Can borrower rescind real estate loan within 3 years?

In early August 2000, homeowner Nancy O’Brien received amarketing call from Aames Funding Corp. She expressed interest in refinancingher home and paying off $15,000 in credit card debt.

Aames then arranged two mortgage loans for her to pay offthe $83,492 first mortgage, consumer debt, property taxes, and transactioncharges, for a total of $104,662.

Purchase Bob Bruss reports online.

On Aug. 31, 2000, O’Brien received a first mortgage loan for$79,500 from Aames. Associates Home Equity Services Inc. funded the secondmortgage 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 cancelthe Aames loan. She did not exercise her TILA right to cancel the Aames loan.

However, on July 8, 2003, O’Brien notified Aames andCountrywide Home Loans Inc. (which acquired the Aames mortgage) that she wishedto rescind the Aames loan.

On Aug. 29, 2003, O’Brien filed this lawsuit for return ofall money paid and for damages, alleging violations of TILA disclosures becausethe Associates second mortgage, which was part of the transaction, was notfunded until Sept. 6, 2000.

If you were the judge, would you allow O’Brien to rescindthe 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 informationabout the loan, such as interest rate, monthly payments, and total paymentsover the life of the loan, he explained.

TILA includes a notice allowing the consumer to rescind theloan within three business days after consummation of the transaction, deliveryof 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 consummationof the transaction,” the judge noted.

On Aug. 31, 2000, Aames provided O’Brien with a TILA writtennotice of her right to rescind the Aames loan by midnight of Sept. 5, 2000, hecontinued, but she failed to cancel.

Now she argues she had up to three years to rescind becausethe Associates second mortgage was not funded until Sept. 6, 2000, he noted.

This fact is immaterial because O’Brien consummated theAames 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’Briencannot rescind the Aames mortgage three years later, the judge concluded.

Based on the 2005 U.S. District Court decision in O’Brienv. Aames Funding Corp., 374 Fed.Supp.2d 764.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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