August 23, 2018
Authored by: Jim Goldberg
In a case with potentially broad implications, the Sixth Circuit becomes the first federal circuit court to hold that the Truth in Lending Act provides no right to rescind a loan modification agreement entered into with a successor creditor. TILA exempts from rescission “refinancing” transactions with “the same creditor secured by an interest in the same property” but not “refinancing” with a different creditor.
The case impacts those borrowers whose loans were assigned after origination (an everyday occurrence), and who seek rescission after receiving a common form of modification that lowered their interest rate, recalculated the principal due to include only the unpaid balance plus earned finance charges and premiums for continuation of insurance, and perhaps even extended their payment schedule.
Regulation Z provides that a “refinancing occurs when an existing obligation … is satisfied and replaced by a new obligation undertaken by the same consumer” and that a refinancing does not include a “reduction in the annual percentage rate with a corresponding change in the payment schedule.”
In affirming the district court’s grant of defendants’ motion to dismiss, the 6th Circuit relied on modification agreement’s “boilerplate” provisions that it “amends and supplements” the original note and deed of trust, that “All terms and conditions of the [original] Loan Documents, except as expressly modified by this Agreement, remain in full force and effect,” and that “Nothing in this Agreement shall be understood or construed to be a satisfaction or release in whole or in part of the obligations contained in the Loan Documents.”
The Sixth Circuit concluded, “This express disavowal of any satisfaction of the original loan terms strongly supports the conclusion that the Modification Agreement is not a refinancing.” Looking to “the substance of the Agreement,” the Court found “nothing to disturb this conclusion.” Segrist v. Bank of New York Mellon, —Fec. Appx. —-(6th Cir. 2018), 2018 WL 3773785 (August 9, 2018; Case No. 17-6139).