TILA Claims Can be Raised in Recoupment – Defensively

As Russ Baldwin and other lawyers have pointed out, borrowers can raise and use TILA violations and maybe FDCPA violations defensively even if they are otherwise barred as affirmative claims. The way it works is simple — the affirmative defense of recoupment for violations of statute, if proven, result in an offset to the amount demanded by the opposing party up to the amount of the Plaintiff’s claim (i.e., the amount claimed as owed).


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In nonjudicial states, there is a serious constitutional question because it is only in states requiring judicial foreclosure that you can file an affirmative defense. It is in the application of the nonjudicial statutes that you get an unconstitutional result. A borrower should be able to say that he or she has affirmative defenses to the claim for foreclosure and that therefore the case must be transferred to a judicial foreclosure. But so far, that isn’t the case. And one day some smart constitutional lawyer is going to make new law.

But in the meantime the high number of TILA and FDCPA violations could go a long way toward decreasing and even negating the final award to the claimant even if the court presumes ownership and control over the debt, note and mortgage. My own experience is that the foreclosure mills start throwing out various settlement offers as soon as FDCPA is raised and probably would so if TILA violations were raised defensively.

see 2006 opinion In Re Sadie Faust https://www.leagle.com/decision/2006447353br941440

However, while the applicable statute of limitations may preclude Debtor from asserting TILA violations affirmatively, it does not affect her right to assert them defensively, i.e., by recoupment. See In re Ross, 338 B.R. 266, 269 n. 9 (Bankr. E.D.Pa.2006). And it is recoupment which the Amended Complaint specifically seeks. Amended Complaint, p. 4, WHEREFORE clause. “Recoupment is a common law contract doctrine that allows `countervailing claims, which otherwise could not have been asserted together to be raised in a case based upon any one of them.'” Integra Bank/Pittsburgh v. Freeman, 839 F.Supp. 326, 330 (E.D.Pa.1993), (citing Lee v. Schweiker, 739 F.2d 870 (3d Cir.1984)). Unlike setoff, recoupment “lessens or defeats any recovery by the plaintiff.” Algrant v. Evergreen Valley Nurseries L.P., 126 F.3d 178, 184 (3d Cir.1997) (quoting Household Consumer Discount Co. v. Vespaziani, 490 Pa. 209, 219, 415 A.2d 689, 694 (1980)). A party may assert recoupment as a defense after a statute of limitations period has lapsed. Beach v. Ocwen Fed. Bank 523 U.S. 410, 417-418, 118 S.Ct. 1408, 1412, 140 L.Ed.2d 566 (1998). The defense must be related to the nature of the demand made by the other party, that is, it must arise from the same contractual transaction. Algrant, 126 F.3d at 184.

In this case, the TILA claims arise out of the mortgage loan. It is alleged that the lender failed to disclose certain finance charges and the “high cost” of the mortgage loan. Amended Complaint, ¶¶ 22-24. Although otherwise tardy, such claims may nevertheless be raised via recoupment.

Also see Stake Center v Logix https://www.govinfo.gov/content/pkg/USCOURTS-utd-2_13-cv-01090/pdf/USCOURTS-utd-2_13-cv-01090-0.pdf

I frankly don’t know whether or not setoff claims might be barred by the statute of limitations. I can see court doctrine going either way. But on recoupment, the defense is based on the exact same transaction as the one in the complaint. So on that basis TILA claims would not be barred but FDCPA claims could be barred if the statutory period has expired. TILA and foreclosure arise from origination of the loan. FDCPA arises in collection often by a third party. So it could be that FDCPA would be setoff whereas TILA would be recoupment.

Although “[s]ome jurisdictions have dissolved the distinction between setoff [and] recoupment . . . for pleading purposes,”9 the concepts are nonetheless substantively distinct. “[A] setoff, as distinguished from a recoupment . . . ar[i]se[s] from different transactions, or occurrences, between the same parties.”10 Recoupment “describe[s] a claim that defendant could assert against plaintiff only if it arose from the same transaction as plaintiff’s claim.”11 The breach-of-contract counterclaim Defendant seeks to assert against Plaintiff arises from the same transaction or occurrence that gave rise to the claims Plaintiff asserted in its Complaint. As such, Defendant’s affirmative defense of setoff is not duplicative of its proposed breach-of-contract counterclaim. Moreover, even if the Court were to construe Defendant’s affirmative defense of setoff as an affirmative defense for recoupment, Defendant’s proposed counterclaim seeks relief in excess of the damages that would be available under a recoupment defense, including attorney fees, costs, and equitable rescission. Based on the foregoing, the Court finds that amending the Answer to include Defendant’s breach-of-contract counterclaim will serve to maximize the parties’ opportunity to have their dispute decided on the merits and will not prejudice Plaintiff’s ability to prepare a defense.

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