A reverse mortgage borrower who filed suit against lender Reverse Mortgage Solutions (RMS) in 2017 has the right to cancel her loan within three years due to a lack of proper disclosures given to her under the Truth in Lending Act (TILA) from the lender, but for the cancellation to be complete she must return the loan’s proceeds.
This is according to a panel of three judges sitting on the U.S. Court of Appeals for the Fourth Circuit, as originally reported by Bloomberg Law.
“To decide otherwise would bestow a remarkable windfall on a borrower and penalty on the lender divorced from the text of TILA and the entire purpose of rescission,” wrote Judge A. Marvin Quattlebaum Jr. for the panel according to the report.
The unanimous decision by the three-judge panel overturns a verdict in 2018 reached in the U.S. District Court for the Southern District of West Virginia, in which borrower Teresa Lavis aimed to rescind her reverse mortgage loan from RMS upon learning that the lender did not provide her with adequate disclosures under TILA.
In May 2016, Lavis sent a letter to RMS aiming to rescind the loan, but no such action was taken. Lavis sued and won the right in court to cancel the loan, but the decision also allowed her to keep the loan proceeds that had already been disbursed to her in the amount of approximately $60,000.
The three-judge panel has now ruled that Lavis keeping the loan proceeds is not permissible under TILA.
“The decision clarified that under TILA, the purpose of rescission is to place the parties in the position they were before the loan—not allow the borrower to enjoy the benefits of the loan without the burdens of it,” Quattlebaum Jr. wrote. “And the holding supports RMS’s argument that TILA does not allow the relief that Lavis seeks.”
This means that while Lavis was entitled to rescind the loan under TILA, she was not allowed to keep the proceeds.
In 2017, RMS’ then-parent company Walter Investment Management Corporation decided to stop originating Home Equity Conversion Mortgages (HECMs). RMS then turned to servicing only and closed its retail channel. Eventually, Walter renamed itself Ditech Holding Corporation which eventually sold the company to Mortgage Assets Management, LLC, which in turn later sold it to PHH Mortgage Corp. It now serves as the reverse mortgage servicing arm of Liberty Reverse Mortgage.
Read the original story at Bloomberg Law, subscription required.