Seventh Circuit Appeals: RESCISSION AND EXTENDING FROM 3 DAYS TO 3 YEARS

ONE ON ONE WITH NEIL GARFIELD

COMBO ANALYSIS TITLE AND SECURITIZATION

FROM KEN MCLEOD

EDITOR’S COMMENT: I maintain that the limit on the equitable tolling of the right to rescind ONLY applies with respect to the delivery of the right forms regarding rescission and NOT for failure to to make important disclosures (such as the true APR, the identity of the real creditor, and all the people who are taking fees as a result of the borrower signing the mountain of papers.

I still believe that the transaction has not been consummated unless the substantive disclosures and forms have been delivered and signed. Thus the period for rescission can properly be argued to be three days from the time when those documents and disclosures are delivered. If they haven’t been delivered and disclosed, then the transaction is not complete and the borrower, in my opinion, can rescind at anytime. Fraud is not a basis for invoking limitation on the right to rescind.

I successfully used the following (attached case) in a Opposition to Defendants Motion for Summary Judgment early in my case (around 9/2008).

Regards

Ken McLeod see Vernon Handy v Anchor Mortgage 464 F.3d 760
464 F.3d 760
Vernon HANDY, Administrator of the Estate of Geneva H. Handy, Plaintiff-Appellant,
v.
ANCHOR MORTGAGE CORPORATION and Countrywide Home Loans, Inc., Defendants-Appellees.
No. 04-3690.
No. 04-4042.
United States Court of Appeals, Seventh Circuit.
Argued April 6, 2006.
Decided September 29, 2006.
Page 761

“The sufficiency of TILA-mandated disclosures is determined from the standpoint of the ordinary consumer.” Rivera v. Grossinger Autoplex, Inc., 274 F.3d 1118, 1121-22 (7th Cir.2001) (citing Smith v. Cash Store Mgmt., Inc., 195 F.3d 325, 327-28 (7th Cir.1999)). As a result, Anchor’s argument that “[t]he most illuminating fact demonstrating the clarity of Anchor’s Notice is that the Plaintiff simply was not confused” misses the point. Whether a particular disclosure is clear for purposes of TILA is a question of law that “depends on the contents of the form, not on how it affects any particular reader.” Smith v. Check-N-Go of Ill., Inc., 200 F.3d 511, 515 (7th Cir.1999).

TILA does not easily forgive “technical” errors. See Cowen v. Bank United of Texas, FSB, 70 F.3d 937, 941 (7th Cir.1995)

Having established that Anchor violated TILA, we turn now to the issue of remedies. Under TILA’s civil liability provisions, a creditor that violates 15 U.S.C. § 1635 is liable for: “actual damage[s] sustained” by the debtor, 15 U.S.C. § 1640(a)(1); “not less than $200 or greater than $2,000” in statutory damages, § 1640(a)(2)(A)(iii); and “the costs of the action, together with a reasonable attorney’s fee,” § 1640(a)(3). In addition, § 1635(b) itself provides that when a debtor rescinds she is “not liable for any finance or other charge”; “any security interest . . . becomes void”; and “[w]ithin 20 days after receipt of a notice of rescission,” the creditor must “return to the [borrower] any money or property given as earnest money, downpayment, or otherwise.”

We agree with the Sixth Circuit’s well-reasoned opinion in Barrett and hold that the remedies associated with rescission remain available even after the subject loan has been paid off and, more generally, that the right to rescission “encompasses a right to return to the status quo that existed before the loan.”

Congress enacted TILA “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.” 15 U.S.C. § 1601(a). As is relevant to this case, TILA mandates for borrowers involved in “any consumer credit transaction . . . in which a security interest . . . is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended” a three-day period in which the borrower may rescind the loan transaction and recover “any finance or other charge,” earnest money, or down payment previously made to the creditor. See 15 U.S.C. § 1635(a), (b). In the context of “[a] refinancing or consolidation by the same creditor of an extension of credit already secured by the consumer’s principal dwelling,” the right of rescission applies only “to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing

In addition to creating the right of rescission, TILA requires creditors “clearly and conspicuously” to disclose to borrowers their right to rescind and the length of the rescission period, as well as to provide borrowers with “appropriate forms . . . to exercise [their] right to rescind [a] transaction.” 15 U.S.C. § 1635(a). The Federal Reserve Board (FRB), one of the agencies charged with implementing TILA, has promulgated an implementing regulation, known as Regulation Z, 12 C.F.R. § 226 et seq., that, among other things, requires creditors to disclose the following elements to borrowers:

(i) The retention or acquisition of a security interest in the consumer’s principal dwelling.

(ii) The consumer’s right to rescind the transaction.

(iii) How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business.

(iv) The effects of rescission. . . .

(v) The date the rescission period expires.

Nor are we persuaded by Anchor’s argument that TILA’s safe harbor provision protects it, an argument Anchor raised below but the district court did not reach. This provision requires a creditor to “show[] by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” 15 U.S.C. § 1640(c). As far as we can tell, there is no evidence in the record that Anchor maintains any such procedures. Although Anchor’s general counsel, who was called as a witness by the company, was asked twice what procedures the company had in place to prevent the type of mix-up that occurred in Handy’s case, she was unable to describe any system used to ensure that the correct rescission forms are provided to borrowers.

Posted in bubble, Corruption, Eviction, securities fraud |