Lakeview Loan Servicing, LLC v. Pendleton

• Decision Date: 24 December 2015
• Docket Number: No. 1–14–3114.,1–14–3114.
• Citation: 47 N.E.3d 349
• Parties: LAKEVIEW LOAN SERVICING, LLC, Plaintiff–Appellee, v. Mary PENDLETON, Defendant and Third–Party Plaintiff–Appellant (Bank of America National Association, Third–Party Defendant–Appellee).
• Court: United States Appellate Court of Illinois

47 N.E.3d 349

LAKEVIEW LOAN SERVICING, LLC, Plaintiff–Appellee
v.
Mary PENDLETON, Defendant and Third–Party Plaintiff–Appellant (Bank of America National Association, Third–Party Defendant–Appellee).

No. 1–14–3114.

Appellate Court of Illinois, First District, Fourth Division.

Dec. 24, 2015.

47 N.E.3d 349

Michelle Weinberg, of Legal Assistance Foundation, Chicago, for appellant.

Peter A. Kowals, of Hauselman Rappin & Olswang, Ltd., Chicago, for appellee Lakeview Loan Servicing, LLC.

Kelley A. Tibble, of Reed Smith, LLP, Chicago, for appellee Bank of America National Association.

OPINION

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

¶ 1 The question in this appeal is whether an individual who provides a mortgage on her home as security for a loan, but who is not a party to the loan itself, is entitled to a notice of a right to rescind the mortgage under the federal Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (2006) ). We hold that she is so entitled.

¶ 2 Defendant and third-party plaintiff Mary Pendleton provided a mortgage on her home as security for a loan made to her daughter, Deborah Reid. Pendleton did not sign the promissory note and did

47 N.E.3d 350

not receive any TILA disclosures. Her daughter later defaulted on the loan, and foreclosure proceedings were initiated. In those proceedings, Pendleton attempted to rescind the mortgage, arguing that her right to rescind under TILA had not expired, because she never received the necessary TILA disclosures informing her of that right. The trial court rejected Pendleton's argument, finding that TILA did not afford her a right to rescind because she was not an “obligor” under the statute, and dismissed her counterclaim and third-party complaint seeking rescission of the mortgage. In ruling that Pendleton was not an “obligor” for the purposes of TILA because she was not personally liable for the loan on which her house was mortgaged, the trial court understandably relied on a recently-issued decision of the appellate court in Financial Freedom Acquisition, LLC v. Standard Bank & Trust Co., 2014 IL App (1st) 120982, 383 Ill.Dec. 25, 13 N.E.3d 776.

¶ 3 But during the pendency of this appeal, our supreme court reversed the judgment of the appellate court in that case and squarely rejected its reasoning. See Financial Freedom Acquistion, LLC v. Standard Bank & Trust Co., 2015 IL 117950, ¶¶ 23, 30, 398 Ill.Dec. 1, 43 N.E.3d 911. Although Financial Freedom involved a reverse mortgage, whereas this case involves a more traditional home-equity mortgage, the supreme court's reasoning applies with equal force in this matter. We thus vacate the trial court's order dismissing Pendleton's counterclaim and third-party complaint and striking her affirmative defenses, and we remand for further proceedings.

¶ 4 I. BACKGROUND

¶ 5 Pendleton and Reid co-owned the home that is the subject of the foreclosure proceeding in this case. On June 25, 2010, Reid executed a promissory note in favor GSF Mortgage Corporation (GSF), showing that GSF had loaned Reid $142,127. Pendleton did not sign the note.

¶ 6 The note was secured by a mortgage on Pendleton and Reid's home, given to GSF's nominee, Mortgage Electronic Registration Systems, Inc. (MERS). The mortgage included a paragraph that stated, in relevant part:

“Any Borrower who co-signs this [mortgage] but does not execute the Note: (a) is co-signing this [mortgage] only to mortgage, grant and convey that Borrower's interest in the Property under the terms of this [mortgage]; (b) is not personally obligated to pay the sums secured by this [mortgage]; and (c) agrees that Lender and any other Borrower may agree to extend, modify, forbear or make any accommodations with regard to the terms of this [mortgage] or the Note without that Borrower's consent.”

Both Pendleton and Reid were listed as “Borrowers” under the mortgage, and they both signed the mortgage.

¶ 7 On May 20, 2011, Reid filed a complaint seeking to partition the property between her and Pendleton (trial court case number 11 CH 18520). Pendleton and GSF were listed as defendants in that action. (The partition action is not a subject of this appeal.)

