Recently, the Massachusetts Superior Court issued an opinion in Latham v. Homecomings Financial Network, Inc., in which it dismissed claims brought by the plaintiff-borrower against the defendant-creditor on the grounds that the lawsuit was not a defensive claim for recoupment, notwithstanding the plaintiff’s allegations, and was therefore barred by the applicable statute of limitations.
The plaintiff, Lincoln Latham, filed suit against Homecomings in 2008 in state superior court after Homecomings instituted foreclosure proceedings and after the plaintiff attempted to file numerous bankruptcy actions. Among other state law claims, he alleged violations of the state and federal Truth in Lending Acts (TILA) related to an adjustable rate note secured by a mortgage on his principal residence. The plaintiff argued that the defendant failed to disclose the fact that the note and mortgage for new refinancing he obtained in 2003 included an adjustable interest rate, rendering the mortgage broker’s representations that he was signing a fixed rate note and mortgage false. He also contended that the defendant failed to provide him with certain information in violation of state and federal TILAs and stated in his complaint that the action was in the nature of recoupment.
Homecomings filed a motion to dismiss, arguing that the action was not a defensive recoupment measure and instead was an affirmative claim otherwise barred by the statute of limitations. In dismissing the claim, the court reaffirmed that the recoupment doctrine permits a defendant to raise claims defensively against a plaintiff in order to reduce the plaintiff’s recovery, even if the claims would otherwise be time barred if they arise from the same underlying transaction as the plaintiff’s. Although the court indicated that the fact that the debtor is a plaintiff in a TILA case does not preclude the finding that the claim was raised defensively, the court found that "’merely labeling the [claim] as ‘recoupment’ does not avoid the [statute of limitations]; the claim must be asserted defensively by the consumer in an action brought by the creditor.’"
This case is significant in Massachusetts as it appears to be the first non-bankruptcy decision which discusses the notion of an independent, affirmative action brought in response to a foreclosure proceeding filed against the borrower. It confirms that such actions are not permitted to be filed outside of the statute of limitations periods and that courts should look beyond the plaintiff’s labeling of their action to determine whether the action is really defensive or offensive in nature. This decision helps to confine the recoupment doctrine to adversary proceedings filed in response to a creditor’s proof of claim and will prohibit a borrower from hauling banks into state or federal (non-bankruptcy) courts outside of the limitations period.
For more information about this case, or for questions or concerns about any real estate matter, please contact the author of this alert, Richard Briansky at [email protected] or 617 456 8052.