012) (hereinafter
referred to as “Chandra Anand I”). The Anands thereafter voluntarily dismissed their
second suit on February 13, 2013.
But, in February 2013, the Anands also filed a third suit in the Circuit Court for
Montgomery County regarding the Saxon loans. That suit eventually made its way to the
United States Court of Appeals for the Fourth Circuit, which described the procedural
history of that suit as follows:
In February 2013, the Anands brought a quiet title action in the Circuit
Court for Montgomery County, Maryland. They sought a declaration that
Ocwen [the loan servicer] and Deutsche Bank no longer [held] any interest
in their home, and an order requiring Ocwen and Deutsche Bank to release
their liens and barring them from foreclosing on the property. This relief was
justified, the Anands argued, because the alleged [mortgage] insurance
payments [that the Anands assumed had been paid to Deutsche Bank and
Ocwen] triggered the release provisions of the Deed of Trust, transferring
their home’s title back to [the Anands].
Invoking diversity jurisdiction, Deutsche Bank and Ocwen removed
the case to the United States District Court for the District of Maryland and
moved to dismiss the Anands’ complaint for failure to state a claim upon
which relief can be granted. 28 U.S.C. § 1332; Fed. R. Civ. Pro. 12(b)(6).
The district court granted the motion and dismissed the Anands’ complaint
with prejudice. This appeal followed.
Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195, 197 (4th Cir. 2014).
After the United States District Court dismissed the Anands’ complaint with
prejudice, id., the Anands appealed. On June 6, 2014, the Court of Appeals for the Fourth
Circuit affirmed the district court’s dismissal of the Anands’ quiet title action with
prejudice. Id. at 200.
7
In December 2015, Deutsche Bank appointed new substitute trustees (namely,
appellees Laura H.G. O’Sullivan, Erin M. Shaffer, Diana C. Theologou, Chasity Brown,
Lauren Bush, and Rachel Kiefer). On December 30, 2015, the newly appointed substitute
trustees filed yet another order to docket foreclosure in the Circuit Court for Montgomery
County, thereby initiating the case that led to the present appeal.
On February 25, 2016, the Anands filed a “Motion to Dismiss, For Injunctive Relief
and For Sanctions,” asking the court to dismiss the foreclosure action and issue an
injunction to prevent any further foreclosure attempts by the substitute trustees. In support
of their motion, the Anands contended that their loans from Saxon had been rescinded on
March 4, 2009, and/or August 19, 2009, and that a foreclosure could not occur on a
“nonexistent lien.” The Anands asserted: “Immediately upon notification unto Saxon of
their rescission of the subject loan, the lien imposed against the Property became null and
void and [the Anands] were not liable for any amount under and/or pursuant to the loan,
including any finance charge. 12 C.F.R. § 226.23(d)(1) (2006).” (Footnote omitted.)
On April 13, 2016, the circuit court denied the Anands’ motion. The circuit court
held that the Anands’ rescission arguments were precluded because the Anands had failed
to prevail upon these arguments pertaining to TILA and rescission in prior litigation in
which they had unsuccessfully challenged the validity of the first deed of trust lien on the
Property. The circuit court explained its holding as follows:
In assessing this case, the Court does think that the [Anands are] basically
asking for a windfall. The [Anands are] hoping to have the Court make a
decision that allows them to walk away with this property unless and until
[appellees come] after them to get their property back or for the money that
supposedly is on the table as a result of this rescission.
8
By my count, there have been four separate cases involving these
parties here in the Circuit Court, and that doesn’t count the case that took
place in Federal District Court. There have been two [sets of] substitute
trustees in this case, but the substitute trustees in these cases have all been
acting on behalf of Deutsche Bank, which is the lender in this particular case.
. . . While there’s Saxon named as the trustee for Deutsche Bank, and there
are several other defendants in this case, it still revolves around the lien or
the note that Deutsche Bank holds. And every single trustee in this matter
and in every single case, it’s revolved around this concept of the existence
of this lien and having the Anands be either paying for their property or
being eventually foreclosed upon.
