Merritt v. Countrywide Fin. Corp.

Decision Date16 July 2014
Docket NumberNo. 09–17678.,09–17678.
Citation759 F.3d 1023
PartiesDavid MERRITT; Salma Merritt, Plaintiffs–Appellants, v. COUNTRYWIDE FINANCIAL CORPORATION, a Delaware corporation; Countrywide Home Loans, Inc., a New York corporation; Angelo Mozilo, an individual; Michael Colyer, an individual; David Sambol, an individual; Bank of America, NA; Ken Lewis, an individual; John Benson, Defendants–Appellees.
CourtU.S. Court of Appeals — Ninth Circuit


Jacob N. Foster (argued), Kasowitz, Benson, Torres & Friedman LLP, San Francisco, CA, for PlaintiffsAppellants.

James Goldberg (argued) and Stephanie A. Blazewicz, Bryan Cave LLP, San Francisco, CA; Douglas E. Winter and Angela Buenaventura, Bryan Cave LLP, Washington, D.C., for DefendantsAppellees Countrywide Home Loans, Inc., Countrywide Financial Corporation, Bank of America Corporation, Michael Coyler, David Sambol, and Kenneth Lewis.

Charles Elder and Caleb Bartel, Irell & Manella LLP, Los Angeles, CA, for DefendantAppellee Angelo Mozilo.

Susan H. Handelman, Ropers, Majeski, Kohn & Bently, Redwood City, CA, for DefendantAppellee John Benson.

Appeal from the United States District Court for the Northern District of California, James Ware, District Judge, Presiding. D.C. No. 5:09–cv–01179–JW.

Before: ANDREW J. KLEINFELD and MARSHA S. BERZON, Circuit Judges, and WILLIAM E. SMITH, District Judge.*


BERZON, Circuit Judge:

Once again, we address issues arising from Countrywide Financial Corporation's residential lending business during the period shortly before novel practices by lenders resulted in widespread distress in the housing markets. See, e.g., Balderas v. Countrywide Bank, N.A., 664 F.3d 787 (9th Cir.2011); Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034 (9th Cir.2011). David Merritt and Salma Merritt (“the Merritts”) sued Countrywide Financial Corporation and various other defendants (collectively “Countrywide” or “CHL”) involved in their residential mortgage, alleging violations of numerous federal statutes. The district court dismissed the claims pleaded, with prejudice.1 This appeal followed.

We consider in this opinion two issues raised by that dismissal: (1) whether the district court properly dismissed the Merritts' Truth in Lending Act (“TILA”) rescission claim because they did not tender the rescindable value of their loan prior to filing suit or allege ability to tender its value in their complaint; and (2) whether the Merritts' claims under Section 8 of the Real Estate Settlement Practices Act (“RESPA”) may proceed, including whether the RESPA limitations period, 12 U.S.C. § 2614, may be equitably tolled. 2

Factual & Procedural Background

In March 2006, the Merritts took out both an adjustable-rate mortgage 3 and a home equity line of credit (“HELOC”) with Countrywide on a home they purchased in Sunnyvale, California.4 Initially, the Merritts' Countrywide agent had told them, “I can pretty much guaranty you that we can get you in your new home for $1800 per month and possibly even as low as $1,500.” Three days before closing, however, the agent told the Merritts that he had completed their loan package and that their monthly payments would be $4,400 a month for the first five years: $3,200 for the mortgage, plus $1,200 for the HELOC. When the Merritts balked, the agent replied that “the market had shifted” since his initial estimates. He told the Merritts that the $4,400 monthly payment was “the lowest that you'll find anywhere,” and if they did not close right away, they would lose their good-faith deposit. He did not disclose that the $4,400/month figure was based on a temporary, “teaser” interest rate rather than a fixed rate, and that the Merritts' monthly payments would be much higher once the teaser rate expired. The Merritts would not have accepted the loan if they had understood the terms.

The home's owner falsely represented himself throughout the process as the selling agent. As the sale approached, he spoke with the Merritts' Countrywide agent about getting the home appraised. The seller stated that he had found an appraiser who would provide an inflated appraisal of $739,000, above the home's actual value of about $690,000, so as to justify a higher sale price. The Countrywide agent responded that he preferred to select the appraiser himself, but that since Countrywide had used the seller's recommended appraiser before, he would agree to using him for this sale. The Countrywide agent, the seller, and the appraiser spoke over the phone, and the appraiser agreed to provide a $739,000 appraisal before having reviewed the property. The Merritts allege that Countrywide maintained a company practice of encouraging agents to select appraisers who would provide inflated appraisals, so as to increase the total amounts financed and thereby maximize Countrywide's profits.

