In a January 2017 opinion, the U.S. Court of Appeals for the 8th Circuit addressed a residential home loan borrower’s attempt to use the Truth in Lending Act (TILA, 15 U.S.C. 1601) to defeat its home lender’s promissory note and securing mortgage. The borrower also sought to declare the lender’s foreclosure to be wrongful. See Dunn v. Bank of America, N.A., et al., _____ F.3d ______ (2017).
The borrower argued that the TILA (specifically, Part B, Credit Transactions, Subchapter I, Consumer Credit Cost Disclosure, Section 1635 (a)) required the lender to provide the borrower with a written statement regarding the borrower’s right to rescind the loan. Because the lender did not do this, the borrower contended that it was entitled to damages, injunctive relief, rescission and the release of the mortgage. The borrower essentially argued that it was entitled to use the lender’s funds to obtain the home but that it should not be responsible for repaying its lender.
The 8th Circuit disagreed with the borrower’s argument. At the core of its opinion, the 8th Circuit cited TILA’s Section 1635(e) (listing exempt transactions) and held that residential mortgage transactions entered to “finance the acquisition” of a dwelling are not subject to TILA. In reaching this conclusion, the 8th Circuit cited similar rulings from the 9th Circuit and the 8th Circuit Bankruptcy Appellate Panel as well as 12 C.F.R. 226.23(f). Additionally, the 8th Circuit noted that the borrower’s action was barred by TILA’s 1-year statute of limitations.
In short, TILA does not apply to residential mortgages used to finance the initial acquisition of a dwelling. However, the results would have been different if the underlying transaction would have been to refinance an existing loan.
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