So the Court will note that in every single one of these cases, the
Anands recognize the existence of this lien, and that holds true for the
cases that have taken place after their notice of rescission, which was in
March of 2009. And that’s also true in the bankruptcy case. They have
recognized that there was a lien and that Deutsche Bank was the holder of
the lien from Saxon or whomever.
So the Court does find that these are the same parties, these are
the same issues, again, the lender’s ability to hold the defendant[s] liable on
this lien for this property. Now, when I looked specifically at [Case No. CV]
306570V, which is one of the first cases -- it may even be the first case --
titled Chandra Anand versus . . . Deutsche Bank National Trust Company as
Trustee for Saxon Asset Securities. . . .
That case was dismissed with prejudice June 11th, 2010, which again,
was well after the March 2009 rescission notice. And that’s at Docket Entry
95, the dismissal with prejudice. . . .
[The Anands, in CV 306570V,] allege[d] in Count 2 that the
defendants are liable to the [Anands] for failure to give disclosures under
TILA. Again, assuming for the sake of argument that the [Anands were] not
given such disclosures, they are barred by the statute of limitations to claim
damages, that they have failed to properly rescind the loan, and the [Anands]
have failed to establish a factual predicate as to whether the cited sections of
regulation Z apply to [their] loans.
So there is a mention in the [CV 306570V] pleadings of rescission.
Fast forward to docket entry 69 [in CV 306570V], which is [the Anands’]
amended complaint. And I believe it could be like the third or fourth in [CV
306570V]. Number 9, [“]plaintiff’s rights, pursuant to these requirements of
9
the Maryland Commercial Code, the deed of trust lien that is a subject of this
dispute is unlawful and is voided by the failures, bre[a]ch, and fraud of the
defendant from the beginning. Defendant is estopped from enforcement of
said and invalid lien, voiding the security interest, and defendant’s petition
should be denied in this mortgage lien, counted null and void, and expunged
from the public land records.[ˮ]
So again, [the Anands have] asserted previously in these pleadings
that the lien was not valid, which again is what he’s saying here today.
And I didn’t go through the pleadings for all the other cases, but in this
particular case [CV 306570V], it was dismissed with prejudice, which is
a final judgment. And I’ll note that the federal case was dismissed with
prejudice. And I know that [the Anands’ attorney] argued that it was
specifically to quiet title, but within a pleading to quiet title, you’re basically
saying that the party that’s owed doesn’t have a right to have this lien. So
again, the idea of Deutsche [Bank] having a lien, being owed in some way
by the Anands, was challenged in Federal District Court, and it was
dismissed with prejudice in that case.
So with respect to [appellees’] argument of issue preclusion, I’m
going to agree with [appellees]. I think that one, it was brought up. The
issue of rescission was brought up in this initial pleading, and this case
went on for two years, [CV] 306570[V]. [The Anands] had the
opportunity at that time to show the rescission documentation that has
been brought forward here. That argument wasn’t made thoroughly at
that time, and now it’s, at least in this member of the bench’s opinion,
too late. So I am going to deny [the Anands’] motion with prejudice. [1]
(Emphasis added.)
1
We note that, in explaining its ruling, the circuit court said that the Anands’ claims
were barred by “issue” preclusion, which typically refers to collateral estoppel. See John
Crane, Inc. v. Puller, 169 Md. App. 1, 26 (2006). However, we infer from the overall
analysis in the circuit court’s oral opinion that the court was addressing the elements of res
judicata, sometimes referred to as “claim preclusion.” Indeed, at a follow-up hearing to
address the Anands’ request for an injunction pending appeal of the denial of the
preliminary injunction, counsel for the appellees said that the previous judge had “denied
the motion [for preliminary injunction] on the basis of res judicata.” In denying the
Anands’ request for an injunction pending appeal, the motion judge stated: “res judicata is
a big player in this analysis and that . . . is really what Judge Smith based her decision on
[in denying the preliminary injunction] . . . .”
10
The circuit court’s order was entered April 18, 2016. On April 25, 2016, the Anands
moved for reconsideration of the circuit court’s denial of their motion to dismiss and
request for injunctive relief. The circuit court denied the Anands’ motion for
reconsideration on June 1, 2016.
