Fin. Freedom Acquisition, LLC v. Standard Bank & Trust Co.

• Decision Date: 24 September 2015
• Docket Number: No. 117950.,117950.
• Citation: 43 N.E.3d 911
• Parties: FINANCIAL FREEDOM ACQUISITION, LLC (OneWest Bank N.A., Appellee), v. STANDARD BANK AND TRUST COMPANY et al., Appellant.
• Court: Illinois Supreme Court

43 N.E.3d 911

FINANCIAL FREEDOM ACQUISITION, LLC (OneWest Bank N.A., Appellee)

v.STANDARD BANK AND TRUST COMPANY et al., Appellant.

No. 117950.

Supreme Court of Illinois.

Filed Sept. 24, 2015.

Rehearing Denied Nov. 23, 2015.

John K. Wheeler, Westmont, for appellant.

Louis J. Manetti, Jr., Codilis & Associates, P.C., Burr Ridge, for appellee.

James A. Brady and Michelle A. Weinberg, Legal Assistance Foundation, Chicago, for amici curiae National Consumer Law Center and National Association of Consumer Advocates.

OPINION

Justice BURKE delivered the judgment of the court, with opinion.

¶ 1 On October 14, 2010, plaintiff, OneWest Bank N.A.¹ filed a complaint against defendant, Standard Bank and Trust Company, as Trustee u/t/a dated 03/18.1991 a/k/a Trust No. 5193 (Standard), along with unknown beneficiaries of that trust to foreclose a mortgage on property held by the trust. In response, Standard filed an answer and counterclaim on July 19, 2011. In the counterclaim, Standard sought to rescind the mortgage, alleging violations of the Truth in Lending Act (TILA). 15 U.S.C. § 1601 et seq. (2006). The circuit court of Cook County granted plaintiff's motion to dismiss the counterclaim pursuant to section 2–619.1 of the Code of Civil Procedure (Code) (735 ILCS 5/2–619.1 (West 2010) ) and Standard appealed. The appellate court affirmed, with one justice dissenting. 2014 IL App (1st) 120982, 383 Ill.Dec. 25, 13 N.E.3d 776. We granted Standard's petition for leave to appeal. For the reasons that follow, we reverse the judgment of the appellate court and remand this cause for proceedings consistent with this opinion.

¶ 2 BACKGROUND

¶ 3 On July 9, 2009, Mary Jane Muraida (Mary) and Standard entered into a consumer credit transaction for an adjustable rate home equity conversion mortgage, also known as a reverse mortgage, along with an adjustable rate note with Marquette National Bank.² The note was secured by a condominium located at 10420 South Circle Drive, Unit 21B, Oak Lawn, Illinois, which was the property held in Trust No. 5193 and Mary's principal dwelling.

¶ 4 The mortgage identified the mortgagor and borrower as “Standard Bank & Trust as Trustee under trust agreement dated March 18 1991 and known as Trust No. 5193” and the note was signed by both Mary and Standard. Attached to and made a part of the mortgage was an exculpatory clause, which provided:

“This MORTGAGE is executed by STANDARD BANK & TRUST COMPANY, not personally but as Trustee as aforesaid in the exercise of the power and authority conferred upon and vested in it as such Trustee (and said STANDARD BANK & TRUST COMPANY, hereby warrants that it possesses full power and authority to execute this instrument), and it is expressly understood and agreed that nothing herein or in said Note contained shall be construed as creating any liability on the said Trustee or on said STANDARD BANK & TRUST COMPANY personally to pay the said Note or any interest that may accrue thereon, or any indebtedness accruing hereunder, or to perform any covenant either express or implied herein contained, or on account of any warranty or indemnification made hereunder, all such liability, if any, being expressly waived by Mortgagee and by every person now or hereafter claiming any right or security hereunder, and that so far as the Trustee and its successors and said STANDARD BANK & TRUST COMPANY personally are concerned, the legal holder or holders of said Note and the owner or owners of any indebtedness accruing hereunder should look solely to the premises hereby conveyed for the payment thereof, by the enforcement of the lien hereby created, in the manner herein and in said Note provided or by action to enforce the personal liability of any guarantor, if any.”

¶ 5 Under the terms of the note, Standard had no personal liability and the only means of enforcing a security interest was through the property itself. In addition, the note provided that the loan became immediately due upon the death of the borrower, the sale of the property by the borrower, or if the borrower failed to use the property as his/her principal dwelling for more than 12 consecutive months.

¶ 6 Under TILA, in all consumer credit transactions in which a security interest is retained in any property which is used as the principal dwelling of the person to whom credit is extended, the lender is required to provide the borrower with certain disclosure statements, including a notice that the borrower has a right to rescind the transaction until midnight of the third business day following consummation of the transaction. 15 U.S.C. § 1635(a) (2006). A failure to provide such information is a violation which gives the consumer an extended right to rescind for up to three years after the consummation of the transaction. Mary received the TILA disclosures. Although the same documents were prepared for Standard as trustee, plaintiff never delivered them to Standard.

