In Walsh v. Household Finance Corp. III, 2016 WL 1394435 (D.N.J. Apr. 7, 2016), the United States District Court of New Jersey vacated the entry of default against defendant Household Finance Corp. III (HFC III) in an action by plaintiffs alleging that HFC III and other defendants violated the Truth in Lending Act ("TILA") and related Regulation Z and seeking rescission of a note and mortgage on their home.

On March 21, 2007, plaintiffs obtained a loan from HFC III to refinance an existing mortgage on their house in Englewood, New Jersey. On December 30, 2014, HFC III assigned the mortgage to defendant US Bank, as Trustee for LSF9. The assignment was recorded on January 14, 2015. On February 20, 2015, plaintiffs mailed a Notice of Rescission to HFC III and U.S. Bank.

On June 17, 2015, plaintiffs filed their complaint, which was later amended on July 1, 2015 to add LSF9 as a defendant. A summons was issued to all defendants and returned executed on October 25, 2015. With respect to HFC III, the process server affirmed that it left a copy of the summons and amended complaint with a person authorized to accept service on behalf of HFC III. On November 2, 2015, following plaintiffs' request, default was entered against HFC III. On November 30, 2015, HFC III filed a motion to vacate the entry of default against it.

The Court, in exercising its discretion to vacate default, considered the following: (1) whether plaintiffs will be prejudiced, (2) whether HFC III has a meritorious defense and (3) whether the default was the result of HFC III's culpable conduct. The Court determined that all three factors weighed in favor of vacating default.

First, the Court found that there was no discernable prejudice to plaintiffs from setting aside the default against HFC III, noting that nothing of significance had occurred since the entry of default and there is no indication that evidence has been lost or witnesses have become unavailable. The Court rejected plaintiffs' argument that certain unrelated litigation pertaining to HSBC, the parent corporation of HFC III, demonstrates that HSBC is an "international crime syndicate" and that therefore, there is a risk of destruction of evidence by HFC III--finding such argument to be speculative in the extreme.

Second, the Court found that HFC III presents a meritorious defense. HFC III contends that plaintiffs’ claims are timebarred under TILA, pursuant to which plaintiffs’ right of rescission expired three years after the loan consummation date in March 2007. According to HFC III, plaintiffs did not first seek rescission until nearly five years after the deadline to rescind, on February 20, 2015.

Lastly, the Court found that the default was not the result of HFC III’s culpable conduct, but rather, the result of a simple case of inadvertence due the misdirection of the summons and amended complaint to the wrong department at HFC III. The Court administratively terminated the motions to dismiss filed by U.S. Bank and LSF9 to allow all of the defendants to more efficiently assert their arguments and defenses regarding which defendant bears responsibility for which claims.