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Couple Exploits Minor TIL Discrepancy

Couple Exploits Minor TIL DiscrepancyLawsuit claims TIL disclosure omitted ‘monthly’ from payment frequency

October 26, 2007


An Indiana couple has sued to rescind a subprime home equity loan and recover damages because, they claim, the Truth in Lending Act disclosure did not explicitly state monthly payments were required — though it did state “periodic” payments were required and other loan documents clearly stated that monthly payments were required. Attorneys for the plaintiffs are seeking class action certification.

The servicer and “beneficial owner of plaintiffs’ loan,” Barclays Capital Real Estate Inc., which operates in the name of HomEq Servicing, has been named as a defendant. Also named in the suit as holder of the title to the mortgage is Mortgage Electronic Registrations Systems Inc.

New Century Financial Corp., which is currently in Chapter 11 bankruptcy, is mentioned only as the originator and cited for not properly disclosing the loan’s financial schedule.

New Century was not named as a defendant because it is in bankruptcy, Daniel Edelman, the attorney for the plaintiffs, told HomEq was named a defendant because it is “named on the face of the disclosure statement and the claim to rescission is good for whoever has the paper.”

In addition to rescission of the $126,000 loan, which was closed on Jan. 31, the suit seeks statutory damages, attorney fees, litigation expenses, costs of the suit and “such other or further relief as the court deems proper.”

However, the suit’s only claim against MERS involves rescission, according to the complaint, which was filed in U.S. District Court in Hammond, Ind., on Oct. 18.

The suit, which was filed by Kerry A. and Susan E. Burke of Lowell, Indiana, also seeks class action status on behalf of all persons who received mortgages on one- and two-unit properties from New Century after Jan. 30, 2006, in which “the Truth in Lending disclosures provided did not state that the payment interval was monthly.”

However, the suit notes that the basis for its motion for rescission under TILA does not apply to loans “entered into for purposes of the initial acquisition or construction” of a home.

The TILA disclosure provided to the Burkes with their loan stated only that they have “promised to pay this debt in regular periodic payments and to pay the debt in full not later than 03/01/2037.” The mortgage note itself states, “I will pay principal and interest by making a payment every month.”

The Burke’s loan carried an initial interest rate of 9.20 percent for the first 24 months and could go no higher than 11.20 percent and no less than 9.20 percent on the first change date after which it could go up or down as much as 150 basis points every six months, but with the rate capped at 16.20 percent.

Barclays Capital could not immediately provide comment when contacted by

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