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Illinois: Trustee Mortgagor of Reverse Mortgage is a “Consumer” Entitled to TILA Disclosures

Posted By USFN, Wednesday, October 7, 2015
Updated: Wednesday, November 11, 2015

October 7, 2015


by Lee Perres, Kimberly Stapleton and Shaun Callahan
Pierce & Associates, P.C – USFN Member (Illinois)

In the case of Financial Freedom Acquisition, LLC (OneWest Bank N.A., Appellee) v. Standard Bank and Trust Company, 2015 IL 117950 (Sept. 24, 2015), the Supreme Court of Illinois ruled that a trustee, as a mortgagor of a reverse mortgage, was a consumer entitled to receive TILA disclosures, despite the fact that a reverse mortgage creates no financial obligation on the part of the mortgagor.

In the underlying case, Mary Jane Muraida and Standard Bank entered into a reverse mortgage with plaintiff’s predecessor, Marquette National Bank. Standard, as trustee, was listed as the mortgagor and borrower, and both Muraida and Standard signed the note. The mortgage contained an exculpatory clause that Standard had no liability on the obligation.

Muraida died in May 2010. In October 2010, the plaintiff filed a complaint against Standard to foreclose the mortgage. In June 2011, the trustee sent a notice of rescission under TILA, to which the plaintiff did not respond. In response to a counterclaim filed by Standard, the plaintiff filed a motion to dismiss, asserting that the trustee was not an “obligor” under TILA due to the exculpatory clause and was not entitled to TILA disclosures and, therefore, the trustee could not rescind. The circuit court ordered the dismissal of Standard’s counterclaim with prejudice, which was affirmed by the appellate court.

Reversing the appellate court’s decision, which relied heavily on the exculpatory clause in connection to a narrow definition of the otherwise undefined term “obligor” in TILA, the Illinois Supreme Court highlighted the unique features of a reverse mortgage, namely that a mortgagor under a reverse mortgage is never personally liable, nor is any obligation undertaken “because the only recourse in a reverse mortgage is against the property itself.” Following a discussion of the rule that supports TILA (known as Regulation Z) and the Official Staff Commentary, the court concluded that “Congress did not intend to limit rescission rights to only obligors, as that term is generally defined,” [Id. ¶ 23] and held that the “right to rescind extends to ‘each consumer whose ownership interest is or will be subject to the security interest’ or ‘is subject to the risk of loss,’” [Id. ¶ 30] including a trustee.

Under Illinois law, the trustee possesses the “ownership interest” that is subject to the mortgage. The treatment of land trusts under Regulation Z specifically states that “[c]redit extended to a land trust is credit extended to a natural person.” [Id. ¶ 37] The court, therefore, concluded that the trustee is a consumer entitled to TILA disclosures and has the right to rescind.

Having found that Standard, as trustee, possessed the right to rescind, the court concluded that Standard, in fact, timely exercised that right prior to the subsequent sale of the property, such that the sale did not terminate its right to rescind.

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