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Mortgage Servicing and Loan Modifications: 19(f)(2)(iv) Changes due to clerical errors.

1. Requirements. Section 1026.19(f)(2)(iv) requires the creditor to deliver or place in the mail corrected disclosures if the disclosures provided pursuant to § 1026.19(f)(1)(i) contain non-numeric clerical errors. An error is considered clerical if it does not affect a numerical disclosure and does not affect requirements imposed by § 1026.19(e) or (f).

Mortgage Servicing and Loan Modifications: 19(f)(2)(v) Refunds related to the good faith analysis.

1. Requirements. Section 1026.19(f)(2)(v) provides that, if amounts paid at consummation exceed the amounts specified under § 1026.19(e)(3)(i) or (ii), the creditor does not violate § 1026.19(e)(1)(i) if the creditor refunds the excess to the consumer no later than 60 days after consummation, and the creditor does not violate § 1026.19(f)(1)(i) if the creditor delivers or places in the mail disclosures corrected to reflect the refund of such excess no later than 60 days after consummation.

Mortgage Servicing and Loan Modifications: 19(f)(3)(i) Actual charge.

1. Requirements. Section 1026.19(f)(3)(i) provides the general rule that the amount imposed on the consumer for any settlement service shall not exceed the amount actually received by the settlement service provider for that service. Except as otherwise provided in § 1026.19(f)(3)(ii), a creditor violates § 1026.19(f)(3)(i) if the amount imposed upon the consumer exceeds the amount actually received by the service provider for that service.

Mortgage Servicing and Loan Modifications: 19(f)(3)(ii) Average charge.

1. Requirements. Average-charge pricing is the exception to the rule in § 1026.19(f)(3)(i) that consumers shall not pay more than the exact amount charged by a settlement service provider for the performance of that service. See comment 19(f)(3)(i)-1. If the creditor develops representative samples of specific settlement costs for a particular class of transactions, the creditor may charge the average cost for that settlement service instead of the actual cost for such transactions.

Truth in Lending: 10.6.2.2.2 Addressing tender issues in the rescission letter

The cancellation letter should include a request for an itemized statement of what is owing, including the payment record, to facilitate the consumer’s tender obligations.924 Without the lender’s records, the consumer is unlikely to be able to calculate exactly what loan balance (after eliminating finance and other charges) or property (or reasonable value thereof) must be tendered when the time comes.

Truth in Lending: 10.6.2.4.3 Miguel and the role of notice to a servicer

Whether notice to the loan servicer can be effective to rescind a transaction is an unfortunately complex question because of a 2002 decision from the Ninth Circuit, Miguel v. Country Funding Corp.988 That decision holds that sending notice to a servicer is not effective as notice to the holder of the obligation.

Truth in Lending: 10.6.2.5 Can a Complaint Serve as the Consumer’s Notice of Cancellation?

Although courts are not unanimous, a number of courts have held that the filing of a complaint for rescission is sufficient as a “written communication” of the consumer’s election to cancel.1001 Allowing a complaint to serve as the consumer’s rescission letter is consistent with the Act, which merely requires the borrower to “notify” the creditor of rescission.1002 It is also consistent with the official interpretations, which state that the consumer must exercise the right of rescission

Truth in Lending: 10.6.3.1.1 Generally

The first step triggered by a consumer’s rescission is a powerful one: the security interest or lien on the property is automatically void.1012 This is evident from the plain language of the Act,1013 Regulation Z,1014 and TILA’s legislative history.1015 It is also the official position of the CFPB and the FRB.1016 Nevertheless, as exp

Truth in Lending: 10.6.3.1.3 Litigation over automatic termination

Disputes over whether TILA’s rescission is effective automatically are increasingly common when the creditor ignores or rejects the consumer’s rescission letter. Strict construction of the statute, Regulation Z, and the official interpretations dictate that the automatic voiding is absolute.

Truth in Lending: 10.6.3.2 Cancellation of Consumer’s Liability for Finance Charges or Other Charges

The second automatic consequence of rescission is that the consumer’s liability to pay “any finance or other charge” is canceled by operation of law.1063 If the charges have not been paid, they cannot be collected from the consumer.1064 If the charges have already been paid, they must be refunded or credited to the consumer.1065 This prong of Step One has specifically been held immune from courts’ equitable modification authority.

Truth in Lending: 10.6.4.2 Return of “Any Amount” or Property

After rescission, the consumer

cannot be required to pay any amount in the form of money or property either to the creditor or to a third party as part of the credit transaction. . . . ‘Any amount’ includes finance charges already accrued, as well as other charges, such as broker fees, application and commitment fees, or fees for a title search or appraisal, whether paid to the creditor, paid directly to a third party, or passed on from the creditor to the third party.1076

Truth in Lending: 10.6.4.3 Action to Reflect Termination of Security Interest

The creditor’s other task is to take any necessary or appropriate action to reflect the fact that the security interest was automatically terminated by the rescission.1091 This requires canceling documents creating the security interest and filing release or termination statements in the public record.1092 If subcontractors or suppliers holding security interests were involved, the creditor also must assure that the cancellation of those security interests is properly documented.

Truth in Lending: 10.6.4.4 Effect of Creditor’s Erroneous Payment of Proceeds After Rescission

Occasionally a creditor will mistakenly pay out the proceeds of the credit transaction, only to realize shortly thereafter that the consumer had already rescinded. In one case, after mistakenly disbursing the proceeds, the creditor treated the loan, which refinanced an earlier loan from a different creditor, as rescinded.1098 It did not demand payment from the consumer on the new loan. Instead, it purchased the original lender’s rights under the earlier loan.

Truth in Lending: 10.6.5.2 Return of Money

Money given to the consumer must be tendered at the creditor’s place of business. Of course, any amount which the consumer must tender does not include any of the “finance or other charges” for which the consumer’s liability was automatically erased by the exercise of the rescission right.1109 Any sums falling within that category are not part of the consumer’s tender obligation, even if they were included in the loan principal.

Truth in Lending: 10.6.5.4 Circumstances in Which the Consumer Need Not Tender

Occasionally, in the event the creditor does not properly perform the consumer’s obligations as described herein do not arise.1123

In some circumstances, a consumer who is a co-owner of the property may not have any tender obligation whatsoever. Since co-owners who are not co-obligors on the loan are entitled to notice of right to cancel and TILA disclosures, they may have no tender obligation where they never received the benefit of the proceeds from the loan.

Truth in Lending: 10.7.1 Overview

After the proceeds of the transaction have already been disbursed, creditors are often reluctant to follow the law in responding to a notice of the right to cancel received from a homeowner.