In Harris v. Schonbrun, No. 13-15505 (11th Cir. Dec. 10, 2014), the Eleventh Circuit recently held that a waiver of the buyer’s right to rescind that is executed at the same time as a borrower’s loan documents can be a violation of the Truth in Lending Act (“TILA”). Additionally, the Court explained that, once a court orders rescission under TILA, it must award statutory damages, attorney’s fees, and costs.
Section 1635 of TILA gives home buyers the right to rescind a home mortgage within three business days of the consummation of the transaction. If the lender does not provide “clear and conspicuous” notice of this right, the borrower has the right to rescind the loan within three years of the transaction. A borrower can waive her right to rescind, however, but only after the three day period has expired. In 2009, Darcel D. Fisher Harris took out a loan from Harvey Schonbrun, the trustee of a mortgage investment trust. At the loan closing, Schonbrun was supposed to provide Harris with two copies of a “clear and conspicuous” notice of her right to rescind. The parties dispute whether Schonbrun actually provided the required notice. The parties also dispute whether Harris signed a waiver of her right to rescind at the loan closing. It is undisputed, however, that Harris signed a waiver with a printed date of October 21, 2009. But Harris clearly wrote October 16, 2009 next to her signature.
Two years later, Harris defaulted on her loan and Schonbrun sought to foreclose. Harris then notified Schonbrun that she was exercising her right to rescind under § 1635. She contended that Schonbrun had failed to provide her with any notice of her right to rescind and, accordingly, the time to rescind had been extended until October 16, 2012. When Schonbrun refused to rescind the transaction, Harris sued, seeking rescission, statutory damages, attorney’s fees, and costs. The parties consented to a bench trial before a federal magistrate judge. At the trial, the parties presented conflicting testimony. The trial court found that Schonbrun had not provided the required notice and that Harris had signed the waiver at the same time as her loan documents. The court ordered rescission of the loan, but refused to award Harris statutory damages, attorney’s fees, and costs, holding that Schonbrun’s violation of TILA was “immaterial” and that rescission was a “sufficient” remedy.
The parties cross-appealed. Schonbrun argued that the magistrate judge’s findings of fact were clearly erroneous and that Harris had waived her right to rescind. Harris argued that the trial court should have awarded statutory damages, attorney’s fees, and costs. The Eleventh Circuit rejected Schonbrun’s arguments but agreed with Harris. The Court explained that an appellate court reviews findings of fact only for clear error. Viewing the record as a whole, the Court said that it was not left with a definite and firm conviction that a mistake had been made. Turning to Harris’s waiver, the Court held that the post-dated waiver “preclude[d] the possibility of a ‘clear’ disclosure” as required by TILA. The Court pointed out that a borrower cannot waive her right to rescind a loan transaction until the three-day period has expired. Because Harris had signed the waiver at the same time as her loan documents, she could have reasonably assumed (as could any reasonable consumer) that she had waived her right to rescind. Finally, the Court held that the plain language of TILA requires a court to award statutory damages, attorney’s fees and costs after it has found a TILA violation. The Court remanded the case with instructions for the trial court to determine the amount of statutory damages, attorney’s fees, and costs to award Harris.
After Harris, Lenders can still provide borrowers with a waiver of their right to rescind at the same time that they sign their loan documents. However, the waiver must clearly state that the borrower should not sign it until after the three day period has elapsed. In Harris, the Court noted that such waivers are permissible under Smith v. Highland Bank. Harris was distinguishable from Smith because the borrower had been instructed to sign (and actually did sign) the waiver at the same time as her loan documents.