T.S. ELLIS, III, District Judge.
At issue in this Truth in Lending Act ("TILA")
For the reasons that follow, defendants' motions for summary judgment must be granted in part.
Plaintiff William R. Haas, a Virginia resident, originally brought this action against a single defendant, Falmouth Financial, LLC ("Falmouth"), a Virginia limited liability company engaged in the business of providing home mortgage loans. This action arises out of a home loan issued by Falmouth to William Haas and his wife, Linda Sue Haas, also a Virginia resident. Falmouth answered the complaint and filed counterclaims. Subsequently, HSC Real Estate Holdings, LLC ("HSC"), a Virginia limited liability company that funded the loan to the Haases, moved (i) to intervene in the case as a defendant/counterclaim-plaintiff, and (ii) to join plaintiff's wife as a counterclaim-defendant. HSC's motion was granted, and the parties were aligned accordingly. See Haas v. Falmouth Financial, No. 1:10cv565 (E.D.Va. Oct. 1, 2010). Thus, William Haas remains the sole plaintiff,
On May 28, 2008, the Haases obtained a home loan from Falmouth in the amount of $650,000 to refinance their residential home located at 28045 Ticonderoga Road in Chantilly, Virginia (the "Chantilly property"). According to a January 2007 appraisal provided by plaintiff to Falmouth while the loan was negotiated, the value of the home was estimated at that time to be $3,865,000. The loan was evidenced by a note ("Haas Note") and secured by a deed of trust ("Deed of Trust") as a lien on the home.
HSC's interest in this matter arose shortly after the loan closing. On March 23, 2009, Falmouth executed a non-recourse note obliging it to pay HSC $375,000 on May 29, 2009, the same maturity date as the Haas Note. The Falmouth Note was secured by the Haas Note and the Deed of Trust. On August 31, 2010, Falmouth assigned its right, title, and interest in the Haas Note to HSC.
Plaintiff asserts that various TILA violations occurred at or near the time of the loan closing with Falmouth. In particular, plaintiff alleges that Falmouth did not provide certain TILA disclosures and that plaintiff's name was forged on certain documents that he never saw nor signed.
Plaintiff made no further payments on the loan after demanding rescission, and foreclosure proceedings commenced. Foreclosure on the home was scheduled for June 4, 2010, but plaintiff filed the instant action on May 28, 2010. Foreclosure proceedings were immediately suspended and have not resumed.
Plaintiff seeks rescission of the home loan transaction, a declaratory judgment as to his TILA tender obligation, statutory damages for failure to recognize rescission, and attorney's fees. Defendants' counterclaims seek (i) a declaratory judgment that the loan was never properly rescinded; (ii) damages, including the note principal, interest, and late fees; and (iii) attorney's fees.
On December 9, 2010, defendants moved for summary judgment, contending that plaintiff's rescission claim fails because plaintiff has not adduced sufficient evidence to show he can meet his TILA tender obligation — that is, his obligation to return the borrowed funds to Falmouth — if rescission were ordered. Because the record at that time was devoid of facts concerning plaintiff's ability to meet his tender obligation, plaintiff sought to reopen discovery on that issue so that he might obtain an independent appraisal of his home's value. This request was denied, given that naming a new expert after the close of discovery would sharply prejudice defendants. Haas v. Falmouth Financial, LLC, No. 1:10cv565 (E.D.Va. Jan. 14, 2011) (Order). Yet, as a matter of grace, plaintiff was granted sixty days
Id. At the close of this sixty day period, the parties were directed to submit supplemental summary judgment memoranda on the issue of plaintiff's tender obligation. Id.
In the time since the January 14, 2011 Order, plaintiff still has not sold his home or obtaining other financing to meet his tender obligation. Nevertheless, plaintiff contends that if rescission were ordered, he could easily sell the home and pay the tender obligation from the sale proceeds. Although there was initially some dispute over the amount of plaintiff's tender obligation, the parties agree that if rescission were ordered, plaintiff would need to tender $487,159.14 to Falmouth.
The summary judgment standard is too well-settled to require elaboration here. In essence, summary judgment is appropriate under Rule 56, Fed.R.Civ.P., only where, on the basis of undisputed material facts, the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Importantly, to defeat summary judgment the non-moving party may not rest upon a "mere scintilla" of evidence, but must set forth specific facts showing a genuine issue for trial. Id. at 324, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Thus, the party with the burden of proof on an issue cannot prevail at summary judgment on that issue unless that party adduces evidence that would be sufficient, if believed, to carry the burden of proof on that issue at trial. See Celotex, 477 U.S. at 322, 106 S.Ct. 2548.
