Win for Homeowners|Suing Countrywide

     (CN) – A California couple did not have to show that they could pay back a home-equity loan before legally challenging an allegedly predatory Countrywide mortgage, the 9th Circuit ruled Wednesday.
     After the lender refused to let them rescind a more-than $700,000 home loan and home equity line of credit, David and Salma Merritt sued Countrywide Financial Corp under the Truth in Lending Act (TILA) in 2009
     The Merritts claimed that their Countrywide agent had lied to them in 2006 about the details of their loan, promising a relatively low monthly payment but then jacking it up nearly threefold days before closing. They said that the agent also had failed to inform them that the final $4,400 monthly mortgage payment for their Sunnyvale home was based on “teaser rate,” and that their payments would rise even higher in the coming years.
     Countrywide’s agent, the home’s seller and an appraiser also all faced allegations of having conspired to inflate the value of the home in violation of the Real Estate Settlement Practices Act (RESPA). The couple further argued that the agent had failed to provide proper loan documentation, and that the home’s owner had lied about being the “selling agent.”
     After paying some $200,000 on the loan over several years, the Merritts lost one of their incomes in 2008 and, unable to afford their payments, asked Countrywide for a modification. Countrywide refused, so the Merritts sought to rescind but Countrywide offered them only a modification that they still could not afford.
     Dismissing their pro se federal lawsuit, U.S. District Judge James Ware in San Jose, Calif., found that the TILA claim could not survive because the Merritts had failed to pay back their line of credit before filing suit. Ware also found that the couple had filed their RESPA claims several years too late.
     An appellate panel reversed in part, 2-1, on Wednesday, reviving the couple’s truth-in-lending claim and calling on the lower court to reconsider the statute of limitations issue.
     The lower court improperly read the statute to require that TILA rescission claims must plead, at the outset of a case, an ability to tender the loan in question, the panel found.
     “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.
     Since these “complicated issues of statutory interpretation and administrative law” were not fully briefed in the lower court, however, the panel remanded the issue to San Jose for reconsideration.
     Judge Andrew Kleinfeld argued in dissent that the panel should have affirmed dismissal because the Merritts had failed to state a valid claim.
     “The majority opinion does a heroic job of stating claims clearly on behalf of the Merritts,” he wrote. “But plaintiffs did not state them. It is not fair to defendants to perform these legal services for plaintiffs, even pro se plaintiffs, where the plaintiffs do not evidently have good claims.”

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