Homeowners could not rescind their mortgage loan simply because they were never notified that the trust deed that secured the loan had been transferred, according to the U.S. Court of Appeals for the Sixth Circuit. Addressing what it said was “a new question” for appellate courts, the Sixth Circuit decided the lack of notice did not violate the Truth in Lending Act and rescission would not have been the right remedy even if there had been a violation (Robertson v. U.S. Bank, N.A.).
Through several transfers, the homeowners’ loan passed to U.S. Bank as part of the securitization process in 2006. The trust deed securing the loan named MERS as the beneficiary and a law firm as the trustee. When the homeowners stopped making mortgage payments in 2011, MERS transferred the trust deed to U.S. Bank and the trustee scheduled a trustee’s sale. The homeowners responded by attempting to rescind the mortgage loan, based in part on a claim that U.S. Bank had violated TILA by not notifying them of the transfer.
TILA-required notice. Under a provision added in 2009, borrowers are entitled to be notified within 30 days when their loan is transferred, the court said, citing 15 U.S.C. §1641(g). The homeowners claimed U.S. Bank had not sent them a notice when the trust deed was transferred.
The notice requirement applies when a loan is transferred, not when the document that creates the security interest is transferred, the court replied. TILA did not require a notice when the loan was transferred to U.S. Bank in 2006 because the amendment was not made until 2009, and TILA had never required a notice of the transfer of the trust deed.
As a result, the homeowners were not entitled to a notice.
Remedy. Assuming, however, that U.S. Bank had violated TILA, the homeowners still could not rescind their loan, the court said. The only available remedy for failing to send the transfer notice would be a demand for damages.
Rescission is a remedy for failure to give TILA-required disclosures as part of a consumer credit transaction under 15 U.S.C. §1635. A consumer credit transaction requires both the involvement of a consumer and an extension of credit. However, when the trust deed was assigned by MERS to U.S. Bank, no consumer was involved and no credit was extended, the court pointed out. Neither was the transfer notice a material disclosure under TILA.
Thus, rescission was not available to the homeowners.
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