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IL Court Awards Non-Borrower Right of Rescission

A non-borrower who was on title to a property that was used as security on a mortgage has successfully appealed her right to a rescission years after the loan was made.

The Truth in Lending Act requires
borrowers on residential loan transactions be provided with three days to rescind a loan following the receipt of necessary disclosures.

But what about in situations where the property securing the loan is owned by someone who wasn’t on the note and only provided the mortgage as security for the loan?

An appellate court in Illinois has determined that the non-borrower is entitled to the right of rescission.

The case involves
a $142,127 home-equity loan made by GSF Mortgage Corp. in June 2010 to Deborah Reid.

Reid’s mother, Mary Pendleton, provided a mortgage on her home as security for Reid’s loan. But Pendleton alleges that her daughter had previously obtained several refinance loans stripping the property of its equity and fooling her into giving an interest in the property to her daughter.

Pendleton did not sign the note and was not provided with TILA disclosures. However, she was listed on the mortgage as a borrower and also signed the mortgage.

The note was assigned to Bank of America, N.A., in September 2011.

filed a third-party complaint in March 2012 alleging a TILA violation for failing to provide her with disclosures.

Then, in August of that same year, foreclosure proceedings were initiated by BofA, which alleged the note had been in default since May 2011.

Pendleton’s case and the foreclosure case were consolidated.

BofA subsequently assigned the loan to Lakeview Loan Servicing LLC.

“In those proceedings, Pendleton attempted to rescind the mortgage, arguing that her right to rescind under TILA had not expired, because she never received the necessary TILA disclosures informing her of that right,” the decision from the Appellate Court of Illinois stated.

But the
Circuit Court of Cook County rejected Pendleton’s argument. The court found that she had no right of rescission because she was not an obligor under the statute.

Relying on a recent decision in Financial Freedom Acquisition, LLC v. Standard Bank & Trust Co., the trial court dismissed Pendleton’s counterclaim.

So Pendleton
filed an appeal.

While her appeal was pending, the state’s supreme court reversed the decision in Financial Freedom.

Even though the Financial Freedom case involved a reverse mortgage and Pendleton’s case involved an HEL, the appellate court found that the Supreme Court’s decision still applied.

“The question in this appeal is whether an individual who provides a mortgage on her home as security for a loan, but who is not a party to the loan itself, is entitled to a notice of a right to rescind the mortgage under the federal Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (2006)),” the decision states. “We hold that she is so entitled.”

The trial court’s dismissal was vacated, and the case was remanded for further proceedings.

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