Monday, May 21, 2012

9th Circuit grants stay pending appeal in a securitized loan case

The 9th Circuit Court of Appeals issued a stay pending appeal in the case Davies v. Deutsche Bank National Trust Co., No. 12-60003.  The case involves issues as whether Deutsche as trustee properly established itself as a creditor in a bakruptcy proceeding, as well as whether the homeowner's TILA claims were improperly dismissed in an adversary proceeding.

It's hard to read the intentions of the Court of Appeals, as they have put this case on an expedited track at the same time as they granted the stay pending appeal.  I suspect the TILA claim will be resolved favorably to the homeowner, just like it was recently done in Bradford v. HSBC Mortg. Corp., no. 1:09-cv-01226 (E.D. Va. Apr. 26, 2012).

More information about this case can be found here:

Saturday, May 12, 2012

AP: Calls to toughen regulation follow JPMorgan loss

WASHINGTON (AP) — JPMorgan Chase faced intense criticism Friday for claiming that a surprise $2 billion loss by one of its trading groups was the result of a sloppy but well-intentioned strategy to manage financial risk.
More than three years after the financial industry almost collapsed, the colossal misfire was cited as proof that big banks still do not understand the threats posed by their own speculation.
"It just shows they can't manage risk — and if JPMorgan can't, no one can," said Simon Johnson, the former chief economist for the International Monetary Fund.
JPMorgan is the largest bank in the United States and was the only major bank to remain profitable during the 2008 financial crisis. That lent credibility to its tough-talking CEO, Jamie Dimon, as he opposed stricter regulation in the aftermath.
But Dimon's contention that the $2 billion loss came from a hedging strategy that backfired, not an opportunistic bet with the bank's own money, faced doubt on Friday, if not outright ridicule.
"This is not a hedge," said Sen. Carl Levin, D-Mich., chair of a subcommittee that investigated the crisis. He said the trades were instead a "major bet" on the direction of the economy, as published reports suggested.
On Friday, Dimon told NBC News, for an interview airing Sunday on "Meet the Press," that he did not know whether JPMorgan had broken any laws or regulatory rules. He said the bank was "totally open" to regulators.
The head of the Securities and Exchange Commission, Mary Schapiro, told reporters that the agency was focused on the JPMorgan loss but declined to comment further.
JPMorgan's disclosure Thursday recharged a debate about how to ensure that banks are strong and competitive without allowing them to become so big and complex that they threaten the financial system when they falter.
The JPMorgan loss did not cause anything close to the panic that followed the September 2008 failure of the Lehman Brothers investment bank. But it shook the confidence of the financial industry.
Within minutes after trading began on Wall Street, JPMorgan stock had lost almost 10 percent, wiping out about $15 billion in market value. It closed down 9.3 percent.
Fitch Ratings downgraded the bank's credit rating by one notch, while Standard & Poor's cut its outlook JPMorgan to "negative," indicating a credit-rating downgrade could follow.
Morgan Stanley and Citigroup closed down more than 4 percent, and Goldman Sachs closed down almost 4 percent. The broader stock market was down only slightly for the day.
Dimon gave few details about the trades Thursday beyond saying they involved "synthetic credit positions," a type of the complex financial instruments known as derivatives.
Enhanced oversight of derivatives was a pillar of the 2010 financial overhaul law, known as Dodd-Frank, but the implementation has been delayed repeatedly and will not take effect until the end of this year at the earliest.
JPMorgan's trades show that the derivatives market remains too opaque for regulators to oversee effectively, said Rep. Barney Frank, D-Mass., one of the law's namesakes.
"When a supposedly responsible, well-run organization could make such an enormous mistake with derivatives, that really blows up the argument, 'Oh, leave us alone, we don't need you to regulate us,'" he said.
Criticism of the bank did not stop with its traditional chorus of detractors. It also came from Sen. Bob Corker, R-Tenn., a prominent member of the Senate Banking Committee who has received $10,000 since January 2011 from JPMorgan's political action committee, the most any candidate has received.
Corker, a leader of a failed effort last year to block a Federal Reserve rule that slashed bank profits from debit cards, called for a hearing "as expeditiously as possible" into the events surrounding JPMorgan's loss.
Tim Ryan, president of the Securities Industry and Financial Markets Association, a trade group, said it was impossible to legislate or regulate risk out of the financial system.
"My hope is that this is viewed as bona fide hedging, but it went wrong," he said in an interview. "A mistake was made. Money is going to be lost. It's not customer money. It's not government money. It's JPMorgan's money, the shareholders of JPMorgan."
No one seemed to suggest Friday that JPMorgan had broken a law. But the mistake added a wrinkle to the still-unsettled discussion about how the financial industry should be regulated in the aftermath of 2008.
"This just tells you that we are a long, long way from getting our arms around this whole 'too big to fail' issue," said Cliff Rossi, a former top risk executive for Citigroup, Countrywide and other big financial companies.
Immediately after the crisis, a time of popular outrage over bailouts and investment losses, there was broad public support for an overhaul of bank regulations.
The changes promoted by the Obama administration were in many cases similar to what the financial industry had sought before the crisis: Consolidation of regulators and oversight of the multi-trillion-dollar marketplace for derivatives.
Regulators are still drafting hundreds of rules under the 2010 law. As Wall Street has returned to record profits, and executives to million-dollar bonuses, banks have fought to soften those rules.
In particular, the industry has fought hard against a few provisions that might have prevented the problems at JPMorgan.
One is the so-called Volcker rule, which will prohibit banks from trading for their own profit. The rule is still being written, and the Federal Reserve has said it will begin enforcement in 2014.
JPMorgan said that its bets were made only to hedge against financial risk. Dimon conceded that the strategy was "egregious" and poorly monitored. But analysts, former bank executives and many lawmakers disagreed.
"This is an exact description of proprietary trading-style activity," Sen. Jeff Merkley, D-Ore., told reporters Friday. "This really is a textbook illustration of why we need a strong Volcker rule firewall."
Nancy Bush, a longtime bank analyst at NAB Research and a contributing editor at SNL Financial, said the trades probably crossed that line because they were making money for JPMorgan.
"So they made money on hedges and then they hedged some more," she said. "At some point it goes from being a hedge to being a moneymaker."
JPMorgan was seen as a savior of weaker banks during the financial crisis and the only big bank to escape relatively unscathed. His reputation enhanced, Dimon, 56, has been emboldened to challenge efforts to toughen regulation.
In an interview with the Fox Business Network earlier this year, Dimon said that Paul Volcker, the former Federal Reserve chairman for whom the rule is named "doesn't understand capital markets."
Last year, he questioned the current Fed chair, Ben Bernanke, about the rules and said they might be delaying the recovering of the financial system and the broader economy.
"Has anyone bothered to study the cumulative effect of all these things?" he asked.
Dimon, who grew up in the Queens borough of New York and was groomed by the former Citigroup chief executive Sanford Weill, has also chafed against Occupy Wall Street protesters.
"Acting like everyone who's been successful is bad and that everyone who is rich is bad — I just don't get it," he said at a conference earlier this year.
On Thursday, at about the same time he was breaking news of the $2 billion loss to Wall Street, Dimon sent an email to JPMorgan's 270,000 worldwide employees assuring them that the company was "very strong."
AP Business Writer Marcy Gordon, AP Business Writer Pallavi Gogoi and Associated Press writer Jack Gillum contributed to this report.
Daniel Wagner can be reached at

