Wells Fargo Bank v. Terry

FIRST DIVISION
March 29, 2010
No. 1-09-0617
WELLS FARGO BANK, N.A., as Trustee,) Appeal from the
) Circuit Court of
Plaintiff and ) Cook County.
Counterdefendant-Appellee, )
)
v. )
)
ERNESTINE TERRY, UNKNOWN OWNERS, )
and NONRECORD CLAIMANTS, )
)
Defendants )
)
(Ernestine Terry, ) No. 07 CH 10211
)
Counterplaintiff-Appellant )
and Third-Party )
Plaintiff-Appellant, )
)
v. )
)
Option One Mortgage Corporation, )
) The Honorable
Third-Party Defendant- ) David B. Atkins,
Appellee). ) Judge Presiding.
JUSTICE GARCIA delivered the opinion of the court.
Ernestine Terry, defendant, counterplaintiff, and third-
party plaintiff, appeals the dismissal of her affirmative
defense, counterclaim, and third-party complaint that the circuit
court granted pursuant to section 2-615 of the Illinois Code of
Civil Procedure. 735 ILCS 5/2-615 (West 2008). The circuit
court held that her right to rescind a mortgage issued by
appellees Wells Fargo Bank and Option One Mortgage Corporation
No. 1-09-0617
(the lenders), upon which all of her pleadings were founded,
expired under the Truth in Lending Act (the TILA) (15 U.S.C.
§1601 et seq. (2006)) when she failed to exercise it within three
years of receiving the mortgage. The lenders assert that even if
she had exercised her right of rescission in a timely manner, her
claim under that right would have failed on the merits.
Terry contends that under section 1635(i)(3) of the TILA,
her "right of rescission in recoupment under State law" (15
U.S.C. §1635(i)(3) (2006)) survives. She asserts in her brief:
"[Section] 1635(i)(3) is a 'savings clause' allowing defensive
TILA rescission claims under state law, even after the 3-year
period has passed."
Because we find that under Illinois law there is no right of
rescission in recoupment that falls within the provision of
section 1635(i)(3) of the TILA, we are compelled to reject
Terry's claim. We affirm Judge Atkin's ruling that Terry's
affirmative defense, counterclaim, and third-party complaint fail
as a matter of law.
BACKGROUND
On October 25, 2002, Terry entered into an adjustable rate
note and mortgage from Option One for a home mortgage refinance
loan. In connection with the refinance of her mortgage, Terry
received a United States Department of Housing and Urban
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No. 1-09-0617
Development settlement statement at closing. She contends the
settlement statement indicated she was charged $3,720 in fees
that were not disclosed on the federal "Truth-In-Lending
Disclosure Statement" she received.
After closing, Option One assigned Terry's mortgage to Wells
Fargo. On April 12, 2007, Wells Fargo filed a complaint to
foreclose the mortgage alleging Terry failed to make payments on
her note. On January 29, 2008, Terry filed an affirmative
defense, a counterclaim, and a third-party complaint against the
lenders. The affirmative defense, counterclaim, and third-party
complaint all sought rescission under the TILA.
The lenders moved to dismiss the affirmative defense,
counterclaim, and third-party complaint pursuant to section 2-615
of the Code of Civil Procedure. 735 ILCS 5/2-615 (West 2008).
Judge David B. Atkins granted the motion on September 8, 2008,
finding Terry's right of rescission had expired. On February 19,
2009, Judge Atkins entered judgment for foreclosure and sale that
was "fully dispositive of the interest of all defendants."
This timely appeal followed.1
1
In her notice of appeal, Terry also sought reversal of the
circuit court's February 19, 2009, judgment for foreclosure and
sale. Because no argument for this relief is asserted in her
brief, we do not address it.
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No. 1-09-0617
ANALYSIS
Standard of Review
"This court reviews the grant of a section 2-615 motion to
dismiss de novo, and we accept all well-pleaded facts in the
complaint as true and draw all reasonable inferences from those
facts in favor of the nonmoving party." Addison v. Distinctive
Homes, Ltd., 359 Ill. App. 3d 997, 1000, 836 N.E.2d 88 (2005).
