Bank error does not permit borrowers to rescind mortgage

      In 1986, David and Linda refinanced their house with a mortgage from Great Western Bank. Five years later, however, they stopped making their mortgage payments. In 1992, the bank began judicial foreclosure against them.
      David and Linda acknowledged their default. But they raised the affirmative defense that the federal Truth-in-Lending Act allows them to rescind the mortgage and reduce the lender's claim due to their damages.
      At the trial, David and Linda proved Great Western Bank overstated their monthly payment by $0.58 and the finance charge by $201.84 total over the life of the mortgage.
      Great Western admitted its slight error in calculating the monthly mortgage payment. But the bank argued that David and Linda should not be allowed to use it as a basis for a defense in this foreclosure action because the three-year Truth-in-Lending Act rescission period expired in 1989.
      The judge did not allow David and Linda to rescind their mortgage in this judicial foreclosure brought by the lender six years after the loan was originated.
      The federal Truth-in-Lending Act contains a three-year period during which the borrower can rescind the home loan due to the lender's disclosure mistake, the judge explained. But after this three-year statute of limitations expires, he continued, the borrower's right to rescind the loan cannot be revived in a foreclosure action.
      However, the borrower has a right to recoup damages in a foreclosure proceeding, the judge noted. If the law were otherwise, he emphasized, the right of rescission could cloud the property title after the lender's foreclosure.
      David and Linda cannot rescind their mortgage in the lender's foreclosure action, the judge ruled, but they are entitled to $396 actual damages and $1,000 statutory damages because the lender overcharged $0.58 on their monthly payments.
      Based on the 1998 U.S. Supreme Court decision in Beach v. Ocwen Federal Bank, 66 Law Week 4263.