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Truth in Lending: 10.2.5.2 Manufactured Home Transactions

The rules for transactions secured by manufactured homes are the same as for those involving traditional housing, as TILA and Regulation Z specifically define “dwelling” to include a “mobile home” or a “trailer” if used as a residence.103 Such a unit is a dwelling whether or not the consumer owns the land on which it sits.104 If the consumer owns the land, both the manufactured home and the land constitute the dwelling.105

Truth in Lending: 10.2.7.1.1 General

The largest group of non-rescindable credit transactions involving homes are “residential mortgage transactions.” “Residential mortgage transactions” are those used to finance the construction or purchase of the home or to finance the construction of a primary dwelling on land already owned by the consumer.119 Some courts have missed the technical nature of the definition of a “residential mortgage transaction” and consequently misread the statutory definition to exclude from coverage all dwelling secured-homes.

Truth in Lending: 10.2.7.1.2 Transactions involving a preexisting joint owner

The official interpretations provide that an extension of credit made to a joint owner of property to buy out the other joint owner’s interest is not a residential mortgage transaction so is subject to TILA rescission.135 But, one court held that TILA rescission rights did not apply to a person who had acquired part ownership of a home by inheritance rather than by purchase, and then entered into a credit transaction to buy out the other heirs.136 The court erred by focusing only on a di

Truth in Lending: 10.2.7.1.3 Bridge loans

A special rule applies to bridge loans. If the borrower’s current principal dwelling is security for a loan to purchase or construct a new principal dwelling, that loan is rescindable, irrespective of its purchase money purpose,141 and irrespective of the fact that it may also be secured by the new property.142

Truth in Lending: 10.2.7.1.4 When the loan is in foreclosure, and a broker fee was not included in the finance charge

Section 1635(i) extends the right of rescission in certain circumstances when the home is in foreclosure, apparently even to purchase-money mortgages. That section provides: “[I]n addition to any other right of rescission available under this section for a transaction, after the initiation of any judicial or nonjudicial foreclosure process on the primary dwelling of an obligor securing an extension of credit, the obligor shall have a right to rescind the transaction equivalent to other rescission rights provided by this section. . . .”

Truth in Lending: 10.2.7.2.2 New advance

If the refinancing involves a new advance, only the amount of the new advance is rescindable.153 Originally, any amount by which the new amount financed exceeded the unpaid principal balance and any earned unpaid finance charge was considered a new advance.154 In 1986, however, Regulation Z was amended to redefine what constitutes a new advance for purposes of this exemption.

Truth in Lending: 10.2.7.2.3 Same creditor

To be excluded, the refinancing must be extended by the original creditor, as named in the original agreement.164 A new creditor that consolidates or refinances any credit, even a purchase money or construction loan, must comply with the TILA rescission provisions if the consumer’s home is taken as collateral.165

Truth in Lending: 10.2.7.4 State Agency as Creditor

There are no rescission rights for transactions in which a state agency is the creditor.180 County, municipal, and township creditors do not have the same exemption,181 and ordinary rescission rules therefore apply to those transactions.

Truth in Lending: 10.2.7.6 Series of Advances

When a creditor makes a series of advances as part of a closed-end credit transaction, whether the right of rescission applies to each advance depends on the manner in which the creditor has structured the transaction. Sometimes the creditor will treat the series of advances as a single transaction for disclosure purposes. For example, a consumer may enter into a loan for the whole amount necessary for a home improvement job, but the creditor may pay out the proceeds in a series of advances as the work is done.

Truth in Lending: 10.2.8.1 Introduction

The previous sections have described the types of transactions in which the TILA rescission right arises automatically,195 and those which are, by statute or regulation, specifically exempt from that right.196 There are situations, however, in which lenders in transactions not otherwise subject to rescission (or subject to TILA at all) nonetheless provide their borrowers with TILA disclosures, including the notice informing them of the right to cancel the transaction.

Truth in Lending: 10.2.8.2 Incorporating Rescission Rights as a Contract Term

Even if the transaction is not within the scope of the statutory right, a creditor arguably may, by its own action, incorporate at least some measure of the rescission right into the transaction. In Mutual Life Insurance Co. v. Bernasek,198 the creditor provided a notice of right to rescind in a transaction exempt from TILA. The court noted that the borrowers could have rescinded within three days in accordance with that notice, though they did not do so.

Truth in Lending: 10.2.8.3 Equitable Estoppel

Even if the lender did not expressly incorporate TILA protections into the contract, it may be equitably estopped from denying that the right of rescission applies, though such an argument will be available only in certain factual situations.210 The doctrine of equitable estoppel is a principle of equity which in the absence of a right or an obligation, prevents an otherwise unjust result.211 While it generally requires a showing that there was a misrepresentation and detrimental relianc

Truth in Lending: 10.2.9.3 Standing to Rescind

Occasionally the question arises as to whether there is standing to rescind.

The question of standing in bankruptcy is discussed in detail elsewhere in this treatise.253 Generally speaking, the consumer still has standing, because she still retains an interest in the property.254 These issues are complex, however.255

Truth in Lending: 10.2.10.1 General

The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency.261 Under this provision, the consumer must give the creditor a dated written statement (and not a form printed for this purpose)262 that:

Truth in Lending: 10.2.10.2 Rescission Cannot Be Revoked or Waived

Once a consumer rescinds a transaction, the security interested is voided and cannot be ratified or reawakened by later acts such as accepting the proceeds or a loan modification.274 Nor does signing a document renouncing rescission revive the voided security interest.275 Giving the consumer a second Notice of Right to Cancel or having the consumer sign an election not to cancel after having rescinded, without consummating a new transaction, should not bring a rescinded transaction back

Truth in Lending: 10.2.10.3 Former Temporary Waiver Rules for Disaster Areas

On three occasions in the past, Congress authorized the FRB to make exceptions to TILA in disaster areas declared by the President, so that the bona fide personal emergency was assumed and the right to rescind could be waived via preprinted forms.279 That authority, and its renewals, expired more than ten years ago. Nevertheless, the text of the exceptions that the FRB adopted remained in Regulation Z for over a decade until they were deleted when the regulation was transferred to the CFPB.

Truth in Lending: 10.3.1 The Three-Day Unconditional Right; Trigger Times

The purpose of TILA’s cooling-off period is to permit consumers to reflect without pressure on the risks of encumbering the family home and give them an opportunity to reconsider such a major decision.292 Thus the statute provides for an initial three-day period during which the consumers have an unconditional right to change their minds and cancel the transaction for any reason, or for no reason.

Truth in Lending: 10.3.2.1 General

Sometimes creditors never properly deliver the rescission notice and all the material disclosures. In such cases, Congress has provided that the right to rescind is extended, though not for an unlimited time. Rather, where the mandatory information was not properly delivered,307 the right to rescind continues until whichever of the following events occurs first: