The Lawletter Vol 41, No 3
The Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., requires a mortgage lender (a mortgagee) to provide certain disclosures to the borrower (mortgagor). If these disclosures are not made, the borrower may have the right to rescind. Under TILA, when a loan is secured by the borrower's principal dwelling, the borrower may rescind the loan agreement if the lender fails to deliver certain forms or to disclose important terms accurately. TILA requires creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights. Failure by the lender to deliver these disclosures may permit a borrower to rescind the loan transaction.
However, is a person who is not personally liable on the loan but who is the owner of the dwelling that is used to secure the loan entitled to the TILA disclosures and the right to rescind? Recently, in Lakeview Loan Servicing, LLC v. Pendleton, 2015 IL App (1st) 143114, ___ N.E.3d ___ (not yet released for publication), the Appellate Court of Illinois considered this exact issue. In that case, the plaintiff, who filed a complaint seeking to rescind the mortgage pursuant to TILA, based on the failure of the lender to provide her with the required disclosures, had provided a mortgage on her home as security for a loan made to her daughter. Examining the language of TILA and the regulations implementing TILA (Regulation Z), the court held that this type of person (a mortgagor who is not personally liable for the loan) is entitled to the TILA disclosures and is permitted to seek a rescission if the disclosures were not made to him or her. The court explained:
[The plaintiff] was entitled to TILA disclosures, because she was a consumer whose ownership interest in her home was subject to the mortgage. It makes no difference whether she was liable on the note, as long as her principal dwelling was used as security for the loan, which it unquestionably was. . . .
. . . .
. . . [The plaintiff] was clearly entitled to TILA disclosures. Her home was subject to a mortgage that served as security for a consumer credit transaction. . . . [T]he fact that she did not have any personal obligations on the underlying promissory note is immaterial.
Id. ¶¶ 28, 31.
Therefore, even if one merely pledges his or her house as security but is not the recipient of the loan and is not personally liable on the loan, he or she is still likely entitled to receive the various TILA disclosures. When a lender fails to give this person the disclosures, the person could potentially exercise his or her right to rescind.