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Financial Services Law Insights and Observations

9th Circuit affirms no jurisdiction without exhaustion of administrative remedies

Courts TILA Appellate FIRREA FDIC Ninth Circuit Foreclosure Settlement


On December 27, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a TILA case brought by a consumer against his mortgage lender, citing lack of subject matter jurisdiction under the provisions of FIRREA that require claims involving a bank that is in receivership to be presented to the FDIC before the borrower files suit. In 2009 the consumer filed an adversary proceeding in bankruptcy court against his lender for rescission of his mortgage loan under TILA. The consumer claimed that the lender’s notice of right to cancel was defective when the loan was signed, resulting in an extended rescission period under TILA, but his suit was dismissed for lack of jurisdiction. Once again, in 2012, the district court dismissed the consumer’s TILA suit after finding that the consumer had not exhausted his administrative remedies with the FDIC before filing suit.

On appeal, the three-judge panel rejected the consumer’s claim that his lender was not placed into receivership until after his loan was sold, and therefore he did not have to exhaust his administrative remedies before filing suit. The panel subscribed to the Fourth Circuit’s interpretation of the exhaustion requirement, stating that “even where an asset never passes through the FDIC’s receivership estate, the FDIC should assess the claim first.” According to the opinion, the FIRREA requirement that the consumer exhaust his remedies with the FDIC applied to this action because the panel determined that (i) the consumer’s claim was “susceptible of resolution under the FIRREA claims process”; (ii) the consumer’s claim was related to an act or omission of the lender; and (iii) the FDIC, which “was not required to have possessed the loan before determining a claim” had been appointed as receiver for that lender, stripping the appellate court of subject matter jurisdiction until after the FDIC determined his claim.

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