In the meantime, on May 27, 2016, the Anands filed a motion for a temporary
restraining order and a preliminary injunction to prevent the foreclosure sale of the Property
scheduled for June 1, 2016. On June 9, 2016, following a hearing, the circuit court denied
the Anands’ motion for an injunction pending an appeal. The motion judge commented
that it “would cause sheer havoc in the lending industry” if the Anands’ theory for avoiding
liability were to prevail.
On July 1, 2016, the Anands noted this appeal.2
DISCUSSION
A. Standard of Review
The Anands assert that, in denying their motion to dismiss the foreclosure action,
the circuit court committed errors of law by rejecting their arguments as to why the lien on
the Property is void, and by ruling that the Anands’ claim of rescission is barred by the
doctrine of res judicata. Appellees note, correctly, that the Court of Appeals said in
Anderson v. Burson, 424 Md. 232 (2011), that, when an appellate court reviews the grant
2
We note that the Anands’ appeal of the circuit court’s April 18, 2016, denial of
their motion to dismiss and for injunctive relief is timely because the Anands moved within
10 days to alter or amend that judgment on April 25, 2016, tolling the 30 day period for
noting an appeal under Maryland Rule 8-202. See Rule 8-202(c), and Committee note. The
motion for reconsideration was denied on June 1, 2016.
11
or denial of a motion pursuant to Maryland Rule 14-211 to stay a foreclosure action, the
appellate court reviews for abuse of discretion. The Anderson Court stated:
The grant or denial of injunctive relief in a property foreclosure action
lies generally within the sound discretion of the trial court. Therefore, we
review the trial court’s grant or denial of a foreclosure injunction for an abuse
of discretion. . . . We review the trial and intermediate appellate courts’
legal conclusions, however, nondeferentially.
Id. at 243 (emphasis added; citations omitted); accord Burson v. Capps, 440 Md. 328, 342
(2014).
Because a court does not have discretion to misapply the law, we review the circuit
court’s rulings of law nondeferentially, even when the rulings are made in the course of
deciding a discretionary matter. Wilson–X v. Department of Human Resources, 403 Md.
667, 675-76 (2008) (“trial judges do not have discretion to apply inappropriate legal
standards, even when making decisions that are regarded as discretionary in nature”);
Ehrlich v. Perez, 394 Md. 691, 708 (2006) (“[E]ven with respect to a discretionary matter,
a trial court must exercise its discretion in accordance with correct legal standards. We
review de novo a trial judge’s decision involving a purely legal question.” (Citations and
internal quotation marks omitted.)).
B. The Anands’ Right of Rescission under the Truth in Lending Act and
Regulation Z
The Anands contend that there is currently no valid lien against the Property because
they rescinded their loans from Saxon on March 4, 2009, and/or August 19, 2009, when
they mailed Saxon two separate notices purporting to rescind their loans. According to the
Anands, as soon as a notice of rescission was sent to Saxon, “the lien imposed against the
12
Property became null and void and [the Anands] were not liable for any amount under
and/or pursuant to the loan,” based upon language in 15 U.S.C. § 1635(b) and 12 C.F.R. §
226.23(d)(1). The TILA provision states, in part: “When an obligor exercises his right to
rescind under subsection (a) [of 15 U.S.C. § 1635], . . . any security interest given by the
obligor . . . becomes void upon such a rescission.” Similarly, Regulation Z states in 12
C.F.R. § 226.23(d)(1): “When a consumer rescinds a transaction, the security interest
giving rise to the right of rescission becomes void and the consumer shall not be liable for
any amount, including any finance charge.” The Anands also assert that “the three year
right of rescission under TILA and Regulation Z [was] effectuated solely upon [the
Anands’ mailing of] written notice to [Saxon in 2009] within the three year rescission
period,” and that, after mailing their notices of rescission, they were not required to take
any additional steps in order to effectuate rescission of their loans. Consequently, the
Anands contend, the lien of the first deed of trust became “irremediably void” the instant
they gave Saxon notice of rescission, and their claims in the present case cannot be barred
by res judicata because, according to the Anands, a “void lien” can be collaterally attacked
at any time.
