Alert August 21, 2012

Sixth Circuit Rejects TILA Rescission Claim, but Allows YSP Disclosure Claim

The Sixth Circuit held that the borrowers’ presentation of a copy of the closing package, which did not contain the required number of Notices of the Right to Cancel, along with affidavits swearing “that everything they received in the copy package they submitted into evidence,” was insufficient to overcome the presumption of receipt when the lender produced a signed copy of the disclosure. The court found that the affidavits submitted did “not rebut the presumption of receipt but instead swear only that their copy package is unaltered since closing.” The court further noted that a number of reasons could explain why the disclosures were missing from the package. As a result, the court concluded that the Truth in Lending Act placed the burden of showing non-receipt on the borrowers and the evidence presented did not meet that burden. Summary judgment in favor of the lender on the borrowers’ rescission claims was affirmed.  

The court did, however, allow a claim asserting a civil conspiracy under state law to hide broker fees to survive summary judgment. The borrowers alleged that the lender engaged in a conspiracy with a broker to improperly disclose the broker’s yield spread premium that resulted in the borrowers being unaware that they ultimately would be responsible for paying the YSP. The borrowers alleged that at no point in the mortgage origination process were they informed of the YSP and that,  although the lender did not attend the closing, it was on notice that the broker had failed to disclosure the YSP. The Sixth Circuit held that the borrowers had raised questions of fact regarding whether the lender did engage in a civil conspiracy based on:  (1) the lender had receipt of the broker’s fee disclosure prior to closing, which stated that fees would be disclosed at closing, (2) that the closing instructions provided specific language defining a YSP as a fee paid to the broker from the lender, and (3) that a juror could find the lender’s “conscious absence from the entire loan and application process . . . a decision designed to conceal the complete mortgage picture.”