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TILA Notice of Note Transfer Provision Not Retroactive, and Does Not Trigger Right to Rescission

Two recent decisions have clarified the scope and effect Section 131(g)(1) of the Truth-in-Lending Act's ("TILA"), which requires that a borrower be notified within 30-days of the sale, transfer, or assignment of a mortgage loan to a new owner.  15 U.S.C. § 1641(g)(1).  Section 131(g) states that "not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer," and include information regarding the new creditor.  The section was added to the law to provide notice of a change in ownership of the mortgage debt or note, in addition to the previously required notice of a change in the servicer of the loan.

In an issue of first impression for the circuit, the U.S. Court of Appeals for the Ninth Circuit has held that the provisions of Section 131(g)(1), effective May 20, 2009, are not retroactive. In response to a claim that a 2006 transfer of a loan without notice violated TILA, the Ninth Circuit reasoned that to impose a retroactive application of the notice requirement would impair the rights that the banks possessed when they acted, as well as impose liability and new duties on the banks for transactions already completed.  Talaie v. Wells Fargo Bank, N.A., No. 13-56312, 2015 WL 8606014 (9th Cir., Dec. 14, 2015).  Given the concerns expressed by the Supreme Court regarding retroactive application of statues in Landgraf v. USI Film Prods., 511 U.S. 244 (1994), the Ninth Circuit declined to impose the notice requirement retroactively.

The United States District Court for the Western District of Tennessee, meanwhile, faced the question of whether a failure to provide notice under Section 131(g)(1) triggered a borrower's right to rescind the transaction pursuant to TILA Section 125(a), 15 U.S.C. § 1635(a).  Wigley v. American Equity Mortgage, 2015 WL 7292562 (W.D. Tenn., Nov. 11, 2015).  The borrowers refinanced their home in 2004.  When the note and mortgage were assigned from the original lender in 2012, without the notice required by Section 131(g)(1), the borrowers sent a notice of rescission to the assignee bank.  The District Court noted TILA limits the right of rescission to an original creditor's failure to provide the "material disclosures" required by the statute.  Further, the relevant regulations failed to include lack of the disclosure of assignment as a material disclosure.  Finally, TILA Section 125(a) provides that the right of rescission expires three years after the consummation of the transaction, in this case 2004, notwithstanding any failure to make required disclosures under TILA.  In light of all these factors, the District Court concluded that no right of rescission was created by the failure to provide the required Section 131(g)(1) notice.

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