The following article is reprinted from Basis Points® , Vol. 3, Issue 3, Copyright © 2004, with the permission of CounselorLibrary.com, LLC. All Rights Reserved. Further reproduction is prohibited without permission.
Sometimes two mistakes are better than one! That certainly was the situation in a recent case where an under-disclosure and a separate over-disclosure of the finance charge, when netted, resulted in the disclosed finance charge being so close to the true finance charge as to be within the rescission tolerance.
Elizabeth Scott brought a rescission action under the federal Truth in Lending Act. She claimed that three fees charged in her mortgage loan transaction should have been included in the finance charge disclosure. The three fees were title charges paid to the lender's affiliate, part of a fee that was designated as paid to a recording office, and a lender's recording fee. The borrower claimed the title charges were not bona fide and reasonable. She claimed the lender retained a portion ($4) of the "official" recording fee. Finally, she claimed that the recording fee shown as paid to the lender was not bona fide because the original lender filed the release.
The U.S. District Court for the Northern District of Illinois ruled that even if the title charges were excessive, only the amount in excess of the portion that the borrower claimed was reasonable should be considered a finance charge. Even so, this amount, plus the two recording fees, meant that the total finance charge would have been under-disclosed by more than the rescission tolerance. However, the assignee noted that the lender included a $310 settlement or closing fee in the finance charge, which the court held should have been excluded. Thus, when the total finance charge was recalculated, taking into account the amounts the borrower claimed were finance charges, but excluding the settlement or closing fee, the disclosed finance charge was within the rescission tolerance. Therefore, the court dismissed the rescission claim.
For more information, look for Scott v. IndyMac Bank, FSB, No. 03 C 6489 (N.D. Ill. February 3, 2004).
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Basis Points® is a concise, easy-to-read, monthly legal update for the mortgage lending industry. Basis Points® addresses complex legal issues from an industry perspective and keeps you informed on new legal developments affecting your business. Written in plain English, Basis Points® provides familiar factual scenarios, identifies the legal issues involved, presents real court resolutions and suggests how you might avoid similar legal pitfalls. Topics featured in Basis Points® include: Predatory Lending; Yield-Spread Premiums; RESPA - Fee Splitting and Up charges; Privacy; RESPA - Joint Venture; Bankruptcy; Fair Lending and Discrimination; and Truth in Lending/ Regulation Z. Basis Points® is published by CounselorLibrary.com, LLC, an affiliate of the Hudson Cook, LLP law firm. The CounselorLibrary.com, LLC is also the publisher of CARLAW®, HouseLaw®, Spot Delivery®, and the Counselor Library Series. For more information, please visit: www.counselorlibrary.com.
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