Associates Home Eq. Servs. v. Troup

Majority - Havey, P.J.A.D.

Yes, the expiration of the statute of limitations for affirmative claims does not preclude their assertion as an equitable recoupment defense in a mortgage foreclosure action, and a financing institution can be held liable under the FTC Holder Rule for a seller's misconduct where the required notice was omitted or the loan assigned. The court reversed the trial court's dismissal of the Troups' predatory lending, reverse redlining, FTC Holder Rule, and Consumer Fraud Act claims, but affirmed the dismissal of their TILA rescission claim. First, regarding the predatory lending/reverse redlining claims (under FHA, CRA, and LAD) against Associates, the court found that the Troups presented a colorable foundation for a reverse redlining claim. They alleged Associates actively discriminated against them as African-Americans living in a predominately African-American neighborhood by imposing onerous loan terms (11.65% interest, four points) that were unjustified by their credit history and favorable debt-to-income ratio. Evidence that Associates paid a "yield spread premium" to ECM for the loan and gave ECM a "pre-approval determination" before the loan closed supported an inference of Associates' participation in inflating the interest rate. The dismissal of this claim was premature due to a lack of discovery opportunities. While the Troups' affirmative claims for damages under these statutes were time-barred by their two-year statutes of limitations, these claims could be asserted as an affirmative defense of equitable recoupment against Associates' foreclosure action. Equitable recoupment is not barred by the statute of limitations as long as the main action (foreclosure) is timely and the defense arises out of the identical transaction, acting to reduce the amount the plaintiff can recover rather than seeking affirmative relief. A foreclosure action, being quasi in rem, involves determining the amount due, making recoupment an appropriate defense. Second, concerning the FTC Holder Rule claims against ECM and Ahrens, the court found genuine issues of material fact regarding whether ECM's note constituted a "purchase money loan" under the Rule, which subjects holders to claims the consumer could assert against the seller. Evidence suggested Wishnia (the seller/contractor) referred consumers to ECM and was "affiliated by business arrangement" given their history of mutually arranged loans. The court held that the Holder Rule applies even though the explicit notice was omitted from the loan documents, as it was ECM's responsibility to include it, and New Jersey law implicitly incorporates this federal requirement. Furthermore, ECM's subsequent assignment of the note to Associates does not negate ECM's liability, as the Rule notifies "all potential holders" that they "step into the seller's shoes." Third, for the Consumer Fraud Act (CFA) claims against Associates and third-party defendants, the court concluded that a reasonable jury could find unconscionable business practices. The trial court erred by dismissing these claims, as it ignored the Troups' expert opinion that the loan's interest rate and points were unwarranted given their credit history. The court also noted the Troups' lack of bargaining power and confusion at closing, which can indicate unconscionability, particularly when professional sellers deal with vulnerable consumers. Fourth, the court affirmed the dismissal of the Truth-In-Lending Act (TILA) rescission claim. The notice of right to cancel was found to be clear and unambiguous, complying with TILA's mandates. A $50 disbursement fee charged by ECM's attorney was not deemed an undisclosed "finance charge" that would extend the rescission period to three years, as TILA specifically exempts fees imposed by third-party closing agents if not required or retained by the creditor.