Merritt v. Countrywide Financial Corp.

Pursuant to the Truth in Lending Act a court may only order the statutory sequence altered and require tender before rescission at the summary judgment stage and then only on a case-by-case basis, once the creditor has established a potentially viable defense; additionally pursuant to the Real Estate Settlement Practices Act the doctrine of equitable tolling a borrower, in appropriate circumstances, may suspend the limitations period until the borrower discovers or had a reasonable opportunity to discover the violation.

The Merritts sued Countrywide Financial Corp. (“Countrywide”), the holder of their residential mortgage, alleging violations of several federal statutes, namely the Truth in Lending Act (“TILA”) and the Real Estate Settlement Practices Act (“RESPA”). Plaintiffs argue Countrywide maintained a company practice of encouraging agents to select appraisers who would provide inflated appraisals to increase the total amounts financed to maximize Countrywide’s profits. TILA provides remedies for loan disclosure violations by providing the borrower the right to rescind until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required, whichever is later. RESPA prohibits kickbacks and unearned fees. Under RESPA civil actions must be brought within one year of the alleged violation. The District court dismissed the Plaintiffs’ TILA rescission claim for failure either to tender the rescindable value of their loan prior to filing suit or to allege ability to tender its value in their complaint and dismissed the Plaintiffs’ claims under section 8 of RESPA as barred by the one-year statute of limitations. The panel noted, on the TILA claim, that the statutory text prescribes an enforcement sequence, except when “otherwise ordered by a court” and reversed the district court holding that only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission, and then only on a case-by-case basis, once the creditor has established a potentially viable defense. The panel indicated that RESPA is, like TILA, “intended to serve consumer-protection purposes” and therefore, should follow similar tolling rules. The panel vacated the judgment of the district court holding that the doctrine of equitable tolling may, in appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the violation. REVERSED IN PART, VACATED IN PART, AND REMANDED FOR FURTHER PROCEEDINGS.