Homeowners could not invoke the Truth in Lending Act to rescind a mortgage loan because the loan was a residential mortgage transaction that was exempt from TILA’s rescission provisions, according to the U.S. Court of Appeals for the Eighth Circuit. A document attached to the homeowners’ complaint and another presented by the creditor made clear the loan had funded the purchase of the home, which made it an exempt residential mortgage transaction (Dunn v. Bank of America N.A.).
The loan was consummated on Oct. 5, 2009. In a rescission demand dated more than 16 months later, the homeowners claimed they had not been given the notice of their right to cancel that was required by TILA and Reg. Z—Truth in Lending (12 CFR Part 1026). After a later foreclosure, they sued both the original lender, Bank of America, and the foreclosing creditor, Nationstar Mortgage, for failing to accede to their rescission demand.
Rescission under TILA. TILA and Reg. Z generally give a borrower a three-business day period to rescind a loan transaction secured by the borrower’s home (15 U.S.C. §1635). The three-day time limit can be extended under some circumstances, such as if the creditor does not give the required notice of the right to rescind.
However, not all loan transactions can be rescinded. If the loan finances the borrower’s original acquisition or construction of the home, the loan is a residential mortgage transaction that is exempt from rescission.
What the documents revealed. The court noted that the homeowners attached a copy of the loan agreement to their complaint and that the agreement was dated Oct. 5, 2009. B of A and Nationstar provided a copy of the deed that transferred ownership of the property to the homeowners, and that deed carried the same date as the mortgage. The two documents also were recorded on the same day.
That left no doubt that the loan was a residential mortgage transaction that could not be rescinded, the court said.
For more information about the Truth in Lending Act, subscribe to the Banking and Finance Law Daily.
