Friday, August 27, 2010

Northern California Judge Dismisses Truth in Lending Act Case against Wells Fargo

Sometimes, things in California or in the Ninth Circuit are different than they would be anywhere else in the country. This is one of those cases.

Under the Truth in Lending Act, "when a loan made in a consumer credit transaction is secured by the borrower's principal dwelling, the borrower may rescind the loan agreement if the lender fails to deliver certain forms or to disclose important terms accurately." Beach v. Ocwen Federal Bank. The various district courts are conflicted on the precise meaning of Beach. The majority view is that when the borrower does not receive certain forms or important terms of the loan there is a three-year statute of limitation for the borrower to rescind or back out of the agreement. The view held by three District Courts in the Ninth Circuit is that the borrower has three years to tell the lender that he wants to back out of the loan, and, if things don't work out he can later file a lawsuit to get out of the loan.

Magistrate Laurel Beeler adopts the Ninth Circuit view in Briosos v. Wells Fargo Bank. In this case Fernando Briosos's partner dies and he wants to retitle their joint property into his name. According to the complaint, Wells Fargo tells him (falsely) that the only way he can do that is by refinancing his mortgage. Fernando says he never receives the paperwork, wants to rescind the loan and collect damages for fraud.

Wells Fargo argues that even assuming he has a claim, Fernando must allege that he is able to complete his side of the rescission, that is, returning the money that Wells Fargo loaned him. Judge Beeler dismissed the complaint to give Fernando a chance to show that he could do that.

Fraud is hard to allege and harder to prove. Fraud requires 1) a misrepresentation 2) with knowledge of its falsity 3) intent to defraud 4) justifiable reliance and 5) resulting damage. At the pleading stage the defrauded person must provide the who, what, where, when, why and how of each situation such that it explains these elements. Here, the who is missing and Judge Beeler dismissed the complaint with an opportunity for Fernando to amend it, filling in the blank.

The Case is Briosos v. Wells Fargo Bank.  No. C 10-02834 and the opinion is below the jump.

Here is the opinion:

Briosos v. Wells Fargo MTD

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