Thursday, May 10, 2012

Florida is at it again: FL Supreme Court to hear if robo-signing will be allowed to be corrected

Reuters:      US News
Florida foreclosure case could slam banks
Wed, May 09 21:01 PM EDT
By Michelle Conlin
NEW YORK (Reuters) - The Florida Supreme Court is set to hear oral arguments Thursday in a lawsuit that could undo hundreds of thousands of foreclosures and open up banks to severe financial liabilities in the state where they face the bulk of their foreclosure-fraud litigation.
The court is deciding whether banks who used fraudulent documents to file foreclosure lawsuits can dismiss the cases and refile them later with different paperwork.
The decision, which may take up to eight months to render, could affect hundreds of thousands of homeowners in Florida, and could also influence judges in the other 26 states that require lawsuits in foreclosures.
Of all the foreclosure filings in those states, sixty three percent, a total of 138,288, are concentrated in five states, according to RealtyTrac, an online foreclosure marketplace. Of those, nearly half are in Florida. In Congressional testimony last year, Bank of America, the U.S.'s largest mortgage servicer, said that 70 percent of its foreclosure-related lawsuits were in Florida.
The case at issue, known as Roman Pino v. Bank of New York Mellon, stems from the so-called robo-signing scandal that emerged in 2010 when it was revealed that banks and their law firms had hired low-wage workers to sign legal documents without checking their accuracy as is required by law.
"This was a case of an intentionally fraudulent document fabricated to use in a court proceeding," says former U.S. Attorney Kendall Coffey, author of the book Foreclosures in Florida.
If the Supreme Court rules against the banks, "a broad universe of mortgages could be rendered unenforceable," Coffey says. "The cost to the financial industry is difficult to estimate, but it could be substantial."
For comparison, some legal experts point to the Massachusetts Supreme Court's decision in January 2011 that ruled a foreclosure invalid because at the time of the foreclosure the bank couldn't prove it had a valid assignment of mortgage - a similar issue to the one in the Pino case.
In the wake of the decision, hundreds of house titles in Massachusetts became void, says foreclosure attorney Tom Cox, who brought what was one of the first foreclosure fraud suits in the country.
"If the Florida court takes a strong stand, it sends a strong signal to the mortgage servicing industry in the rest of the country," says Cox. Judges in other states could start penalizing banks with sanctions and overturning foreclosure suits, he says.
The Florida case provides a startling example of abuses that allegedly take place in the foreclosure process - and the strategies lenders use to overcome them.
Roman Pino, a shy, 35-year-old drywall hanger, bought his home in 2006 during the housing boom. He put 20 percent down on half of a two-bedroom duplex near Palm Beach, Fla., and financed the rest with a $162,400 loan from Countrywide Financial, now owned by Bank of America.
In 2008, when Florida's economy weakened, Pino couldn't find construction jobs and fell behind on his mortgage payments. In October, Bank of New York Mellon, the trustee for the security that owns Pino's loan, filed a suit to foreclose.
Bank of America was Pino's mortgage servicer. It didn't respond to a request for comment.
To help him hang on to his home, Pino sought the help of Thomas Ice, a homeowner-defense attorney. Ice quickly discovered that the documents in the bank's foreclosure lawsuit were fudged.
Pino's mortgage assignment — the document that legally binds a loan to a lender - had been executed by Cheryl Samons, an alleged robo-signer who signed as many as 1,000 foreclosure affidavits a day, according to court depositions.
According to court documents, Samons worked for one of the banking industry's biggest foreclosure mills, the law firm of David Stern. The firm consistently created false documents, according to a report by investigators in the Florida Attorney General's office.
Ice dug up depositions where a Stern employee testified that Samons's hand got so cramped that she told three underlings to forge her signature. Two Stern workers also testified that they forged signatures, backdated documents, swapped Social Security numbers, inflated billings and passed around notary stamps as casually as if they were salt, according to court papers.
Samons, who could not be located for comment, denied the robo signing allegations in an April 2011 deposition. She also testified that Stern lied to her and ignored her concerns.
Stern's firm is now shuttered and under investigation by the Florida Attorney General. Stern's lawyer, Jeffrey Tew, said, "No one ever testified that David ever knew of any misconduct by any of his employees."
To Ice, it was immediately obvious that the Stern firm had backdated Pino's mortgage assignment because the notarization stamp was not valid at the time denoted on the document.
The only way the notarization stamp used on Pino's assignment could have been valid, Ice alleged, was if the notary had been "capable of time travel."
He filed a motion to dismiss, arguing that since the bank's documents were illegal, so was the foreclosure.
