The 10th Circuit Court of Appeals recently affirmed a decision of the U.S. District Court for the District of Utah. In Tadehara v. HSBC Bank USA, N.A., et al., No. 11-4176, 2012 WL 2581037 (10th Cir. July 5, 2012), the 10th Circuit rejected appellants’ argument that assignments made by Mortgage Electronic Registration Systems, Inc., (MERS) of a deed of trust were invalid. The court also held that appellants failed to assert certain rights under the Truth in Lending Act (TILA) by failing to file suit within three years of their loan transaction.
Appellants argued that MERS—which had been named as the beneficiary and granted the power to foreclose under the deed of trust at issue—lacked authority to effectuate the assignments, which then prevented the assignee bank from foreclosing. Citing to Commonwealth Property Advocates, LLC, v. MERS, 2011 UT App 232, 263 P.3d 397, cert. denied, 268 P.3d 192 (Utah 2011), the 10th Circuit pointed out that appellants’ interpretation of Utah statute had been “squarely rejected by the Utah Court of Appeals,” and explained that the reasoning of that case had been endorsed by the 10th Circuit in a different case of the same name, Commonwealth Property Advocates, LLC v. MERS, 680 F.3d 1194 (10th Cir. 2011). The Utah Court of Appeals had held that nothing in Utah statute prevents MERS from acting on behalf of a lender, and that transfers of interest such as those at issue in appellants’ case do not strip an assignee of a deed of trust from exercising rights under it, including the right to foreclose.
The 10th Circuit upheld the district court and rejected appellant’s arguments, holding that under the authority of the Commonwealth decisions, “it was entirely proper for the district court to dismiss” plaintiff’s claim. With Tadehara, the 10th Circuit reiterates its strong view that MERS can act on behalf of lenders, a view shared by courts in other jurisdictions. For more on the Commonwealth case from the Utah Court of Appeals, in which appellees were represented by Ballard Spahr attorneys, click here. For more on the 10th Circuit’s endorsement of the reasoning in Commonwealth, click here.
The 10th Circuit also rejected appellant’s TILA claims. TILA gives borrowers the right to rescind a consumer credit transaction that involves a security interest in the borrowers’ principal dwelling. If a creditor complies with TILA’s disclosure requirements, the “right of rescission” expires three days from the date the transaction is consummated or the house is sold, whichever happens first. If the disclosures are not provided, the right of rescission is extended from three days to three years.
Appellants alleged that the originating lender had failed to provide required disclosures, and that they sent a letter to defendants notifying them of their intent to rescind the loan transaction. Appellants argued that by sending the letter within three years of the transaction, they had effectively exercised their rights under TILA. The 10th Circuit rejected this argument, explaining that TILA Section 1635(f) is “a statute of repose which limits the ability to file an action or assert a defense.” Citing to a recent 10th Circuit opinion, Rosenfield v. HSBC Bank, USA, No. 10-1442, 2012 WL 2087193 (10th Cir. June 11, 2012), the 10th Circuit explained that it is not enough for a borrower to simply send a letter within three years of the transaction; the borrower must file an action in court within that timeframe or their right of rescission is lost. With Tadehara and Rosenfield, the 10th Circuit joins the Third and Ninth circuits in holding that notice alone within the three-year period is insufficient to validly exercise a right to rescind. The Fourth Circuit, however, has held to the contrary. For more on this and other issues, click here.