On appeal from the Superior Court of New Jersey, Chancery Division, Morris County, Docket No. F-19517-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Rodríguez and Chambers.
Avelo Mortgage, LLC (Avelo) appeals from a September 19, 2008 order in favor of Rodney and Lisa Jeffery (Borrowers), dismissing its mortgage foreclosure complaint and other relief. We disagree with the remedy. Therefore, we reverse and remand.
This dispute arises from a mortgage refinance closing that took place on December 7, 2006. On that date, the Borrowers executed a note for the sum of $297,600 to the lender, Avelo's assignor, New Century Mortgage Corporation (New Century). New Century paid off the Borrowers' prior mortgage loan to Citicorp Trust Bank (Citicorp) in the amount of $253,907.87 and other judgments in the amount of $7,850.65. The cash balance totaling $22,181.17 was given to the Borrowers. A mortgage was placed on the Borrowers' property located in Lincoln Park in order to secure the note. The mortgage and note were subsequently assigned to Avelo.
Jeffery stated in his certification that he believed that he would receive a thirty-year, six-percent fixed loan. After the Borrowers realized that the loan actually received was not what was promised, they timely exercised their right to cancel by sending, via certified mail return receipt requested, the right to cancel to New Century within three days of the closing. Six days after the rescission, Access New Jersey Title Agency (Access Title) faxed the Borrowers an affidavit to sign. Upon signing, the Borrowers would rescind. This fax served as evidence that Access Title had knowledge that the Borrowers rescinded. Moreover, Rodney testified that neither he nor his wife sent Access Title their rescission. Instead, notice of the rescission was sent to their lender, New Century. On the same day that the Borrowers received the fax from Access Title, they received a call from Marty at Access Title. According to the Borrowers, Marty told them that he thought it would be best to re-sign the mortgage and worry about the credit issues in the near future. The Borrowers sought the advice of an attorney. They did not at any time re-sign a mortgage with New Century or Avelo.
New Century and Avelo both proceeded to ignore the Borrowers' rescission and instead actively attempted to collect the mortgage payments. The Borrowers sent numerous letters to Avelo reaffirming their rescission of the mortgage contract. Rodney testified to pain and anguish and years of harassment at the hands of the lenders involved. He alleged that his credit score is ruined as a result of Avelo's reporting of outstanding debt.
Avelo sued in foreclosure. The Borrowers did not answer. Avelo requested entry of default. The Borrowers moved to vacate the default alleging that the attorney they retained failed to file an answer. Avelo opposed the Borrowers' motion. The judge vacated the default and provided the Borrowers three weeks to file an answer. The Borrowers answered and then moved for summary judgment and argued that they properly rescinded the loan within three days as required by the Truth in Lending Act (TILA),*fn1 specifically 15 U.S.C.A. § 1635. The judge granted the Borrowers' summary motion. The September 19, 2008 order provided that: the foreclosure complaint was dismissed with prejudice; Avelo's security interest was deemed void due to the failure to accept the Borrowers' rescission pursuant to TILA; Avelo was permitted to proceed on the note, with all defenses available to Borrowers; and stay pending appeal was denied.
Avelo appeals arguing that the judge "erred in failing to require [the Borrowers] to tender back the proceeds of the rescinded loan as a condition precedent to voiding its mortgage." We disagree. While the appeal was pending, Avelo moved for a stay and for a lis pendens to remain in place pending appeal. We granted the motion for a stay and to permit lis pendens to remain in place. Avelo Mortgage, LLC v. Jeffery, No. M-972-08 (App. Div. Nov. 14, 2008).
The governing authorities are clear. Three elements need to be established for a lender to prevail in a foreclosure action: (1) the validity of the loan documents (the note and mortgage); (2) the alleged default in payment; and (3) the right to foreclose. Great Falls Bank v. Pardo, 263 N.J. Super. 388, 394 (Ch. Div. 1993), aff'd, 273 N.J. Super. 542 (App. Div. 1994). Pursuant to TILA, "[w]hen an obligor exercises his right to rescind... any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission." 15 U.S.C.A. § 1635(b). Therefore, if the Borrowers had the right to rescind pursuant to TILA and properly exercised that right, their mortgage should be found invalid. This precludes the finding of a required element in Avelo's foreclosure action, namely valid loan documents.
TILA was enacted in 1968 in response to the widespread use of abusive lending practices. Cooper v. First Gov't Mortgage & Investors Corp., 238 F. Supp. 2d 50, 54 (D.D. Cir. 2002). One of TILA's goals was to provide for an informed use of credit through the "meaningful disclosure of credit terms so that consumers [would] not be misled as to the costs of financing." Ibid.; see also 15 U.S.C.A. § 1601(a). TILA is to be construed broadly in favor of consumers. In re Porter, 961 F.2d 1066, 1078 (3d Cir. 1992). A creditor who violates TILA in any respect is liable to the consumer under the statute regardless of the creditor's intent or the nature of the violation. Ibid. "Once the court finds a violation, no matter how technical, it has no discretion with respect to liability." Ibid.
In a credit transaction in which a security interest is retained or acquired on a consumer's principal dwelling, TILA requires that consumers "have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required...." 15 U.S.C.A. § 1635(a). "The purpose of the three-day waiting period under 15 U.S.C.A. § 1635(a) is to give the consumer the opportunity to reconsider any transaction which would have the serious consequence of encumbering title to his or her home." Assocs. Home Equity Servs., Inc. v. Troup, 343 N.J. Super. 254, 280 (App. Div. 2001).
The creditor is to conspicuously disclose to a consumer their rights pursuant to 15 U.S.C.A. § 1635(a). Regulation Z*fn2 provides that the notice of a right to rescind shall clearly and conspicuously disclose: (1) the retention or acquisition of a security interest in the consumer's principal dwelling; (2) the consumer's right to rescind the transaction; (3) how to exercise the right to rescind, with a form for that purpose, designating the address of the creditor's place of business; (4) the effects of rescission, as described in paragraph (d) of this section; and (5) the date the rescission period expires. 12 C.F.R. § 226.23. The ...