Saturday, March 8, 2008

TILA Notice Not Defective, Rescission Not Automatic

In re Groat, 369 B.R. 413 (8th Cir.BAP 2007). Debtor attempted to rescind mortgages under TILA. TIL 15 USC secton 1601 et seq. Regulation Z. Loan secured by borrower's principal residence, TILA permits borrower to rescind loan up to three business days. 15 USC 1635 (a). When lender failes to deliver certain forms or to accurately disclose important terms, TILA extends the right to rescind to three years (or transfer or sale of property). section 1635(f), 12 CFR section 226.23(a)(3).

Notice of right to rescind must be "clearly and conspiciously" disclose the following: i. retention or acquision of security interest, ii. consumer's right to rescind, iii. how to exercise, with a form, iv. effects of rescission, v. date rescission expires. 12 CFC section 226.23(b)(1). Model form.

Debtor claims defect that lender didn't sign and year of date. Debtor didn't timely raise issue that not given two copies. No authority that lender must sign. Perfect notice not required as to date. Honest mistake. Not liable if not intentional and bona fide error. 15 USC section 1640(c). Need to show bona fide error and that creditor maintains procedures reasonably adapted to avoid errors.

Court held that notices complied with TILA and Regulation Z. Rescission is not automatic upon tender of notice. Court may condition rescission upon borrower's prior return of principal. FDIC v. Hughes Dev. Co. 938 F.2d 889 (8th Cir. 1991).
Post a Comment