Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca4-08-02373/USCOURTS-ca4-08-02373-0/pdf.json

Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 

---

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

RITA WEINTRAUB; BARRY 

WEINTRAUB,

Plaintiffs-Appellants,  No. 08-2373

v.

QUICKEN LOANS, INCORPORATED,

Defendant-Appellee. 

Appeal from the United States District Court

for the Eastern District of Virginia, at Alexandria.

Claude M. Hilton, Senior District Judge.

(1:08-cv-00278-CMH-TCB)

Argued: October 29, 2009

Decided: February 5, 2010

Before NIEMEYER and DUNCAN, Circuit Judges,

and Benson E. LEGG, United States District Judge for the

District of Maryland, sitting by designation.

Affirmed by published opinion. Judge Niemeyer wrote the

opinion, in which Judge Duncan and Judge Legg joined.

COUNSEL

Anthony J. Brady, Jr., Maple Shade, New Jersey; Barry Weintraub, Stafford, Virginia, for Appellants. Michael R. Ward,

MORRIS & MORRIS, Richmond, Virginia, for Appellee. 

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 1 of 12
OPINION

NIEMEYER, Circuit Judge:

Prior to closing on a loan to refinance their principal residence, Rita and Barry Weintraub attempted to exercise the

right to rescind given by the Truth in Lending Act, 15 U.S.C.

§ 1635(a), and demanded a refund of their $500 deposit. The

lender, Quicken Loans, Inc., refunded the balance of the

deposit after deducting the costs of a credit report and an

appraisal but refused to refund the entire $500.

The Weintraubs commenced this action, seeking a declaratory judgment that Quicken Loans violated the Truth in Lending Act, injunctive relief, compensatory and statutory

damages, and attorneys’ fees. On Quicken Loans’ motion, the

district court granted it summary judgment, holding that the

right to rescind given by § 1635(a) is available only to rescind

a consummated credit transaction. The court concluded that

because the Weintraubs elected not to go through with the

loan before closing, they were not entitled to any relief under

the Truth in Lending Act.

We agree and affirm.

I

On February 1, 2008, Rita and Barry Weintraub applied by

telephone to Quicken Loans for a $220,000 loan, payable over

30 years at a fixed rate of interest, to refinance their principal

residence, a townhouse in Stafford County, Virginia. On the

same day, Quicken Loans electronically transmitted to the

Weintraubs two documents: (1) A "Good Faith Estimate,"

based on an estimated interest rate of 5.75% and the Weintraubs’ estimated house value of $340,000; and (2) an "Interest Rate Disclosure-(Not Locked) and Deposit Agreement."

The Interest Rate Disclosure portion of this document provided:

2 WEINTRAUB v. QUICKEN LOANS

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 2 of 12
You have chosen not to "lock" the interest rate on

the above loan program. This means that your interest rate is not guaranteed for any period of time and

is subject to change without advance notice.

This document also included a Deposit Agreement requiring

the Weintraubs, as part of their application, to pay Quicken

Loans a $500 deposit for out-of-pocket expenses. The Deposit

Agreement provided:

If your application is approved: At the closing,

Lender will credit the amount of your deposit on

your closing statement toward your closing costs. If

your application is denied: Lender will refund the

deposit less the actual amount of out-of-pocket costs

incurred on your behalf for, among other items, the

cost of an appraisal and/or credit report. A conditional approval or request for additional information

is not a denial. The deposit will not be refunded if

you don’t fully cooperate in or complete the application process (including submitting all required documentation in a timely manner), choose to withdraw

your application, or choose not to close the transaction for any reason (including changing interest

rates).

Three days later, on February 4, 2008, Barry Weintraub

electronically signed the two documents. He also paid the

$500 deposit by credit card.

Quicken Loans conditionally approved the loan that the

Weintraubs requested. Among the conditions was Quicken

Loans’ receipt of a "satisfactory home appraisal."

