Merryman V Beneficial Case No. 01-42851-13; Adv. No. 01-7142

 

Order granting summary judgments

 

Truth in Lending Act

 

Notice requirements; court’s ability to modify

consequences of rescission under Truth in Lending Act

 

 Facts:

 

The Truth in Lending Act (“TILA”) is applicable to both of these proceedings because both proceeding involve non-purchase money loans secured by the consumer-borrowers’ homes (principal dwellings).  TILA violations are measured by a strict liability standard so even minor or technical violations impose liability on a creditor and a borrower can prevail without showing damages.

 

Merryman vs. Beneficial Case No. 01-42851-13; Adv. No. 01-7142

 

Patricia Joan Merriman (“Merriman”) filed a Chapter 13 petition in October 2001.  One month later her attorney sent Beneficial Mortgage Co. of Kansas (“Beneficial”) a notice that Merriman was exercising her right to rescind the contract.  Beneficial did not consider Merriman’s rescission to be effective since it was beyond the three-day rescission period. 

 

Merriman maintained that the notice of rescission was adequate and timely.  Merriman argued that due to Beneficial’s failure to provide Merriman with the two copies of her right to rescind the transaction, the time frame for rescinding the transaction was extended from three-days to three years.  See holding #1.

 

Merriman also maintained that the notice of the rescission was ineffective because the notice was insufficient to inform her of her rescission rights.  The form that Beneficial provided Merriman combined the two model forms produced by the Federal Reserve Board for New Loan Financing and Refinancing into one form.  The information on the Fed forms was contained on Beneficial’s form, but because Beneficial had combined the two forms, it had two boxes that related to the two types of financing.  Beneficial’s employee was required to check the appropriate box on the form indicating the type of financing the borrower had obtained.  Beneficial checked neither box, and in Merriman’s case she had a pre-existing loan with Beneficial, which made the form confusing.  Merriman argued that because the form was confusing, Beneficial had not provided her with sufficient notice of her right to rescind and therefore the time frame to rescind should be extended from three-days to three years based on lack of notice.  See holding #2.

 

Rameriez vs. Houshold Finance Case No. 01-42119-13; Adv. No. 01-7122

 

Marcelino Emelio Ramirez and Toni Lee Ramirez (“Debtors”) filed a joint Chapter 13 bankruptcy.  Approximately one month after filing the petition Debtors sent a timely notice of rescission to Household Finance Corp. III (“Household”). 

 

Prior to their filing, in February 2000, Mr. Ramirez borrowed money from Household and signed a promissory note. Debtors then signed a mortgage on their principal dwelling to secure the note.  Household only gave notice of the right to rescind to Mr. Ramirez, even though Household was required under the TILA to provide notice to both Mr. and Mrs. Ramirez.  Despite the failure to provide notice as required by TILA, the Court held that the appropriate remedy was not to void the mortgage, but to off-set the amount owed by the closing costs and all amounts paid on the loan.  See holding #3.

Holdings:

  

 1. The fact that Beneficial had allegedly failed to provide two copies of the right to rescind form to Merriman did not extend the rescission period from three-days to three years.  The second physical copy of the notice was not actually necessary to inform Merriman of her right to rescind so long as she had one copy.  The Court reasoned that as long as the notice was otherwise sufficient the second physical copy, intended to be kept solely for the borrower’s records, could have been easily reproduced by photocopying the notice.

 

 2. Beneficial’s failure to check the appropriate box indicating the type of financing transaction that Merriman could rescind made the form confusing and rendered the notice insufficient, and therefore the time period to rescind the transaction was extended from three-days to three years, under TILA.

 

 3. The Court followed Quenzer III and ruled that the Court has the ability to alter the remedy for TILA violations based on the facts in front of the Court.  The Court noted in its ruling the fact that a majority of courts have refused to enforce the automatic voiding of the creditor’s mortgage thereby altering the remedy for violations.  The Court refused to void the mortgage liens, and altered the amounts secured by the liens remaining in place by deducting the closing costs and payments made on the loan from the amount of the secured claims.  The Court also noted that the parties had expressed their intentions to appeal any adverse ruling and therefore, a decision based on Quenzer III would allow for swifter access to the Circuit.

 

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