Associates Home Equity Services, Inc. v. Troup

In 1996, Beatrice Troup and her son Curtis Troup (plaintiffs), African Americans living in Newark, New Jersey, obtained a $46,500 mortgage from East Coast Mortgage Corporation (ECM) (defendant) for home repairs to be made by a company owned by Gary Wishnia (defendant). ECM charged the Troups an interest rate of 11.65 percent and a fee equal to 4 percent (4 points) of the loan. ECM assigned the mortgage to Associates Home Equity Services, Inc. (Associates) (defendant). The mortgage did not include a warning required by federal law in consumer-sales contracts (the Holder Rule). In 1998, the Troups defaulted on the loan, and Associates sued in foreclosure. The Troups counterclaimed against Associates and asserted third-party claims against ECM and Wishnia, alleging that all three defendants engaged in unfair, racially discriminatory, and predatory lending. Specifically, the Troups alleged that: (1) the terms of the mortgage were unconscionable, (2) various federal and state consumer fraud laws were violated, (3) ECM had violated the federal Holder Rule, and (4) ECM failed to properly notify the Troups of the three-day right to rescind under the Truth In Lending Act (TILA), 15 U.S.C. § 1635. The trial court dismissed all claims asserted by the Troups and entered judgment of foreclosure to Associates. The court held that the terms of the mortgage were not unconscionable, the Holder Rule did not apply, ECM complied with TILA’s notice provisions, and the alleged federal and state law violations were barred by the two-year statutes of limitations. On appeal, the Troups claimed that the defendants had engaged in reverse redlining by targeting the Troups for predatory lending. (Redlining occurs when credit is denied based on demographics, and reverse redlining occurs when credit is extended but on unfavorable terms.) Though barred by the statutes of limitations, the Troups argued that the action should be permitted to proceed under the doctrine of equitable recoupment.