Editor’s note: Robert Bruss is temporarily away. The following column from Bruss’ “Best of” collection first appeared Sunday, March 26, 2006.
In early August 2000, homeowner Nancy O’Brien received a marketing call from Aames Funding Corp. She expressed interest in refinancing her home and paying off $15,000 in credit card debt.
Aames then arranged two mortgage loans for her to pay off the $83,492 first mortgage, consumer debt, property taxes, and transaction charges, for a total of $104,662.
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On Aug. 31, 2000, O’Brien received a first mortgage loan for $79,500 from Aames. Associates Home Equity Services Inc. funded the second mortgage loan on Sept. 6, 2000, to bring the total loans to $104,662.
The Aames loan included a Truth in Lending Act (TILA) disclosure giving O’Brien until Sept. 5, 2000, to change her mind and cancel the Aames loan. She did not exercise her TILA right to cancel the Aames loan.
However, on July 8, 2003, O’Brien notified Aames and Countrywide Home Loans Inc. (which acquired the Aames mortgage) that she wished to rescind the Aames loan.
On Aug. 29, 2003, O’Brien filed this lawsuit for return of all money paid and for damages, alleging violations of TILA disclosures because the Associates second mortgage, which was part of the transaction, was not funded until Sept. 6, 2000.
If you were the judge, would you allow O’Brien to rescind the Aames mortgage three years after obtaining the loan?
The judge said no!
Congress enacted TILA to avoid the uninformed use of credit, the judge said. TILA requires lenders to disclose to the borrower information about the loan, such as interest rate, monthly payments, and total payments over the life of the loan, he explained.
TILA includes a notice allowing the consumer to rescind the loan within three business days after consummation of the transaction, delivery of the notice of the right to rescind, or delivery of all material disclosures, whichever occurs last, the judge emphasized.
“If the creditor fails to provide the required notice, the right of rescission continues for up to three years after the consummation of the transaction,” the judge noted.
On Aug. 31, 2000, Aames provided O’Brien with a TILA written notice of her right to rescind the Aames loan by midnight of Sept. 5, 2000, he continued, but she failed to cancel.
Now she argues she had up to three years to rescind because the Associates second mortgage was not funded until Sept. 6, 2000, he noted.
This fact is immaterial because O’Brien consummated the Aames loan on Aug. 31, 2000, the TILA statement correctly gave her until Sept. 5, 2000, to rescind, and she did not do so, the judge ruled. Therefore, O’Brien cannot rescind the Aames mortgage three years later, the judge concluded.
Based on the 2005 U.S. District Court decision in O’Brien v. Aames Funding Corp., 374 Fed.Supp.2d 764.
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