Editor: David Reiss
Brooklyn Law School

February 19, 2013

Eastern District of North Carolina Requires Homeowners to Allege Ability to Fully Tender Outstanding Balance of Loan to State a Claim for Rescission Under TILA, Dismisses All Other Claims

By Joseph Kelly

In Ward v. Sec. Atl. Mortg. Elec. Registration Sys., Inc., 858 F. Supp. 2d 561 (E.D.N.C. 2012), appeal dismissed (May 30, 2012) the Eastern District of North Carolina granted defendants’ motion to dismiss claims brought against them by borrowers for violations of the Truth In Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).

Plaintiffs executed a note with Security Atlantic Mortgage (“SAM”) in 2007, in 2010 they instituted this suit claiming SAM, MERS, and BAC Home Loans Servicing, LP (“BAC”) had violated TILA, the Home Ownership and Equity Protection Act (“HOEPA”), RESPA, the Fair Credit Reporting Act (“FCRA”), the Equal Credit Opportunity Act (“ECOA”), and the Federal Trade Commission Act (“FTCA”). In the court’s first order, they granted defendants’ motion to dismiss, finding almost all of plaintiffs’ claims were deficient, but they gave plaintiffs 21 days to correct the pleadings and correct their failure to make service on SAM. Plaintiffs’ amended complaint did not address the service issue, accordingly claims against SAM were dismissed without prejudice. BAC and MERS filed a motion to dismiss the amended complaint.

  1. TILA claims

Plaintiffs claimed a number of disclosure violations under TILA, and contended that MERS did not have standing as nominee nor have legal authority to transfer the note.

The court started its discussion by noting that TILA only applies to creditors and assignees, and provides that a servicer is not to be treated as an assignee “unless the servicer is or was the owner of the obligation.” 15 USC 1641(f)(1) Here, however, the plaintiffs expressly identified BAC as the lender in their Notice of Right to Cancel, and amended complaint. The court found plaintiffs’ allegations were sufficient to raise a plausible inference BAC presently owns the note and qualifies as an “assignee” under TILA.

While plaintiffs made no allegations that MERS is or was an assignee of the loan, the court denied MERS’ motion to dismiss with respect to rescission claims because without MERS it might not be possible for the court to afford complete relief to plaintiffs.


The court dismissed plaintiffs’ causes of action relating to TILA mandated disclosures, as they failed to allege sufficient facts to state a claim. Additionally, the court noted, the one year statute of limitations would have barred plaintiffs’ claims even if they had pled sufficient facts.


The court acknowledged plaintiffs’ right to rescind had not expired since the original creditor had never given them the requisite copies of notice. However, using its equitable powers, the court required plaintiffs to allege an ability to fully tender the amount owed on the loan. Without such an allegation, the amended complaint would fail to state a claim for rescission under TILA.

  1. RESPA claims

Plaintiffs also claimed BAC violated RESPA by failing to:

  1. Provide notice of the loan assignment to BAC for servicing 15 days before assignment and
  2. Respond to written inquiry for an accounting of all payments

For the first claim, the court dismissed because the true claim was against the unnamed party who assigned the loan to BAC.

For the second claim, the court noted plaintiffs made a request they purported to be a Qualified Written Request (“QWR”), but the court found that it was actually a communication “challenging the validity of the loan, not a communication relating to the servicing of the loan as defined by statute.” Thus, the writing did not qualify as a QWR and BAC’s failure to respond did not subject BAC to RESPA liability. The court went on to note that plaintiffs also failed to state a claim under 12 USC 2605(e)- because they failed to allege any pecuniary loss attributable to the RESPA violation.

Since plaintiffs made no factual allegations relating to FCRA, ECOA, or FTCA, or for punitive damages relating to “harassment, emotional distress and displacement,” the court dismissed these claims with prejudice.

Accordingly, all of plaintiffs’ claims were dismissed with prejudice except their claim for rescission under TILA, which was dismissed with leave to amend within 14 days and required an allegation proving their ability to tender the loan proceeds.

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