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Segrist v. The Bank Of New York Mellon

United States District Court, M.D. Tennessee, Nashville Division

August 25, 2017

TOBIN SEGRIST, et al., Plaintiffs
v.
THE BANK OF NEW YORK MELLON, et al., Defendants

          MEMORANDUM OPINION

          WAVERLY D. CRENSHAW, JR.CHIEF UNITED STATES DISTRICT JUDGE

         Pending before the Court are three Motions to Dismiss: (1) Doc. No. 53, filed by The Bank of New York Mellon; (2) Doc. No. 57, filed by Debbie Howell and Fred Howell; and (3) Doc. No. 67, filed by Bank of America. Plaintiffs have filed a Response (Doc. No. 61) to the first two Motions, [1] and the Bank of New York Mellon has filed a Reply (Doc. No. 62.)

         BACKGROUND

         Tobin and Amy Segrist filed this action to enforce a rescission of their mortgage loan agreement pursuant to the Truth in Lending Act (“TILA”). The Segrists allege that they were never provided with all of the documentation that was required to be provided to them under TILA.

         The Segrists purchased the property at issue on April 4, 2003, through a loan transaction with Full Spectrum Lending, Inc. The Note and Deed of Trust are filed at Doc. Nos. 54-1 and 54-2. The Deed of Trust indicates that the Borrowers are the Segrists, the Lender is Full Spectrum Lending, Inc., the Trustee is Arnold M. Weiss, Attorney, and the beneficiary and nominee for Lender is Mortgage Electronic Registration Systems, Inc. (“MERS”). On April 13, 2013, the Segrists entered into a Loan Modification Agreement with Bank of America (“BOA”) that amended and supplemented the original loan documents. (Doc. No. 54-5.) By assignment of the Deed of Trust (Doc. No. 54-4), The Bank of New York Mellon (“BNY”) became the owner of the Note, Deed of Trust, and first lien on the subject property.

         On August 11, 2015, the Segrists recorded a purported Notice of Rescission of the loan (Doc. No. 54-6) with the Register of Deeds in Sumner County, Tennessee. Because the Segrists defaulted on their loan, BNY held a foreclosure sale of the property on September 10, 2015, bought the property (Doc. No. 54-7), and filed a detainer action in state court. After the state court entered an order granting BNY possession of the property, BNY sold the property to Fred Howell. The Segrists filed a Notice of Appeal of the detainer action order and filed their own detainer action in the Circuit Court for Sumner County, Tennessee. The matters in state court have been consolidated and are stayed, pending the outcome of this litigation.

         The Segrists allege that they have rescinded not only the Loan Modification Agreement, but also the original loan, and that they are entitled to return of the cancelled note, return of all funds paid during the life of the loan, and a voiding of BNY's lien. They claim that all Defendants have failed timely to file an action to challenge the rescission and, therefore, have forfeited the right to enforce the loan. The Segrists also ask the Court to declare that BOA had no authority to enter into the Loan Modification Agreement, that BNY never had any interest in the Note or Deed of Trust, and that BNY never had the authority to convey the property to Fred Howell. Finally, the Segrists contend that they were fraudulently induced to enter into the Loan Modification Agreement. (Doc. 52 - Second Amended Complaint.)

         MOTIONS TO DISMISS

         For purposes of a motion to dismiss, the Court must take all of the factual allegations in the complaint as true. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Id. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Id. at 1950. A legal conclusion couched as a factual allegation need not be accepted as true on a motion to dismiss, nor are recitations of the elements of a cause of action sufficient. Fritz v. Charter Township of Comstock, 592 F.3d 718, 722 (6th Cir. 2010).

         TRUTH IN LENDING ACT

         The Truth in Lending Act was passed “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 uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. § 1601(a). Under TILA, the borrower has the right to rescind the transaction until midnight of the third business day following the consummation of the loan or the delivery of the information, forms and material disclosures required under the statute, whichever is later. 15 U.S.C. § 1635(a). TILA grants borrowers an unconditional right to rescind for three days, after which they may rescind only if the lender failed to satisfy the statute's disclosure requirements. Jesinoski v. Countrywide Home Loans, Inc., 135 S.Ct. 790, 792 (2015). A TILA rescission claim has a three-year statute of limitations. 15 U.S.C. § 1635(f). Rescission is effected when the borrower notifies the creditor of his intention to rescind. 15 U.S.C. § 1635(a). The statute does not require the borrower also to sue for rescission within three years, just to notify the creditor of his intention to rescind. Jesinoski, 135 S.Ct. at 792.

         The rescission provisions of TILA do not apply to a “residential mortgage transaction, ” 15 U.S.C. § 1635(e)(1), defined in the statute as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer's dwelling to finance the acquisition or initial construction of such dwelling.” 15 U.S.C. § 1602(x). The rescission provisions also do not apply to a refinancing or consolidation (with no new advances) of the principal balance by the same creditor. 15 U.S.C. § 1635(e)(2). For a refinancing with a different creditor to give rise to a right of rescission, the existing obligation must be satisfied and replaced by a new obligation. The new obligation must completely replace the prior one. Castrillo v. American Home Mortgage Servicing, Inc., 670 F.Supp.2d 516, 527 (E.D. La. 2009);[2] 12 C.F.R. § 226.20. Mere changes to the terms of an existing obligation do not give rise to a right of rescission unless accomplished by the cancellation of that obligation and the substitution of a new obligation. Castrillo, 670 F.Supp.2d at 527.

         ANALYSIS

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