Right of Rescission
By David Dickinson
If you're not familiar with BankersOnline's Court Watch, you might want to review and bookmark this page. BOL follows and summarizes civil court cases, specific to regulatory compliance issues, that may affect you. The latest case is Wiggins vs. Avco pertaining to the Right of Rescission and having the "I have waited 3 days" signature line signed.
I have always advised banks not to have this signed by borrowers (in most cases). First, it's not a regulatory requirement. Second, many loan officers don't like to have borrowers return to the bank when the rescission period expires. If you require this practice, there's a strong temptation for loan officers to have borrowers sign the "I have waited" line at the time of closing. This practice has the borrower sign a false statement (since they really haven't waited 3 days at that time) and effectively takes away their right to rescind later (or does it?).
Here's how the fine folks at BOL summarized the court case.
Gladys Wiggins filed suit against Avco Financial Services both under the Truth in Lending Act (regarding rescission rules) and the District of Columbia Consumer Protection Procedures Act. The latter is explained in the decision but is not explored here as the focus is on the rescission issue.
At the heart of the dispute is the rescission form. A commonly used form explains the rescission, has signature lines to acknowledge receipt of the form, and has another signature line to indicate that the rescission period has passed and those people with rescission rights have not elected to do so.
Wiggins signed the form multiple times at closing acknowledging both receipt and that the required period had passed and she had not rescinded. No funding occurred during the rescission period. However, by acknowledging at closing that the rescission period had passed and that she was not rescinding, it could be construed that she had effectively given up her right to rescind. At best the form was not clear or conspicuous.
This same issue was raised in Rodash v. AIB Mortgage, U.S. Court of Appeals for the Eleventh Circuit, 1994. In Rodash the rescission period was extended to three years because of this material defect. Wiggins loan however dates to December 1994. Wiggins was successful in this case in that the rescission form was considered defective. Her claim was filed just shy of three years from the date of settlement. However she has statutory damages available for only one year from the date the material disclosures were to be made. In this part addressing the statutory damages, Avco was successful.
If your institution (or you) require the "I have waited" line to be signed, either enforce that loan officers do not have this signed at closing (and monitor them) or remove this obligation.