Gilbert v. Residential Funding LLC

• Decision Date: 03 May 2012
• Docket Number: No. 10–2295.,10–2295.
• Citation: 678 F.3d 271
• Parties: Rex T. GILBERT, Jr.; Daniela L. Gilbert, Plaintiffs–Appellants, v. RESIDENTIAL FUNDING LLC; GMAC Mortgage LLC; Deutsche Bank Trust Company Americas, as Trustee for Residential Accredit Loans, Incorporated, Defendants–Appellees, and David A. Simpson, Substitute Trustee, Trustee.
• Court: U.S. Court of Appeals — Fourth Circuit

678 F.3d 271

Rex T. GILBERT, Jr.; Daniela L. Gilbert, Plaintiffs–Appellants,

v. RESIDENTIAL FUNDING LLC; GMAC Mortgage LLC; Deutsche Bank Trust Company Americas, as Trustee for Residential Accredit Loans, Incorporated, Defendants–Appellees,andDavid A. Simpson, Substitute Trustee, Trustee.

No. 10–2295.

United States Court of Appeals, Fourth Circuit.

Argued: Jan. 24, 2012.

Decided: May 3, 2012.

ARGUED:Katherine Suzanne Parker–Lowe, Ocracoke, North Carolina, for Appellants. Marc James Ayers, Bradley Arant Boult Cummings, LLP, Birmingham, Alabama, for Appellees. ON BRIEF:Nicholas J. Voelker, Bradley Arant Boult Cummings, LLP, Charlotte, North Carolina, Jonathan M. Hooks, Bradley Arant Boult Cummings, LLP, Birmingham, Alabama, for Appellees.

Before TRAXLER, Chief Judge, FLOYD, Circuit Judge, and J. MICHELLE CHILDS, United States District Judge for the District of South Carolina, sitting by designation.

Affirmed in part, reversed in part, and remanded by published opinion. Judge FLOYD wrote the opinion, in which Chief Judge TRAXLER and Judge CHILDS joined.

OPINION

FLOYD, Circuit Judge:

Rex and Daniela Gilbert appeal the district court's dismissal of their claim that Deutsche Bank Trust Company Americas (Deutsche), as trustee for Residential Accredit Loans, Inc. (RAL); David A. Simpson (Simpson), substitute trustee; Residential Funding LLC (RFL); and GMAC Mortgage LLC (GMAC) violated various consumer protection laws in connection with a mortgage the Gilberts secured on their home, located at 134 West End Road, Ocracoke, North Carolina (the subject property). Specifically, the Gilberts allege that they are entitled to relief on account of violations of the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601–1667(f), and its implementing regulation, Regulation Z, 12 C.F.R. § 1026 (previously codified at 12 C.F.R. § 226); North Carolina usury law, N.C. Gen.Stat. § 24; the North Carolina Unfair and Deceptive Trade Practices Act (NCUDTPA), id.§ 75–1.1; and North Carolina's Prohibited Acts by Debt Collectors statute, id. § 75–50. The Gilberts also claim a breach of contract and that Deutsche lacks the authority to enforce the loan.

Appellees filed a motion to dismiss, which the district court granted. The Gilbertstimely appealed. For the reasons that follow, we affirm in part, reverse in part and remand for further proceedings.

I.

We review the district court's decision granting a motion to dismiss de novo, and we view the facts in the light most favorable to the non-prevailing party. See Chaudhry v. Mobil Oil Corp., 186 F.3d 502, 504 (4th Cir.1999).

On May 5, 2006, Rex Gilbert executed an adjustable rate note with First National Arizona to refinance the existing lien on the subject property. Pursuant to the terms of the note, Mr. Gilbert agreed to pay a principal amount of $525,000, plus interest to the bank. The Gilberts executed a deed of trust on the subject property to secure the note. As a part of the transaction, First National Arizona provided several disclosures, including a “Truth in Lending Disclosure Statement,” a “Notice of Right to Cancel,” a “Variable Rate Mortgage Program Disclosure,” a “HUD–1 Settlement Statement,” and a “First Payment Letter.”

Thereafter, according to the district court, First National Arizona transferred its interest in the Gilberts' mortgage to First National Bank of Nevada, First National Bank of Nevada transferred its interest in the mortgage to RFL, and RFL sold its interest to Deutsche, as the trustee for RAL. Gilbert v. Deutsche Bank Trust Co. Ams., No. 09–CV–181–D, 2010 WL 2696763, at *1 (E.D.N.C. July 7, 2010). Thus, the district court stated, Deutsche, as the trustee for RAL, currently owns and holds the note and deed of trust on the subject property. Id. RFC is the master servicer and GMAC is the subservicer. Id. at *2.

The Gilberts defaulted on the loan in 2008. Subsequently, Deutsche chose Simpson as the substitute trustee of the deed of trust. Id. On March 12, 2009, Simpson filed a foreclosure action against the Gilberts in the Hyde County Superior Court.