An independent appraiser conducted an appraisal of the

Weintraubs’ home on February 7, 2008, and estimated its

value to be $308,000. This amount was $32,000 below the

$340,000 estimate that the Weintraubs had provided to

WEINTRAUB v. QUICKEN LOANS 3

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 3 of 12
Quicken Loans for use in its Good Faith Estimate. Because

this lower-than-anticipated appraisal meant that the $220,000

loan amount was greater than 70% of the townhouse’s estimated value, Quicken Loans added a half-point discount fee

to the closing costs for the loan. On February 18, Quicken

Loans provided the Weintraubs with the closing documents,

which reflected the half-point adjustment and which included

a "Federal Truth-In-Lending Statement" and "Notices of

Right to Cancel," and it scheduled closing for February 26.

The Notices of Right to Cancel provided:

You are entering into a transaction that will result in

a mortgage/lien/security interest on/in your home.

You have a legal right under federal law to cancel

this transaction, without cost, within THREE BUSINESS DAYS from whichever of the following

events occurs last:

(1) The date of the transaction, which is

February 26, 2008; or

(2) The date you received your Truth in

Lending disclosures; or

(3) The date you received this notice of

your right to cancel.

If you cancel the transaction, the mortgage/lien/security interest is also cancelled. Within

20 CALENDAR DAYS after we receive your notice,

we must take the steps necessary to reflect the fact

that the mortgage/lien/security interest on/in your

home has been cancelled, and we must return to you

any money or property you have given to us or to

anyone else in connection with this transaction.

Because Quicken Loans added the half-point discount fee

to the closing costs, the Weintraubs decided not to go through

4 WEINTRAUB v. QUICKEN LOANS

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 4 of 12
with the loan, and on February 20 they advised Quicken

Loans of their decision by sending it executed Notices of

Right to Cancel and a cover letter requesting a return of the

$500 deposit.

Quicken Loans refused to return the full $500 deposit,

referring to the Deposit Agreement, which provided that

"[t]he deposit will not be refunded if you . . . choose to withdraw your application, or choose not to close the transaction

for any reason (including changing interest rates)." Despite

this contractual language, Quicken Loans refunded $129.41 to

the Weintraubs, after deducting $350 for the cost of the

appraisal and $20.59 for the cost of obtaining a credit report.

The Weintraubs commenced this action against Quicken

Loans, alleging that Quicken Loans’ failure to provide them

with a full refund of their deposit within 20 days of receiving

an executed notice to cancel violated § 1635(b) of the Truth

in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. On

Quicken Loans’ motion, the district court granted it summary

judgment, holding that because the Weintraubs withdrew their

loan application prior to closing, the loan between the Weintraubs and Quicken Loans was never consummated and there

was no "consumer credit transaction" that could give rise to

the right to rescind. From the district court’s judgment, the

Weintraubs filed this appeal, presenting the single question of

whether the Weintraubs could rescind a loan transaction

before its closing and receive back their entire application

deposit.

II

The right to rescind, on which the Weintraubs rely, is contained in § 1635(a) of TILA, which provides:

[I]n the case of any consumer credit transaction . . .

in which a security interest . . . is or will be retained

or acquired in any property which is used as the prinWEINTRAUB v. QUICKEN LOANS 5

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 5 of 12
cipal dwelling of the person to whom credit is

extended, the obligor shall have the right to rescind

the transaction until midnight of the third business

day following the consummation of the transaction

or the delivery of the information and rescission

forms required under this section together with a

statement containing the material disclosures

required under this subchapter, whichever is later, by

notifying the creditor, in accordance with regulations

of the Board, of his intention to do so.

15 U.S.C. § 1635(a) (emphasis added). If the lender does not

deliver the disclosures to the debtor, this "right of rescission"

expires three years "after the date of the consummation of the

transaction or upon the sale of the property, whichever occurs

first." Id. § 1635(f). Once the right to rescind is properly exercised, the creditor must return to the debtor "any money or

property given as earnest money, downpayment, or otherwise" within 20 days. Id. § 1635(b).

