Article
| Jurisdiction | Utah,United States |
| Citation | Vol. 25 No. 4 Pg. 40 |
| Pages | 40 |
| Publication year | 2012 |
Vol. 25, No. 4. 40. Article
Volume 25 No. 4
July/Aug 2012
The latest statistics show that although the Utah foreclosure rate has decreased, Utah foreclosures are still quite high relative to the nation. In Q3 2011, one in 145 Utah homes was in foreclosure, sixth highest in the nation. See http://knowledgebase.findlaw.com/ kb/2011/Dec/504952.html. Consumers often turn to consumer protection statutes, such as the federal Truth in Lending Act ("TILA"), for protection against foreclosing lenders.
Imagine this scenario: Hours before the foreclosure sale, the mortgage lender receives a fax from the defaulting borrower's lawyer stating that the borrower rescinds the loan and that the lender is obligated to reconvey its deed of trust because the finance charge in the loan disclosures was understated by $36. The borrower further demands that the lender return all of the fees and interest payments the borrower made on the loan. Possible? Yes. Many lenders have been unprepared to confront a rescission demand under TILA. Given the tight statutory time frame and the risks involved, the lender must proceed expeditiously and with caution when responding to a rescission demand.
TILA is a strict liability statute that requires lenders to provide certain notices and disclosures to consumers so that the consumer can shop interest rates. Failure to provide accurate disclosures subjects lenders to TILA's damages and rescission remedies. If a consumer elects to rescind the loan transaction, a lender can lose its security interest in the property and be required to pay back all fees, costs, and interest payments that it received from the borrower. Just as daunting, the lender has a mere twenty days to rescind upon receipt of the borrower's rescission notice. After the lender fulfills its obligations, the borrower must tender the loan proceeds. The lender's failure to rescind can result in severe penalties. In one case outside of Utah, for example, the court held that because the lender failed to accept the borrower's valid rescission notice, the borrower did not have to tender and was able to keep the loan proceeds. See Family Fin. Servs v. Spencer, 677 A.2d 479 (Conn. App. Ct. 1995).
Notwithstanding the potentially draconian nature of rescission, the narrow drafting of TILA and the equities taken by...
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