Then, in May 2009, the day before Ice was about to take his first deposition of one of Stern's employees, Bank of New York Mellon voluntarily dismissed the case.
Three months later, Stern's firm filed a second foreclosure lawsuit against Pino - this time with different documents.
The same month, Ice filed a motion to vacate the voluntary dismissal, asking the judge both for his attorney's fees, since Pino wasn't paying him, and for a hearing.
Ice argued that a bank shouldn't be allowed to use a voluntary dismissal to dispose of a case in which it filed fraudulent documents, only to turn around and refile the same case with different paperwork later on.
Last summer, Pino's case was headed to the Florida Supreme Court, which said it was of "great public importance" because "many mortgage foreclosure cases appear to be tainted with suspect documents."
But on July 22, just before the case was scheduled for oral argument, Bank of New York Mellon struck a confidential settlement with Pino.
The same day, Bank of New York Mellon, which declined comment for the story, filed a "satisfaction of mortgage" document with the Palm Beach County property recorder's office.
Pino now owned the house, free and clear.
Even though Pino and the bank have settled, the Supreme Court decided to rule on the issue of voluntary dismissal anyway, settling a question that has vexed Florida's lower courts for nearly five years. Its decision won't affect Pino's case.
Voluntary dismissal is the banks' main strategy in judicial states for dealing with homeowners who challenge foreclosures, says Georgetown University consumer and housing finance professor Adam Levitin, who has served as special counsel to the Congressional Oversight Panel.
After a dismissal, the banks can then refile their case using different documents.
"If that fails, strategy number two is to buy them off," says Levitin.
If the court rules against voluntary dismissal, the banks face the costly specter of not being able to simply refile cases and expect homeowners to not challenge the suits.
In Florida, that's a lot of cases. In the year ending July 11, 2011, for example, more than 104,000 foreclosure cases were voluntarily dismissed from Florida's courts, according to the Office of the State Courts Administrator.
Attorneys who work in the foreclosure field say that such dismissals usually occur because of the banks' legal document issues.
To represent it before the Florida Supreme Court, Bank of New York Mellon has hired Bruce Rogow, an attorney who has argued civil rights cases and defended American Nazi Party members and Ku Klux Klan Grand Wizard David O. Duke. He also has represented consumers in the class action against banks for overdraft fees.
Rogow says the case is not about foreclosures or mortgage assignments or robo signing but about the sanctity of a plaintiff's unfettered right to dismiss a case.
"Nobody is saying the bank did anything wrong, and if it was the law firm, there are alternative remedies for that that are far less disturbing than setting aside a law such as voluntary dismissal," says Rogow.
Advocates say upholding the use of voluntary dismissal could empower the banks to do nothing to change their questionable foreclosure practices.
"The banks have a bully business model. You pick on the weak consumer, you demand his lunch money and he runs away," says Levitin.

Read the rest here...

Tuesday, May 8, 2012

MSNBC: Bank of America Offers Principal Reductions to 200,000 Homeowners

A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.

“If people get these things and toss them, they won’t be eligible,” says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.

But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called “robo-signing”).

[Click here to check home loan rates in your area.]

Bank of America (BAC), in a deal with state attorneys general and the U.S. Department of Justice, committed $11 billion to mortgage principal reduction, but executives say they will go beyond that if enough borrowers respond to their offer. Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation. The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender.

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being “underwater” on the mortgage, and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.

In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment. A borrower with no income would therefore not qualify. A borrower’s current monthly payment must be  more than 25 percent of gross income, and the borrower must show they are unable to afford that.

“If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,” says Sturzenegger.

If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25 percent of the borrower’s gross income. That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.

“Yes, we have the capability to go well beyond the $11 billion,” adds Sturzenegger.

Bank executives say that before choosing which borrowers will get the offer, they performed a net present value test on each loan, making sure that the principal reduction modification would net Bank of America or the investor who owns the loan more than foreclosing on the home. “It has to be fair to the investor as well,” says Sturzenegger.

Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam.

“They have been contacted by a lot of other people, and this offer may appear too good to be true,” says Sturzenegger.

That’s why Bank of America is sending the letters by certified mail and trying to make the language as simple as possible. A sample letter obtained by CNBC shows a bring red box in the top corner labeled, “IMPORTANT” and simple language stating, “Qualifying customers may reduce their monthly payment by an average of 35 percent.”

Some 6,500 letters should be arriving in mailboxes across the country this week, with a wave of new letters going out every week until the end of the summer, when all 200,000 should have been mailed. Bank of America is staggering the mailings in order to handle the expected response. The bank has staffed up to handle the task, with 50,000 employees manning servicing desks, but the process will clearly take a lot of time. That’s why Bank of America has suspended any foreclosure actions against these 200,000 borrowers until the process is complete.

Continued here...

Thursday, May 3, 2012

The Fourth Circuit Issues a Landmark Decision on TILA

The case is Gilbert v. Residential Funding LLC, No. 10-2295 (4th Cir. May 3, 2012).

Notable quote(s):

"Taking the plain meaning of these texts [TILA statute and regulation], and assuming that the words say what they mean and mean what they say, we come to the conclusion that the Gil- berts exercised their right to rescind with the April 5, 2009, letter. Simply stated, neither 15 U.S.C. § 1635(f) nor Regula- tion Z says anything about the filing of a lawsuit, and we refuse to graft such a requirement upon them." 

REX T. GILBERT, JR.; DANIELA L. GILBERT, Plaintiffs-Appellants,
Residential Accredit Loans, Incorporated, Defendants-Appellees, and
DAVID A. SIMPSON, Substitute Trustee, Trustee.
No. 10-2295
Argued: January 24, 2012
Decided: May 3, 2012

Summaries: Source: Justia

Plaintiffs appealed the district court's dismissal of their claim that Deutsche and others violated various consumer protection laws in connection with a mortgage plaintiffs secured on their home. Plaintiffs alleged that they were entitled to relief on account of violations of the Truth in Lending Act (TILA), 15 U.S.C. 1601-1667(f), and its implementing regulation, Regulation Z, 12 C.F.R. 1026; North Carolina usury law, N.C. Gen. State 24; the North Carolina Unfair and Deceptive Trade Practices Act (NCUDTPA), N.C. Gen. Stat. 75-1; and North Carolina's Prohibited Acts by Debt Collectors statute, N.C. Gen. Stat. 75-50. Plaintiffs also claimed a breach of contract and that Deutsche lacked the authority to enforce the loan. The court held that plaintiffs' TILA claim was not time-barred; plaintiffs adequately pled the elements of their usury claim and the claim was ripe for adjudication; similarly, plaintiffs' NCUDTPA claims should also be allowed to proceed; res judicata no longer barred plaintiffs from litigating whether Deutsche had authority to enforce the note; and plaintiff's contention that the district court erred in denying their motion to alter or amend pursuant to Rule 59(e) was moot.


Appeal from the United States District Court
for the Eastern District of North Carolina, at Raleigh.
James C. Dever III, District Judge.

Before TRAXLER, Chief Judge, FLOYD, Circuit Judge,
and J. Michelle CHILDS, United States District Judge for
the District of South Carolina, sitting by designation.

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Affirmed in part, reversed in part, and remanded by published opinion. Judge Floyd wrote the opinion, in which Chief Judge Traxler and Judge Childs joined.


        ARGUED: Katherine Suzanne Parker-Lowe, Ocracoke, North Carolina, for Appellants. Marc James Ayers, BRADLEY ARANT BOULT CUMMINGS, LLP, Birmingham, Alabama, for Appellees. ON BRIEF: Nicholas J. Voelker, BRADLEY ARANT BOULT CUMMINGS, LLP, Charlotte, North Carolina, Jonathan M. Hooks, BRADLEY ARANT BOULT CUMMINGS, LLP, Birmingham, Alabama, for Appellees.


FLOYD, Circuit Judge:
        Rex and Daniela Gilbert appeal the district court's dismissal of their claim that Deutsche Bank Trust Company Americas (Deutsche), as trustee for Residential Accredit Loans, Inc. (RAL); David A. Simpson (Simpson), substitute trustee; Residential Funding LLC (RFL); and GMAC Mortgage LLC (GMAC) violated various consumer protection laws in connection with a mortgage the Gilberts secured on their home, located at 134 West End Road, Ocracoke, North Carolina (the subject property). Specifically, the Gilberts allege that they are entitled to relief on account of violations of the Truth in Lending Act (TILA), 15 U.S.C. §§ 1601-1667(f), and its implementing regulation, Regulation Z, 12 C.F.R. § 1026 (previously codified at 12 C.F.R. § 226); North Carolina usury law, N.C. Gen. Stat. § 24; the North Carolina Unfair and Deceptive Trade Practices Act (NCUDTPA), id. § 75-1.1; and North Carolina's Prohibited Acts by Debt Col-
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lectors statute, id. § 75-50. The Gilberts also claim a breach of contract and that Deutsche lacks the authority to enforce the loan.
        Appellees filed a motion to dismiss, which the district court granted. The Gilberts timely appealed. For the reasons that follow, we affirm in part, reverse in part and remand for further proceedings.