Because the right to rescind only applies "[i]n the case of

any consumer credit transaction," the issue in this case is

whether there can be a "consumer credit transaction" giving

rise to the right to rescind before the transaction is consummated or closed.

In concluding that no "consumer credit transaction"

occurred in this case to trigger TILA’s right to rescind, the

district court noted that even though TILA does not define the

term "transaction," it does define the terms "residential mortgage transaction" and "reverse mortgage transaction," which

treat "transaction" as a consummated event. Focusing on the

effect of a "rescission" on the legal obligations of the parties,

the court concluded that only a completed credit transaction

could be eligible for rescission. See 15 U.S.C. § 1635(b). In

addition, the court relied on our cases, which hold in the context of an automobile loan that liability for improper disclosures under § 1638 of TILA does not attach until after

6 WEINTRAUB v. QUICKEN LOANS

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 6 of 12
consummation of a consumer credit transaction. See Nigh v.

Koons Buick Pontiac GMC, Inc., 319 F.3d 119, 123 (4th Cir.

2003), rev’d on other grounds, 543 U.S. 50 (2004); Baxter v.

Sparks Oldsmobile, Inc., 579 F.2d 863, 864 (4th Cir. 1978).

Finally, the court referred to the applicable provision of the

Federal Reserve Board’s Regulation Z, 12 C.F.R.

§ 226.23(a)(3), as well as the Official Staff Interpretations, 12

C.F.R. Pt. 226, Supp. I, and Rescission Model Form (General), 12 C.F.R. Pt. 226, App. H-8, to conclude that all three

conditions listed in § 1635(a)—(1) consummation of the

transaction, (2) delivery of "Notices of Right to Cancel," and

(3) delivery of TILA disclosures—had to be satisfied before

any right to rescind could arise. Thus, because the Weintraubs

never consummated their loan, they did not have the right to

rescind it under § 1635(a).

On appeal, Quicken Loans reiterates the district court’s reasoning, urging us to affirm.

The Weintraubs assert, however, that the text of § 1635(a)

does not require that a loan be consummated before the right

to rescind can arise. Moreover, they argue, because TILA is

a remedial statute, it should be construed liberally in the consumer’s favor. Quoting Black’s Law Dictionary, they employ

from the definition of "transaction" the broadest meaning to

argue that it is "[a]ny activity involving two or more persons."* Accordingly, they reason that even without consummation, a "consumer credit transaction" can exist and can be

"rescinded" anytime after two or more parties begin negotiations for a potential extension of credit. While they acknowledge that "transaction" includes a consummated agreement,

they note that it can "just as easily refer to the process o[f]

*The full definition of "transaction" given is as follows: "1. The act or

an instance of conducting business or other dealings; esp., the formation,

performance, or discharge of a contract. 2. Something performed or carried out; a business agreement or exchange. 3. Any activity involving two

or more persons. . . ." Black’s Law Dictionary 1635 (9th ed. 2009). 

WEINTRAUB v. QUICKEN LOANS 7

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 7 of 12
doing some business without regard to whether a final agreement or specific result is produced." With this reasoning, they

conclude that a "consumer credit transaction" occurred in this

case and that therefore the right to rescind the transaction, as

provided in § 1635(a), arose. Addressing the district court’s

reliance on the decisions in Baxter and Nigh, the Weintraubs

maintain that these cases do not apply to the right to rescind

created by § 1635(a) as they dealt with liability for improper

disclosures under § 1638 in the context of automobile financing.

The Weintraubs argue further that interpreting § 1635(a) to

require consummation of a transaction before the right to

rescind can arise would lead to perverse incentives and absurd

results. Specifically, they observe that requiring consummation would encourage debtors to follow through wastefully to

the closing of a transaction, even though they had earlier

determined to cancel, simply to be able to get their deposits

back. Also, lenders, recognizing that all three conditions of a

§ 1635(a) rescission must be satisfied before the right to

rescind can arise, would be inclined to withhold disclosures

so as not to trigger this right. Indeed, they suggest, requiring

that all three conditions be satisfied before the right to rescind

arises would render 15 U.S.C. § 1635(f), which limits the time

period within which a consumer can exercise the right to

rescind to three years after consummation if the lender fails

to provide disclosures, a "meaningless nullity." Because of

these perverse consequences, the Weintraubs contend that the

right to rescind must arise as soon as any one of the three conditions is satisfied. Because they received the Notices of Right

to Cancel and the TILA disclosures before they attempted to

exercise the right to rescind, two of the three conditions were

satisfied, and they therefore had the right to rescind.

