Barnes v. Chase Home Finance
Facts: An owner and their spouse hold title to their residence as joint tenants. Years later, the owner quitclaims their interest in the property to their spouse. The couple files for divorce. As part of the divorce proceedings, the owner is awarded the property, and the spouse is awarded a money judgement against the owner. The owner obtains a mortgage secured by the property to satisfy the money judgment and pay off the spouse’s other debt, after which the spouse conveys title to the owner. Within three days of closing the mortgage, the owner notifies the mortgage holder of their intent to rescind the mortgage under the Truth-in-Lending Act (TILA), which affords refinancing borrowers the statutory right to rescind their mortgage within three days of closing.
Claim: The owner seeks to rescind the mortgage, claiming the transaction qualifies as a refinance under TILA since they previously held an interest in the property when they originally purchased the home with their spouse and held title as joint tenants.
Counterclaim: The mortgage holder claims the mortgage is a residential mortgage transaction and not a refinance eligible for rescission under TILA, since the owner did not have an interest in the property until they obtained the mortgage.
Holding: A California appeals court holds the owner may not rescind the mortgage since they did not hold interest in the property until after obtaining the mortgage and thus it did not qualify as a refinance subject to the statutory right of rescission. [Barnes v. Chase Home Finance (August 14, 2019)_CA6th_]
Editor’s note — Typically, TILA’s right of rescission operates to give borrowers a way out of an overly hasty mortgage refinance or home equity line of credit (HELOC). It’s an effective defense mechanism for borrowers on the receiving end of aggressive lender tactics. Here, the owner abused the defense afforded them under TILA’s right of rescission to acquire title in a property.