        We review the district court's decision granting a motion to dismiss de novo, and we view the facts in the light most favorable to the non-prevailing party. See Chaudhry v. Mobil Oil Corp., 186 F.3d 502, 504 (4th Cir. 1999).
        On May 5, 2006, Rex Gilbert executed an adjustable rate note with First National Arizona to refinance the existing lien on the subject property. Pursuant to the terms of the note, Mr. Gilbert agreed to pay a principal amount of $525,000, plus interest to the bank. The Gilberts executed a deed of trust on the subject property to secure the note. As a part of the transaction, First National Arizona provided several disclosures, including a "Truth in Lending Disclosure Statement," a "Notice of Right to Cancel," a "Variable Rate Mortgage Program Disclosure," a "HUD-1 Settlement Statement," and a "First Payment Letter."
        Thereafter, according to the district court, First National Arizona transferred its interest in the Gilberts' mortgage to First National Bank of Nevada, First National Bank of Nevada transferred its interest in the mortgage to RFL, and RFL sold its interest to Deutsche, as the trustee for RAL.Gilbert v. Deutsche Bank Trust Co. Ams., No. 09-CV-181-D, 2010 WL 2696763, at *1 (E.D.N.C. July 7, 2010). Thus, the district court stated, Deutsche, as the trustee for RAL, currently owns and holds the note and deed of trust on the subject
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property. Id. RFC is the master servicer and GMAC is the subservicer. Id. at *2.
        The Gilberts defaulted on the loan in 2008. Subsequently, Deutsche chose Simpson as the substitute trustee of the deed of trust. Id. On March 12, 2009, Simpson filed a foreclosure action against the Gilberts in the Hyde County Superior Court.
        The Gilberts' counsel wrote a letter to GMAC dated April 5, 2009, in which she alleged several violations of TILA, provided notice that the Gilberts were rescinding their mortgage transaction, and requested that GMAC cancel its security interest in the subject property and return all consideration paid by the Gilberts. In a letter dated April 14, 2009, counsel for GMAC responded that GMAC had reviewed the Gilberts' file and found "no basis to conclude that there were any material disclosure errors that would give rise to an extended right of rescission." As such, counsel for GMAC stated that they would not rescind the transaction.
        On June 2, 2009, the Clerk of the Hyde County Superior Court conducted a foreclosure hearing, after which she entered a June 17, 2009, order allowing Simpson to proceed with the foreclosure. According to the order, the Clerk found that Deutsche was the holder of the subject note and deed of trust and that the note evidenced a valid debt. The Gilberts appealed to the Hyde County Superior Court.
        Following a de novo hearing on the matter on August 18, 2009, the superior court allowed the foreclosure proceeding to go forward. In doing so, the court relied in part on an affidavit signed by Jeffrey Stephan, a signing officer for GMAC, certifying the validity of the indebtedness pursuant to the note as well as Deutsche's status as the current owner and holder of the note. The Gilberts appealed that decision to the North Carolina Court of Appeals.
Page 5
        On September 14, 2009, while their appeal was pending, the Gilberts filed suit in the Hyde County Superior Court against Appellees seeking, among other things, to enjoin the mortgage foreclosure sale and to rescind their May 5, 2006, loan. They alleged violations of TILA by Appellees. The Gilberts also claimed that Appellees violated North Carolina usury law, engaged in unfair and deceptive trade practices, engaged in prohibited debt collection acts, and breached the mortgage contract. The Gilberts further maintained that Deutsche was without authority to enforce the note because of a defect in the allonge, which granted Deutsche an interest in the note.
        Appellees removed the Gilberts' suit to the district court and subsequently filed a motion to dismiss the complaint, which the district court granted. This appeal, in which the Gilberts contest the district court's dismissal of their TILA, usury, and NCUDTPA claims, followed. They also assign error to the district court's determination that res judicata barred them from raising claims related to the endorsement on the allonge to the note, as well as the district court's denial of their motion to alter or amend the judgment pursuant to Rule 59(e) of the Federal Rules of Civil Procedure.
        After becoming aware that Stephan had engaged in improper affidavit practices in unrelated cases, the Gilberts filed with the district court a motion for relief pursuant to Rule 60(b) of the Federal Rules of Civil Procedure and Rule 12.1 of the Federal Rules of Appellate Procedure. In light of this new evidence, they requested that the district court file an order indicating whether it would be inclined to relieve them of its prior order dismissing their claims and its denial of their Rule 59(e) motion.
        On May 3, 2011, the North Carolina Court of Appeals reversed the superior court's decision to allow Simpson to proceed with a foreclosure sale, finding that "the record is lacking of competent evidence sufficient to support that
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[Deutsche] is the owner and holder of Mr. Gilbert's note and deed of trust." In re Simpson, 71,1 S.E.2d 165 (N.C. Ct. App. 2011). The court was also troubled by the fact "that [GMAC] was recently found to have submitted a false affidavit by Signing Officer Jeffrey Stephan in a motion for summary judgment against a mortgagor in the United States District Court of Maine." Id. at 173 n.2. The Gilberts subsequently supplemented their Rule 60(b) motion with a copy of the Simpson opinion.
        On June 15, 2011, the district court filed an order stating that "should the Fourth Circuit return jurisdiction to this court, the court would grant the [Rule 60(b)] motion, dismiss the federal claims for the reasons stated in the July 7, 2010[,] order [dismissing all of the Gilberts' claims], and remand all state-law claims to Hyde County Superior Court." Gilbert v. Deutsche Bank Trust Co. Ams., No. 4:09-CV-181-D (E.D.N.C. June 15, 2011). In light of this order, the Gilberts filed a motion with us to reverse and remand the case to the district court. We denied the motion. Accordingly, we now undertake a de novo review of each of the Gilberts' assignments of error. See Chaudhry, 186 F.3d at 504.



