Section 37 Right of Rescission

• Library: Consumer Law and Practice 2010

Rescission may be the best outcome for the borrower. Bad loans can be undone. TILA rescission has the possibility of voiding any nonpurchase money security interest in the borrower's home. 15 U.S.C. § 1635. Cornerstone Mortgage, Inc. v. Ponzar, 254 S.W.3d 221, 226 (Mo. App. E.D. 2008). Compare Figard v. PHH Mortgage Corp. (In re Figard), 382 B.R. 695 (Bankr. W.D. Pa. 2008) (TILA rescission provisions inapplicable to purchase money loan). See also Bestrom v. Bankers Trust Co. (In re Bestrom), 114 F.3d 741 (8^th Cir. 1997) (TILA rescission inapplicable to purchase money loan when, after borrower's home was foreclosed and redeemed, borrower financed home with the same lender). Rescission voids all finance charges and any other charges, which has the effect of reducing any amount that the borrower owes. A lender that fails to respond to proper rescission in a closed-end real estate loan may be liable for statutory damages. Belini v. Wash. Mut. Bank, FA, 412 F.3d 17, 25 (1^st Cir. 2005). But see Personius v. Homeamerican Credit, Inc., 234 F. Supp. 2d 817 (N.D. Ill. 2002) (court lacked jurisdiction over borrower's damage suit when the lender offered to rescind before the suit was filed). The borrowers' three days to rescind start from the latest of the consummation of the transaction, delivery of proper notice of the three-day right to rescind, or delivery of all material disclosures.

Borrowers may have an extended right to rescind of up to three years if the notice of the right to rescind did not clearly and conspicuously contain all material disclosures, such as the retention of a security interest in the borrower's home, or if the notice was not delivered. 15 U.S.C. § 1635(f). "[M]aterial disclosures" are defined in 15 U.S.C. § 1602(u), 12 C.F.R. § 226.15 n.36, and 12 C.F.R. § 226.23 n.48. The three-day right of rescission may also be extended when the notice given is rendered unclear or ambiguous. See,e.g.:

· Rodash v. AIB Mortgage Co., 16 F.3d 1142 (11^th Cir. 1994) (pre-expiration of deadline election obtained by lender violated TILA)

· Williams v. Empire Funding Corp., 109 F. Supp. 2d 353 (E.D. Pa. 2000) (providing consumer with a one-day notice in accordance with state law along with three-day notice violated TILA)

· Jenkins v. Landmark Mortgage Corp. of Va., 696 F. Supp. 1089 (W.D. Va. 1988) (extraneous and contradictory information about three-day right to cancel violated TILA)

· Apgar v. Homeside Lending, Inc. (In re Apgar), 291 B.R. 665 (Bankr. E.D. Pa...