On the date of closing, a Countrywide representative arrived at the Merritts' home with loan documents and said, “I will not have time to wait for you to read any of the documents, but just need you to sign these and if you have any questions or concerns afterwards, you can contact your loan agent.” The Merritts signed the documents, but between the small print and “confusing language,” did not understand the documents provided. The Countrywide representative did not give the Merritts copies of the signed documents to keep, only form notices of their right to rescind. The spaces where the lender would ordinarily fill in the relevant dates and deadlines on the form notices were left blank. The Merritts similarly were given a form for TILA disclosures, but with the spaces left blank for the annual percentage rate, finance charge, amount financed, total of payments, schedule of payments, and variable interest rate.

The day after the closing, the Merritts called their Countrywide agent and asked him to clarify the terms of their mortgage. The agent assured them that he would send them further documentation but never did. He also promised that they could refinance their mortgage at a lower interest rate after a year of on-time payments.

Over the next three years, the Merritts repeatedly requested from Countrywide the completed disclosures, to no avail. Meanwhile, Countrywide continued to send the Merritts monthly billing statements that did not disclose that the “minimum payment due” would only be applied to interest, and that they should pay more if they wanted to begin paying down the principal.

In 2009, Countrywide sent the Merritts the loan documents that they had been requesting for three years. By then, the Merritts had made about $200,000 in payments to Countrywide. The Merritts consulted with lawyers, who told them that they had been victims of “predatory lending.” They had their loan materials audited by an underwriter, who told them that he had identified numerous violations of state and federal law, including TILA, in the documentation provided by Countrywide.

Meanwhile, in August 2008, the Merritts suffered a loss of income that made them unable to afford their monthly payments. They repeatedly asked Countrywide to refinance or modify their mortgage into a conventional loan, but Countrywide refused.

In February 2009, the Merritts notified Countrywide that they wished to rescind their loan. Countrywide did not respond to the rescission request, instead offering to modify the loan. The modified loan offered was one the Merritts still could not afford.5

The Merritts filed this case pro se on March 18, 2009 and shortly thereafter amended the complaint.6 Countrywide moved to dismiss the complaint in its entirety. The district court granted the motion, with prejudice. As relevant to the issues in this opinion, the district court dismissed the Merritts' claim for rescission under TILA because the Merritts did not tender the value of their HELOC to Countrywide before filing suit, and dismissed their claims under Section 8 of RESPA as time-barred.

This appeal followed. We appointed pro bono counsel to represent the Merritts before this court.

A. TILA rescission

TILA provides two remedies for loan disclosure violations—rescission and civil damages, each governed by separate statutory procedures. 7 Under TILA, an obligor has the “right to rescind ... until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section ... whichever is later.” 15 U.S.C. § 1635(a). Regardless of whether the required information and forms have been delivered, [the] obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property.” Id. § 1635(f).

The TILA rescission provisions set out the following sequence of events for pursuing rescission: First, the obligor must notify the creditor of his intention to rescind, id. § 1635(a); then, within 20 days after receipt of notice of rescission, the creditor must return to the obligor any security interest, id. § 1635(b); and lastly, [u]pon the performance of the creditor's obligations under this section [i.e., upon return of the security interest], the obligor shall tender the property to the creditor.” Id. These procedures “shall apply except when otherwise ordered by a court.” Id.

Notably, [t]he sequence of rescission and tender set forth in § 1635(b) is a reordering of the common law rules governing rescission.” Williams v. Homestake Mortg. Co., 968 F.2d 1137, 1140 (11th Cir.1992) (citing 17A Am.Jur.2d Contracts § 590, at 600–01 (1991)). Specifically, [a]lthough tender of consideration received is an equitable prerequisite to rescission, the requirement was abolished by the Truth in Lending Act.” Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir.1974). “Under § 1635(b),” consequently,

all that the consumer need do is notify the creditor of his intent to rescind. The agreement is then automatically rescinded and the creditor...

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