Utah Federal Court Rebuffs Homeowner’s Attempt to Stop Foreclosure in the Face of Material Disclosure Errors
The September 21, 2021 Drummond v. Veritas Funding, LLC, (D. Utah) No. 2:21-CV-423-TS-DBP (“Drummond”) case is a horn-a-plenty for lenders attempting to fend off borrowers’ attempts to enjoin foreclosure. The lender, Veritas, under-disclosed several items in its Loan Estimate and Closing Disclosure on a home mortgage loan that closed on June 11, 2018. After defaulting, the borrower, Drummond, gave notice of rescission on May 13, 2020, well within the 3-year limitation period. The lender responded on April 16, 2021 with a Notice of Default. Drummond then sought a preliminary injunction to stop the foreclosure. It was undisputed that the disclosures were materially inaccurate.
First, Veritas argued that Drummond could not rescind because she did not have the ability to tender the amount she would owe if she rescinded. The district court pointed out that a consumer does not need to plead ability to repay to survive a motion to dismiss but the courts have equitable discretion over the rescission procedure itself. The Court declared it would be “inequitable for Veritas to release its security interest without assurance that Drummond will repay….” Since Drummond had the burden of proving a substantial likelihood of success on the merits, her lack of a plan to repay Veritas was fatal to her quest for an injunction.
The Court did not stop there. The Court also held that the loss of Drummond’s home of 15 years did not rise to the level of “irreparable harm,” a second element that must be established for a preliminary injunction. It said that “simple economic loss usually does not, in and of itself, constitute irreparable harm; such losses are compensable by monetary damages.”
But wait, there is more. Drummond argued that if the injunction was not issued, then she would lose her right to cancel if Veritas foreclosed. The Court found that her right to rescind would terminate if Veritas foreclosed, even though she had timely asserted the right by notice and a lawsuit within the 3-year period. Moreover, the Court found that since more than 3 years had already passed since the loan was obtained, her right to rescind was lost already despite her notice and lawsuit. That would seem to be an invitation to lenders to drag out the rescission process in court past the 3-year period. Under the Court’s ruling, a rescinding consumer must not only exercise the right within 3 years, but win a judgment confirming rescission within 3 years.
An appeal is likely. Stay tuned.
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