The central issue on summary judgment is whether the summary judgment record creates a dispute of fact as to whether plaintiff could meet his tender obligation if he were successful on the rescission claim. The Truth in Lending Act provides that "the obligor shall have the right to rescind [a home loan] transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms... together with a statement containing the material disclosures." 15 U.S.C. § 1635(a). Although the right of rescission generally expires after three days, if certain TILA violations occur — such as the failure to provide the requisite material disclosures — the deadline for exercising rescission extends to three years. 15 U.S.C. § 1635(f); 12 C.F.R. § 226.23(a)(3). Defendants do not address, and therefore concede solely for the purposes of summary judgment, that plaintiff would be able to meet his burden to show (i) that TILA violations occurred at closing, extending the rescission deadline to three
Yet, the purported exercise of the TILA rescission right does not automatically cause rescission to occur. Id. at 821. As the Fourth Circuit noted in American Mortgage Network, Inc. v. Shelton, 486 F.3d 815 (4th Cir.2007), because "[t]he equitable goal of rescission under TILA is to restore the parties to the `status quo ante,'" the borrower seeking rescission must be able to tender the borrowed funds back to the lender to obtain rescission. Id. (citing Yamamoto v. Bank of New York, 329 F.3d 1167, 1172 (9th Cir.2003)). Of course, to meet this obligation, plaintiffs seeking rescission frequently allege that they would be able to meet their tender obligation if they are allowed to sell the property after rescission is ordered and tender the proceeds. See, e.g., Taylor v. Deutsche Bank Nat'l Trust Co., 2010 WL 4103305, at *5, 2010 U.S. Dist. LEXIS 110499, at *13-14 (E.D.Va. Oct. 18, 2010); Hudson v. Bank of Am., N.A., 2010 WL 2365588, at *2, 2010 U.S. Dist. LEXIS 57909, at *5 (E.D.Va. June 11, 2010). While courts are entitled to alter the timing of tender to provide some flexibility to the parties,
District courts in the Fourth Circuit following Shelton have routinely dismissed plaintiffs' rescission claims, both at the Rule 12(b)(6) stage and at summary judgment, where plaintiffs fail to allege or demonstrate they would be able to meet their tender obligation if rescission were ordered. For example, in Hudson, the district court granted a motion to dismiss where the plaintiff alleged that although he did not know the exact amount of his tender obligation, he could meet his obligation (i) if he were given more time to seek refinancing or a buyer, and (ii) if he won the damages sought in his TILA suit, which he could then put toward the tender. 2010 WL 2365588, at *5, 2010 U.S. Dist. LEXIS 57909, at *15. On these facts, the court sensibly held that "given the context of the case and the Court's judicial experience," it could not "reasonably conclude that" the plaintiff would "be able to pay the as yet unknown amount due on the loan within a reasonable period of time following" resolution of his claims. Id.
In Taylor, the plaintiff knew the amount of his tender obligation, but his rescission claim still failed — this time on summary judgment — because plaintiff failed to adduce evidence that he would be able to satisfy his tender obligation. 2010 WL 4103305, at *5, 2010 U.S. Dist. LEXIS 110499, at *14. In that case, the plaintiff simply asked for more time and "indicat[ed] that he would be willing to sell the house `as a last resort.'" Id. The court appropriately found that because plaintiff failed to show his ability to tender, his rescission claim failed on summary judgment.
Here, the evidence provided by plaintiff concerning his ability falls well short of what is required under Shelton. Plaintiff asserts that his home is worth far more than the $528,124.02 that he would have to obtain at sale to satisfy the tender obligation, but this bald assertion, like the similar assertion in Larrabee, cannot create an issue of fact for summary judgment purposes. See id. Plaintiff could have obtained an independent appraisal of their home during discovery, which might have provided critical evidence of the home's value, but he failed to do so. Instead, plaintiff relies chiefly on the fact that they were offered $500,000 for the property, an offer that has since been withdrawn. As plaintiff concedes, even if the offer were reinstated and accepted, the amount of the sale would still be insufficient to satisfy his tender obligation. Plaintiff apparently believes that the $500,000 offer is "some evidence" of the home's value that should at least create a dispute of fact as to whether plaintiff could sell the home for the requisite $528,124.02. While an offer on a property might under certain circumstances be probative of the property's fair market value, an offer at a price below the price needed for tender does not create a dispute of fact as to whether a property can be sold for the price required for tender. Such an inference is entirely speculative and is thus inappropriate for summary judgment. See Felty, 818 F.2d at 1130. At best, therefore, plaintiff has created a dispute of fact as to whether he might sell his home for $500,000, which would still leave him $28,124.02 short of his obligation to make a qualified tender of the outstanding loan amount.
Plaintiff also asserts that the 2007 appraisal, which valued the property at more than $3.8 million, should satisfy any doubts as to his satisfy his tender obligation. Of course, it is well known that housing prices have fallen dramatically since 2007, and it would be entirely inappropriate to draw any conclusions whatsoever about the value of plaintiff's property from an appraisal done more than four years ago. In any event, if the property were currently worth anywhere near this amount, plaintiff would not be in the position he is now, namely unable to produce a single offer to purchase the home for more than $500,000.
Although rescission is a statutory remedy under TILA, "it remains an equitable
Furthermore, because plaintiff's rescission claim fails, it is appropriate to grant partial summary judgment to defendants with respect to defendants' counterclaims. Specifically, defendants are entitled to a declaration that the Haases are in default on their note and owe defendants the note's balance. As to the amount of interest, penalties, and attorney's fees sought by defendants, it is appropriate to grant the parties leave to file supplemental memoranda concerning these remaining matters.
Accordingly, and for good cause,
It is hereby
It is further