The Gilberts' counsel wrote a letter to GMAC dated April 5, 2009, in which she alleged several violations of TILA, provided notice that the Gilberts were rescinding their mortgage transaction, and requested that GMAC cancel its security interest in the subject property and return all consideration paid by the Gilberts. In a letter dated April 14, 2009, counsel for GMAC responded that GMAC had reviewed the Gilberts' file and found “no basis to conclude that there were any material disclosure errors that would give rise to an extended right of rescission.” As such, counsel for GMAC stated that they would not rescind the transaction.

On June 2, 2009, the Clerk of the Hyde County Superior Court conducted a foreclosure hearing, after which she entered a June 17, 2009, order allowing Simpson to proceed with the foreclosure. According to the order, the Clerk found that Deutsche was the holder of the subject note and deed of trust and that the note evidenced a valid debt. The Gilberts appealed to the Hyde County Superior Court.

Following a de novo hearing on the matter on August 18, 2009, the superior court allowed the foreclosure proceeding to go forward. In doing so, the court relied in part on an affidavit signed by Jeffrey Stephan, a signing officer for GMAC, certifying the validity of the indebtedness pursuant to the note as well as Deutsche's status as the current owner and holder of the note. The Gilberts appealed that decision to the North Carolina Court of Appeals.

On September 14, 2009, while their appeal was pending, the Gilberts filed suit in the Hyde County Superior Court against Appellees seeking, among other things, to enjoin the mortgage foreclosure sale and to rescind their May 5, 2006, loan. They alleged violations of TILA by Appellees. The Gilberts also claimed that Appellees violated North Carolina usury law, engaged in unfair and deceptive trade practices, engaged in prohibited debt collection acts, and breached the mortgage contract. The Gilberts further maintained that Deutsche was without authority to enforce the note because of a defect in the allonge, which granted Deutsche an interest in the note.

Appellees removed the Gilberts' suit to the district court and subsequently filed a motion to dismiss the complaint, which the district court granted. This appeal, in which the Gilberts contest the district court's dismissal of their TILA, usury, and NCUDTPA claims, followed. They also assign error to the district court's determination that res judicata barred them from raising claims related to the endorsement on the allonge to the note, as well as the district court's denial of their motion to alter or amend the judgment pursuant to Rule 59(e) of the Federal Rules of Civil Procedure.

After becoming aware that Stephan had engaged in improper affidavit practices in unrelated cases, the Gilberts filed with the district court a motion for relief pursuant to Rule 60(b) of the Federal Rules of Civil Procedure and Rule 12.1 of the Federal Rules of Appellate Procedure. In light of this new evidence, they requested that the district court file an order indicating whether it would be inclined to relieve them of its prior order dismissing their claims and its denial of their Rule 59(e) motion.

On May 3, 2011, the North Carolina Court of Appeals reversed the superior court's decision to allow Simpson to proceed with a foreclosure sale, finding that “the record is lacking of competent evidence sufficient to support that [Deutsche] is the owner and holder of Mr. Gilbert's note and deed of trust.” In re Simpson, 711 S.E.2d 165, 175 (N.C.Ct.App.2011). The court was also troubled by the fact “that [GMAC] was recently found to have submitted a false affidavit by Signing Officer Jeffrey Stephan in a motion for summary judgment against a mortgagor in the United States District Court of Maine.” Id. at 173 n. 2. The Gilberts subsequently supplemented their Rule 60(b) motion with a copy of the Simpson opinion.

On June 15, 2011, the district court filed an order stating that “should the Fourth Circuit return jurisdiction to this court, the court would grant the [Rule 60(b) ] motion, dismiss the federal claims for the reasons stated in the July 7, 2010[,] order [dismissing all of the Gilberts' claims], and remand all state-law claims to Hyde County Superior Court.” Gilbert v. Deutsche Bank Trust Co. Ams., No. 4:09–CV–181–D (E.D.N.C. June 15, 2011). In light of this order, the Gilberts filed a motion with us to reverse and remand the case to the district court. We denied the motion. Accordingly, we now undertake a de novo review of each of the Gilberts' assignments of error. See Chaudhry, 186 F.3d at 504.

II.

A.

The Gilberts first argue that the district court erred in dismissing their TILA claim on the basis that they had failed to exercise their extended right to rescind in a timely manner.

In adopting TILA, Congress declared that “[i]t is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformeduse of credit.” 15 U.S.C. § 1601(a). As such, TILA requires that a creditor make certain material disclosures at the time the loan is made. Id. § 1638(a). If the creditor fails to comply with this mandate, the borrower has the right to rescind up to three years after the transaction. Id.§ 1635(f).

The Gilberts closed the loan with First National Arizona on May 5, 2006, but they did not file the instant lawsuit until September 14, 2009. They notified GMAC by letter, however, that they were exercising their right to rescind in April 2009. So, although the Gilberts did not file this lawsuit within three years of closing the loan, they did notify GMAC that they were exercising their right to rescind during that three-year time period.

There is a split of authority as to whether the...