¶ 7 On May 20, 2010, Mary died. On October 14, 2010, plaintiff filed a complaint against Standard to foreclose the mortgage. On June 2, 2011, Standard sent plaintiff a notice that it was exercising its right to rescind the transaction. Plaintiff did not respond. Thereafter, on July 19, 2011, Standard filed an answer to plaintiff's complaint and a counterclaim. In the counterclaim, Standard alleged violations of TILA and sought rescission of the transaction, termination of the security interest, statutory damages for the TILA violations, statutory damages for plaintiff's failure to respond to the rescission notice, and reasonable attorney fees. In response, plaintiff filed a combined motion to dismiss under section 2–619.1 of the Code. 735 ILCS 5/2–619.1 (West 2010). On January 5, 2012, following a hearing, the circuit court ordered the dismissal of Standard's counterclaim with prejudice.

¶ 8 It appears from the record that, on January 18, 2012, Standard provided plaintiff with the full amount due on the mortgage and note and then terminated the trust, deeding its interest in the subject property to a third party. Thereafter, plaintiff filed a motion to voluntarily dismiss its complaint for foreclosure, and on March 2, 2012, the court dismissed the action with prejudice. Standard then appealed the dismissal of its counterclaim.

¶ 9 In the appellate court, Standard argued that, as trustee, it had the right to rescind and it timely exercised that right. In addition, Standard argued it had a contractual right to rescind.

2014 IL App (1st) 120982, ¶ 13, 383 Ill.Dec. 25, 13 N.E.3d 776. Plaintiff disagreed, arguing that a land trust is not a “consumer” as that term is defined in TILA and, therefore, Standard, as trustee, had no standing to rescind. Plaintiff also argued that Standard had no right to rescind because the property was not Standard's principal dwelling and because Standard was not a party to the transaction. Id. In a divided opinion, the appellate court affirmed the circuit court's judgment. Id. ¶ 14.

¶ 10 The appellate court majority analyzed the circuit court's dismissal order under section 2–615 (id. ¶ 16) and concluded there were no set of facts under which Standard could assert a claim for rescission under TILA. The majority concluded that, although Standard's counterclaim was timely filed, Standard was not an “obligor” under TILA and, therefore, was not entitled to rescind the transaction. Id. ¶ 24. Noting that neither TILA nor Regulation Z (the regulations interpreting TILA) define “obligor,” the appellate court looked to the dictionary definition, to find that an “obligor” is “ ‘[o]ne who has undertaken an obligation; a promisor or debtor.’ ” Id. (quoting Black's Law Dictionary 1181 (9th ed. 2009)). Relying on Ferreira v. Mortgage Electronic Registration Systems, Inc., 794 F.Supp.2d 297 (D.Mass.2011), the appellate court then held that the right to rescind can “be exercised only by the obligor, i.e. the person to whom credit is extended.” (Emphasis omitted.) 2014 IL App (1st) 120982, ¶ 24, 383 Ill.Dec. 25, 13 N.E.3d 776.

¶ 11 According to the appellate court, although both Mary and Standard signed the note, Standard “executed an exculpatory clause expressly disclaiming” any obligations under the loan documents. Id. ¶ 26. Thus, the appellate court held “[t]his complete disclaimer of all liability left Standard Bank ‘free of any reciprocal responsibilities whatever.’ ” Id. Moreover, the court held there was no evidence Standard received any benefit from the transaction. Accordingly, the appellate court reasoned that Standard's disclaimer of all liability left Mary as the only obligor and because TILA only gives obligors the right to rescind, Standard had no right to rescind. Id. For these reasons, the appellate court concluded there were no set of facts Standard could assert to state a claim for rescission. Id.

¶ 12 The appellate court also held that Standard forfeited any right it might have had to statutory damages because of its failure to raise the issue on appeal. Id. ¶ 28. In a footnote, the appellate court suggested this claim might be barred by the statute of limitations. Id. ¶ 28 n. 8. Accordingly, the appellate court affirmed the circuit court's dismissal of Standard's counterclaim with prejudice.

¶ 13 Justice Gordon dissented, finding Standard alleged sufficient facts to support its claim for rescission. Relying on the plain language of section 1635(a) of TILA, Justice Gordon wrote that to assert a claim for rescission, Standard needed to allege that: “(1) ‘in the case of any consumer credit transaction,’ (2) ‘a security interest * * * is or will be retained or acquired in any property’ and (3) the property ‘is used as the principal dwelling of the person to whom credit is extended.’ [Citation.]” Id. ¶ 36 (Gordon, J., dissenting).

¶ 14 With respect to the first element, Justice Gordon opined that, while Standard had to allege a “consumer credit transaction” was involved, this was different than requiring Standard to show it was a consumer in that...