Court Opinion

ID: 9461014
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:04:01.926923+00
Date Added: 2024-06-11T17:36:51.366960
License: Public Domain

EUGENE A. WRIGHT, Circuit Judge
(concurring in part and dissenting in part):
I concur in the majority opinion insofar as it holds that the defendants are not entitled to the protection of 15 U.S. C. § 1640(c)’. I respectfully dissent, however, from that portion of the majority opinion dealing with the equitable power of the district court to condition rescission on repayment by the plaintiffs. I would affirm the judgment of the district court.
Section 1635(b) provides that upon the debtor’s election to rescind, the creditor’s security interest in the debtor’s home becomes void. There is no requirement that the debtor tender payment before rescission. Nor is there a provision that the security interest is merely voidable by petitioning the district court. Thus, when the plaintiffs exercised their right to rescind by notifying the defendants, the security interest automatically became void and unenforceable.
The majority opinion would permit the district court effectively to reinstate the security interest that § 1635(d) declares void, at least as it affects the rights of the debtor and creditor inter se. If rescission is conditioned on repayment and if the plaintiffs do not repay, the security interest would presumably still be in force. This is in direct conflict with § 1635(b). Indeed, conditioning the voiding of a security interest on repayment is effectively no remedy at all because, after repayment, the security interest has fulfilled its purpose and has lost its vitality.
Although the majority speaks of conditioning rescission on repayment, the remedy might be interpreted to mean merely that plaintiffs’ obligation to repay the principal can be incorporated into the judgment of the district court and enforced by a court imposed lien. This would rescind the security interest, but the defendant would become a judgment creditor with a court imposed lien on plaintiffs’ home. It would alter the creditors’ right vis-a-vis third-party creditors, but it would permit the defendants to foreclose in the event of nonpayment.
*864But § 1635 was not enacted to benefit third-party creditors. Its purpose is “to blunt unscrupulous sales tactics by giving homeowners a means to unburden themselves of security interests exacted by such tactics.” Eby v. Reb Realty, Inc., 495 F.2d 646 (9th Cir., 1974), citing 114 Cong.Rec. 1611 (1968) (remarks of Congressman Cahill). A court imposed lien subject to foreclosure on default might unburden third-party creditors, but it would not unburden the homeowner as intended by § 1635.
A final possible interpretation of the “condition” is that the district court may simply incorporate into its judgment the obligor’s obligation, arising after rescission, to repay the principal. Presumably the defendants’ interest under this interpretation could not be foreclosed but rather could be executed according to the respective rights of judgment creditors and debtors. Presumably, the debtor would be protected by homestead rights and any others accorded judgment debtors. This would relieve the debtor of the burdens of the security agreement, replacing them only with those burdens § 1635 leaves undisturbed, i. e. the burden of a judgment debtor of a general creditor.
This remedy would not directly frustrate the intent of § 1635(b), but neither is it necessary to protect the defendants’ rights. They could have a similar result by suing on the debt in state court. Of course, incorporating this potential state judgment into the district court’s decree would be judicially economical. But Fed.R.Civ.P. 13 concerning counterclaims is the proper vehicle on which the defendants should pursue their interest in avoiding repeated litigation. If Rule 13 would not permit a counterclaim or if the creditor declines to avail himself of its provisions, the court should not give him judgment on what essentially is a counterclaim. Moreover, reducing the creditor’s rights to judgment without a trial on the merits deprives the obligor of the opportunity to assert whatever defenses he may have.
It is true that in Eby v. Reb Realty, Inc., supra, we held that a request for both rescission and a civil penalty was “addressed to a court’s sense of equity.” This is somewhat inconsistent with the absolute wording of § 1635 and § 1640. But accepting the conclusion of Eby, I would limit the court’s equitable discretion to cases where a civil penalty would be an inequitable windfall to an overreaching debtor. There is no evidence whatever of over-reaching by the plaintiffs ; they sought merely to enforce their statutory remedies.
Of course, the rescission of a creditor’s security interest is a harsh remedy if the debt is not otherwise collectible, but the defendants could have avoided it by complying with the requirements of the Act. Moreover, the possibility that the principal debt will be uncollectible is a common circumstance in cases of this sort. It is hardly an unusual situation where we might infer Congress did not intend the result. Although the remedy might be harsh, it is the one Congress adopted, and I would not substitute our judgment for its.
One aspect of the majority opinion should be noted. Since Eby is the source of equitable discretion relied upon by the majority, the holding appears limited to cases where the debtor seeks both rescission and a civil penalty. Where only rescission is sought, Eby no longer applies.
I would hold that plaintiffs are entitled to unconditional rescission under § 1635 and a civil penalty under § 1640. I would not permit the district court to enforce defendants’ right to repayment. Accordingly, I would affirm the judgment of the district court in all respects.