Appellees respond that 15 U.S.C. § 1635(b) contemplates rescinding a loan
transaction and invalidating any security interest only “[w]hen an obligor exercises [the
obligor’s] right to rescind under subsection (a).” 15 U.S.C. § 1635(b) (emphasis added).
Appellees assert that, when a borrower simply sends a notice to rescind a loan without a
bona fide predicate basis or “right to rescind” the loan, the sending of such an unfounded
notice does not automatically and immediately invalidate the lien of a loan. And appellees
13
point out that, despite all of the litigation generated by the Anands’ efforts to avoid repaying
these loans, no court has ever found that the Anands had a legitimate factual basis to rescind
the loans.
One of the cases cited by appellees in support of their assertion that a lien does not
automatically become void whenever a borrower sends a notice of rescission, without
regard to whether the borrower had the right to rescind, is Yamamoto v. Bank of N.Y., 329
F.3d 1167 (9th Cir. 2003), in which the court recognized that the lender must have an
opportunity to contest a notice of rescission. The Yamamoto court stated, id. at 1170:
[H]ere, [the lender] contested the notice [of rescission] and produced
evidence sufficient to create a triable issue of fact about compliance with
TILA’s disclosure requirements. In these circumstances, it cannot be that the
security interest vanishes immediately upon the giving of notice. Otherwise,
a borrower could get out from under a secured loan simply by claiming TILA
violations, whether or not the lender had actually committed any. Rather,
under the statute and the regulation, the security interest “becomes void” only
when the consumer “rescinds” the transaction. In a contested case, this
happens when the right to rescind is determined in the borrower’s favor.
The Yamamoto court cited several cases in support of its view as to when a lien
becomes void under TILA, including Large v. Conseco Financing Corp., 292 F.3d 49 (1st
Cir. 2002), which also rejected a borrower’s claim that the lien automatically became void
when notice of rescission was sent to the lender. The court in Large stated, id. at 54-55:
Neither the statute nor the regulation establishes that a borrower’s
mere assertion of the right of rescission has the automatic effect of voiding
the contract. Section 1635(b) states that, “[w]hen an obligor exercises his
right to rescind,” the creditor’s security interest “becomes void.” The natural
reading of this language is that the security interest becomes void when the
obligor exercises a right to rescind that is available in the particular case,
either because the creditor acknowledges that the right of rescission is
available, or because the appropriate decision maker has so determined. If a
lender disputes a borrower’s purported right to rescind, the designated
14
decision maker—here an arbitrator—must decide whether the conditions for
rescission have been met. Until such decision is made, the [borrowers] have
only advanced a claim seeking rescission.
See also Sherzer v. Homestar Mortg. Services, 707 F.3d 255, 265 (3d Cir. 2013)
(concluding that the lien becomes automatically void, but only “when an obligor with a
valid TILA claim provides the lender with written notice”); Gilbert v. Residential Funding,
LLC, 678 F.3d 271, 277 (4th Cir. 2012) (“[U]nilateral notification of cancellation does not
automatically void the loan contract. [O]therwise, a borrower could get out from under a
secured loan simply by claiming TILA violations, whether or not the lender had actually
committed any.” (Internal quotation marks and citations omitted.)).
Appellees further argue that they were not required to “file a lawsuit to ‘negate’ the
rescission,” as the Anands assert appellees were required to do if they disputed the Anands’
right to rescind their loans. Appellees assert that the Anands never offered any evidence
that they were not provided the disclosures required by 12 C.F.R. § 226.23(b), or any
evidence that the disclosures Saxon provided to the Anands were deficient. Appellees
argue that, in any event, because of all of the litigation that the Anands have engaged in
regarding these loans before asserting the claims of rescission they raised in the present
case, the Anands’ rescission claims are barred by res judicata.
