Timothy Barnes v. Chase Home Finance, LLC, et al.

Congress enacted the federal Truth in Lending Act (“TILA” or “the Act”) to promote the “informed use of credit.” 15 U.S.C. § 1601(a). The Act provides rescission rights for a consumer whose ownership interest in his or her principal dwelling will be subject to the consumer loan’s security interest. 15 U.S.C. § 1635(a) (emphasis added). Mandatory forms disclosing such rights must be provided. Id. There is an exception to the rescission right and provision requiring TILA disclosure forms for “residential mortgage transactions,” defined by TILA and its implementing regulations to be loans in which the purpose is “to finance the acquisition or initial construction of the dwelling.” 15 U.S.C. § 1602(x), 1635(a), 1635(e)(1); 12 C.F.R. § 1026.2(a)(24). Federal courts are often required to apply state law to particular issues arising under federal statutes, as is the case here. TILA’s implementing regulations mandate that words not defined by the regulations are to be accorded meanings given to them by state law or contract. 12 C.F.R. § 1026.2(b)(3). “Ownership interest” is not defined in the TILA regulations. Thus, whether a consumer has an ownership interest in their “principal dwelling” is a term defined by state law to determine if rescission rights apply. The state law definition of ownership interest, i.e., property rights, establishes whether a loan falls under the section 1635(a) disclosure requirement or the residential mortgage transaction’s acquisition exception. The question presented is: Does a consumer have the right to exercise federal TILA rescission protection where applicable state law