When a homeowner refinances their mortgage, the lender must give certain notices under the federal Truth in Lending Act, also referred to as TILA. For a number of good reasons, homeowners must be given a notice that informs them of their rights to rescind their mortgage. But what happens if the notice does not strictly comply with what TILA’s requirements? Does any flaw in the notice permit a homeowner to rescind a mortgage? On June 11, the First Circuit Court of Appeals had an opportunity to answer that question.
The case involved a borrower who had been given a copy of a rescission notice at closing. The notice stated:
You are entering into a transaction that will result in a mortgage/lien/security interest on our home. You have a legal right under federal law to cancel this transaction, without cost, within THREE BUSINESS DAYS from whichever of the following events occurs LAST:
(1) The date of the transaction, which is ______; or
(2) The date you receive your Truth in Lending disclosures; or
(3) The date you received this notice of your right to cancel.
The homeowner also received information on how to cancel the transaction (i.e., how and when notices must be sent).
Under the Federal Reserve Board’s regulations, specifically, Regulation Z, when a homeowner rescinds the mortgage, the homeowner is “not …liable for any amount, including any finance charge” and the lender “shall return any money or property that has been given to anyone in connection with the transaction.” Now if the notices the homeowner receives do not comply with TILA, or if the homeowner never received any notices, the homeowner has up to three years to rescind the mortgage, rather than just the three days. Three years versus three days: that can be particularly advantageous to a homeowner seeking to refinance when interest rates are lower, or if a loan that seemed like a good idea at the time has now revealed that it’s really not a good idea at all.
This homeowner argued that he was able to rescind the loan 20 months after closing because the “date of transaction” line in the notice was left blank. However, the date of the transaction was stamped on the upper right hand corner of the notice (although not precisely in the blank line). But that was not the only issue that worked against this homeowner.
The homeowner attended the closing and admitted receiving the notices at the closing. The only possible issue was that the closing occurred on a Saturday, and it might be difficult to determine exactly when the three days expired (i.e., the following Tuesday, Wednesday or Thursday). But the argument here was not over a few days, it was over a few months. This homeowner was effectively arguing a mere technical violation of the notice that the Court found would impose a penalty on the lender while at the same time allow a windfall on the homeowner. For those reasons, the Court found that there was no way the blanks misled the homeowner as to when his rescission rights expired, and his request to rescind was untimely.
What options does this homeowner have? It’s tough to say. The decision does not discuss the homeowner’s income and expenses or whether there is a possibility that the homeowner can benefit from a bankruptcy filing. But remember, if the home is the principal residence, modifying the loan in a bankruptcy will not be possible.
Related posts:
- ‘20 Months Too Late’: Let’s Start Rethinking Mortgage Modifications in Chapter 13
- Late Filing of Documents = Dismissal
- “Be Debt Free in only 18 months!”
- That Servicemembers Notice & Your Loan Mod Request
- Property Insurance and Chapter 13
Tags: First Circuit Court of Appeals, Homes, Modifications and Workouts, Mortgage and Foreclosure, Mortgage rescission, Mortgages and Foreclosures, Regulation Z, Truth in Lending Act