i. Brief Legal Background: The Truth in Lending Act and Regulation Z
Under TILA, a borrower may rescind a consumer loan transaction under certain
circumstances, as explained in 15 U.S.C. § 1635(b):
When an obligor exercises his right to rescind under subsection (a) [of 15
U.S.C. § 1635], he is not liable for any finance or other charge, and any
security interest given by the obligor, including any such interest arising by
15
operation of law, becomes void upon such a rescission. Within 20 days after
receipt of a notice of rescission, the creditor shall return to the obligor any
money or property given as earnest money, downpayment, or otherwise, and
shall take any action necessary or appropriate to reflect the termination of
any security interest created under the transaction. If the creditor has
delivered any property to the obligor, the obligor may retain possession of it.
Upon the performance of the creditor’s obligations under this section, the
obligor shall tender the property to the creditor, except that if return of the
property in kind would be impracticable or inequitable, the obligor shall
tender its reasonable value. Tender shall be made at the location of the
property or at the residence of the obligor, at the option of the obligor. If the
creditor does not take possession of the property within 20 days after tender
by the obligor, ownership of the property vests in the obligor without
obligation on his part to pay for it. The procedures prescribed by this
subsection shall apply except when otherwise ordered by a court.
Similarly, 12 C.F.R. § 226.23(a) provides details regarding a borrower’s right of
rescission:
(a) Consumer’s right to rescind.
(1) In a credit transaction in which a security interest is or will
be retained or acquired in a consumer’s principal dwelling,
each consumer whose ownership interest is or will be subject
to the security interest shall have the right to rescind the
transaction, except for transactions described in paragraph (f)
of this section.
(2) To exercise the right to rescind, the consumer shall notify
the creditor of the rescission by mail, telegram or other means
of written communication. Notice is considered given when
mailed, when filed for telegraphic transmission or, if sent by
other means, when delivered to the creditor’s designated place
of business.
(3) The consumer may exercise the right to rescind until
midnight of the third business day following consummation,
delivery of the notice required by paragraph (b) of this section,
or delivery of all material disclosures, whichever occurs last. If
the required notice or material disclosures are not delivered,
the right to rescind shall expire 3 years after consummation,
upon transfer of all of the consumer’s interest in the property,
16
or upon sale of the property, whichever occurs first. In the case
of certain administrative proceedings, the rescission period
shall be extended in accordance with section 125(f) of the Act.
(4) When more than one consumer in a transaction has the right
to rescind, the exercise of the right by one consumer shall be
effective as to all consumers.
12 C.F.R. § 226.23(a) (footnotes omitted).
Pursuant to the regulations promulgated under TILA, lenders are required to deliver
to borrowers two copies of a notice outlining the borrower’s right to rescind certain loans.
As the United States Court of Appeals for the Third Circuit has explained, “if the lender’s
notice is proper, the borrower’s right to rescind lasts for three days, but the rescission period
extends to three years if the required notice and material disclosures . . . are not delivered.”
In re Porter, 961 F.2d 1066, 1073 (3d Cir. 1992) (citing 12 C.F.R. § 226.23(a)(3) and 15
U.S.C. § 1635(f)); see also Cheche v. Wittstat Title & Escrow Co., LLC, 723 F. Supp. 2d
851, 855 (E.D. Va. 2010) (“If a creditor fails to comply with the notification requirement
contained in the TILA, the statute extends the debtors’ right to rescind from three days to
three years.”).
In Jesinoski v. Countrywide Home Loans, Inc., ___ U.S. ___, 135 S. Ct. 790 (2015),
the United States Supreme Court held that “rescission is effected when the borrower
notifies the creditor of his intention to rescind. It follows that, so long as the borrower
notifies [the creditor] within three years after the transaction is consummated, his rescission
is timely. The statute does not also require him to sue within three years.” Id. at 792.
