In a case from the Maryland Court of Appeals in which the opinion was filed on October 23, 2014, a most unusual circumstance has been revealed, at least for me. The case is entitled Burson, et al. v Capps, and can be found by clicking here.
It seems that in April 2007, Mr. Capps refinanced his home. He negotiated with the lender more than I have seen a borrower negotiate ever before as he went through three offers from a lender before accepting the third offer for a mortgage loan. The loan documents were signed on April 17, 2007 and the loan was unquestionably subject to the Right of Rescission under the Truth-in-Lending Act. Having been given disclosures prior to the signing of the loan documents, Mr. Capps in fact had a Notice of Rescission form. He signed that form and faxed it to the lender on April 15, 2007, two days before the loan documents were signed. Nonetheless Mr. Capps proceeded to signed the loan documents on April 17, 2007, as I mentioned and the loan was funded. He claims he was told by an employee of the lender that the exercise of the right of rescission was not valid. Two years subsequent Mr. Capps lost his job and was unable to make further payments on the loan which he had in fact been making for approximately two years.
As a result of the default by Mr. Capps, the lender commenced a foreclosure which proceeded to judgment and a sale was held. The property was sold to satisfy the debt. Subsequent to the sale, Mr. Capps filed an appeal to a special appeals court in Maryland. The reported opinion of the Maryland Court of Appeals indicates, "In an unreported opinion, the Court of Special Appeals reversed the Circuit Court, addressing the question of whether the loan had been rescinded “lawfully.” The Court
of Special Appeals reasoned that TILA’s overarching purpose was to “protect consumers in a rather difficult and complicated process.” Because there was no language in § 1635 or Regulation Z—TILA’s implementing regulation—prohibiting a borrower from rescinding a loan prior to the consummation of the transaction, the Court of Special Appeals reasoned that such an action, when viewed in a light favoring the interests of borrowers, was supported by the statute. Otherwise, reasoned the intermediate appellate court, the rights of borrowers to protect themselves would be restricted
severely, contrary to Congress’ stated goals in TILA." The reasoning of the Court of Special Appeals is almost as hard to believe as Mr. Capps assertion that he rescinded a loan before signing the loan documents, took the loan proceeds and made payments on the loan for two years, allowed a foreclosure proceeding to go to judgment, and then finally decided that he was going to raise as a defense to the foreclosure and the sale that he rescinded the loan two days before he actually signed the loan documents.
The Maryland Court of Appeals struggled with the rules of statutory construction and cited the applicable code section giving rise to the right of rescission, 15 U.S.C., Section 1635(a), which states in part, "... the obligor shall have the right to rescind the transaction until midnight of the third business
day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later...." Having been involved in the closing process for a period longer than I care to remember, I always thought it was well-settled that the right of rescission was not exerciseable until after the loan documents were signed. If this was not put forth in a reported court descision, I just would not believe it.
The statements, thoughts, and understanding set forth above do not constitute any legal opinion or legal advice. The statements, understandings, and thoughts are not to be relied upon as such and anyone with similar issues as commented on herein is advised to seek the advice of a competent attorney.
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