We begin by addressing the applicability of Baxter and

Nigh to this case. To be sure, those decisions arose in a different context in which we were faced with the question whether

liability under § 1638 of TILA attaches prior to consumma8 WEINTRAUB v. QUICKEN LOANS

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 8 of 12
tion of a consumer credit transaction for the purchase of an

automobile. In Baxter, we began by noting that "[w]hen a

retailer arranges credit for his purchaser through a third party,

the transaction of sale becomes a ‘credit transaction’ . . . subject to the terms of the Truth in Lending Act." 579 F.2d at

864. We rejected, however, the consumer’s claim for damages

based on the lender’s violation of the disclosure provisions of

TILA because the consumer cancelled the transaction before

it was consummated. Under these circumstances, there was no

"credit transaction" to which TILA would apply. Accordingly,

we held that although the lender "was obligated to make the

proper disclosures prior to the extension of credit, . . . the

Truth in Lending Act does not impose penalty until credit is

in fact extended." Id.

In Nigh, we both followed and distinguished Baxter. The

consumer there had become obligated to complete the transaction by signing the contract documents and delivering them,

but because the lender encountered problems finding financing for the transaction, it never countersigned them. Nigh, 319

F.3d at 122. In determining whether the consumer could

obtain damages for false statements made during the course

of negotiations, we noted that "TILA liability . . . cannot

accrue until a credit transaction is consummated, or put

another way, ‘until credit is in fact extended,’ since until

credit is extended to a person in a particular transaction there

are no credit terms against which to assess a disclosure’s

accuracy." Id. at 123 (quoting Baxter, 579 F.3d at 864). But

because the consumer there had become contractually obligated on the credit transaction, we held that Baxter was satisfied, even though the transaction had not been formally

consummated. Id. at 124.

Although Baxter and Nigh both dealt with TILA liability

under § 1638 for improper disclosures in connection with

consumer credit transactions relating to the purchase of an

automobile, we believe that the principle that a credit transaction must be consummated to trigger TILA liability applies

WEINTRAUB v. QUICKEN LOANS 9

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 9 of 12
with equal force to the right to rescind created by § 1635(a).

Rather than dealing exclusively with some aspect of TILA

unique to § 1638 or to the automobile context, these cases

stand for the broader principle that only when a loan has been

consummated does a "credit transaction" exist that gives rise

to liability under TILA. Because "credit transaction" is a term

used in both § 1635 and § 1638, indeed throughout TILA, we

think that Baxter and Nigh are relevant to understanding what

constitutes a "transaction" that may, under § 1635(a) of TILA,

be rescinded. Thus, we conclude, no "consumer credit transaction" exists for which the right to rescind can be exercised

until that transaction has been consummated, "or put another

way, ‘until credit is in fact extended.’" Nigh, 319 F.3d at 123

(quoting Baxter, 579 F.2d at 864).

Apart from Baxter and Nigh, the language and operation of

§ 1635(a) supports our conclusion that the right to rescind

under § 1635(a) can only arise when a transaction has been

consummated. Section 1635(a) creates a right "to rescind the

transaction." (Emphasis added). The term "transaction," while

not separately defined, is included as part of two other defined

terms, each of which presupposes that the "transaction" must

be consummated. A "residential mortgage transaction,"

defined in § 1602, is "a transaction in which a mortgage, deed

of trust, purchase money security interest arising under an

installment sales contract, or equivalent consensual security

interest is created or retained against the consumer’s dwelling

to finance the acquisition or initial construction of such dwelling." 15 U.S.C. § 1602(w) (emphasis added). Similarly, a "reverse mortgage transaction," also defined in § 1602, is "a

nonrecourse transaction in which a mortgage, deed of trust, or

equivalent consensual security interest is created against the

consumer’s principle dwelling . . . ." Id. § 1602(bb) (emphasis

added). Both definitions treat "transaction" as a consummated

event, indicating that any credit transaction under § 1635(a)

must be consummated for the right to rescind to attach.

