The United States Court of Appeals for the Ninth Circuit recently held that the Truth in Lending Act’s (“TILA”) right to rescind did not apply when the loan at issue was issued by the borrower to reacquire a property he previously owned but had transferred to his wife. See Barnes v. Chase Home Fin., LLC, 2019 WL 3808602 (9th Cir. Aug. 14, 2019). In the case, plaintiff and his now ex-wife purchased the property at issue in 1990. She deeded the property to plaintiff in 1997, and he then deeded it back to her in 2003. She encumbered the property with deeds of trust in her name. In 2007, they divorced. As part of the divorce judgment, plaintiff took back title to the home and agreed to “refinance the mortgage owing on said property in order to remove Wife’s name from said financial obligation” and to pay the wife $100,000. Plaintiff obtained the loan at issue in this action in November 2007 and, per the divorce judgment, paid off the existing deeds of trust on the property and paid the money judgment to his wife. Plaintiff later brought this action seeking to rescind the November 2007 mortgage loan under TILA, among other relief. The District Court initially found that the TILA claim was time-barred, but the Ninth Circuit reversed and remanded. After remand, the District Court granted defendants’ motion for summary judgment and found that plaintiff did not have the right to rescind the mortgage under TILA because the loan was part of a residential mortgage transaction. Plaintiff appealed.
On appeal, the Court affirmed. First, it found that its prior decision did not constitute law of the case barring any further arguments regarding rescission. At no point did the Court find that plaintiff had a right to rescind, just that the grounds for the District Court’s dismissal were incorrect. Second, the Court found that plaintiff did not have a right to rescind. The right of rescission under TILA does not apply to residential mortgage transactions. See 15 U.S.C. 1635. TILA defines a “residential mortgage transaction” as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer’s dwelling to finance the acquisition or initial construction of such dwelling.” See 15 U.S.C. 1602 (emphasis added). Plaintiff argued that only a party’s initial acquisition of a property was exempted from the right to rescind, and that the exemption did not apply here because plaintiff previously had title to the property. However, the Court found that the word “initial” only modified the word “construction” and not “acquisition,” which necessarily implies that any acquisition of the dwelling may constitute a residential mortgage transaction, even if it is a reacquisition. Plaintiff also claimed that, under Oregon law, he reacquired an interest in the property when the petition for divorce was filed, and therefore that he “acquired” the dwelling at that point, and not when he entered into the November 2007 mortgage transaction at issue. The Court found that, even if the claim about Oregon divorce law was true, it would not mean that the 2007 mortgage was not part of a residential mortgage transaction. Although the Court acknowledged that the Official Staff Interpretations to Regulation Z recognize that some individuals may have a prior interest in the property that can make an acquisition “something more akin to a refinance” that would allow for a right to rescind, that situation only occurs when the individual’s prior interest was “purchased,” which was not the case here because plaintiff did not “purchase” the property when the divorce petition was filed. Thus, plaintiff did not have a right to rescind.