The Truth in Lending Act
"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 disclose important
terms accurately." Beach v. Ocwen Federal Bank, 523 U.S.
410, 411, 140 L. Ed. 2d 566, 569, 118 S. Ct. 1408, 1409
(1998), citing 15 U.S.C. §1635 (1994). "Within 20 days after
receiving notice of rescission, the lender must 'return to the
[borrower] 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.' " Beach, 523 U.S. at 412-13, 140
L. Ed. 2d at 570, 118 S. Ct. at 1410, quoting 15 U.S.C. §1635(b)
(1994).
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No. 1-09-0617
A borrower's right to seek rescission under the TILA is not
indefinite. Subsection (f) of section 1635, titled "Time limit
for exercise of right," provides:
"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,
notwithstanding the fact that the information
and forms required under this section or any
other disclosures required under this part
have not been delivered to the obligor ***."
15 U.S.C. §1635(f) (2006).
It is undisputed that more than three years elapsed between
the closing of Terry's refinance mortgage and the filing of her
claim for rescission under the TILA, which suggests her claim is
time-barred. However, Terry contends that she "brought [the]
claim for recoupment in defense to Wells Fargo's foreclosure
action and therefore the three-year expiration date does not
preclude Terry's TILA rescission claim, so long as Illinois law
allows it." Thus, she presents the question before us: Does
Illinois law allow Terry's claim for recoupment in defense of
Wells Fargo's foreclosure action apart from her claim under the
TILA?
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No. 1-09-0617
Terry cites three cases to support her position: Beach, 523
U.S. 410, 140 L. Ed. 2d 566, 118 S. Ct. 1408; Johnson v. Long
Beach Mortgage Loan Trust, 451 F. Supp. 2d 16 (D.D.C. 2006); and
In re Botelho, 195 B.R. 558 (Bankr. D. Mass. 1996). The
difficulty for Terry is that none is an Illinois case, which
means none stands as authority for Illinois law. See Marchlik v.
Coronet Insurance Co., 40 Ill. 2d 327, 332-33, 239 N.E.2d 799
(1968) (cause of action under Wisconsin law properly barred in
Illinois courts when the cause of action was not recognized in
Illinois). Because Beach references an Illinois case, we look
only to Beach to determine whether it supports Terry's position.
Terry reads Beach to hold that "when a consumer brings a
defensive rescission claim in a state where recoupment is
allowed, such as Illinois, then the expiration of the three year
period is not a bar to her TILA claim."
Under Illinois law, "[r]ecoupment is *** a cross-action in
which a defendant alleges that it has been injured by a breach by
plaintiff of another part of the contract on which the action is
founded." Cox v. Doctor's Associates, Inc., 245 Ill. App. 3d
186, 199, 613 N.E.2d 1306 (1993); 735 ILCS 5/2-608 (West 2008) (a
claim by a defendant against a plaintiff "in the nature of ***
recoupment *** may be pleaded as a cross claim in any action, and
when so pleaded shall be called a counterclaim").
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No. 1-09-0617
Under existing Illinois case law, Terry's claim would
survive the expiration of the three-year period as a defensive
claim against the lenders' action if section 1635(f) of the TILA
were a statute of limitations. See Barragan v. Casco Design
Corp., 216 Ill. 2d 435, 437, 837 N.E.2d 16 (2005) (counterclaim
otherwise barred by statute of limitations permitted to proceed
where plaintiff's underlying claim was timely), citing 735 ILCS
5/13-207 (West 2008) ("A defendant may plead a set-off or
counterclaim barred by the statute of limitation, while held and
owned by him or her, to any action, the cause of which was owned
by the plaintiff or person under whom he claims, before such
set-off or counterclaim was so barred, and not otherwise").
However, the United States Supreme Court made clear in
Beach, "[s]ection 1635(f) is a statute of repose, not a statute
of limitation." In re Hunter, 400 B.R. 651, 660 (Bankr. N.D.
