In re Ameriquest Mortg. Co. Mortg. Lending Practices Litig. - Nos. 1715, 05-CV-7097, 2006 U.S. Dist. LEXIS 35316 (N.D. Ill. May 30, 2006)

Rule:

To obtain preliminary injunction, the moving party must show that its case has some likelihood of success on the merits, that no adequate remedy at law exists, and that it will suffer irreparable harm if the injunction is not granted. If these three conditions are met, the court must then balance the hardships the moving party will suffer in the absence of relief against those the nonmoving party will suffer if the injunction is granted. Finally, the court must consider the public interest--that is, the interest of non-parties --in deciding whether to grant injunctive relief.

Facts:

Plaintiffs in this multi-district litigation ("MDL"), homeowners who obtained mortgages from Ameriquest Mortgage Company or its affiliates (collectively, "Ameriquest"), filed motions for class certification and for a preliminary injunction on January 11, 2006. Plaintiffs alleged that Ameriquest violated certain disclosure provisions of the Truth in Lending Act ("TILA") and its implementing regulations. First, Ameriquest purportedly provided incomplete Notice of Right to Cancel forms ("NORTC") to borrowers. Specifically, Ameriquest delivered NORTCs that failed to identify the deadline upon which the borrower could rescind the transaction. Second, Plaintiffs claim that Ameriquest provided the wrong form to refinancing borrowers. Rather than using the H-9 form recommended in Regulation Z, Ameriquest gave borrowers an H-8 form, which allegedly is not approved for refinancing disclosures. Plaintiffs argued that these failures to comply with TILA constitute material violations entitling affected borrowers to cancel their mortgages for up to three years from the date of the transaction. If a borrower rescinds a mortgage, he or she is no longer responsible for finance or other charges, and the lender loses its security interest. As such, proper and timely rescission of a mortgage derails a foreclosure action. Once a foreclosure sale is completed, however, a borrower can no longer cancel the mortgage. Thus, Plaintiffs contend, certain Ameriquest borrowers facing foreclosure may unknowingly be entitled to extended rescission rights but lose their defense if they fail to act prior to the impending property sale. Ameriquest apparently does not dispute Plaintiffs' description of TILA rights and remedies, or the fact that certain borrowers may lose their homes despite having extended rescission rights. Recognizing that the court was unable at this early stage of the litigation to expeditiously rule on those motions, Plaintiffs sought interim injunctive relief ordering Ameriquest to issue notice to borrowers who may face foreclosure before class-wide relief can be determined.

Issue:

Should the plaintiff’s motion for interim injunctive relief be granted?

Answer:

Yes.

Conclusion:

Re: likelihood of success on the merits — In support of their claims for injunctive relief, Plaintiffs submitted declarations of counsel presenting copies of more than 150 incomplete NORTCs and more than forty improper H-8 forms delivered to Ameriquest borrowers. In addition, Plaintiffs filed fifteen declarations from a sampling of putative class members, who also provided the allegedly incorrect forms received at their closings. For example, two such borrowers, Timothy and Cynthia Dion, stated that they did not receive copies of NORTCs with their refinancing transaction or rescission dates completed. The Dions further declared that although Cynthia filed for Chapter 13 bankruptcy to prevent Ameriquest from foreclosing on their home, Ameriquest continues to take steps to complete the foreclosure. Plaintiffs submitted similar declarations from named plaintiffs Lynn Gay, Duval Naughton, Daisybel and William Tolbert, and David and Janet Wakefield. The NORTCs supporting their declarations are also either incomplete, improper for the particular loan described by the declarant, or both. Accordingly, Plaintiffs presented documentary and testimonial evidence of Ameriquest's repeated failure to include mandatory rescission information and to provide H-9 forms for refinancing transactions with the same lender. In response, Ameriquest argued that most of the borrowers identified by Plaintiffs acknowledged that they received compliant NORTCs. In support of their defense, Ameriquest provided copies from their files of completed NORTCs executed by 132 of the same borrowers who provided Plaintiffs' counsel with incomplete forms. To the contrary, TILA states that a written acknowledgment "does no more than create a rebuttable presumption of delivery." Borrowers can attempt to overcome this presumption with testimony about their closings and what documents they received (or did not receive), as well as by presenting copies of NORTCs from their own records. Although such conflicting evidence may not be sufficient to warrant summary judgment for either party, the existence of signed acknowledgments in Ameriquest's files certainly does not preclude Plaintiff's eventual success on the merits. Nonetheless, the acknowledgments pose a hurdle Plaintiffs must clear to prevail. In light of the strict liability TILA imposes on lenders, the contradictory evidence before us and the relatively low burden Plaintiffs bear to rebut the presumption of receipt, Plaintiffs sufficiently established that they have a "better than negligible" chance of prevailing on the merits.

Re: inadequate remedy at law and irreparable harm — Plaintiffs stressed that the subset of class members facing imminent foreclosure will suffer irreparable harm by losing their homes despite possible extended rescission rights. They argued that there can be no remedy at law sufficient to compensate them financially: (1) for this loss of unique real property; and (2) for the avoidable termination of their rescission rights. On the other hand, Ameriquest contended that TILA provides adequate notice of the right to rescind and sufficient remedies in the form of rescission, actual damages and statutory penalties. Accordingly, no additional notice is required under TILA to provide Plaintiffs with a remedy sufficient to cure the alleged harm. Ameriquest also alleged that putative class members will not suffer irreparable harm if they do not receive notice of potential extended rescission rights because individual state laws require ample notice of foreclosure actions, allowing borrowers to present any available defenses. Nonetheless, the harm at issue was not the failure to receive a certain type of notice; the notice Plaintiffs seek was simply the means of avoiding the real harm -- the unintended lapse of rescission rights and loss of residence pending our decision on Plaintiffs' motions. Indeed, Ameriquest noticeably failed to rebut Plaintiff's argument that certain borrowers will lose their homes in the near future, despite the fact that they may be entitled to rescind. "A piece of property is always considered unique, audits loss is always an irreparable injury." Ultimately, there can be no adequate remedy at law for loss of a home.

Re: balance of hardships — According to Ameriquest, the putative class will suffer no hardship. On the other hand, Ameriquest will face: (1) a rash of improper requests for rescission; (2) negative publicity and loss of goodwill; and (3) significant financial burden, if numerous foreclosures are stayed while notices are distributed. Plaintiffs responded that, while class members will suffer the irreparable injuries addressed above, Ameriquest faces little hardship. In addition, because Ameriquest holds a security interest in borrowers' homes, it should suffer no harm. Accordingly, the court found that the balance of hardships tips heavily in Plaintiffs' favor. While it appreciated the costs that Ameriquest would shoulder in issuing notices and investigating rescission requests (the merits of which remain to be seen), its burden cannot compare to the hardship that would be suffered by class members who may lose their homes and rescission rights despite the existence of a complete defense under TILA.

Re: public interest — Public interest would be better served by granting the requested temporary injunction. TILA exists to ensure that unsophisticated borrowers make informed decisions about credit. Plaintiffs' proposed notice to putative class members will enable them to make informed decisions about how to respond to the impending foreclosure on their mortgages in light of the alleged disclosure violations, effectuating the purposes underlying TILA.