U.S. Bank Nat'l Ass'n v. Manzo, 1–10–3115.

Decision Date10 November 2011
Docket NumberNo. 1–10–3115.,1–10–3115.
Citation960 N.E.2d 1238,2011 IL App (1st) 103115,356 Ill.Dec. 115
PartiesU.S. BANK NATIONAL ASSOCIATION, as Trustee for the Structured Asset Investment Loan Trust 2006–1, Plaintiff–Appellee and Counterdefendant–Appellee, v. Ezequiel MANZO and Cecelia Yepez, Defendants–Appellants (Ezequiel Manzo and Cecelia Yepez, Counterplaintiffs–Appellants; BNC Mortgage, Inc., Third–Party Defendant).
CourtUnited States Appellate Court of Illinois


Lloyd Brooks, Charles M. Howell, The Brooks Law Firm, Homewood, for Appellants.

Robert J. Emanuel, Joanne A. Sarasin, Melinda J. Morales, Much Shelist Denenberg Ament & Rubenstein, P.C., Chicago, for PlaintiffAppellee.


Justice FITZGERALD SMITH delivered the judgment of the court, with opinion.

[356 Ill.Dec. 117] ¶ 1 Ezequiel Manzo and Cecelia Yepez (hereinafter the Manzos), defendants and counterplaintiffs, appeal the circuit court's dismissal of their affirmative defense, counterclaim and third-party complaint pursuant to section 2–619 of the Illinois Code of Civil Procedure (Code of Civil Procedure) (735 ILCS 5/2–619 (West 2008)). The circuit court held that the Manzos' right to rescind a mortgage issued by plaintiff-appellee, U.S. Bank National Association, as trustee for the Structured Asset Investment Loan Trust 2006–1 (hereinafter, U.S. Bank), expired under the Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (2006)) when they failed to exercise it within three years of receiving the mortgage. The Manzos contend that the circuit court's dismissal was improper because they, in fact, exercised their right to rescind prior to the expiration of those three years by notifying the bank of their intent to rescind through several documents sent to the bank within that time frame. The Manzos further contend that even if they failed to properly notify the bank of their intent to rescind prior to the expiration of the three-year time period, their rescission claim should nevertheless survive pursuant to the “right of rescission in recoupment under State law” exception of TILA (see 15 U.S.C. § 1635(i)(3) (2006)) and section 13–207 of the Illinois Code of Civil Procedure (735 ILCS 5/13–207 (West 2008)). In addition, the Manzos contend that in dismissing their counterclaim as untimely filed the circuit court should not have also dismissed their section 1640 claim for damages (15 U.S.C. § 1640 (2006)) raised together with their rescission claim, but to which the three-year time frame articulated in section 1635(f) (15 U.S.C. § 1635(f) (2006)) did not apply. For the reasons that follow, we affirm in part and reverse and remand in part.


¶ 3 The record reveals the following undisputed facts and procedural history. On November 18, 2005, the Manzos obtained a loan from BNC Mortgage, Inc. (hereinafter, BNC). As security for the loan, the Manzos gave BNC a mortgage on their home located at 5340 South Richmond Street in Chicago, Illinois. Less than a year later, on or about August 11, 2006, U.S. Bank, filed a foreclosure action against the Manzos, asserting itself as the holder of the BNC loan (both the note and the mortgage) and alleging that the Manzos were in default of that loan for failing to pay their monthly mortgage payments beginning on May 1, 2006.

¶ 4 On September 11, 2006, the Manzos filed a pro se answer to U.S. Bank's complaint. This answer was made on a one-page, fill-in-the-blank form provided by the circuit court and stated only that the Manzos were “working with the bank to reinstate the mortgage.” On February 1, 2007, the Manzos, represented by counsel, filed an answer and affirmative defense to U.S. Bank's complaint, asserting only one affirmative defense, namely, that U.S. Bank had no standing as a plaintiff in the matter because no assignment was attached to the complaint.1

¶ 5 Thereafter, Manzos' counsel sent a series of letters to U.S. Bank's counsel attempting to negotiate a settlement to the foreclosure action. The first letter, dated April 13, 2007, states in pertinent part:

“Although our clients ideally would like to enter a loan modification, there are several affirmative defenses that we could assert on behalf of the Manzos against your client * * * if we are forced to litigate this matter. These affirmative defenses and/or counterclaims arise out of TILA violations.”

