Merritt v. Countrywide Financial Corp., 09-17678 (9th Cir. July 16, 2014).
“Automatically to require tender in the pleadings before any colorable defense has been presented would encourage creditors to refuse to honor indisputably valid rescission requests, because doing so would allow the security interest to remain in place absent tender,” Judge Marsha Berzon wrote for majority. “The result would be to allow creditors to vary the statutory sequence simply through intransigence.”
Berzon added that “plaintiffs can state a claim for rescission under TILA without pleading that they have tendered, or that they have the ability to tender, the value of their loan.”
“Only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission,” she wrote, “and then only on a ‘case-by-case basis,’ once the creditor has established a potentially viable defense.”
Reviving the Merritts’ claims under the Real Estate Settlement Practices Act, which “prohibits kickbacks and unearned fees” in such transactions, the panel found that the one-year statute of limitations could be postponed under certain circumstances.
This is great for Truth in Lending rescission cases, because it limits Yamamoto’s applicability, which the district courts were expanding.
Also, for just the common law “tender rule,” this same reasoning should apply because as we have argued, a borrower should not have to tender anything at the pleading stage. You shouldn’t have to tender an entire loan just to argue that someone has recorded false or fraudulent documents against your property, or that someone has fraudulently tried to foreclose non-judicially. Discovery should happen before determining whether tender is even appropriate, or how much, or to whom. Tender was supposed to apply to crafting a remedy, not to bar pleading a case. As the Ninth Circuit put it in Merritt,
In addition, in many cases, it will be impossible for the
parties or the court to know at the outset whether a borrower
asserting her TILA rescission rights will ultimately be able to
return the loan proceeds as required by the statute. That
ability may depend upon the merits of her TILA rescission
claim or on other claims related to the same loan transaction.
See, e.g., Prince v. U.S. Bank Nat’l Ass’n, 2009 WL 2998141,
at *5 (S.D. Ala. Sept. 14, 2009) (denying creditor’s motion to
dismiss as based on “mere speculation” that plaintiffs would
be unable to tender, and indicating that court would address
the proper sequences for implementing the rescission, if
necessary, only after resolving the rescission claim on the
merits). For instance, if a TILA rescission claim is
meritorious and the creditor relinquishes its security interest
in the property upon notice of rescission as required by the
default § 1635(b) sequence, the obligor may then be able to
refinance or sell the property and thereby repay the original
lender. Cf. Burrows v. Orchid Island TRS, LLC, 2008 WL
744735, at *6 (C.D. Cal. Mar. 18, 2008) (declining to require
pleading of tender where the court inferred that borrower
would be able to tender by selling or refinancing the property
if rescission was found to be appropriate); Williams v. Saxon
Mortg. Co., 2008 WL 45739, at *6 n.10 (S.D. Ala. Jan. 2,
2008) (declining to condition rescission on tender as was
done in Yamamoto, because it was not clear that borrower
would not be able to refinance the loan). Or her complaint
may allege damages claims arising from the same loan
transaction, the proceeds of which, if successful, could then
be used to satisfy her TILA tender obligation. See Shepard,
supra, at 205 & n.200, 210.