Beach v. Ocwen Federal Bank

PETITIONER: Beach
RESPONDENT: Ocwen Federal Bank
LOCATION: The White House

DOCKET NO.: 97-5310
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: Florida Supreme Court

CITATION: 523 US 410 (1998)
ARGUED: Mar 02, 1998
DECIDED: Apr 21, 1998

ADVOCATES:
Bruce S. Rogow - Argued the cause for the petitioners
Carter G. Phillips - Argued the cause for the respondents

Facts of the case

David and Linda Beach refinanced their Florida house in 1986 with a loan from Great Western Bank. In 1991, they stopped making mortgage payments. In 1992, Great Western began foreclosure proceedings. While the Beach's acknowledged their default, they alleged that the bank's failure to make disclosures required by the Truth in Lending Act gave them the right under federal law to rescind the mortgage agreement. The Florida trial court rejected that defense, holding that any right to rescind had expired in 1989 under federal law which provides that the right of rescission shall expire three years after the loan closes. The state's intermediate appellate court affirmed, as did the Florida Supreme Court.

Question

Can homeowners who face foreclosure rescind a mortgage loan on the ground that the lender violated the federal truth-in-lending law?

Media for Beach v. Ocwen Federal Bank

Audio Transcription for Oral Argument - March 02, 1998 in Beach v. Ocwen Federal Bank

William H. Rehnquist:

We'll hear argument now in Number 97-5310, David R. Beach v. the Ocwen Federal Bank.

Mr. Rogow.

Bruce S. Rogow:

Mr. Chief Justice, and may it please the Court:

Ocwen Bank agrees that there is a right of rescission in recoupment after 3 years.

Ocwen, however, says that that right in recoupment is a State safety net, that one can rescind in recoupment only if there is fraud or duress or coercion under State law principles.

Anthony M. Kennedy:

Is right of rescission in recoupment, is that a term peculiar to Florida law, or is that how we speak of it generally?

I always thought it... recoupment as simply being offset to damages, but rescission is an action of an equitable nature.

I don't... and your brief talks in the same way.

You seem to conflate the two terms.

Bruce S. Rogow:

Justice Kennedy, rescission in this situation is statutory rescission, and I think it's important to note, too, that the right to rescind within 3 years is not an action in rescission under the truth-in-lending law.

It is merely sending a notice of rescission within the 3 years.

Anthony M. Kennedy:

Well, can't we say that without coupling it with the term of recoupment, or does that somehow help your case to talk about recoupment?

Bruce S. Rogow:

It helps our case to talk about recoupment and, indeed, 1635(i)(3) talks about rescission in recoupment, a statute that the supreme court of Florida absolutely ignored in this analysis.

Anthony M. Kennedy:

The statute itself talks about rescission in recoupment?

Bruce S. Rogow:

Under State law, but the caption of (i)(3) is the right to recoupment under State law, and then the statute says, nothing in this section shall affect the right to rescission in recoupment under State law.

Ocwen suggests that that only means State law rescission for fraud, duress, or coercion, and our position is, is it means more than that.

It means the Federal Truth-in-Lending Act right to rescission, and several reasons support our position.

The first is the notion that, when one looks at this statute, the word rescission used throughout the statute is Federal TILA rescission, and this Court's decision last week in National Credit Union reasserted a principle that, when one looks at statutes and the same words are used throughout the statute, then the word has the same meaning, and here the word rescission is used throughout section 1635 and it is referring to TILA rescission, Truth-in-Lending Act rescission, so under that--

Sandra Day O'Connor:

Mr. Rogow, under the statute I guess, regardless of the timing of the discovery of a failure to comply with TILA, that the homeowner, your client, in effect, could in any event obtain damages that result from whatever failure to disclose was involved, is that right?

Bruce S. Rogow:

--That is--

Sandra Day O'Connor:

Without any time limit on that.

You can get actual damages.

Bruce S. Rogow:

--You can get actual damages, Justice O'Connor, and statutory--

Sandra Day O'Connor:

And also twice the amount of any finance charge.

Bruce S. Rogow:

--A statutory penalty with a maximum... in this case it was $1,000, and there was $1,000, in effect a penalty under 1640, plus the overcharge, and plus another amount of--

Sandra Day O'Connor:

So that's available without time limit.

Bruce S. Rogow:

--That is available.

Sandra Day O'Connor:

But your client asserts in addition a right to rescind and recover all of the interest paid for the period of time that the mortgage was in effect and payments were made on it, is that right?

Bruce S. Rogow:

That is right, Justice O'Connor, recover the interest paid, on the other hand have to pay back the principal.

The rescission--