In the case McCutcheon v. America’s Servicing Co., the homeowner (M. Clark McCutcheon) signed the closing documents to effect a cash-out refinance mortgage on his home, despite the fact that his eyesight and lighting prevented him from reading the terms.
Several days after signing, the homeowner (an elderly man on a fixed income) realized that the stated income, the payments and the title insurance fee were all higher than he had believed.
After using the cash from the refinance to make several payments, the homeowner defaulted on the mortgage and issued a demand to the mortgage company to rescind the loan. The homeowner soon received a notice from the mortgage company of its intent to initiate foreclosure proceedings. About one month later, the homeowner filed suit.
The homeowner claimed that the mortgage company overcharged him for title insurance, charging him the purchase rate rather than the lower refinance rate. Further, the homeowner claimed the charging error was a violation of the Truth In Lending Act (TILA), which gave him the right to rescind the mortgage.
Additionally, the homeowner claimed that he had not received numerous required disclosures of the variable-rate feature of the mortgage.
The district court found that the mortgage company did overcharge the homeowner, but not to the extent that would warrant rescission of the mortgage under TILA, and that the mortgage company did issue the required variable-rate disclosures.
At trial, the homeowner was awarded statutory damages of $1,000 and attorneys’ fees.
The court of appeals upheld the trial court’s ruling. Only the $668 overcharge, not the entire title insurance fee, was required to be included in the finance charge disclosures and, thus, only that amount was omitted in violation of TILA.
Because the $668 did not rise to the rescission right-creating threshold of one-half of 1 percent of the loan amount, and because the mortgage company had not yet instituted foreclosure proceedings (which would have dropped the threshold to $35), the homeowner was entitled only to statutory damages and attorneys’ fees.
Also, based on the mortgage company’s business records, the appellate court affirmed the trial court’s finding that the homeowner likely did receive, but failed to read, the required adjustable-rate disclosures.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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