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Rule 11 and the Truth in Lending Act

by Geoffrey K. Milne
Hunt Leibert Chester & Jacobson, P.C. — USFN Member (CT)

            Lender’s counsel met with a written demand for recission under the federal Truth in Lending Act may take comfort in a ruling from the District Court of Connecticut, which imposed Rule 11 sanctions against the borrower’s counsel for bad faith pleading.

In Moazed v. First Union Mortgage Corporation n/k/a Wachovia Mortgage Corporation, 2004 WL 797717 (D. Conn.), the borrower filed an action against the lender, claiming violations of the federal and Connecticut Truth in Lending Acts, for the claimed failure to take steps to terminate the security interest within 20 days of a written notice to rescind, as mandated by these Acts. Before commencement of the borrower’s lawsuit, the lender filed motions with the court during a prior mortgage foreclosure to extend the time period to respond to the steps required by the Acts.

The borrower’s complaint alleged that the lender took no steps within the 20-day period and that the mortgage had therefore been rescinded. The lender filed a Motion for Rule 11 Sanctions, based upon the borrower’s failure to plead any of the underlying rulings from the foreclosure action, which extended the time period to respond. The district court, in imposing Rule 11 sanctions upon the borrower’s counsel, ruled that the procedures set forth under 15 U.S.C. § 1635(b) may be modified by court order, relying upon Quenzer v. Advanta Mortgage Corporation USA, 288 B.R. 884 (D. Kan. 2003) and Yamamoto v. Bank of New York, 329 F.3d 1167 (9^th Cir. 2003). This ruling benefits lenders because it recognizes that a lender faced with a demand for recission may contest the recission and seek relief from the court to modify the statutory procedures, without prejudice to the validity of its mortgage.

Editor’s Note: The author’s firm represented the lender in the Moazed case.

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