Ill. 2009), citing Beach, 523 U.S. at 417, 140 L. Ed. 2d at 573,
118 S. Ct. at 1412. The provision "talks not of a suit's
commencement but of a right's duration." Beach, 523 U.S. at 417,
140 L. Ed. 2d at 573, 118 S. Ct. at 1412. Accordingly, "the
[TILA] permits no federal right to rescind, defensively or
otherwise, after the 3-year period of §1635(f) has run." Beach,
523 U.S. at 419, 140 L. Ed. 2d at 574, 118 S. Ct. at 1413.
Illinois law observes the same distinction between a statute
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No. 1-09-0617
of limitations and a statute of repose. "[A] statute of repose
differs from a statute of limitations in that a statute of
limitations governs the time within which lawsuits may be
commenced after a cause of action has accrued, while a statute of
repose extinguishes the action itself after a fixed period of
time, regardless of when the action accrued." DeLuna v.
Burciaga, 223 Ill. 2d 49, 61, 857 N.E.2d 229 (2006).
Of the cases cited by Terry that were decided after Beach,
there is only one case that expressly finds state law to support
a recoupment claim. In In re Fidler, 226 B.R. 734, 735 (Bankr.
D. Mass. 1998), the mortgage debtors filed defensive claims of
recoupment under both the TILA and the Massachusetts Consumer
Credit Cost Disclosure Act (the CCCDA) (Mass. Gen. Laws ch. 140D,
§1 et seq.), seeking rescission more than three years after
consummating a mortgage transaction. Fidler, 226 B.R. at 735.
The CCCDA was modeled directly after the TILA and has the same
objective of protecting debtors. Fidler, 226 B.R. at 736.
Because of an exemption by the Board of Governors of the Federal
Reserve System (Fidler, 226 B.R. at 736, citing 48 Fed. Reg.
14882, 14890 (April 6, 1983)), "the transaction at issue [was]
governed not by [the] TILA but by [the] CCCDA." Fidler, 226 B.R.
at 736. Even if the TILA had controlled, the court stated
"§1635(i)(3) *** would direct its inquiry to [the] CCCDA and
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No. 1-09-0617
other Massachusetts law concerning recoupment." Fidler, 226 B.R.
at 736 n.6.
Applying Massachusetts law, the court in Fidler adhered to
the CCCDA's provision that " 'Nothing in this section shall be
construed so as to affect a consumer's right of recoupment under
the laws of the commonwealth.' " Fidler, 226 B.R. at 737,
quoting Mass. Gen. Laws ch. 140D, §10(i)(3). The court followed
the CCCDA's clear statutory mandate and granted the debtors the
common law right of recoupment. Fidler, 226 B.R. at 737. The
debtors' claim was barred under the TILA, but not under the
CCCDA. Fidler, 226 B.R. at 738.
Thus, section 1635(f) constitutes an absolute bar to Terry's
action under the TILA unless, under Illinois law, her right of
rescission in recoupment pursuant to section 1635(i)(3) is
preserved.2 In other words, to save her claim, there must exist
an Illinois statute analogous to the CCCDA of Massachusetts.
Terry, however, does not point us to any Illinois statute
2
As the United States Supreme Court noted in a footnote,
section 1635(i)(3) had no application in Beach because "there is
no claim *** that Florida law purports to provide any right to
rescind defensively on the grounds relevant under the [TILA]."
Beach, 523 U.S. at 418 n.6, 140 L. Ed. 2d at 573 n.6, 118 S. Ct.
at 1413 n.6.
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No. 1-09-0617
remotely similar to the CCCDA; nor have we have found such an
Illinois statute.
Thus, Terry's position before us is identical to the
debtor's position in In re Williams, 276 B.R. 394 (Bankr. E.D.
Pa. 2002). The court in Williams observed Fidler had relied on
"specific language in a Massachusetts statute" to permit a
borrower to rescind a mortgage transaction after the three-year
period expired. Williams, 276 B.R. at 397. There was, however,
"no similar state law *** in Pennsylvania." Williams, 276 B.R.
at 397, citing In re Roberson, 262 B.R. 312, 320 (Bankr. E.D. Pa.
