Eighth Circuit Rejects Borrowers’ TILA Claims Based on Inaccurate Disclosures

The United States Court of Appeals for the Eighth Circuit recently rejected a borrower’s Truth in Lending Act (“TILA”) claim that their inaccurate disclosure allowed them extra time to rescind.  See Beukes v. GMAC Mortgage, LLC, 786 F.3d 649 (8th Cir. 2015).  In the case, the borrowers entered into a mortgage loan transaction on September 28, 2007 and received TILA disclosures from their lender on the same date.  Under TILA, a borrower has three business days to rescind a transaction once he or she receives the required disclosures.  If the required disclosures are never sent, the borrower must rescind within three years of the consummation of the transaction.  See 15 USC 1635(f).  The borrowers mailed a notice of rescission in January 2010, two and a half years after they entered into the transaction.  They stopped paying their mortgage, and the lender initiated a foreclosure action in March 2010 and purchased the property at a foreclosure sale in May 2010.  In November 2010, the borrowers filed this action, alleging that the disclosures provided to them by the lender were inaccurate, and thus they had three years to rescind.  The District Court granted summary judgment for the lender, holding: (i) the rescission was not effective until the lawsuit was filed, more than three years after the closing; and (ii) even if the borrowers had rescinded within three years, it would still be untimely because the disclosure statement was accurate, and the borrowers thus had only three days to rescind.

On appeal, the Eighth Circuit cited the 2015 Supreme Court decision of Jesinoski v. Countrywide Home Loans, Inc., and held that the District Court should not have granted summary judgment based on the timing of the lawsuit, because a borrower exercises his or her right of rescission by notifying the creditor of the intention to rescind, which the borrowers here did in January 2010.  135 S. Ct. 790 (2015).  The Court affirmed the grant of summary judgment, however, based on the accuracy of the disclosure statements.  Under TILA, the finance charge of a statement is deemed accurate if the disclosed finance charge does not vary from the actual finance charge by more than 0.5% of the total credit extended.  See 15 USC 1605(f)(2).  Here, the difference in charges was $944.31, which was within the 0.5% range, so the disclosure statements were accurate under this provision.  There is a narrower tolerance for variation under TILA after the initiation of a foreclosure process, in which case the disclosure is only accurate if it is greater than or within $35.00 of the actual charge.  See 15 USC 1635(i)(2).  Because the borrowers had exercised the right to rescind in January 2010, however, which was two months before the foreclosure process was initiated, only 15 USC 1605 applied.  As the statements were accurate under that provision, the rescission was untimely.

The analysis of the Supreme Court’s Jesinoski decision can be found by clicking here.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.