Daily Development for Wednesday, January 29, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin Kansas City, Missouri dirt@umkc.edu

MORTGAGES; TRUTH IN LENDING; RESCISSION:
Mortgagor's TILA right of rescission was properly conditioned on tender of  principal loan amount to mortgagee.

Regency Savings Bank v. C. . . , 776 N.E.2d 876 (Ill.App.2 Dist 2002).

Regency Savings Bank brought an action to foreclose its mortgage on the residence of C, a married couple.  The trial court held that the C's' were entitled to rescind the note and mortgage because they were not provided with proper documentation concerning their rescission rights under Section 1635 of the Truth in Lending Act (the "Act") (15 U.S.C. 1635 (1982)).  The trial court held, however, that the C's right to rescind was conditioned on their tender of $349,572, which constituted the principal loan amount due to Regency Savings Bank.

The C's did not tender the principal to Regency Savings Bank, and the trial court entered a judgment of foreclosure and sale.  After the mortgaged real estate was sold, the trial court entered an order approving the sale and distribution.  The C's appealed arguing that (1) the trial court did not have the authority to condition their right to rescind; (2) if the trial court had the authority to condition their right to rescind, they were not given sufficient time to tender payment to the bank; and (3) the sheriff's sale of the mortgaged property was held in violation of the automatic stay imposed in Harriet Chavis's bankruptcy case.

The Appellate Court of Illinois, Second District, (the "Court") affirmed the trial court's judgment.  The Court noted that Bank's loan had saved the C's from losing their home in foreclosure by paying the amount owed on an earlier debt.  In addition, Bank had advanced money to the Chavis' to pay their real estate taxes and insurance debts.  The Court held that pursuant to the Act and according to case law, a trial court, in its equitable discretion, can condition the right of rescission on the tender of the amounts previously advanced, so that the security is left in place until the tender is made, citing AFS Financial, Inc. v. Burdette, 105 F.Supp.2d

881 (N.D.Ill.2000).

In this case, the trial court's determination to condition the right of rescission was equitably justified.  The Court next addressed the issue of whether the C's were given sufficient time to repay the debt to the bank.  The Court noted that although the C's were initially given twenty-nine days to pay their debt, the trial court extended the deadline to five months, and therefore, the C's cannot complain that they were prejudiced.  Finally, the Court addressed the issue of whether the sheriff's sale was held in violation of the automatic stay imposed in Harriet Chavis's bankruptcy case.  The Court concluded that the C's presented no evidence in support of their allegation and without a complete record to support their claim of error, the Court was compelled to affirm the judgment of the trial court.

Comment 1: It is interesting that a right that is so overladen with statutory baggage should nevertheless be viewed as one that is equitable in nature and therefore subject to the "normal" equitable conditions.  The editor believes that the approach taken here is consistent with that of other courts in reviewing the concept of "rescission" in TILA, but is interested in hearing from the mavens.  Certainly, had the Congress not intended that the equitable concept of rescission be the remedy available, it could have used a different word.

Comment 2: It is also worth noting what the opinion does *not* say.  It does not say that restitution always is required as a condition for the rescission remedy.  In fact, the circumstances that the court points to here might be regarded as setting for an compelling equitable situation (although certainly not a unique one.)  If the loan had been a "vanilla"

loan to pay for, say, a vacation trip or a new Winnebago, albeit secured by a mortgage on the home, would the court have required restitution?

At least the bank should get the Winnebago, shouldn't it?  Hey, bankers like to dominate the road same as the next guy!!

Readers are encouraged to respond to or criticize this posting.

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