        The Gilberts first argue that the district court erred in dismissing their TiLA claim on the basis that they had failed to exercise their extended right to rescind in a timely manner.
        In adopting TILA, Congress declared that "[i]t is the purpose of this subchapter 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." 15 U.S.C. § 1601(a). As such, TILA requires that a creditor make certain material disclosures at the time the loan is made. Id. § 1638(a). if the
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creditor fails to comply with this mandate, the borrower has the right to rescind up to three years after the transaction. Id. § 1635(f).
        The Gilberts closed the loan with First National Arizona on May 5, 2006, but they did not file the instant lawsuit until September 14, 2009. They notified GMAC by letter, however, that they were exercising their right to rescind in April 2009. So, although the Gilberts did not file this lawsuit within three years of closing the loan, they did notify GMAC that they were exercising their right to rescind during that three-year time period.
        There is a split of authority as to whether the borrower must file a lawsuit within three years after the consummation of a loan transaction to exercise her right to rescind, or whether the borrower need only assert the right to rescind through a written notice within the three-year period. For example, in McOmie-Gray v. Bank of America Home Loans, 667 F.3d 1325 (9th Cir. 2012), the Ninth Circuit held that "rescission suits must be brought within three years from the consummation of the loan, regardless [of] whether notice of rescission is delivered within that three-year period." Id. at 1328. But, in In re Hunter, 40,0 B.R. 651 (Bankr. N.D. Ill. 2009), the bankruptcy court held that "TILA gives a consumer the right to rescind a credit transaction simply by notifying the creditor, within a specific period of time, that she intends to do so." Id. at 659.
        The district court cited American Mortgage Network, Inc. v. Shelton, 486 F.3d 815 (4th Cir. 2007), for the proposition that the Gilberts were required to file suit to exercise their right of rescission. Thus, in that the Gilberts failed to file suit until after the three years passed, the district court dismissed their rescission claim. As explained below, however, we are convinced that the Gilberts exercised their right to rescind when they sent their April 5, 2009, letter to GMAC, alleging several violations of TILA and Regulation Z, and providing
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notice of their rescission of the mortgage transaction. Moreover, we do not think that our prior decision in Shelton compels a contrary conclusion. Further, we disagree with the Ninth Circuit that a borrower must file a lawsuit within the three-year time period to exercise her right to rescind, as opposed simply to notifying the creditor.
        We begin, as we must, with the plain meaning of the statute. "The starting point for any issue of statutory interpretation . . . is the language of the statute itself." United States v. Bly, 510 F.3d 453, 460 (4th Cir. 2007). "We have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: 'judicial inquiry is complete.'" Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992) (citations omitted) (quoting Rubin v. United States, 449 U.S. 424, 430 (1981)).
        In the same way, our interpretation of regulations begins with their text. Textron, Inc. v. Comm'r, 336 F.3d 26, 31 (1st Cir. 2003). "The Supreme Court has repeatedly emphasized the importance of the plain meaning rule, stating that if the language of a statute or regulation has a plain and ordinary meaning, courts need look no further and should apply the regulation as it is written." Id. In most cases, a textual reading will be dispositive.United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989). Furthermore, "absent some obvious repugnance to the statute, the . . . regulation implementing [TiLA] should be accepted by the courts." Anderson Bros. Ford v. Valencia, 452 U.S. 205, 219 (1981).
        Here, we are primarily concerned with just one statute and one regulation. Section 1635(f) provides, in relevant part, the following:
An obligor's right of rescission shall expire three years after the date of consummation of the transac-
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tion or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor . . . .
15 U.S.C. § 1635(f). Its implementing regulation, Regulation Z, states as follows:
To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business.
12 C.F.R. § 1026.23(a)(2). Taking the plain meaning of these texts, and assuming that the words say what they mean and mean what they say, we come to the conclusion that the Gilberts exercised their right to rescind with the April 5, 2009, letter. Simply stated, neither 15 U.S.C. § 1635(f) nor Regulation Z says anything about the filing of a lawsuit, and we refuse to graft such a requirement upon them.
        But what about the Shelton case that the district court relied upon in reaching a different conclusion? There, the creditor filed an action seeking a declaratory judgment that the processing of the borrowers' home refinancing loan complied with TILA. 486 F.3d at 817. The borrowers counterclaimed, requesting damages for violations of TiLA. Id. They also sought rescission and a declaration by the district court that the defendant had forfeited the loan principal pursuant to TILA. Id.
        We stated that the "unilateral notification of cancellation does not automatically void the loan contract." Id. at 821. "[O]therwise, a borrower could get out from under a secured
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loan simply by claiming TILA violations, whether or not the lender had actually committed any." Id. (quoting Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1172 (9th Cir. 2003)) (internal quotation marks omitted).
        We must not conflate the issue of whether a borrower has exercised her right to rescind with the issue of whether the rescission has, in fact, been completed and the contract voided. The former is the concern of § 1635(f) and Regulation Z, and a borrower exercises her right of rescission by merely communicating in writing to her creditor her intention to rescind. To complete the rescission and void the contract, however, more is required. Either the creditor must "acknowl-edge[ ] that the right of rescission is available" and the parties must unwind the transaction amongst themselves, or the borrower must file a lawsuit so that the court may enforce the right to rescind. Shelton, 486 F.3d at 821 (quoting Large v. Conseco Fin. Servicing Corp., 292 F.3d 49, 54-55 (1st Cir. 2002)) (internal quotation marks omitted).
        At this stage of the litigation, we are not concerned with whether the contract has been effectively voided. A court must make a determination on the merits as to whether that should occur. Instead, the question presented here is whether the Gilberts exercised their right to rescind with the April 5, 2009, letter. Based on the plain meaning of the applicable statute and regulation, we answer that question in the affirmative.
        Appellees' reliance on Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), is misplaced. The Beach Court did not address the proper method of exercising a right to rescind or the timely exercise of that right. Instead, in Beach, the Court looked at "whether § 1635(f) is a statute of limitation, that is, 'whether [it] operates, with the lapse of time, to extinguish the right which is the foundation for the claim' or 'merely to bar the remedy for its enforcement.'" Id. at 416 (alteration in orig-
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inal) (quoting Midstate Horticultural Co. v. Pa. R.R. Co., 320 U.S. 356, 358-59 (1943)). The Court stated the following:
Section 1635(f), however, takes us beyond any question whether it limits more than the time for bringing a suit, by governing the life of the underlying right as well. . . . it talks not of a suit's commencement but of a right's duration, which it addresses in terms so straightforward as to render any limitation on the time for seeking a remedy superfluous.
Id. at 417. In other words, the three-year limitation in 15 U.S.C. § 1635 concerns the extinguishment of the right of rescission and does not require borrowers to file a claim for the invocation of that right. Thus, that the Gilberts failed to seek enforcement of their right to rescind within the three years does nothing to take away from the fact that they exercised their right of rescission within that time period.


