A-B-C. A-Always, B-Be, C-Closing. Always be closing, always be closing.
Blake, Glengarry, Glen Ross.
In David Mamet’s masterpiece, Glengarry, Glen Ross, a group of sad sack real estate salesmen are forced into a myopic focus on closing the deal by their overbearing, egomaniacal leader, Blake. Now that the the Fourth Circuit Court of Appeals has ruled that borrowers who elect not to go through with their loans before closing are not entitled to recission under the Truth in Lending Act (“TILA”), however, buyers may be the ones who need to focus on closing, at least those who might want to seek certain remedies under TILA.
In Weintraub v. Quicken Loans, Inc., the Weintraubs applied for a 30- year, fixed rate loan from Quicken Loans to refinance their townhouse. Quicken Loans provided the Weintraubs with a “Good Faith Estimate” and an “Interest Rate Disclosure (Not Locked) and Deposit Agreement.” The latter document disclosed that the interest rate was not locked and that the Weintraubs were required to pay a $500 deposit to Quicken Loans for out-of-pocket expenses. Mr. Weintraub signed the documents and paid the $500 deposit. Quicken Loans subsequently conditionally approved the loan, subject to a satisfactory home appraisal.
The home appraisal revealed a loan-to-value ratio which was greater than what the Good Faith Estimate contemplated. Quicken Loans then added a half-point discount fee to the closing costs for the loan. As a result, the Weintraubs decided not to close the loan. They notified Quicken Loans in writing of their decision to cancel the loan, and also requested a refund of their $500 deposit. Quicken Loans refused to return the $500, citing the Deposit Agreement which provided that:
The deposit will not be refunded to you if you . . . choose to withdraw your application, or choose not to close the transaction for any reason (including changing interest rates).
Notwithstanding the language in the Deposit Agreement, Quicken Loans refunded approximately $130 to the Weintraubs after deducting from the deposit certain expenses. The Weintraubs sued Quicken Loans for failure to provide them with a full refund, allegedly in violation of Section 1635(b) of TILA. The Weintraubs sought recission under Section 1635(a) of TILA, which gives borrowers, under certain circumstances, a right of recission for “any consumer transaction.” Once the right is exercised, the lender must give the borrower back “any money, or property given as earnest money, down payment, or otherwise.”
In granting summary judgment in favor of Quicken Loans, the District Court relied on TILA’s definitions of “residential mortgage transaction” and “reverse mortgage transaction” — both of which treat a “transaction” (left undefined by TILA) as a completed event — to conclude that there was no “consumer credit transaction” between the Weintraubs and Quicken Loans and, thus, the District Court held, the Weintraub’s right to rescind under TILA was never triggered. In addition, the District Court relied on prior Fourth Circuit cases “which hold in the context of an automobile loan that liability for improper disclosures under § 1638 of TILA does not attach until after consummation of a consumer credit transaction” (citing cases).
Based on all of this, the Fourth Circuit framed the issue on appeal as “whether there can be a ‘consumer credit transaction’ giving rise to the right to rescind before the transaction is consumated or closed.” The Weintraubs argued that a “consumer credit transaction” exists and can be rescinded anytime after the parties begin negotiating for an extension of credit. According to the Weintraubs, Section 1635(a) of TILA does not require a consummated loan before the borrower’s right to rescind is triggered, and that the broad remedial provisions of TILA should be liberally construed.
The Fourth Circuit reviewed its prior decisions dealing with TILA liability under Section 1638 of TILA and found that:
[T]he principle that a credit transaction must be consummated to trigger TILA liability applies with equal force to the right to rescind created by § 1635(a). . . .
[T]hese cases stand for the broader principle that only when a loan has been consummated does a ‘credit transaction’ exists that gives rise to liability under TILA. Because ‘credit transaction’ is a term used in both § 1635 and § 1638, indeed throughout TILA, we think that [our prior decisions] are relevant to understanding what constitutes a ‘transaction’ that may, under § 1635(a) of TILA, be rescinded.
The Fourth Circuit rejected the Weintraubs reliance on a broad definition of “transaction” found in Black’s Law Dictionary, because “they have failed to account for the alternative definition geared toward business contexts.” Instead, the Fourth Circuit looked to a “commonsense reading” of Section 1635(a) that suggests “that ‘transaction’ refers to a consummated, binding agreement, rather than to the whole course of the parties’ interactions.” Indeed, if the Weintraubs’ view of the term transaction were adopted, a borrower could rescind the entire course of dealing between parties, which “would be essentially meaningless.”
The Court ultimately held “that a consumer cannot exercise the right to rescind created by § 1635(a) until after consummation of a consumer credit transaction,” thereby affirming the decision of the District Court. This conclusion, the Court found, was consistent with Fed’s interpretation of TILA as presented in Regulation Z.