Wednesday, January 4, 2012

FYI: 7th Cir Holds Borrower's Testimony Sufficient to Overcome TILA Presumption of Delivery

The U.S. Court of Appeals for the Seventh Circuit recently held that a borrower's allegation that he received only one copy of the notice of his right to cancel was sufficient to survive summary judgment, despite the fact that the rebuttable presumption of delivery arising from the borrower's signed acknowledgment to the contrary.  A copy of the opinion is attached.
A borrower sued his mortgage lender, alleging that he was provided only one copy of the notice of his right to cancel his loan (the "NORTC").  At the closing, the borrower signed a document stating that he had been provided with two copies of the NORTC.
The borrower testified that he placed all of the documents he received at the closing in a filing cabinet, which he allegedly did not disturb until he examined the documents two years later.  At that time, he allegedly discovered there was only one copy of the NORTC in his file. 
The closing agent for the borrower's transaction testified that it was her regular practice to review all documents with the borrower prior to closing, and to provide borrowers with two copies of the NORTC  The borrower submitted an affidavit in response, stating that the closing agent "did not review anything at the end of the closing" with the borrower.  
The lower court granted the lender's motion for summary judgment, and the borrower appealed. 
As you may recall, the federal Truth in Lending Act ("TILA") provides that a borrower must be provided with two copies of the notice within three days of the closing of the transaction.  15 U.S.C. 1635(a); 12 C.F.R. 226.23(b)(1).  If the notice is not provided, the time to rescind is extended from three days to three years.  12 C.F.R. 226(a)(3).  A borrower's signed acknowledgement of the receipt of two copies of the notice creates a rebuttable presumption that the notice was in fact received.  Id. at 226(c). 
The Seventh Circuit noted that there were inconsistencies in the borrower's testimony -- specifically, although the borrower testified that he did not disturb the file containing his closing documents, he admitted during a deposition that there were documents in that file which post-dated the closing. 
Nevertheless, the Seventh Circuit held that the borrower's testimony, "if believed," was sufficient to rebut the presumption that the notice was received.  In so ruling, the Court placed emphasis on the language used in TILA regarding the rebuttable presumption:  "written acknowledgement of receipt of [the notice]...does no more than create a rebuttable presumption of delivery thereof."  15 U.S.C. Sec. 1635(c).  The Seventh Circuit read that language to suggest that "Congress was warning courts not to overstate the importance of the acknowledgement."
The lender argued that if the presumption of delivery could be rebutted by "nothing more than the borrower's say-so," the presumption of delivery provided for by TILA is of little practical effect. 
The Seventh Circuit disagreed, holding that the borrower's testimony that the file remained undisturbed and that the closing practices differed from the standard procedures described by the closing agent was "enough to permit a reasonable jury to find in [the borrower's] favor."  Therefore, it reversed the decision of the lower court, and remanded the matter for further proceedings consistent with its opinion. 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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