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Adam’s Story

Copyright 2004 Law Bulletin Publishing Company

Chicago Daily Law Bulletin December 27, 2004, Monday

SECTION: Pg. 1LENGTH: 996 words HEADLINE: Trial set in dispute over waiver of right to 3-day cooling off period BYLINE: PATRICIA MANSONBODY:

A federal judge has cleared the way for a man who obtained a mortgage loan to pursue a claim that he was forced to waive his right to back out of the deal.

In a written opinion, U.S. District Judge Matthew F. Kennelly set a status hearing on Jan. 10 in plaintiff Matthew Adams’ lawsuit.

Kennelly did not rule on the merits of Adams’ claim that he was required when closing the loan to agree not to exercise his statutory right to cancel the transaction.

But Kennelly held that Adams — assuming his allegations were true — had stated a claim for a violation of the Truth in Lending Act. TILA requires that a borrower be given clear and conspicuous notice of his right to a three-day “cooling off” period in which he may rescind a loan transaction.

Kennelly noted that the mortgage lender — Nationscredit Financial Services Corp., which does business in this state as Equicredit Corporation of Illinois — denied that Adams was required to sign a form at the closing confirming that he had been informed at least three days earlier of his right to rescind the loan and that he was opting not to exercise that right.

And Nationscredit and Equicredit contended that there was no violation of TILA even assuming that Adams was required to sign the confirmation form at the closing, Kennelly said.

“Defendants cite several cases to support their position that the court should consider such factors as whether the borrower understood his right to cancel the loan, whether the borrower wished to rescind his loan during the three-day period, and whether the lender performed any actions during the three-day period that violated TILA,” Kennelly wrote, citing cases that included Smith v. Highland Bank, 108 F.3d 1325 (11th Cir. 1997); Morris v. Lomas & Nettleton Co., 708 F.Supp. 1198 (D. Kan. 1989); and Contimortgage Corp. v. Delawder, No. 00 CA 28, 2001 WL 884085 (Ohio Ct.App. 4d July 30, 2001). “Defendants argue that because Adams, a home-improvement contractor, is a sophisticated borrower who is familiar with his rescission rights and did not attempt to exercise his right to cancel during the statutory allotted three days, and because Equicredit did not disburse the loan until after the three-day waiting period, no violation occurred.”

But Kennelly said at least an equal number of rulings “hold or indicate that requiring a borrower to sign a document at a closing waiving his right to cancel the transaction violates TILA by interfering with his right to receive clear and conspicuous notice.”

Those rulings include Rodash v. AIB Mortgage Co., 16 F.3d 1142 (11th Cir. 1994); Latham v. Residential Loan Centers of America, No. 03 C 7094, 2004 WL 1093315 (N.D. Ill. 2004); and Pulphus v. Sullivan, No. 02 C 5794, 2003 WL 1964333 (N.D. Ill. April 28, 2003), according to Kennelly.

Kennelly acknowledged that the 7th U.S. Circuit Court of Appeals has not decided the issue.

But citing Smith v. Cash Store Management Inc., 195 F.3d 325 (7th Cir. 1999), Kennelly said the appeals court “has provided some guidance by instructing that ‘hypertechnicality reigns’ in the application of TILA.”

“Additionally, the 7th Circuit, like most courts interpreting TILA, maintains that disclosures made pursuant to the statute should be viewed from the vantage point of an ordinary consumer as opposed to that of a skilled or informed business person,” Kennelly wrote, citing Cash Store Management. “TILA is aimed at deceptive practices by lenders, not the subjective beliefs or actions of borrowers.”

And citing Jefferson v. Security Pacific Financial Services Inc., 161 F.R.D. 63 (N.D. Ill. 1995), Kennelly said that “a plaintiff need not show actual harm to recover from technical violations of TILA, as they are strict liability offenses.”

“Thus, the relevant inquiry for determining whether defendants satisfied the TILA-mandated disclosures is simply whether Adams was required to sign the confirmation form at the closing and whether the form’s language precluded clear and conspicuous notice of the right to rescind as TILA demands,” Kennelly wrote.

Citing Highland Bank, Kennelly said that merely giving a borrower at the closing a form confirming that he is waiving his right to call off the deal is not a violation of TILA.”But the same is not true if the borrower is required to sign at the closing a document like the confirmation that was presented to Adams, which contradicted the notice of right to cancel,” Kennelly wrote.

Quoting Rodrigues v. Members Mortgage Company Inc., 323 F.Supp. 2d 202 (D. Mass. 2004), Kennelly said he agreed that such a situation “has the serious potential for actual harm.”

Kennelly noted that the confirmation form signed by Adams said he had been supplied with notice of his right to cancel the loan at least three business days earlier and that he was waiving his right to rescind the deal.

Kennelly said a typical borrower asked to sign such a document when closing a loan “would be confused about whether he was still entitled to a three-day ‘cooling off’ period.”

“He likely would assume, with good reason, that by signing the confirmation, he had given up his right to rescind the deal,” Kennelly wrote.

Kennelly declined to grant summary judgment in favor of Nationscredit and Equicredit on the TILA claim.

But Kennelly also denied a motion for summary judgment made by Adams.

Conflicting evidence concerning whether Adams was required to sign the confirmation form at the closing of his loan called for taking the TILA claim to trial, Kennelly said.

Matthew Adams v. Nationscredit Financial Services Corp., et al., No. 03 C 3857.LOAD-DATE: December 28, 2004

Reprinted with permission, Chicago Daily Law Bulletin