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In the case of Melfi v. WMC Mortgage Corp., et al., the borrower refinanced his home mortgage with the lender. At closing, the lender provided the borrower with a notice of borrower’s right to rescind the transaction within three business days, as required under the Truth in Lending Act (TILA).
The lender utilized the Federal Reserve Board’s model form of notice, but left both the blanks for the date of the transaction and the actual rescission deadline blank, although the date of the transaction was stamped on the upper right corner of the form.
Under TILA, an improper notice of right to rescind extends the rescission period from three business days to three years following closing. Twenty months following closing, the borrower attempted to rescind the mortgage on grounds that the notice of his right to cancel the transaction was deficient because the date blanks were not filled in. The lender refused to rescind the mortgage and the borrower filed suit.
At trial, the court held that the notice was clear and conspicuous despite omitting the two dates at issue, that a borrower of average intelligence would not have been confused by the notice and that, accordingly, the omissions were at worst technicalities that did not activate a three-year rescission period.
The Court of Appeals affirmed the district court’s ruling. The court agreed with the borrower that extensive case law supported the position that technical TILA violations warrant an extension of the rescission period.
However, the court opined, these cases are "elderly and in tension with later TILA amendments" limiting "widespread rescissions for minor violations." The court went on to explain that in this matter, a reasonable borrower could not have been misled; the borrower, in fact, did not claim to have been confused; and the lender did use the board’s model form.
As a result, the court concluded, to allow the borrower to rescind the loan would allow a windfall for the borrower and impose a penalty on the lender — serving "no purpose."
Accordingly, the trial court’s ruling was upheld and borrower was not permitted to cancel the mortgage loan.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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