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Nejo v. Wilshire Credit Corporation

July 21, 2010


The opinion of the court was delivered by: Hon. Roger T. Benitez United States District Judge




The joint motion to dismiss filed by defendants Wilshire Credit Corporation and Steel Mountain Capital I, LLC is now before the Court. For the reasons discussed below, the motion is granted. Plaintiff is granted leave to amend as to the federal claim. The exercise of jurisdiction over the remaining state law claims is declined pursuant to 28 U.S.C. §1337 and the several state law claims are dismissed without prejudice.


Under Federal Rule of Civil Procedure 12(b)(6) a motion to dismiss is meritorious if, taking all factual allegations as true, the complaint fails to state a plausible claim for relief on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556-57 (2007). The plausibility standard means that the complaint must state enough facts to raise a reasonable expectation that discovery will uncover evidence of the matter. Id. at 556. Applying that standard here, the Court finds that Plaintiff's complaint does not state a federal claim for relief against Wilshire Credit Corporation or Steel Mountain Capital I, LLC.


Plaintiff asserts a federal claim for relief seeking three remedies under the Truth in Lending Act or "TILA," 15 U.S.C. §1601 et seq.

A. Rescission

Plaintiff claims she is entitled to rescind a real estate loan transaction she entered into for the refinance of a then-existing loan. TILA grants a borrower the right of rescission when certain provisions of TILA are violated in the loan transaction. 15 U.S.C. §1635; Jones v. E*Trade Mortg. Corp., 397 F.3d 810, 812 (9th Cir. 2005). When a borrower is not told of the statutory three-day right to rescind, the period for rescission is extended to three years. Beach v. Ocwen Fed. Bank, 423 U.S. 410, 412 (1998).

Where a borrower decides up to three years later to exercise her right to rescind a loan transaction, the lender must disgorge all of the interest paid and fees earned under the terms of the rescinded loan. At the same time, the borrower must return the money borrowed. As is the case here, the amount of money at stake may be substantial. According to documents attached to the Amended Complaint, the original loan amount was $330,000. Plaintiff paid $16,100 in loan origination finance charges and $20,079 in principal and interest payments in the months following. As a result, rescission would require Plaintiff return $330,000 to the lender and the lender return $36,179 to Plaintiff.

The parties began this process in April 2009. However, neither the Amended Complaint nor the exhibits attached indicate that Plaintiff has tendered or is prepared to tender the amount of the original loan proceeds. What is evident is that Plaintiff offered to tender $288,821.59 in separate monthly payments of $1,550.46 at 5% annual interest -- over 30 years. See Exhibit "F" to Plaintiff's Amended Complaint; United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (court may consider documents attached to complaint on motion to dismiss under Rule 12(b)(6)).

Defendants argue that a proper TILA claim for rescission must include an assertion that the plaintiff has the ability to tender the loan proceeds. Defendants also argue that Ms. Nejo's tender of monthly payments over the next 30 years with interest at a unilaterally selected annual rate fails to state a claim for relief under TILA. This Court agrees.

Recent decisions agree that a plaintiff cannot state a claim for rescission under TILA without at least alleging that he or she is capable of tendering the loan proceeds in the event he or she prevails on the merits. See, e.g., Cruz v. Mortg. Lenders Network, USA, slip op., Case No. 09cv1679 BEN (AJB) (S.D. Cal. Mar. 10, 2010) (dismissing TILA claim lacking allegation of capability of tendering loan proceeds); Greetis v. Nat'l. City Mortg., slip op., Case No. 09cv1502 JM (JMA), 2010 WL 695536, at *4-5 (S.D. Cal. Feb. 24, 2010) ("Plaintiff's failure to allege that she is able to tender monies received from Defendants is fatal to her claim for rescission."); Quintero Family Trust v. OneWest Bank, F.S.B., slip op., Case No. 09cv1561 IEG (WVG), 2010 WL 392312, at * 4 (S.D. Cal. Jan. 27, 2010) (holding that plaintiffs must allege, consistent with Rule 11, their ability to tender the loan proceeds, in order to state a claim for relief under TILA); Garza v. Am. Home Mortg., slip op., Case No. CV F 08-1477 LJO GSA, 2009 WL 188604, at *5 (E.D. Cal. Jan. 27, 2009) ("Rescission is an empty remedy without [the plaintiff's] ability to pay back what she has received (less ...

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