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Avelo Mortgage, LLC v. Jeffery

A-0765-08T1 (N.J. Super. App. Div. 2010) (Unpublished)

MORTGAGES; RESCISSION — To avail itself a rescission right for refinancing residential mortgages, the borrower must return the money received at closing.

Borrowers, when refinancing their mortgage, executed a $297,600 note. The lender paid off the borrowers’ prior mortgage loan and the borrower’s other judgments, leaving extra cash which was given to the borrowers. A mortgage was placed on the borrowers’ property. Both the mortgage and note were subsequently assigned.

After closing, the borrowers realized the loan they received was not what was promised to them. They thought they would receive a thirty-year, six-percent fixed loan. Therefore, they timely exercised their right to rescind the loan by sending a proper notice by certified mail with a return receipt requested. Six days after rescission, the involved title company faxed the borrowers an affidavit to sign and fax back to prove rescission. The borrowers did not send the title company their rescission notice. It only was sent to their lender. The lender and its assignee both ignored the borrowers’ rescission notice and actively attempted to collect mortgage payments. The borrowers sent numerous letters to the assignee reaffirming their rescission of the mortgage contract. The borrowers alleged their credit was ruined because the assignee reported their alleged outstanding debt to credit bureaus.

The assignee filed a foreclosure suit. The borrowers argued they properly rescinded the loan within three days as required by the federal Truth in Lending Act. They admitted that they were unable to return the loan proceeds to the assignee. The lower court granted the borrowers’ summary judgment motion, dismissing the foreclosure complaint with prejudice and voiding the assignee’s security interest, all because of the lender’s failure to accept the borrowers’ rescission. It permitted the assignee to proceed on the note, with all defenses available to the borrowers.

On appeal, the Appellate Division reversed and remanded, disagreeing with the remedy that the assignee only could proceed on the note, with all defenses available to the borrowers. The Court found the borrowers imperfectly rescinded the mortgage because they did not return the cash they received at closing nor did they direct return of the payoffs made. The Court said that, under the applicable law, when a consumer rescinds a credit transaction, the consumer must return to the creditor any monies received in connection with the credit transaction.

The Court held the lower court should have considered reforming the mortgage. As a result, the Court remanded, noting that if the borrowers could satisfy their burden of showing they had agreed to different loan terms, the lower court should reform the mortgage and the note to reflect the offer actually presented to the borrowers and accepted by the borrowers, thereby restoring the status quo.

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