¶ 8 On September 20, 2011, MERS assigned the mortgage to Bank of America, N.A. (Bank of America). GSF endorsed the note to Bank of America.

¶ 9 In March 2012, Pendleton filed a third-party complaint against MERS and Bank of America, alleging a violation of TILA for failing to provide certain disclosures, including notice of her right to rescind the mortgage, and pleading for rescission

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See 15 U.S.C. §§ 1635, 1638 (2006) ; 12 C.F.R. § 226.23(b)(1) (2010).

¶ 10 On August 28, 2012, Bank of America filed a complaint to foreclose on the mortgage (trial court case number 12 CH 32727). Bank of America alleged that the note had been in default since May 1, 2011. The circuit court granted Pendleton's motion to consolidate Bank of America's foreclosure suit with Reid's partition suit.

¶ 11 After the cases were consolidated, Pendleton filed a combined answer and counterclaim. Pendleton, who was 84 years old at the time, alleged that she and her husband had bought her home in 1969. In 1979, they divorced, and Pendleton received the entire property. Pendleton claimed that, in 1993, she agreed to let Reid live at the house “in exchange for [Reid] helping * * * Pendleton with the bills.” At the time Reid moved in with Pendleton, “there was no mortgage on the Property.”

¶ 12 After Reid moved in, Pendleton told Reid that she wanted to take out a “small loan” to make some improvements to the property. According to Pendleton, she and Reid agreed that, in lieu of Reid paying rent to stay at the house, she would make the payments on this loan. Reid brought Pendleton to a mortgage broker where “Pendleton signed some papers.” According to the answer and counterclaim, Pendleton “was unfamiliar with mortgages and did not understand the nature of the transaction.” And according to Pendleton's answer in the partition action, these documents led to Reid obtaining an ownership interest in the house, which Pendleton had never intended to give her. Pendleton alleged that Reid refinanced the mortgage in 1995, 1999, 2002, 2004, and 2010. Pendleton claimed that these six transactions “stripp[ed] the Property of the majority of its equity.” Pendleton said that she “never received any benefit from any of these loans.”

¶ 13 Pendleton alleged that, in June 2010, Reid asked her “to co-sign a new loan to help [Reid] lower her interest rate and/or loan payments.” Reid left “some papers” on the dining room table with a note directing Pendleton to sign them. Pendleton signed the documents “because her understanding was that by signing the documents she could help [Reid] lower her loan payments.” The documents were not notarized when Pendleton signed them. According to Pendleton, she never received any copies of the signed mortgage or “copies of any disclosures about the APR, the amount financed, the finance charge, the total of payments, * * * the schedule of payments[, or] the notice of her three-day right to rescind the transaction,” all of which she alleged were required under TILA. See 15 U.S.C. §§ 1635, 1638 (2006) ; 12 C.F.R. § 226.23(b)(1) (2010).

¶ 14 Thus, in three different ways—in her third-party complaint against Bank of America before it initiated foreclosure proceedings, and then as both a counterclaim and affirmative defense to Bank of America's foreclosure complaint—Pendleton alleged in the trial court that she had never received the necessary disclosures under TILA. Specifically, Pendleton argued that, because she never received notice of her right to rescind the mortgage within three days of executing it, she could rescind it at any time within three years of its execution. Pendleton also alleged that she exercised that right when she sent “notices of rescission to GSF and Bank of America on or about November 22, 2011.”¹

47 N.E.3d 352

¶ 15 Before Pendleton filed her answer and counterclaim, Bank of America had assigned the mortgage to Lakeview Loan Servicing, LLC (Lakeview). The trial court granted Lakeview's motion to be substituted into the case in Bank of America's place.

¶ 16 Lakeview moved to dismiss Pendleton's affirmative defense and counterclaim pursuant to section 2–619.1 of the Code of Civil Procedure (735 ILCS 5/2–619.1 (West 2012) ). Lakeview raised three arguments: (1) that Pendleton did not sign the note and was thus not an “obligor” entitled to TILA disclosures; (2) that, even if she was entitled to TILA disclosures, her counterclaim was not filed within TILA's three-year repose period; and (3) that Pendleton failed to plead that she had “a plausible ability to tender” payment of the note, which, according to Lakeview, was necessary for her to exercise her right to rescind the mortgage.

¶ 17 In response to Lakeview's motion to dismiss, Pendleton argued that she was entitled to TILA disclosures because TILA's implementing regulation, Regulation Z (12 C.F.R. § 226.1 et seq. (2010) ), provides that any individual whose property is subject to a mortgage,...