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Patetta v. Wells Fargo Bank, NA

2009 WL 2905450 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

MORTGAGES; STATUTE OF LIMITATIONS — The rescission right under the Truth in Lending Act, expires six years after the closing regardless or when a borrower becomes aware that its lender may have failed to make the necessary disclosures and there is no tolling available based on a claim that the lender breached its duty of fiduciary duty because creditor-debtor relationships rarely are found to give rise to a fiduciary duty.

At their loan closing, borrowers were represented by an attorney who advised them that there were no hidden clauses or prepayment penalties in the loan documents. Nevertheless, they alleged that the loan they received was not what they had originally bargained for since: (a) the lender failed to make proper disclosures under the Truth in Lending Act (TILA) and the Home Ownership and Equity Protection Act (HOEPA); (b) they were required to pay closing costs far in excess than had been previously disclosed by the lender in the Real Estate Settlement Practices Act (RESPA) statement; and (c) it was not until after closing that they discovered that their refinance mortgage was an adjustable rate mortgage and not a fixed rate mortgage. Several years later, the borrowers defaulted and the lender’s assignee foreclosed on the loan. The borrowers sued in New Jersey federal district court, alleging federal claims under TILA and RESPA. They claimed full diversity between the parties. They also alleged the lender violated the New Jersey Racketeering Influenced and Corrupt Organizations Act (RICO) and the New Jersey Consumer Fraud Act (CFA). They also asserted common law claims for fraud, negligence, unjust enrichment, and breach of fiduciary duty. The lenders contended that the federal claims and several of the state claims were time barred.

The District Court ruled that all of the federal claims were time barred. Although the borrower conceded that the statute of limitations for the federal claims expired, they asked the Court to consider these claims because there was a question of fact as to when the borrowers became aware of these statutory violations. As to TILA, the rescission right expires three years after the consummation date of a transaction, regardless of when a borrower becomes aware that a lender may have failed to make the necessary disclosures. Here, the Court noted that the borrower brought suit more than three years after the closing. It also refused to apply the equitable tolling doctrine because the borrowers knew “after the closing” that the loan was not what they had intended it to be but did not sue the lender until years after the statute of limitations expired. As to the damages claim under TILA, the Court found that once the interest rate increased two years after the closing, the onus was on the borrower to diligently inquire as to why the loan they had been paying was appreciably different and not sit idly by while they lapsed into foreclosure. Accordingly, it found that the one year limitations period for damages under TILA had also expired.

Similarly, the Court dismissed the RESPA claims as time barred. It determined that the borrower was aware at closing that the closing costs had increased, as evidenced by the allegedly deficient RESPA statement they received before the closing, but did not bring suit until after the statute of limitations expired. The Court also dismissed the state law RICO and common law negligence claims as time barred for the same reasons it dismissed the federal claims – the borrower knew it had the right to pursue these claims as of the closing date, and yet it brought suit for these claims after the applicable periods to sue had expired. It also dismissed the breach of fiduciary duty claim. It held that “creditor-debtor relationships … rarely are found to give rise to a fiduciary duty.” It stated that it would be antithetical to the often adversarial and contentious nature of the borrower-lender relationship to impose a fiduciary duty on the lender. Here, the Court concluded that the borrower failed to identify any exceptional facts or case law that would support such a claim. Thus, all federal claims, as well as the RICO and negligence claims, were dismissed. Since the remaining state claims would be dismissed for lack of subject matter jurisdiction if supplemental jurisdiction were not established, the District Court gave the lenders ten days to demonstrate that complete diversity existed by indicating its place of incorporation and principal place of business. In the event there was no diversity, the Court held that if there was not complete diversity, it would then decide if it would retain supplemental jurisdiction over the state claims that had not already been dismissed.

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