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The Seventh Circuit Court of Appeals thinks that the Truth in Lending Act (TILA) is “hypertechnical,” but that won’t stop the court from enforcing the letter of the law.
This week, the Seventh Circuit ruled that a Wisconsin borrower could proceed with a right of rescission action regarding a mortgage that was supposedly finalized in 2007 because the lender did not provide him with an adequate number of copies of a TILA-mandated disclosure.
TILA requires a creditor to provide the borrower with “clear and conspicuous” notice of his right to rescind (Notice) certain transactions, including mortgages, within three business days following the transaction.
Regulation Z, promulgated by the Federal Reserve Board to implement TILA, elaborates on this rule by requiring the lender to give the borrower two copies of the notice of his three-day right of rescission at the mortgage closing.
Marr decided to refinance his mortgage with Countrywide Bank in 2007. Summit Title, the title insurance company that provided closing services for Countrywide, closed the loan.
At the closing, Summit's agent put a duplicate of every document that Marr signed in a pile next to him, but Marr did not have time to review them. One of those documents, which Marr signed, was an acknowledgment that he had been given the required two copies of the Notice of the right of rescission. At the end of the closing, the closing agent put all of the documents in a folder.
Marr returned home and put the folder in a filing cabinet. He claimed that he did not disturb the folder until two years later when his attorney inspected it in connection with an unrelated lawsuit. That's when Marr discovered there was only one right to cancel in the folder.
The Summit closing agent explained the company's well-defined closing procedures in an affidavit, and insisted that she had followed the procedures. Marr responded in an affidavit that his closing had not followed the procedures outlined in Summit's affidavit.
The district court granted summary judgment for Countrywide and Summit, but the Seventh Circuit Court of Appeals reversed, finding that Marr had produced enough evidence to permit a reasonable jury to find that he did not receive two copies of the Notice of the right of rescission.
Though the Seventh Circuit noted that the difference between one and two copies may seem trivial, substantial compliance is not enough to satisfy Regulation Z. As two copies means two copies, the court ruled that Marr is entitled to a chance to convince a jury that he did not receive the proper notices.
The Seventh Circuit Court of Appeals, like the Third Circuit, gives deference to a borrower in a Regulation Z right of rescission claim. Marr essentially won this summary judgment appeal because he convinced the court that Summit's agent rushed him through the closing instead of following protocol. If you represent a mortgage company, or work in mortgage compliance, make sure your closing agents allow sufficient time at a closing to comply with internal closing procedures.