        Next, the Gilberts argue that the district court's decision to dismiss their claim for rescission on the basis that Appellees are assignees and not creditors was improper. Appellees do not appear to disagree.
        Section 1641(c) states, "Any consumer who has the right to rescind a transaction under section 1635 of this title may rescind the transaction as against any assignee of the obligation." 15 U.S.C. § 1641(c). The district court's holding to the contrary is reversible error.


        According to the Gilberts, the district court also erred in deciding that all of their money damages under TiLA are barred by the one-year statute of limitations. We agree.
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        Section 1640(e) provides a one-year statute of limitations for the filing of a suit once a violation of TiLA has occurred. Id. ("Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation."). The alleged TILA disclosure violations occurred on May 5, 2006, but the Gilberts did not file suit until September 14, 2009. Thus, the statute of limitations for those violations has long past and the district court was correct in dismissing those claims.
        But, it appears that the Gilberts' TILA claim regarding Appellees' refusal to honor their right to rescind was timely filed. The Gilberts sent a letter to GMAC pursuant to 15 U.S.C. § 1635(f) and Regulation Z on April 5, 2009, indicating that they were exercising their right to rescind the mortgage loan. The creditor then had twenty days to respond. Id. § 1635(b). The alleged violation of TiLA occurred when GMAC sent the April 14, 2009, letter indicating that it would not rescind the loan transaction. To maintain an action for damages pursuant to TILA, the action had to be filed "within one year from the date of the occurrence of the violation." Id. § 1640(e). Inasmuch as the Gilberts filed this lawsuit on September 14, 2009, their TILA claim for damages for GMAC's refusal to honor their right to rescind is not time barred.


        Next, the Gilberts challenge the district court's dismissal of their usury claim. Appellees make two arguments as to why the district court did not err. We are convinced by neither.
        First, Appellees urge that the Gilberts' usury claim is not ripe for adjudication. According to Appellees, to the extent that the Gilberts might be subject to pay usurious interest, given the manner in which the payment schedule is configured, they have not yet been required to pay the alleged usurious interest rate. The Gilberts counter that because the
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payments that they made were interest only, they were paying usurious interest with each payment. As such, according to the Gilberts, their claim is ripe. Construing the Gilberts' allegations as true, as we must at this stage, we accept that this claim is ripe for adjudication.
        Second, Appellees maintain that the Gilberts failed to plead a usury claim. According to Appellees, parties have the right to pay any interest rate to which they agree. Therefore, claim Appellees, "to survive a motion to dismiss, the Gilberts would have to allege that they never agreed to the interest rates imposed by the loan documents. On this they are silent." We disagree.
        In their complaint, the Gilberts allege that Appellees "charged and collected interest in excess of the agreed rate or limits set forth in Chapter 24 of the North Carolina General Statutes, including without limitation, the charge, collection and imposition of hidden finance charges contained in the erroneous payment schedule set forth in the Truth in [L]ending disclosure statement."
        The elements of a usury claim are as follows:
a loan or forbearance of the collection of money, an understanding that the money owed will be paid, payment or an agreement to pay interest at a rate greater than allowed by law, and the lender's corrupt intent to receive more in interest than the legal rate permits for use of the money loaned.
Swindell v. Fed. Nat'l Mortg. Ass'n, 409 S.E.2d 892, 895 (N.C. 1991). "Where the lender intentionally charges the borrower a greater rate of interest than the law allows and his purpose is clearly revealed on the face of the instrument, a corrupt intent to violate the usury law on the part of the lender is shown." Id. at 895-96 (quoting Kessing v. Nat'l Mortg.
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Corp., 180 S.E.2d 823, 827 (1971)) (internal quotation marks omitted).
        No one disputes that the Gilberts have established the first two elements. We hold that the Gilberts have adequately pled elements three and four as well. Specifically, the Gilberts contend that there was a loan that was to be repaid; pursuant to the terms of the loan, they were charged an agreed upon or stated interest rate; under the repayment schedule for the loan, they were charged a higher interest rate than agreed upon or allowed by Chapter 24 of the North Carolina General Statutes; when they paid a higher interest rate, Appellees collected more than the agreed upon or allowed interest rate; and Appellees charged the higher rate with a corrupt intent. Consequently, they have properly pled a usury claim pursuant to Swindell.
        Although not argued by the parties or referenced below, on remand, the district court should consider whether North Carolina General Statute Section 24-1.1A(a)(1) ("Where the principal amount is ten thousand dollars ($10,000) or more the parties may contract for the payment of interest as agreed upon by the parties . . . ."), Section 24-9(a)(3) ("'Exempt loan' means a loan in which . . . [t]he loan amount is three hundred thousand ($300,000) or more . . . ."), and Section 24-9(b) ("A claim or defense of usury is prohibited in an exempt loan transaction.") are applicable.