The April 13 letter further alleges that the bank violated TILA when the lender failed to provide the Manzos with copies of their notice of the right to rescind and certain finance charges and fees were not bona fide reasonable or disclosed. In addition, the letter claims that the Manzos understood nothing that happened during the course of the closing because they speak only Spanish and a translator was not provided for them. The letter concludes by stating that [i]n addition to the TILA violations outlined above, there are additional counterclaims and/or affirmative defenses the Manzos could assert arising out of violations of the Real Estate Settlement Procedures Act and from common law violations.”

¶ 6 The Manzos' counsel sent a second letter to U.S. Bank on July 31, 2007, noting that the circuit court refused to set the case for further status “in the hopes that the parties could come to a loan modification agreement.” The letter also states in pertinent part:

“Given * * * that the Manzos are willing to pay $1280 per month, which would still allow your client a profit, it makes much more sense for the parties to avoid additional time and expense required to litigate this case. However, if we are forced to litigation, the Manzos will assert several counterclaims and/or affirmative defenses against your client * * *.

As we previously described * * * in our letter of April 13, 2007, these counterclaims and/or affirmative defenses arise out of violations of TILA, giving rise to an extended right to rescind the Note and Mortgage which extends to any assignee.”

¶ 7 On August 30, 2007, the Manzos' counsel sent a third letter to U.S. Bank. According to that letter, “in the interest of settlement” and upon U.S. Bank's request, the Manzos attached a hardship letter and a financial worksheet describing their current financial status. The letter further states that it is written “for settlement purposes only” and should not be construed as any type of admission by the Manzos. The letter explains that the Manzos fell behind on their loan payments because they were scammed by some acquaintances into refinancing their home and the refinanced mortgage resulted in payments that were well beyond their means. It further states that prior to the refinancing, the Manzos had lived in their home for over 13 years and they had they never missed a monthly payment, which was approximately $1,280 a month. The letter concludes:

“If we are forced to litigate this case on behalf of the Manzos, we will assert several counterclaims and/or affirmative defenses on their behalf against the lender, against the initial lender, and against the mortgage company. These counterclaims and/or affirmative defenses arise out of violations of TILA, giving rise to an extended right to rescind the Note and Mortgage which extends to any assignee.”

¶ 8 On December 14, 2007, the Manzos' counsel sent yet another, fourth, letter to U.S. Bank, attaching to it a copy of the Manzos' proposed counterclaim and third-party complaint (hereinafter counterclaim). The letter stated in full: “Enclosed please find draft Counterclaim and Third Party Action. Please call me after you have had an opportunity to review the enclosed so we can discuss this matter further.”

¶ 9 The proposed counterclaim attached to the letter alleged that the [b]orrowers [were] bring[ing] this action against their mortgage lender and its assignee for rescission and damages pursuant to TILA for the lender's failure to clearly and conspicuously disclose the borrower's right to cancel a mortgage loan.” (Emphasis added.) The counterclaim also contained the following language: [t]he Borrowers, by the filing of this action, elect to rescind the subject transaction.”

¶ 10 It appears that the mailing of the proposed counterclaim had no impact on the settlement negotiations, because on March 11, 2008, the Manzos filed a motion for leave to file their counterclaim, to which they attached a copy of the same proposed counterclaim they had sent to U.S. Bank in their December 14 letter. The motion for leave to file specifically asserted that [the Manzos] now seek an opportunity to cancel the subject transaction by filing a counterclaim and third party action herein, seeking damages and rescission.” The circuit court granted the Manzos' request for leave to file their counterclaim on March 11, 2008. The Manzos, however, waited eight months before filing their counterclaim on November 19, 2008. The counterclaim was filed exactly three years and one day after the Manzos had entered into the loan agreement with their original lender, BNC.

¶ 11 On March 11, 2009, U.S. Bank moved to dismiss the Manzos' counterclaim pursuant to section 2–619 of the Illinois Code of Civil Procedure (735 ILCS 5/2–619 (West 2008)) on the basis of timeliness. Specifically, U.S. Bank argued that because the Manzos did not provide notice of rescission within the three-year period defined by section 1635(f) of TILA (15 U.S.C. § 1635(f) (2006)), their claim for rescission should be barred as untimely. In response, the Manzos asserted that their rescission claim was timely filed because the letters they sent to U.S. Bank, as well as the motion for leave to file their counterclaim, all made within the three-year statutory period, effectively fulfilled the “notice by written communication requirement” of TILA. In the alternative, the Manzos contended that even if their rescission claim was untimely under section 1635(f) of TILA (15 U.S.C. § 1635(f) (2006)), when considered in conjunction with the Illinois savings statute found in section 13–207 of...

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