Greenpoint Mortgage Funding, Inc. v. Bach
(Court Of Appeal Of The State Of California, Second Appellate District, Division Four)
This update was provided by Howard Lax of Lipson, Neilson, Cole, Seltzer & Garin, P.C.
In Greenpoint Mortgage Funding, Inc. v. Bach, an unpublished opinion, the lender erroneously excluded certain charges from the disclosed finance charge when Bach took out a home equity loan. The lender disclosed its error and offered Bach the right to cancel the transaction. Bach did cancel the transaction, and the lender returned interest paid by Bach. The lender sent a payoff letter to Bach for the loan amount less closing costs paid by Bach. The lender then attempted to arrange for return of the loan proceeds in return for discharge of the deed of trust. Bach resisted all attempts to settle the matter, so the lender put its reconveyance document in escrow with instructions to the escrow company to release the reconveyance when it received the loan proceeds. Bach demanded that the deed of trust be discharged. The lender sued Bach for the loan proceeds, and Bach claimed the lender violated TILA by not removing the deed of trust, which Bach now claimed was void. The Court sided with the lender, holding that rescission is a process started by a request to cancel the transaction. The lender satisfied TILA by beginning the process of removing the deed of trust within the 20 day period after receiving Bach's request to cancel the transaction. The lender does not have to complete the process of rescission in 20 days unless the borrower is prepared to repay the loan proceeds immediately. Bach cannot escape the duty to repay the net loan proceeds, and the lender has a right to ask a court to modify the procedures outlined in Regulation Z to condition the removal of the lender's security interest on repayment of the loan proceeds if it appears that the lender will not be repaid immediately. The Court also held that the lender's good faith in promptly disclosing its error precluded any award of statutory damages. This case highlights the proper procedures that a lender should take in the event that it receives a late rescission request and discovers that there may be a disclosure error that entitles the borrower to cancel the transaction.