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Pohl v. U.S. Bank

United States Court of Appeals, Tenth Circuit

June 16, 2017

STANLEY M. POHL; ZINAIDA Q. POHL, Plaintiffs - Appellants,
v.
U.S. BANK, as trustee for Merrill Lynch First Franklin Mortgage Loan Trust Back Certificates Series 2007-4; DEBRA JOHNSON, Public Trustee of Denver County; and all unknown persons who claim any interest in the subject matter of this action, Defendants - Appellees.

         Appeal from the United States District Court for the District of Colorado (D.C. No. 1:14-CV-02292-PAB-MJW)

         Submitted on the briefs:[*]

          Sean Connelly, Zonies Law LLC, Denver, Colorado; Joseph J. Novak, Moritz Law, LLC, Denver, Colorado, for Plaintiffs-Appellants.

          Justin D. Balser and Taylor T. Haywood, Akerman LLP, Denver, Colorado, for Defendants-Appellees.

          Before TYMKOVICH, Chief Judge, McKAY and LUCERO, Circuit Judges.

          McKAY, CIRCUIT JUDGE.

         This appeal requires us to determine whether the district court erred in holding that plaintiffs Stanley M. Pohl and Zinaida Q. Pohl are precluded from asserting a claim to rescind the foreclosure sale of their home, based on their lender's alleged violations of the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601-1666j. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm the district court's grant of summary judgment to the defendants and denial of summary judgment to the Pohls.

         LEGAL BACKGROUND

         A brief discussion of the rescission process established by TILA is helpful to understanding the parties' arguments in this appeal. TILA grants borrowers rights to rescind certain consumer credit transactions involving a security interest in the borrower's primary residence. 15 U.S.C. § 1635(a). TILA creates two rescission periods, one unconditional and one conditional.

         Borrowers have an unconditional right to rescind that lasts until "midnight of the third business day following the consummation of the transaction." Id. But when a creditor fails to deliver the material disclosures and information and rescission forms required by TILA, a borrower retains the right to rescind until the creditor delivers those required documents. Id. This extended right to rescind is conditional, because it comes into existence only if the creditor has not delivered the required documents. And even if the creditor never delivers the required documents, the conditional right to rescind lasts no longer than three years after the consummation of the transaction. Id. § 1635(f).

         TILA provides that a borrower exercises the right to rescind "by notifying the creditor . . . of his intention to do so." Id. § 1635(a). In Jesinoski v. Countrywide Home Loans, Inc., 135 S.Ct. 790, 791 (2015), the Supreme Court considered "whether a borrower exercises this right [to rescind] by providing written notice to his lender, or whether he must also file a lawsuit before the 3-year period elapses." The Court held that the language of § 1635(a) "leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely. The statute does not also require him to sue within three years." Id. at 792.

         TILA further provides that when a borrower exercises the right to rescind, "he is not liable for any finance or other charge, and any security interest given . . ., including any such interest arising by operation of law, becomes void upon such a rescission." 15 U.S.C. § 1635(b). "When a consumer rescinds under TILA, the creditor must-within 20 calendar days after receipt of a valid notice of rescission- return any money or property that has been given to anyone, including any finance charges collected from the consumer." Sanders v. Mountain Am. Fed. Credit Union, 689 F.3d 1138, 1142 (10th Cir. 2012) (internal quotation marks omitted). Further, the creditor "must . . . take any action necessary to reflect the termination of its security interest." Id. (brackets and internal quotation marks omitted). "After the creditor satisfies these rescission obligations, the consumer must tender to the creditor the loan proceeds or their reasonable value." Id. (internal quotation marks omitted). These procedures "shall apply except when otherwise ordered by a court." 15 U.S.C. § 1635(b).

         When a borrower rescinds during the unconditional three-day rescission period, "this process is clear and functions well." Sanders, 689 F.3d at 1142. But "[t]he process does not work well after the initial three-day period when the creditor has disbursed funds and perfected its lien, and the consumer's right to rescind may have expired." Id. (ellipses and internal quotation marks omitted). Because "[m]ost creditors are reluctant to release a lien under these conditions, particularly if the consumer is in default or in bankruptcy and would have difficulty tendering, " when a borrower tenders a notice of rescission after the unconditional three-day period, ...


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