Academic journal article Missouri Law Review

Suit Up! Favoring Lenders over Borrowers, Eighth Circuit Requires Lawsuit Commencement to Effect TILA Rescissions

Academic journal article Missouri Law Review

Suit Up! Favoring Lenders over Borrowers, Eighth Circuit Requires Lawsuit Commencement to Effect TILA Rescissions

Article excerpt

Keiran v. Home Capital, Inc., 720 F.3d 721 (8th Cir. 2013)

I. INTRODUCTION

With about two-thirds of Americans, on average, owning their homes, (1) mortgages are big business in the United States. To protect home loan borrowers, Congress enacted the Truth in Lending Act (TILA) in the late 1960s as a protective measure to ensure that lenders provide material disclosure of credit terms so that consumers can borrow responsibly and safely. (2) As a remedy for a failure of a lender to make such disclosures, borrowers may rescind the loan if they do so within three years of the closing. (3) Rescission is an enormously powerful tool, and in a process where borrowers have little control, it remains the "singular source of borrower leverage in a legal and economic climate that remains generally inhospitable to homeowners." (4)

Recently, an examination of the language contained in TILA and the related regulations has centered around a seemingly simple issue: May a borrower exercise the right to rescind simply by sending the lender notice of intent to do so, or must the borrower file a lawsuit demanding rescission? Because rescission remains the only leverage that a borrower has over a lender in a mortgage transaction, the answer to this question is vitally important to borrowers. Prior to Keiran v. Home Capital, Inc., the United States circuit courts of appeals had split evenly on the issue. (5 Then, in Keiran, the U.S. Court of Appeals for the Eighth Circuit tipped the balance in favor of lenders when it held that sending notice of intent to rescind to a lender is insufficient and that a borrower must instead file suit in order to exercise the right of rescission. (6) This Note argues that Keiran was decided incorrectly based on principles of statutory interpretation, application of legal precedent, and legislative intent. (7)

Part II of this Note will discuss the facts and holding of Keiran. Part III will examine the legal background and history of TILA and explain recent precedent regarding the specific issue presented in Keiran. In Part IV, this Note will explore the analysis of the majority and dissenting opinions in Keiran. Finally, Part V concludes this Note by criticizing the court's analysis in the instant decision and contemplating future effects of the decision on borrowers and lenders.

II. FACTS AND HOLDING

This appeal arose from two consolidated cases of borrowers, the Keirans and the Sobieniaks, attempting to rescind mortgage loans. (8) In the Sobieniaks' case, the borrowers, seeking to refinance, executed a promissory note for a mortgage loan on March 22, 2007, which was secured by their principal residence. (9) At closing, the Sobieniaks acknowledged receiving two copies of the notice of right to cancel (or rescind) the loan but only one copy of the TILA disclosure statement. (10) On January 15, 2010, less than three years after execution of the promissory note, the borrowers sent a notice of rescission to the lender, claiming a rescission right on grounds that the lender had failed to provide two copies of the TILA disclosure at closing. (11) On January 29, the lender denied the rescission, claiming that the correct number of copies of all required documents was provided for the borrowers at closing. (12)

On January 14, 2011, more than three years after execution of the promissory note, the borrowers filed suit, claiming money damages, rescission of the loan, and a declaration that the loan was void because the lender failed to provide two copies of the TILA disclosure at the closing. (13) The trial court granted summary judgment for the lender, finding, among other things, that the borrowers "had no right to rescind because they did not file the suit for rescission within the three-year statute of repose contained in 15 U.S.C. [section] 1635(f)." (14)

In the Keirans' case, the borrowers and the lender executed a promissory note for a mortgage loan in December 2006. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.