The U.S. Court of Appeals for the Eight Circuit recently held that two borrowers' conclusory affidavits by themselves were insufficient to rebut the presumption of delivery under the federal Truth in Lending Act (TILA), 15 U.S.C. § 1635(c), where the borrowers acknowledged in writing at the closing that they received the disclosures required under TILA.
A copy of the opinion is available at: Link to Opinion
In 2010, before the Supreme Court of the United States' ruling in Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), the borrowers filed this action against a bank alleging that the bank failed to provide all disclosures required under TILA, and seeking rescission of a mortgage loan, money damages, and a declaratory judgment voiding the bank's security interest in loan.
The trial court initially granted summary judgment in favor of the bank and against the borrowers finding that: TILA's one-year statute of limitation barred the borrowers' claims for money damages; TILA's three-year statute of repose barred the borrower's rescission claim; and that borrower's claim for money damages for refusal to rescind failed because the bank did not provide any deficient TILA notices to the borrowers at closing.
The borrowers appealed, and the Eight Circuit affirmed holding, in part, that the borrowers had to file their TILA suit for rescission within three years instead of simply giving notice of their intent to rescind. The Eight Circuit also found that borrowers' money damage claim failed because no defects were apparent on the face of the loan documents.
The Supreme Court of the United States granted certiorari in a similar case because of a circuit split over whether TILA requires notice or actually filing suit to rescind within the three-year statute of repose. Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015). The Supreme Court decided that TILA only requires notice of rescission within the three-year period
The Supreme Court subsequently granted the borrowers' petition for certiorari, vacated the Eight Circuit's opinion in light of Jesinoski, and remanded the matter. The Eight Circuit in turn remanded the matter to the trial court for further proceedings.
The parties then filed cross-motions for summary judgment. The borrowers argued that rescission was appropriate because: (1) they did not receive the two required TILA disclosure statements; (2) the statements disclosed materially inaccurate loan finance charges; and (3) the bank did not timely or adequately respond to their rescission notice.
Once again, the trial court granted summary judgment for the bank, holding that the borrowers failed to rebut the presumption of delivery of the disclosures under 15 U.S.C. § 1635(c) – i.e., if a consumer acknowledges in writing that he or she received the required TILA disclosures, "a rebuttable presumption of delivery" arises. Specifically, the district court found that borrowers' self-serving affidavits failed to rebut the presumption.
Additionally, the trial court rejected the borrowers' claim that the disclosure statements were materially inaccurate. Finally, the trial court held that because no TILA violation occurred, the right of rescission expired three days after closing and the bank did not have to respond to the subsequent notice of rescission.
This appeal followed.
Initially, the Eight Circuit observed that courts broadly interpret the TILA in favor of consumers. Rand Corp. v. Yer Song Moua, 559 F.3d 842, 845 (8th Cir. 2009).
The Eight Circuit next turned to the TILA provisions relevant to this appeal. As you may recall, the TILA provides borrowers an unconditional three-day right to cancel for certain real estate secured loans. 15 U.S.C. §§ 1635(a) (rescission as to original lenders); 1641(c) (extending rescission to assignees).
In addition, a creditor must make required disclosures to "each consumer whose ownership interest is or will be subject to the security interest" including two copies of a notice of the right to rescind and a disclosure regarding the finance charge. 12 C.F.R. § 1026.23(a), (b)(1), 15 U.S.C. § 1602(u). The creditor must make these disclosures "clearly and conspicuously in writing, in a form that the consumer may keep." 12 C.F.R. § 1026.17(a)(1).
Moreover, if the creditor does not provide the required disclosures or notices, then a borrower's "right of rescission shall expire three years after the date of consummation of the transaction." 15 U.S.C. § 1635(f); see 12 C.F.R. § 1026.23(a)(3)(i). However, the Eight Circuit noted that if no disclosure violation occurs, then "the right to rescind is not extended for three years and instead ends at the close of the three-day window following consummation of the loan transaction."
The Eight Circuit first examined the borrowers' claim that they both did not receive a copy of the TILA disclosure statement, as required. 12 C.F.R. § 1026.17(a)(1), (d).
The Court noted that, when a consumer acknowledges in writing that they received a required disclosure, this creates "a rebuttable presumption of delivery thereof." 15 U.S.C. § 1635(c). Here, the borrowers each signed an acknowledgment that they received a complete copy of the TILA disclosure statement. The Eight Circuit observed that this "gives rise to the rebuttable presumption in § 1635(c)."
