2015 IL 117950
Ill.2015Background
- In 2009 Mary Jane Muraida obtained a reverse mortgage secured by a condominium held in an Illinois land trust (Trust No. 5193); the mortgage and note were executed by Standard Bank & Trust Company as trustee and by Mary. The loan was a nonrecourse reverse mortgage (no personal liability; only the property is security).
- TILA requires disclosure of a consumer’s right to rescind certain home-secured consumer credit transactions; failure to provide the rescission notice extends the rescission period to three years.
- Mary received TILA disclosures but Standard (the trustee) did not. Mary died in May 2010; the bank plaintiff sued to foreclose in October 2010.
- Standard timely gave notice of rescission to the plaintiff in June 2011 and filed a counterclaim alleging TILA violations and seeking rescission and statutory damages; the circuit court dismissed the counterclaim with prejudice and the appellate court affirmed (majority), holding the trustee was not an “obligor” entitled to rescind.
- The Illinois Supreme Court granted leave, reversed the appellate court, and held that (1) a trustee of a land trust can be a “consumer” entitled to TILA disclosures and rescission rights under Regulation Z and the staff commentary, (2) the trustee timely exercised rescission, (3) a post-exercise sale of the property does not extinguish rescission rights, and (4) Standard’s claim for statutory damages was not forfeited or time-barred.
Issues
| Issue | Financial Freedom (Plaintiff) Argument | Standard (Defendant/Trustee) Argument | Held |
|---|---|---|---|
| Whether a trustee under a land trust is entitled to TILA rescission and disclosures | Trustee is not a “consumer/obligor”; no standing to rescind because trustee disclaimed personal liability and received no benefit | Trustee’s ownership interest is subject to the security interest; Regulation Z and commentary treat credit to land trusts as credit to a natural person so trustee is a consumer entitled to rescind | Held: Trustee is a consumer under Regulation Z and commentary; entitled to disclosures and to rescind |
| Whether the term “obligor” limits rescission to persons personally liable on the loan | Rescission limited to obligors (persons who assumed debt) | TILA must be read with Regulation Z and commentary, which extend rescission to any consumer whose ownership interest is subject to the security interest even if not personally liable | Held: “Obligor” in §1635 does not narrow rescission; Regulation Z/Commentary control and permit rescission by nonliable consumers (e.g., trustees) |
| Whether a sale of the property after timely notice terminates the rescission right | Sale extinguished rescission per §1635(f) language | Timely exercise of rescission before sale preserves rescission rights; post-exercise sale does not defeat rescission or related damages claims | Held: Sale after timely exercise does not terminate rescission rights; rescission and damage claims survive |
| Whether statutory damages claim was forfeited or time‑barred | Forfeited on appeal and/or barred by §1640 one‑year limitations | Notice of rescission was given June 2, 2011; counterclaim filed July 19, 2011—within one year of the occurrence (creditor’s refusal to rescind/twenty days after notice) | Held: Appellate court erred; statutory damages claim not forfeited and not time‑barred; remand for further proceedings |
Key Cases Cited
- Lanier v. Associates Finance, Inc., 114 Ill. 2d 1 (Illinois 1986) (background on TILA purpose and deference to Board interpretations)
- Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 (U.S. 1980) (deference to Federal Reserve Board staff interpretations of TILA/Regulation Z)
- Anderson Bros. Ford v. Valencia, 452 U.S. 205 (U.S. 1981) (acceptance of agency interpretation of its own regulation absent repugnance to statute)
- Ferreira v. Mortgage Electronic Registration Systems, Inc., 794 F. Supp. 2d 297 (D. Mass. 2011) (case relied on by appellate court but treated as factually distinguishable)
- Dawson v. Thomas (In re Dawson), 437 B.R. 15 (Bankr. D.D.C. 2010) (post-exercise sale does not extinguish timely exercised rescission right)
- Herzog v. Countrywide Home Loans (In re Hunter), 400 B.R. 651 (Bankr. N.D. Ill. 2009) (date of occurrence for failure-to-effectuate-rescission claims explained)