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Truth in Lending: 9.10.2.4.4 Agent’s contact information

The notice sent to the borrower must disclose how to reach an agent or party having authority to act on behalf of the covered person.1217 The notice must identify a person (or persons) authorized to receive legal notices on behalf of the covered person and resolve issues concerning the consumer’s payments on the loan.1218 The rule does not require the covered person to appoint persons for these purposes if they do not exist when the loan is acquired.

Truth in Lending: 9.10.2.4.5 Recording location

The notice must disclose “the location of the place where transfer of ownership of the debt is recorded.”1221 Because the statute refers to ownership of the debt, the FRB construed the requirement as applying only if transfer of the debt’s ownership has been recorded. This interpretation renders it meaningless because transfers of debt ownership are generally not recorded in public land records, in contrast to assignments of mortgages (though not uniformly throughout the states).1222

Truth in Lending: 9.10.2.4.6 Optional disclosures

The 2009 Act provides that the party acquiring a loan shall notify the borrower of “any other relevant information regarding the creditor.”1223 The CFPB permits creditors to determine this information in their sole discretion, although creditors may not ban borrowers from contacting them directly, instead of going through the servicer.1224

Truth in Lending: 9.10.2.5 Remedies

Actual damages, where demonstrated, statutory damages, and attorney fees should be available.1225 Statutory damages are available for section 1641(g) violations per the express language in section 1640(a).1226 Several cases, mostly in California, have erroneously concluded that statutory damages are not available for section 1641(g) violations unless the plaintiff alleges actual damages.1227 One court ruled that a section 1641(g) violat

Truth in Lending: 5.15.2.1.2 What is and is not a refinancing

Typical examples of refinancings include consolidation of several existing obligations, disbursement of additional proceeds to the consumer or the consumer’s other creditors, or the rescheduling of payments.1556 A new loan completely replacing a canceled loan is a refinancing, even if the terms of the new loan are indistinguishable from those of the old one.

Truth in Lending: 10.1 TILA Rescission Overview

In addition to being entitled to a disclosure statement prior to consummating a credit transaction, a homeowner has a right under the Truth in Lending Act to rescind most transactions for which the home is taken as collateral, other than transactions for the purchase of the home. Home equity loans, loans that refinance a home purchase loan, and home improvement credit sales are common examples of rescindable transactions.

Truth in Lending: 10.2.3 Applicability of Rescission to PACE Loans

The growing use of residential property assessed clean energy, or PACE, programs in states around the country may lead to questions as to whether the right of rescission applies to PACE transactions.58 PACE contracts in California and similar ones in other states arguably meet the definition of “credit” and are generally covered by TILA, as discussed

Truth in Lending: 10.2.4.1 Basic Definition

The second basic requirement for rescission rights to arise is that the transaction must involve a security interest in the consumer’s principal dwelling.68 Regulation Z defines “security interest” as “an interest in property that secures performance of a consumer credit obligation and that is recognized by state or federal law.”69 (Whether a transaction is excluded because the security interest was created to finance the construction or purchase of the dwelling is discussed at

Truth in Lending: 10.2.4.2 Adding a Security Interest to Existing Transaction; Open-End Credit

For purposes of the rescission rule, the term “transaction” encompasses the addition of a security interest in the consumer’s principal dwelling to an existing transaction.74 However, only the addition of the security interest is rescindable, not the underlying transaction.75 If a security interest in the consumer’s principal dwelling is added to a transaction that was previously exempt from Regulation Z (because it was credit over $25,00076

Truth in Lending: 10.2.4.3 Interests Arising by Operation of Law

Security interests in the consumer’s principal dwelling that arise solely by operation of law, e.g., mechanic’s and materialman’s liens, are sufficient to create a right of rescission.80 Although these security interests need not be disclosed as such in the disclosure statement,81 the creditor must provide the rescission disclosures when the lien may arise in a consumer credit transaction.

Truth in Lending: 10.2.4.4 Effect of Spreader Clauses

Occasionally the question may arise as to whether a transaction otherwise not subject to rescission (e.g., a loan secured by a car) is rescindable because the consumer already has a mortgage loan from the same creditor that has a spreader clause or cross-collateralization clause.

Truth in Lending: 10.2.5.1 General

The third basic requirement for rescission rights to arise is that the security interest must relate to the consumer’s principal dwelling. In the vast majority of cases, this requirement will not be the subject of serious dispute.92

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.