The United States Court of Appeals for the Seventh Circuit recently affirmed the district court's dismissal of a complaint for failure to state a claim for rescission of a mortgage loan under TILA where the borrowers failed to respond to the defendant assignee's contention that none of the misstatements identified in the complaint were "material," as required by TILA for mortgage rescission. A copy of the opinion is attached.
Plaintiff borrowers filed suit in federal district court seeking rescission of their home mortgage under TILA based on contention that ten charges on their loan were inaccurate. Defendant assignee of the originating lender moved to dismiss the complaint for failure to state a claim, arguing that none of the alleged errors in the disclosure statements related to a "material" disclosure, as required for rescission more than 3 days after closing. The district court granted the defendant's motion to dismiss and this appeal followed.
In upholding the district court's dismissal of the complaint, the Court looked to Regulation Z in interpreting TILA and its disclosure requirements. Because plaintiffs sought rescission of their loan outside the three-day period allowed under TILA, they were required to demonstrated that the lender failed to make a required "material" disclosure. As you may recall, Section 226.18 of Regulation Z identifies eighteen categories of information to be disclosed to borrowers in credit transactions, several of which (including the finance charge, the APR and the amount financed, as well as the disclosures required under 15 U.S.C. 1639) are considered "material" under 15 U.S.C. 1602(u).
In this case, the Court noted that although the borrowers pointed to ten allegedly misstated charges, they "never explain how the ten allegedly misstated charges are related to the finance charge, the APR, and the amount financed." In fact, the Court pointed to the defendant assignee's brief, which explained "why none of the ten allegedly inaccurate charges identified in the [plaintiff's] complaint are part of the APR, finance charge, or amount financed." Rather, the discrepancies raised related to, among other things, disbursement of loan proceeds and discrepancy in the disclosure or property taxes. The Court also pointed to plaintiff's failure to respond to defendant's arguments in their response brief, holding that "[t]heir failure to respond to U.S. Bank's arguments leads us also to conclude that they have waived any argument that the allegedly erroneous TILA disclosures are in fact 'material.'"
Let me know if you have any questions. Thanks.
Ralph T. Wutscher
Kahrl Wutscher LLP
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