The Anands contend that the Supreme Court’s holding in Jesinoski confirms that,
because they sent Saxon a notice of rescission within three years after closing on the
17
refinancing loans, they had unlimited time to rely upon rescission in any litigation with
their creditors, and they argue that Jesinoski supports their contention that, regardless of
whether they had a legitimate basis for rescission, the lien against the Property became
void as soon as they gave notice of their demand for rescission via the letters they sent in
2009. They support this argument by quoting 12 C.F.R. 226.23(d)(1), which states: “When
a consumer rescinds a transaction, the security interest giving rise to the right of rescission
becomes void and the consumer shall not be liable for any amount, including any finance
charge.” Further, they state: “[T]here is no saving provision under TILA or Regulation Z
that specifies any situation under which the void lien suddenly re-attains a valid lien status.”
Appellees respond: (1) a notice of rescission does not alter the legal rights of the
creditor if the borrower does not actually have a legitimate basis to assert a “right of
rescission”; and (2) the Anands are barred by res judicata from raising this challenge to
the first deed of trust lien at this late date.
ii. Res Judicata
Although both parties in this appeal devoted major portions of their briefs in this
Court to discussing whether the Anands had a right to rescind their loans under TILA, the
circuit court did not actually reach the merits of that issue. Rather, the circuit court held
that the Anands’ claims about having exercised their right under TILA to rescind their loans
from Saxon in 2009 were barred by the doctrine of res judicata.
The Court of Appeals has explained that “[t]he doctrine of res judicata bars the
relitigation of a claim if there is a final judgment in a previous litigation where the parties,
the subject matter and causes of action are identical or substantially identical as to issues
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actually litigated and as to those which could have or should have been raised in the
previous litigation.” Anne Arundel Cty. Bd. of Educ. v. Norville, 390 Md. 93, 106–07
(2005) (emphasis added). “Under Maryland law, the elements of res judicata, or claim
preclusion, are: (1) that the parties in the present litigation are the same or in privity with
the parties to the earlier dispute; (2) that the claim presented in the current action is identical
to the one determined in the prior adjudication; and, (3) that there has been a final judgment
on the merits.” Id. at 107.
The Anands contend that res judicata cannot, as a matter of law, apply to a
borrower’s attempt to rescind a loan under TILA in light of the Supreme Court’s holding
in Jesinoski, supra, 135 S.Ct. 798. The Anands argue in their brief that, because Jesinoski
held that a claim for rescission is timely so long as the borrower gives the lender notice
within three years after the loan transaction is consummated, and also held that the
borrower is not required “to sue within three years” in order to confirm the rescission, id.
at 792, a borrower therefore has “no obligation to raise and/or enforce their rescission, [and
consequently,] . . . cannot suffer from any estoppel and/or preclusive effect pursuant to the
doctrines of res judicata and/or collateral estoppel from [any delay in] raising the void
nature of the pertinent Deed of Trust.”
We disagree with the Anands’ contention that the preclusive effect of res judicata
is not applicable. Subsequent to the Supreme Court’s decision in Jesinoski, courts outside
Maryland have held that the doctrine of res judicata can indeed bar a borrower’s attempt
to rescind a loan under TILA. See, e.g., Pohl v. U.S. Bank for Merrill Lynch First Franklin
Mortgage, 859 F.3d 1226, 1231 (10th Cir. 2017); In re Guy, 552 B.R. 89, 98 (Bankr. D.S.C.
19
2016); see also Beepot v. J.P. Morgan Chase Nat. Corp. Servs., Inc., 57 F. Supp. 3d 1358,
1373-74 (M.D. Fla. 2014), aff’d, 626 Fed. Appx 935 (11th Cir. 2015).
Nothing in Jesinoski alters the common law requirement that, once litigation is
initiated by a party, that party must assert all of its claims that pertain to the particular
subject matter of that litigation in order to “ensure[] that courts do not waste time
adjudicating matters which have been decided or could have been decided fully and fairly.”
Norville, supra, 390 Md. at 107. Accordingly, Jesinoski did not eliminate the possibility
for res judicata to bar the Anands’ present claims regarding rescission of their loans under
TILA if the common law elements of the doctrine are met in this case.
a. The Parties in this Litigation are either the same Parties Involved
in the Anands’ Previous Litigation to Prevent Foreclosure, or are
in Privity with Prior Parties
The first element of res judicata is “that the parties in the present litigation are the
same or in privity with the parties to the earlier dispute[.]” Norville, supra, 390 Md. at 107.
