TILA – Rescission Disclosures

In certain consumer credit transactions, borrowers possess a right to rescind (cancel) the loan contract after closing. TILA rescission remedies reflect the intent of Congress to keep homeowners from placing their homes in jeopardy without a reasonably clear understanding of the financial risks and benefits of the transaction.

Rescission rights arise when the transaction is a consumer credit transaction, in which a non-purchase lien or security interest is placed on the consumer’s principal dwelling unit. In layman’s terms, this applies primarily to home loan refinances with a different lender.

The rescission right is vested in the owner of the property that is the subject of the security interest. Reg Z 226.15(a)(1)(i), 226.15(b), 226.23(a)(1). The property subject to the security interest must be the principal residence of the owner of the interest. Reg Z. 226.2(a)(11).

Each person who has the right to rescind a credit transaction must be provided two copies of the rescission notice. USC 1635(a); Reg Z 226.5(b), 226.15(b).

The rescission notice may be given after consummation, though the rescission period does not begin to run until it is effectively delivered. Reg Z 226.23(b)-4. It is not effectively delivered until it is given in a form the consumer can keep. Reg Z 226.15(b). A written acknowledgement of receipt of rescission notice creates a rebuttable presumption of delivery. Cole v Lovett, 672 F. Supp 947 (1987).

The consumers have until midnight of the third business day following the later of: delivery of the rescission notice, closing of the transaction, or receipt of the truth in lending statement. However, the right to rescind can be exercised prior to the consummation of the loan. If the creditor fails to deliver the required notices, the consumer’s right to rescind is automatically extended from three business days to three years. Reg Z 226.23(a)(3).

An assignee is liable for statutory damages for violations of TILA disclosure requirements by its predecessors. An assignee can also be liable for its failure to respond properly to a rescission notice. Palmer v Champion Mortg., 465 F3d 24 (2006).

The consumer must send a written notice to the creditor to trigger the rescission process. When the notice of rescission has been mailed, the notice is considered given. Reg Z 226.15(a)(2), 226.23(a)(2). When the consumer rescinds, the security interest automatically becomes void. The consumer is relieved of any obligation to pay any charge, including any finance charge. USC 1635(b) Reg Z 226.15(d)(1), 226.23(d)(1). Rescission voids the mortgage and is a complete defense to foreclosure. The creditor has twenty days from receipt of the consumers rescission notice to return any money or property given to anyone and to take appropriate and necessary action to reflect the termination of the security interest. USC 1635(b); Reg Z 226.15(d)(2), 226.23(d)(2). After the creditor has complied with the preceding mandate, the consumer tenders back to the creditor any money or property received. USC 163(b); Reg Z 226.15(d)(3), 226.23(d)(3).

At Wilson Law Group, we understand the availability and importance of the remedy of rescission. Although not all borrowers qualify for this powerful foreclosure defense tool, we stand ready to analyze your situation and bring our knowledge to your defense.

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