Eleventh Circuit Holds That Lender’s Interest in Water Treatment System Was Not Sufficient to Trigger TILA Protection

The United States Court of Appeals for the Eleventh Circuit recently affirmed a lower court’s decision that a borrower does not have a cause of action under the Truth in Lending Act (“TILA”) for a transaction in which a lender takes a security interest in a residence’s water treatment system.  See Lankhorst v. Indep. Sav. Plan Co., 787 F.3d 1100 (11th Cir. 2015).  In the case, the plaintiffs purchased a water treatment system for their residence, but did not receive the lender’s credit agreement until after their cancellation right had expired, and were not informed about the 17.99% interest rate until they received the agreement.  They alleged that the lender violated TILA, which requires certain disclosures for an extension of credit “which is secured by the consumer’s principal dwelling.”  15 USC 1637.  The plaintiffs argued that the lender had a secured interest in the water treatment system, which was a fixture, and TILA applied.  The District Court granted summary judgment for the lender, holding (i) the system was not a fixture; and (ii) even if it was, TILA only applies to security interests in dwellings, and fixtures are excluded. The Eleventh Circuit affirmed.  Though it implied that it believed the system was a fixture, it held that this was irrelevant because a fixture is not covered under TILA.  In support of its holding, it noted that Florida law allows a secured creditor with an interest in a fixture to remove said fixture from the real property after a default, which indicates that it is not considered part of the real property.  It also noted that the credit agreement’s reference to a security interest on the real property was only in the event that a judgment was entered against the borrower, and did not bring the contract under TILA’s protections.  Finally, the Court held that the contract’s statement that the lender could have a security interest on the proceeds from the sale of the real property did not allow for a TILA violation, as 12 CFR 1026.2(a) expressly excludes proceeds from TILA’s definition of a security interest.

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