On December 30, 2008, the Anands filed their first suit against Deutsche Bank, Saxon, and
the predecessor substitute trustees. See Chandra Anand I, supra, slip op. at 1–2. The
Anands’ suit was dismissed by the circuit court, with prejudice, on April 22, 2010, and no
appeal of that judgment was pursued. Id., slip op. at 2–3.
Although the current substitute trustees were not named parties in the first suit
initiated by the Anands, we have previously described “privity” in the context of res
judicata as follows: “[P]arties are in privity when, ‘in the advancement of their interest
[they] take open and substantial control of its prosecution, or they are so far represented by
another that their interests receive actual and efficient protection[. In that circumstance,]
20
any judgment recovered therein is conclusive upon them to the same extent as if they had
been formal parties.’” Poteet v. Sauter, 136 Md. App. 383, 412 (2001) (quoting Warner v.
German, 100 Md. App. 512, 519 (1994)) (alterations in original); see also FWB Bank v.
Richman, 354 Md. 472, 498 (1999) (“‘Privity in the res judicata sense generally involves
a person so identified in interest with another that he represents the same legal right.’”)
(quoting Williams v. Stefan, 133 B.R. 119, 121 (N.D.Ill.1991)).
Here, the current substitute trustees were in privity with the predecessor substitute
trustees because there was complete identity of interests, and the current substitute trustees
were “‘represented by another [such] that their interests receive[d] actual and efficient
protection[.]’” Poteet, supra, 136 Md. App. at 412 (quoting Warner, supra, 100 Md. App.
at 519). Both sets of substitute trustees represented the “‘same legal right.’” FWB Bank,
supra, 354 Md. at 498 (quoting Williams, supra, 133 B.R. at 121). Therefore, the two sets
of substitute trustees were in privity with one another, satisfying the first element of res
judicata.
b. The Claims Presented in this Action are the Same as those
Determined in a Prior Adjudication
The second element of res judicata requires “that the claim presented in the current
action is identical to the one determined in the prior adjudication[.]” Norville, supra, 390
Md. at 107. With respect to this element, the Court of Appeals has explained that, “if the
two claims or theories are based upon the same set of facts and one would expect them
to be tried together ordinarily, then a party must bring them simultaneously. Legal
theories may not be divided and presented in piecemeal fashion in order to advance
21
them in separate actions.” Id. at 109 (emphasis added). Furthermore, “[a]ll matters which
were litigated or could have been litigated in the earlier case ‘are conclusive in the
subsequent proceeding.’” Id. (quoting Mackall v. Zayre Corp., 293 Md. 221, 228, 443 A.2d
98, 102 (1982)) (emphasis in original).
Applying the above principles to this case, it is clear that the circuit court did not err
in concluding that the Anands’ rescission arguments arose from the same nucleus of facts
and transactions that were addressed by the judgments entered in the prior cases. In their
December 30, 2008, suit against Deutsche Bank, Saxon, and the predecessor substitute
trustees, the Anands disputed the validity of the lien on the Property, and asserted causes
of action for “negligence, federal truth in lending violations, and mortgage fraud.”
Chandra Anand I, supra, slip op. at 2 (emphasis added). That suit was dismissed with
prejudice by the circuit court on April 22, 2010 – more than a year after the Anands mailed
their first notice of rescission on March 4, 2009. All of the TILA claims the Anands
attempted to raise in the current case clearly “could have been litigated in the” December
30, 2008, suit. Norville, supra, 390 Md. at 107 (emphasis in original). Even though the
Anands were not subject to a three-year time limit for seeking to enforce their right of
rescission under TILA, see Jesinoski, supra, 135 S. Ct. at 792, under the principles
applicable to claim preclusion, they were nevertheless required to assert all claims that
“could have been litigated” in a proceeding once they voluntarily initiated suit on
December 30, 2008. Norville, supra, 390 Md. at 107. Accordingly, the circuit court did not
err in concluding that the Anands’ current TILA claims arose from the same facts as, and
22
could have been asserted in, their December 30, 2008, suit, satisfying the second element
of res judicata. Id.c. There was a Final Judgment on the Merits in a Previous
Adjudication
The third element of res judicata is “that there has been a final judgment on the
merits” in a previous adjudication. Id. at 107. The Anands’ December 30, 2008, suit was
dismissed with prejudice by the circuit court on April 22, 2010. That was a “final judgment
on the merits.” Id. at 113-14. As noted above, they did not appeal that judgment.
