The Truth in Lending Act (“TILA”) is a federal law requiring certain disclosures when money is lent to consumers. TILA also gives consumers the right to cancel certain transactions involving a lien on a consumer’s dwelling. Some debtors are under the mistaken assumption that TILA allows them to rescind a mortgage many years after a loan agreement was executed.
In Baumann v. Bank of American, N.A., James E. Baumann and Debora K. Baumann (the “Debtors”) filed a TILA lawsuit in the Middle District of Florida against Bank of America and their attorneys seeking to rescind their mortgages. The debtors had notified Bank of America by mail, approximately twelve (12) years after the mortgages were executed, that they were rescinding their mortgage obligations. 2016 U.S. Dist. LEXIS 118081 (M.D. Fla. Sept. 1, 2016).
The Court did not buy that argument. In dismissing the Debtors’ lawsuit, it pointed out that, “[u]nder TILA, a debtor may rescind a mortgage ‘until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms . . . , whichever is later . . . .”’ Id. at *5(quoting Smith v. Highland Park, 108 F.3d 1325, 1326 (11th Cir. 1997)(quoting 15 U.S.C. §1635(a)). “
In the event that the Debtors never received the information and disclosures required by TILA, the ‘right of rescission shall expire three years after the date of consummation of the transaction,’ . . .” Id. at *5-6(quoting 15 U.S.C. §1635(f). In the case at hand, while Bank of America could not show that the Debtors were provided the required TILA disclosures, the Debtors should have moved to rescind their mortgages nine (9) years earlier.
It is imperative that consumer lenders comply with the TILA. Failure to comply with TILA may result in a loan being rescinded – even after a debtor received the funds. Although this worked out positively for Bank of America, under different facts, the Debtors may well have prevailed.
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