Wednesday, May 4, 2011

FYI: 1st Cir Again Applies Favorable TILA Rulings to MCCCDA

The U.S. Court of Appeals for the First Circuit recently applied its TILA
rulings to Massachusetts law, holding that there was no right to rescind
under Massachusetts law where the numerical dates and deadlines in the
Notice of Right to Cancel were allegedly inaccurate. The First Circuit
also held as untimely Appellants' request to certify questions construing
the Massachusetts Consumer Credit Cost Disclosure Act to the Massachusetts
Supreme Judicial Court. A copy of the opinion is attached.

The Appellant-borrowers ("the Borrowers") obtained a refinance loan from
Encore Credit Corp. ("Encore"), which later sold and assigned the loan.
The loan closed a day later than it was originally scheduled, and the loan
documents were altered by hand to reflect the date change.

Later, the Borrowers fell behind on their payments. The investor
initiated foreclosure proceedings, and rejected the Borrowers' request to
rescind the loan. After filing for bankruptcy, the Borrowers sought
rescission under Massachusetts law charging that their mortgage was
rescindable, because Encore had allegedly failed to provide the proper
closing and rescission dates, and allegedly failed to provide the
Borrowers with "high cost home mortgage loan" disclosures under
Massachusetts law. Both the bankruptcy court and the United States
District Court rejected the Borrowers' arguments, and the First Circuit

Despite the four-year limitations period under the Massachusetts Consumer
Credit Cost Disclosure Act, Mass. Gen. Laws ch. 140D, § 10(a) ("MCCCDA"),
the Borrowers sought to rescind five years after the closing date, based
upon the pending foreclosure. The Borrowers sought to show that the
disclosures they received from Encore incorrectly stated the loan closing
date, and that the disclosures did not provide the deadline to rescind the
loan. To prove that adequate disclosures had been provided in a timely
manner, however, the investor submitted copies of the right to cancel
forms, which the Borrowers had signed and dated, and which also bore a
handwritten date of rescission.

The First Circuit noted that the MCCCDA was patterned on the federal Truth
in Lending Act ("TILA") and that both statutes give consumers the right to
rescind a mortgage "until midnight of the third business day following the
consummation of the transaction." Mass. Gen. Laws ch. 140D, § 10(a); 15
U.S.C. § 1635(a). Under the First Circuit's prior TILA rulings,
"technical deficiencies do not matter if the borrower receives a notice
that effectively gives him notice as to the final date for rescission and
has the three full days to act." The Court determined that the Borrowers
clearly had received adequate notice of their right to cancel under the
MCCCDA also.

The Court similarly rejected the Borrowers' claim that they did not
receive state high cost home mortgage loan disclosures. As you may
recall, the regulations under the MCCCDA require lenders to print a
statement on the loan application above the borrower signature line
advising borrowers that the loan being offered may not be the least
expensive available and that borrowers should shop around for a better
loan. Although the statement was not provided on the Borrowers' loan
application form, it was provided separately at the loan closing. Because
the regulations provide that consumers can rescind only within three days
of receiving the high cost home loan disclosures, and the Borrowers did
not dispute that the warning was provided to them at the time of the loan
transaction, Court held that their opportunity to rescind had long

Further, the Court also rejected the Borrowers' renewed request for
certification to the Massachusetts Supreme Judicial Court. The Court
noted that the Borrowers had waited until after the bankruptcy court had
denied their motion for reconsideration before seeking certification. The
Court stated that such an approach "is almost always fatal, unless the
court sees strong policy reasons" for certification. The Court also
stated that it does not "normally certify cases that depend not on a
general rule but on a unique fact configuration" as in this situation.

Finally, the Court held that the Borrowers were not entitled to damages
under chapter 93A of the Massachusetts General Laws, because liability for
damages hinged on a successful claim for rescission, which was clearly not
the case here.

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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