Citing Finch v. LVNV Funding, LLC, 212 Md. App. 748 (2013), the Anands
nevertheless contend that res judicata cannot bar their present claim of rescission because
“[i]t is settled law that a void judgment is not a judgment at all and can be collaterally
attacked at any time.” According to the Anands, “[t]he void nature of the lien imposed by
virtue of the subject Deed of Trust should . . . be capable of attack at anytime . . . without
application of the doctrine of res judicata.”
But the fallacy in this argument is that the Anands are not challenging a void
judgment. And we agree with the courts that have rejected similar arguments. See, e.g.,
Pohl, supra, 859 F.3d at 1230 (“Jesinoski does not preclude a lender from taking the
position that a tendered notice of rescission is invalid. Nor are we persuaded by the Pohls’
suggestion that under Jesinoski, a notice of rescission tendered during the conditional
rescission period becomes incontestable if a lender fails to bring a lawsuit to invalidate it.”
(citations and footnote omitted)); Keiran v. Home Capital, Inc., 858 F.3d 1127, 1133 (8th
23
Cir. 2017) (rejecting borrowers’ argument that “the bank’s security interest is void because
the bank failed to adequately and timely respond to their notice of rescission”).
In proceedings conducted upon remand from the Supreme Court in Jesinoski v.
Countrywide Home Loans, Inc., 196 F.Supp. 3d 956 (D. Minn. 2017), the United States
District Court for the District of Minnesota entered a summary judgment dismissing the
Jesinoskis’ claim for rescission under TILA, despite the fact that the Jesinoskis had given
notice of their intent to rescind. The district court held that the Jesinoskis’ self-serving
assertions of non-delivery of the TILA disclosures “ha[d] not overcome the rebuttable
presumption of proper delivery of TILA notices,” id. at 961, and the court noted that the
Jesinoskis admitted that “they d[id] not have the present ability to tender the amount of the
loan proceeds” back to the lender. Id. The court stated that it “discerns nothing in the
Supreme Court’s opinion that would override TILA’s tender requirement.” Id. at 962
(citing, id. at 961, Yamamoto, supra, 329 F.3d at 1170, for the proposition that “[r]escission
under the TILA is conditioned on repayment of the amounts advanced by the lender”).
Making a similar point in In re Junk, 566 B.R. 897, 909 (Bankr. E.D. Ohio 2017),
the court there observed that “nothing in Jesinoski alters the requirement that a plaintiff
have the ability to tender the loan proceeds after sending the rescission notice in order to
successfully assert a TILA rescission claim.”
These cases, which are consistent with our view -- shared by the circuit court in this
case -- that the Anands’ argument regarding the incontestability of a borrower’s notice of
rescission would wreak havoc upon the lending industry and real property titles generally,
24
support our conclusion that the circuit court did not err in holding that the Anands’ TILA
claims were barred by the doctrine of res judicata.3
JUDGMENTS OF THE CIRCUIT COURT
FOR MONTGOMERY COUNTY
AFFIRMED. COSTS TO BE PAID BY
APPELLANTS.
3
Although the Anands made reference in the questions presented section of their
brief to the circuit court’s denial of their ex parte motion for injunctive relief and for a
preliminary injunction, the Anands provided no substantive argument specifically
addressing that motion. Therefore, we will not disturb the circuit court’s denial of the
Anands’ motion for a preliminary injunction pending appeal. See Maryland Rule 8-
504(a)(6) (“A brief shall . . . include . . . (6) Argument in support of the party’s position on
each issue.”).
25