Seventh Circuit Reverses Summary Judgment in Dispute Over Truth-in-Lending Act Rescission Notices

Can a lender ever obtain summary judgment in a dispute over delivery of Truth-in-Lending Act rescission right disclosures? A recent decision by the Seventh Circuit raises significant doubts.

The Truth-in-Lending Act (TILA) requires that lenders notify consumer borrowers in writing of their right to rescind a mortgage loan transaction (secured by their principal residence) within three business days following consummation of the transaction. In implementing this requirement, Federal Reserve Board Regulation Z increased lenders’ burden by requiring them to deliver two such notices in order for notice to be effective (12 C.F.R. § 226.23(b)(1)). If no notice–or only one notice–is given, the consumer may rescind the transaction within three years (rather than three business days) from closing (12 C.F.R. § 226.23(a)(3)). Under TILA, a consumer’s written acknowledgment of receipt of disclosures creates a rebuttable presumption of delivery.

In the Seventh Circuit case, Marr v. Bank of America, N.A., ___ F.3d ___, Case No. 11-1424 (7th Cir. Dec. 6, 2011), the consumer closed on a loan transaction with Bank of America’s predecessor, Countrywide Bank, in 2007.  At the loan closing, the consumer signed a form acknowledging that he had received the required two copies of the rescission notice. He then left the closing with a folder provided by the closing agent, containing copies of various disclosures and documents from the closing. The consumer filed the folder in his home, but then purported to rescind the transaction over two years after closing. The consumer alleged that there was only one copy of the rescission notice in the folder and claimed that the folder had not been handled since closing, although documents dated after the closing were found in the folder in apparent contradiction of the consumer’s allegation.

In a rescission action brought by the consumer, Bank of America produced an affidavit from the title agent, which reiterated the title company’s standard policies and procedures to provide two copies of the rescission notice to the consumer at closing and stating that the notices must have been given in this case. The consumer alleged that these policies and procedures were not followed, that he only received one copy of the rescission notice, and that he never withdrew anything from the closing folder.

The U.S. District Court for the Eastern District of Wisconsin granted summary judgment to Bank of America and the closing agent, contending that the consumer had not rebutted TILA’s presumption of delivery of the notices established by the consumer’s signed acknowledgment of receipt. The court found that the consumer was “unable to identify with any certainty which documents and how many of those documents he received at closing, rather than that he received only one [rescission] notice,” and the court suggested that the consumer’s document folder had been subject to tampering after the closing.

On appeal, the U.S. Court of Appeals for the Seventh Circuit rejected the lower court’s findings and reversed and remanded for further proceedings. Disturbingly, the appellate court’s opinion implied that mere personal testimony of the consumer, without more, can be sufficient to rebut TILA’s presumption of delivery and to defeat a summary judgment motion, endorsing the position that “uncorroborated, self-serving testimony, if based on personal knowledge or firsthand experience, may prevent summary judgment against the non-moving party….”

While the Court of Appeals did not rule on the merits of the case, its decision undoubtedly means that Bank of America (and other similarly situated mortgage lenders facing allegations of ineffective rescission notice) will have to face costly litigation and/or settlement and may not be able to rely on.