        The Gilberts also urge that the district court erred in granting Appellees' Rule 12(b)(6) motion as to their NCUDTPA cause of action. To establish a prima facie case of unfair and deceptive trade practices, a plaintiff must demonstrate the following: (1) the defendant committed an unfair or deceptive trade practice; (2) the action in question was in or affecting commerce; and (3) the act proximately caused injury to the plaintiff. Spartan Leasing v. Pollard, 400 S.E.2d 476, 482
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(N.C. Ct. App. 1991). An act is unfair when it is unethical or unscrupulous, and it is deceptive if it tends to deceive. Marshall v. Miller, 276 S.E.2d 397, 403 (N.C. 1981).
        In their allegations concerning their NCUDTPA claims, the Gilberts make the following complaints: usury law violations, TILA violations, and "falsely representing to be the owner and holder of [the Gilberts'] note and deed of trust." Thus, they argue the following:
These acts and omissions proximately damaged plaintiffs, are in and affecting commerce, violate public policy, have the capacity to deceive an ordinary consumer, are unscrupulous, immoral, and oppressive, and constitute unfair and/or deceptive trade practices under [North Carolina General Statute] § 75-1.1, thereby entitling plaintiffs to three times their actual damages plus a reasonable attorney's fee pursuant to [North Carolina General Statute] §§ 75-16 and 75-16.1.
        Some of the Gilberts' allegations concern the actions of the Appellees, and some concern the actions of the original creditor, who is not party to this lawsuit. And, although some claims in this lawsuit can be assigned, "unfair practice claims pursuant to . . . § 75-1.1 cannot be assigned,"Investors Title Ins. Co. v. Herzig, 413 S.E.2d 268, 271 (N.C. 1992). Thus, the district court properly dismissed those portions of the claims. "[A] violation of a consumer protection statute may, in some instances, constitute a per se violation of the UDTPA[,]" however. In re Fifth Third Bank, Nat'l Ass'n-Vill. of Penland Litig., 719 S.E.2d 171, 176 (N.C. Ct. App. 2011). Inasmuch as we have held that certain of the Gilberts' TILA and usury claims should go forward, and because we are of the opinion that the Gilberts have set forth a sufficient factual basis for these claims, we hold that their unassigned NCUDTPA claims should be allowed to proceed as well.
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        The Gilberts also contest the district court's determination that res judicata barred them from raising issues related to the endorsements on the allonge to the note.
        As the district court recognized, "[i]ssues that 'the clerk of court decides at a foreclosure hearing as to the validity of the debt and the trustee's right to foreclose are subject to res judi-cata and cannot be relitigated.'" Gilbert2010 WL 2696763, at *4 (quoting Merrill Lynch Bus. Fin. Servs. Inc. v. Cobb, No. 5:07-CV-129-D, 2008 WL 6155804, at *3 (E.D.N.C. Mar. 18, 2008)). Because the superior court affirmed the Clerk's decision that Deutsche could enforce the note, the district court concluded that res judicata barred the Gilberts from relitigating Deutsche's enforcement authority. Id.
        But, as noted above, on May 3, 2011, the North Carolina Court of Appeals reversed the state trial court's decision that allowed Simpson to proceed with a foreclosure sale, finding that "the record is lacking of competent evidence sufficient to support that [Deutsche] is the owner and holder of Mr. Gilbert's note and deed of trust." In re Simpson, 71,1 S.E.2d at 175. As such, res judicata no longer bars the Gilberts from litigating whether Deutsche has authority to enforce the note.


        Finally, the Gilberts complain that the district court erred in denying their motion to alter or amend pursuant to Rule 59(e). Because we are reversing and remanding this case to the district court, the argument is moot.


        In light of the foregoing, we affirm in part, reverse in part and remand for further proceedings.
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The full opinion can also be accessed here.