Baker v. Bank of Am., N.A.

BRIAN C. BAKER, Plaintiff v. BANK OF AMERICA, N.A., successor in interest to COUNTRYWIDE BANK,FSB, U.S. BANK NATIONAL ASSOCIATION,AS TRUSTEE FOR THE BENEFIT OF LXS 2007-16N TRUST FUND,and SPECIALIZED LOAN SERVICING, LLC Defendants.

No. 5:13-CV-92-F

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION

January 27, 2014

ORDER

This matter is before the court on the Defendants' motion to dismiss [DE-8]. Plaintiff has filed a response in opposition and the matter is now ripe for resolution. For the reasons that follow, the motion is ALLOWED and the complaint is DISMISSED.

RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff Brian C. Baker ("Baker") initiated this action by filing a complaint on February 7, 2013, asserting claims for violation of the Truth in Lending Act, quiet title, and breach of the duty of good faith and fair dealing. Compl. [DE-1]. Defendants (collectively "Bank of America" or "Countrywide") move to dismiss the complaint in its entirety for failure to state a claim upon which relief can be granted. On a motion to dismiss, the court accepts as true all well-pleaded factual allegations contained in the complaint. See Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

The Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., provides for two time periods in which a consumer can rescind¹ a home loan transaction. The first is a three-day statutory "cooling-off' period, which allows a consumer to rescind the transaction for any reason or for no reason within three business days of the closing date. 15 U.S.C. § 1635(a). The second is a three-year period, which applies when a creditor fails to provide certain TILA-mandated disclosures. See § 1635(a), (f); 12 C.F.R. § 226.23. The issues presented by this case are twofold: (1) if a borrower sends notification of rescission within the three-day statutory cooling-off period and the creditor does not acknowledge the notice, must the borrower file a lawsuit to complete the rescission process?; and (2) if so, what statute of limitation, if any, applies? Because the court concludes that a lawsuit is required to complete rescission in these circumstances and that the relevant statute of limitations is at most four years, the court finds that this lawsuit is untimely.

In this case, Baker alleges that he provided notification of rescission within the three-day cooling-off period and that Countrywide² failed to respond to the notice. The parties' relationship began when Baker sought refinancing of his home mortgage loan. Countrywide provided Baker with a good faith estimate for the proposed refinance, which included a principal loan amount of $645,337.00, to be paid over thirty years at a fixed interest rate of 4.875%.However, at the closing on June 13, 2007, Countrywide allegedly substituted a note with different financing terms. The substituted note provided for an adjustable rate mortgage and a principal loan amount of $640,000.00. The truth in lending disclosure statement provided at closing identified an annual percentage rate of 7.616% and a total finance charge of $1,239,744.14, which was more than double the finance charge associated with the good faith estimate. For reasons that are not quite clear from the complaint, Baker proceeded with the closing on June 13, 2007 despite the significantly different loan terms.

On June 15, 2007, the second business day after the closing, Baker mailed a signed rescission notice to Countrywide and Countrywide received the notice on June 18, 2007. Nevertheless, Countrywide ignored the rescission document and proceeded to fund the loan. Baker alleges that he sent multiple subsequent requests to unwind the transaction, but Countrywide refused each request.

In March of 2008, Baker applied for a new loan from First Citizens Bank, allegedly in an attempt to pay off the Countrywide loan and substitute a new (more favorable) refinancing loan. Countrywide refused to accept immediate repayment of the loan proceeds unless Baker agreed to a $7,000 prepayment penalty. Baker's attempt to refinance through First Citizens was ultimately unsuccessful and Baker became delinquent on the Countrywide loan. Eventually, Bank of America (as successor to Countrywide) initiated foreclosure proceedings. Baker declared personal bankruptcy and he received a discharge in the bankruptcy case, which Baker alleges has discharged his personal obligations under the mortgage note.

After the bankruptcy discharge, Bank of America again pursued foreclosure proceedings, which are presumably stayed pending the outcome of this litigation. Despite numerous writtendemands, Bank of America refuses to cancel its security interest in the home and rescind the transaction unless Baker agrees to tender all proceeds received under the note.

ANALYSIS

A. Standard of Review

The purpose of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is to test the legal sufficiency of the complaint, not to resolve conflicts of fact or to decide the merits of the action. Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999). In considering a motion to dismiss, the court assumes the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations. Erickson v. Pardus, 551 U.S. 89, 94 (2007); E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'shp, 213 F.3d 175, 180 (4th Cir. 2000). However, the '"[f]actual allegations must be enough to raise a right to relief above the speculative level' and the plaintiff must allege 'enough facts to state a claim to relief that is plausible on its face.'" Wahi v. Charleston Area Med. Ctr., Inc., 562 F.3d 599, 615 n.26 (4th Cir. 2009) (quoting Bell Ail. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "Although a motion pursuant to Rule 12(b)(6) invites an inquiry into the legal sufficiency of the complaint, not an analysis of potential defenses to the claims set forth therein, dismissal nevertheless is appropriate when the face of the complaint clearly reveals the existence of a meritorious affirmative defense [such as the statute of limitations]." Brockington v. Boykins, 637 F.3d 503, 506 (4th Cir. 2011) (internal quotation marks omitted). The court may consider "documents incorporated into the complaint by reference, and matters of which a court may take judicial notice" when deciding a Rule 12(b)(6) motion. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).

B. Discussion

Because this case resolves into an issue of statutory interpretation, the court begins with a brief overview of the relevant provisions. See Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000) ("We begin with the understanding that Congress says in a statute what it means and means in a statute what it says there."). The TILA was enacted "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 uniformed use of credit . . . ." 15 U.S.C. § 1601(a). TILA allows for rescission of certain loans³ secured by a borrower's principal residence in two circumstances: (1) under § 1635(a), "the obligor shall have the right to rescind the transaction until midnight of the third business day following [the latter of] consummation of the transaction or [delivery of various disclosures and forms required under TILA;]" or (2) if the lender fails to make the required TILA disclosures, "[a]n 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." § 1635(f). As Baker stresses, these provisions provide for two distinct rescission periods. The three-day "cooling-off period allows a borrower to rescind for any reason or for no reason; the three-year rescission period allows the borrower to rescind only if the lender failed to make certain TILA-mandated disclosures. See McKenna v. First Horizon HomeLoan, 475 F.3d 418, 421 (1st Cir. 2007); Bradford v. HSBC Mortg. Corp., 838 F. Supp. 2d 424, 428-29 (E.D. Va. 2012).

Much of the dispute in the present case involves § 1635(b), which provides a default process for rescission of the loan:

(b) Return of money or property following rescission. When an obligor exercises his right to rescind under subsection (a) of this section, he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by 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.

Id. In addition, TILA provides for civil liability when a lender fails to comply with its requirements. § 1640(a). As relevant here, TILA imposes a one-year statute of limitations on all claims for civil liability: "any action under [section 1640] may be brought in any United States district court... within one year from the date of...