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Sunday, 21 August 2011

What Statute of Limitations Applies to A Claim That A Mortgage Was Unconscionable?

Posted on 16:55 by Unknown
Estate of Davis v. Wells Fargo Bank, 633 F. 3d 529 - Court of Appeals, 7th Circuit 2011 - Google Scholar



The Seventh Circuit affirmed the dismissal of the plaintiff's claim against Wells Fargo Bank, which took over the servicing of a predatory mortgage loan.



The plaintiff asserted claims for unconscionability and fraud under Illinois law. The Seventh Circuit noted that the fraud and unconscionalbility claims were subject to a five-year statute of limitations. See 735 ILCS 5/13-205.



The dismissal of the fraud claim was affirmed by the Seventh Circuit on the ground that Davis disputed the charges and failed to pay them.



The Court explained: "On appeal, Mrs. Davis contends that the district court erred in not also considering the defendants' demands that she pay her loan, demands that continued even after the defendants knew that the Kankakee County court had ruled that her loan was based in part on Mortgage Express's fraud. We agree that overlooking this allegation was incorrect. Statements made to induce someone to pay a purported debt that they do not actually owe, if made with the requisite knowledge and intent, can support an allegation of fraud. See Hartigan v. E & E Hauling, Inc., 153 Ill.2d 473, 180 Ill.Dec. 271, 607 N.E.2d 165, 175-77 (1992) (allegations that contractor's letter sent to a metropolitan authority contained material misrepresentations as to contractor's compliance with minority business enterprise contract requirements, made for purpose of inducing authority's reliance in paying contract installment, supported allegation of common-law fraud). However, we agree with the district 537*537 court that Davis's fraud claim still fails for a different reason. Even though Mrs. Davis alleged that the defendants attempted to induce her to pay money that they knew she did not owe, Mrs. Davis did not allege that she had relied on the defendants' demands for payment or that she had suffered any damages as a result of those demands. To the contrary, with the help of her attorney, she fought those unjustified demands. Without reliance or damages, Mrs. Davis does not have a viable claim for fraud. We affirm the district court's dismissal of Mrs. Davis's fraud claim."



Comment: Illinois does not recognize attempted fraud. To sue for fraud the aggrieved party must allege damages.



The Breach of Contract claim of unconscionability was barred by the five-year statute of limitations.



The court reasoned: "Under Illinois law, a contract may be found to be unconscionable as a matter of law on either a "procedural" or "substantive" basis, or both. Razor v. Hyundai Motor America, 222 Ill.2d 75, 305 Ill.Dec. 15, 854 N.E.2d 607, 622 (2006). Procedural unconscionability refers to a situation in which a term is so difficult to find, read, or understand that the party could not fairly be said to have been aware she was agreeing to it. Procedural unconscionability also takes into account the party's relative lack of bargaining power. Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622, citing Frank's Maintenance & Engineering, Inc. v. C.A. Roberts Co., 86 Ill.App.3d 980, 42 Ill.Dec. 25, 408 N.E.2d 403, 410 (1980). Substantive unconscionability, on the other hand, refers to contractual terms which are inordinately one-sided in one party's favor. Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622, citing Rosen v. SCIL, LLC, 343 Ill.App.3d 1075, 278 Ill.Dec. 770, 799 N.E.2d 488, 493 (2003).



Mrs. Davis has not shown that the district court erred when it barred consideration of the formation of her mortgage contract in September 1999 on statute of limitations grounds. In this federal lawsuit, Mrs. Davis was not using the doctrine of unconscionability in its most familiar way, as an affirmative defense to bar enforcement of a contract or a particular term of a contract. See, e.g., Razor, 305 Ill.Dec. 15, 854 N.E.2d at 622-24 (holding that exclusion of consequential damages in limited warranty was not enforceable because it was unconscionable). Mrs. Davis instead sought damages from the successors in interest to the original lender. We do not address here whether unconscionability gives rise to a standalone claim for damages under Illinois law, as Mrs. Davis asserts here. We do not address that issue because even if such a claim is cognizable in Illinois, it is clear that such a claim would be barred by the five-year statute of limitations."



Edward X. Clinton, Jr.
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