Moreover, while the Weintraubs have relied on the broad

definition of "transaction" taken from Black’s Law Dictio10 WEINTRAUB v. QUICKEN LOANS

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 10 of 12
nary, they have failed to account for the alternative definition

geared more toward business contexts. See Black’s Law Dictionary, 1635 (9th ed. 2009) (defining "transaction" in the

business context as "[s]omething performed or carried out; a

business agreement or exchange"). In a business context

where goods, services, or funds are to be exchanged, one

would hardly conclude that he had entered into a transaction

without actually performing the exchange.

Similarly, a commonsense reading of the text of § 1635(a)

also suggests that "transaction" refers to a consummated,

binding agreement, rather than to the whole course of the parties’ interactions. The right to rescind a transaction defined as

the whole course of interactions between the parties would

essentially be meaningless—there would often be nothing to

rescind. Surely, what Congress intended instead was to give

debtors a limited right to back out of binding loan obligations

about which they were having second thoughts. But until a

loan is consummated, the consumer has incurred no obligation from which he would need a statutorily created right to

back out. Moreover, there is nothing to indicate that Congress

intended the Weintraubs’ construction, which would, in

effect, give potential borrowers a right to a "free application"

for home financing, requiring lenders to bear the costs of

credit reports and appraisals regardless of whether the borrower intended to proceed to a closing of the transaction.

Finally, our conclusion is consistent with the interpretation

of TILA advanced by the Board of Governors of the Federal

Reserve System in Regulation Z, 12 C.F.R. Pt. 226, which is

entitled to deference. See Household Credit Servs., Inc. v.

Pfenning, 541 U.S. 232, 238-39 (2004). In addition to reiterating the statutory right of rescission, Regulation Z provides

that "[w]hen a consumer rescinds a transaction," the

"[e]ffect[ ] of rescission" is to render void "the security interest giving rise to the right of rescission." 12 C.F.R.

§ 226.23(d) (emphasis added). The object of rescission is thus

presumed to be a transaction creating a security interest in

WEINTRAUB v. QUICKEN LOANS 11

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 11 of 12
the consumer’s property. Likewise, the discussion in the Official Staff Interpretations of the relevant section of Regulation

Z also presumes a completed transaction when stating that

"[i]n order for the right of rescission to apply, the security

interest must be retained as part of the credit transaction." 12

C.F.R. Pt. 226, Supp. I (interpreting 12 C.F.R. § 226.23(a)(1))

(emphasis added). This language further suggests that the

right to rescind a transaction creating a security interest can

only arise from a consummated transaction, because only

upon consummation of the transaction is the security interest

retained.

While the Deposit Agreement in this case, pursuant to

which the Weintraubs paid Quicken Loans the $500 deposit,

was undoubtedly a "transaction" entered into before consummation of the credit transaction, TILA would certainly not

apply to that transaction because it did not involve an extension of credit. See Baxter, 579 F.2d at 864. Moreover, because

the Weintraubs withdrew their application before the loan was

consummated, the right to rescind given by § 1635(a) never

arose, and Quicken Loans was therefore not obligated by

§ 1635(b) to return the full value of the deposit when the

Weintraubs attempted to exercise the right.

In sum, we follow the definition of "credit transaction"

established in Baxter and Nigh, and hold that a consumer cannot exercise the right to rescind created by § 1635(a) until

after consummation of a consumer credit transaction. Accordingly, the judgment of the district court is affirmed.

AFFIRMED

12 WEINTRAUB v. QUICKEN LOANS

Appeal: 08-2373 Doc: 41 Filed: 02/05/2010 Pg: 12 of 12