The borrowers' affidavits declared they received only one TILA disclosure statement, instead of the required two. The borrowers argued that their affidavits rebutted the presumption and created a material question of fact citing Bank of America, N.A. v. Peterson, 746 F.3d 357 (8th Cir. 2014), because Peterson cited and relied upon two cases that a borrower affidavit alone may rebut the presumption. Stutzka v. McCarville, 420 F.3d 757, 762-63 (8th Cir. 2005); and Cappuccio v. Prime Capital Funding LLC, 649 F.3d 180, 189-90 (3d Cir. 2011)).
The Eight Circuit rejected this argument.
Initially, the Eight Circuit distinguished Peterson because there the debtors offered sufficient evidence that the bank did not provide the required documents. Specifically, the bank in Peterson admitted its lack of TILA diligence on more than one occasion in letters to the debtors. Also, the borrowers in Peterson asked for the required documents less than a month after closing.
The Court found that this stands in contrast to the present borrowers' conclusory affidavits that they executed eight years after the closing. Further, the Eighth Circuit observed that courts have found that a borrower's conclusory denial that they received the required TILA disclosures, without any other evidence, fails to rebut section 1635's presumptions of delivery. See e.g., Williams v. First Gov't Mortg. & Investors Corp., 225 F.3d 738, 751 (D.C. Cir. 2000).
Additionally, the Eight Circuit distinguished the Stutzka and Cappuccio cases. In Stuzka, the trial court had found that plaintiff "was not given her copies of the closing documents." Further, the Eight Circuit noted, Cappuccio does not hold that any manner of affidavit is sufficient to rebut section 1635(c)'s presumption of delivery and defeat a summary judgment motion.
Quite the contrary, the Court noted, it is black letter law "that a conclusory, self-serving affidavit will not defeat an otherwise meritorious summary judgment motion." Chavero-Linares v. Smith, 782 F.3d 1038, 1041 (8th Cir. 2015).
Thus, the Eight Circuit held that the trial court properly entered summary judgment in favor of the bank on the borrowers' rescission claim because section 1635's three-day window bars their claim.
The Court next turned to the borrowers' claim that they are entitled to rescission under TILA based on materially inaccurate finance charges in the disclosure statements.
The borrowers raised this issue for the first time in this appeal. Thus, the Eight Circuit found that the borrowers waived this argument. Moreover, the Eight Circuit concluded that even if the borrowers did not waive their argument, their claim would still fail.
As you may recall, a finance charge is deemed accurate if "the amount disclosed as the finance charge does not vary from the actual finance charge by more than an amount equal to one-half of one percent of the total amount of credit extended." Beukes v. GMAC Mortg., LLC, 786 F.3d 649, 652 (8th Cir. 2015) (quoting 15 U.S.C. § 1605(f)(2)(A)); see also 12 C.F.R. § 1026.23(g)(1) (describing that amounts within one-half of one percent of the accurate amount shall be considered accurate).
The original lender extended $404,000 in credit to borrowers. As such, the Eight Circuit observed that borrowers would be entitled to rescission if the disclosure statement's finance charges improperly varied by more than $2,020.
However, the borrowers claimed a $1,955 hazard insurance premium charge should have been only $1,205 and challenged various other fees. They claimed these amounts total $2,172.40.
The Eight Circuit rejected the borrowers' math because insurance premiums are not expressly included in the finance charge under TILA, 15 U.S.C. § 1605(c) (premiums for property damage insurance may be excluded from the total finance charge if the creditor notifies borrower that they may obtain the insurance of their choice). The disclosures here advised borrowers of their rights to obtain insurance. Also, the Court noted, the claimed error does not violate the TILA because it is a larger and not smaller charge. See 12 C.F.R. § 1026.23(g)(1)(ii) (an inaccuracy is tolerated if it is "greater than the amount required to be disclosed").
Subtracting the disputed insurance premium, the total fell below the $2,020 threshold. Thus, the Eight Circuit concluded that even if borrowers did not waive their TILA claim it still failed on the merits.
Finally, the Eight Circuit turned to borrowers' argument that the bank's lien is void because it failed to timely respond to their notice of rescission. The Eight Circuit flatly rejected this argument. The Court held that the bank did not violate the TILA at closing. Therefore, borrowers' right to rescind did not extend beyond three days and this claim is barred.
Accordingly, the Eight Circuit affirmed the trial court's summary judgment order in favor of the bank and against the borrowers.
Ralph T. Wutscher
Maurice Wutscher LLP
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