2001) ("reject[ing] Plaintiff's argument that Pennsylvania state
law allows a consumer to raise his or her right to rescission
under [the] TILA defensively beyond the three year bar in
§1635(f)"). The Williams court concluded, "unlike the statute in
Fidler, neither statute [cited by the debtor] provides rescission
rights to the borrower or reserves a borrower's recoupment
rights." Williams, 276 B.R. at 397. "Accordingly, [Section]
1635(f) renders the Debtor's belated attempt to rescind the loan
transaction invalid." Williams, 276 B.R. at 399. See Beach v.
Great Western Bank, 692 So. 2d 146, 153 (Fla. 1997) (per curiam)
(distinguishing Florida statute of limitations cases and holding
"under Florida law, an action for statutory right of rescission
pursuant to 15 U.S.C. §1635 may not be revived as a defense in
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No. 1-09-0617
recoupment beyond the three-year expiration period contained in
section 1635(f)").3
Like the debtors in Williams and Roberson, Terry has failed
to identify a statute, case, or any other source of Illinois law
that might afford her a right of rescission in recoupment
analogous to a claim under the TILA. She does not cite a single
case decided subsequent to Beach. Every authority she cites is
either no longer good law following Beach (Federal Deposit
Insurance Corp. v. Ablin, 177 Ill. App. 3d 390, 395, 532 N.E.2d
379 (1988) (explicitly abrogated); Westbank v. Maurer, 276 Ill.
App. 3d 553, 658 N.E.2d 1381 (1995) (incorrectly treating section
1635(f) as a statute of limitations)) or simply inapposite (Mt.
Vernon Memorial Estates, Inc. v. Wood, 88 Ill. App. 3d 666, 410
N.E.2d 995 (1980) (interpreting section 1640 of the TILA, as
opposed to section 1635); National Boulevard Bank of Chicago v.
Thompson, 85 Ill. App. 3d 1145, 1146, 407 N.E.2d 739 (1980)
(same); 735 ILCS 5/13-207 (West 2008) ("A defendant may plead a
set-off or counterclaim barred by the statute of limitation
***")).
3
This case became the Beach case. Ocwen Federal Bank
replaced Great Western Bank as the plaintiff while the case was
pending. Beach, 523 U.S. at 414 n.4, 140 L. Ed. 2d at 571 n.4,
118 S. Ct. at 1411 n.4.
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No. 1-09-0617
In the absence of an Illinois statute similar to the
Massachusetts statute in Fidler, section 1635(i)(3) provides no
basis to save Terry's claim for rescission.
CONCLUSION
Beach makes clear that section 1635(f) is a statute of
repose that extinguishes all claims for rescission outside the
three-year period. Section 1635(i)(3) does not "save" Terry's
TILA claim in the absence of an Illinois statute that expressly
allows a defensive rescission claim. Accordingly, Terry's
rescission claim is barred because it was not filed within three
years of obtaining her home mortgage refinance loan. We do not
reach the lenders' argument that the claim fails on its merits.
Affirmed.
HALL, P.J., and PATTI, J., concur.
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No. 1-09-0617
REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT
___________________________________________________________________________
WELLS FARGO BANK, N.A., as Trustee,
Plaintiff and Counterdefendant-Appellee,
v.
ERNESTINE TERRY, UNKNOWN OWNERS, and NONRECORD CLAIMANTS,
Defend
ants
(Ernestine Terry,
Counterplaintiff-Appellant and Third-Party Plaintiff-Appellant,
v.
Option One Mortgage Corporation,
Third-Party Defendant-Appellee).
________________________________________________________________
No. 1-09-0617
Appellate Court of Illinois
First District, First Division
Filed: March 29, 2010
_________________________________________________________________
JUSTICE GARCIA delivered the opinion of the court.
HALL, P.J., and PATTI, J., concur.
_________________________________________________________________
Appeal from the Circuit Court of Cook County
Honorable David B. Atkins, Judge Presiding
_________________________________________________________________
For DEFENDANT-APPELLANT: For PLAINTIFF-APPELLEE:
Lloyd Brooks Dianne E. Rist,
The Brooks Law Firm S. Todd Sipe
15008 Woodlawn Avenue Gina M. Lavarda
Dolton, IL 60419 Chapman and Cutler LLP
111 West Monroe Street
Chicago, IL 60603
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No. 1-09-0617
14