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Johnson v. GMAC Mortgage Corp.2/22/2005
rmined that proper grounds for rescission actually exist:
Neither the statute nor the regulation establishes that a borrower's mere assertion of the right of rescission has the automatic effect of voiding the contract. Section 1635(b) states that, " hen an obligor exercises his right to rescind," the creditor's security interest "becomes void." The natural reading of this language is that the security interest becomes void when the obligor exercises a right to rescind that is available in the particular case, either because the creditor acknowledges that the right of rescission is available, or because the appropriate decision maker has so determined.
Large v. Conseco Fin. Servicing Corp. , 292 F.3d 49, 54-55 (1st Cir. 2002).
Otherwise, "a borrower could rescind a transaction without any statutory justification simply by alleging that the statutory requirements for rescission had been met." Id . at 55. But this does not mean that the borrower must plead tender to maintain his action; it merely means that if the borrower does not tender, then the lender does not have to release the security interest until a court can determine whether statutory grounds for rescission actually exist.
Mr. Johnson alleges that he duly notified GMAC of his rescission within three days but that GMAC never acknowledged that he had exercised his right to rescind and never took the action necessary to reflect termination of the security interest. Indeed, Mr. Johnson alleges that GMAC recorded the security interest despite his notice of rescission. Mr. Johnson further alleges that GMAC violated TILA's disclosure provisions. This court must accept these allegations as true for purposes of determining whether Mr. Johnson stated a claim for relief. See Bosch, 41 S.W.3d at 464.
Accepting these allegations as true, we conclude that Mr. Johnson has stated a claim for declaratory relief here.
We are not persuaded by respondents' arguments to the contrary that Mr. Johnson must plead tender or an offer of tender. At common law, tender by the borrower is indeed a prerequisite to stating a claim for rescission. Williams v. Homestake Mortgage Co., 968 F.2d 1137, 1140 (11th Cir. 1992). Under TILA, however, this is not true:
The sequence of rescission and tender set forth in section 1635(b) is a reordering of common law rules governing rescission . . . . Under section 1635(b), . . . all that the consumer need do is notify the creditor of his intent to rescind. The agreement is then automatically rescinded and the creditor must, ordinarily, tender first. Thus, rescission under section 1635 place the consumer in a much stronger bargaining position than he enjoys under traditional rules of rescission.... Furthermore, because rescission is such a painless remedy under the statute (placing all burdens on the creditor), it acts as an important enforcement tool, insuring creditor compliance with TILA's disclosure requirements.
Id. (internal citation and quotation marks omitted); see also Large, 292 F.3d at 55 ("Rescission under the TILA is 'automatic' in the sense that, in contrast to common law rescission, the borrower need not first return the loan proceeds received under the agreement to effect a rescission.").
Under TILA, therefore, "the tender back of consideration received is not a prerequisite to rescission. Section 1635(a) requires only that the obligor exercise his right of rescission by notifying the creditor within the prescribed time limit of his intent to rescind." Rachbach v. Cogswell , 547 F.2d 502, 505 (10th Cir. 1976).
This is not to say that the trial court lacks the power to condition an order of rescission upo
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