United States District Court, Northern District of Illinois, Eastern Division
July 19, 2000
AFS FINANCIAL, INC., PLAINTIFF,
HEADLEE LANE BURDETTE AND SUSAN ANNE BURDETTE, DEFENDANTS.
The opinion of the court was delivered by: Moran, Senior District Judge.
MEMORANDUM OPINION AND ORDER
Defendants obtained a mortgage loan from plaintiff, the proceeds to go
largely to pay off two outstanding mortgages. They rescinded the
transaction in apt time, pursuant to 15 U.S.C. § 1635 (b), but, after
the three days had run but before plaintiff received the rescission
notice in the due course of mail, it disbursed the funds, $125,590.96, to
satisfy those mortgages. Plaintiff now seeks to recover the $125,590.96
as a condition of rescission, prior to relinquishing its security
interest, and also seeks recovery for alleged unjust enrichment because
defendants have had the benefit of the amount disbursed since
approximately October 18, 1999. Plaintiff moves for summary judgment. That
motion is granted to the extent described below.
It is now well settled that a court. in the exercise of its equitable
discretion, as confirmed by the last sentence of § 1635(b), can
condition rescission upon tender of the amounts previously advanced,
leaving the security interest in place until the tender is made. Williams
v. Homestake Mortgage Co., 968 F.2d 1137, 1142 (11th Cir. 1992); FDIC v.
Hughes Development Co., Inc., 938 F.2d 889, 890 (8th Cir. 1991), cert.
502 U.S. 1099, 112 S.Ct. 1183, 117 L.Ed.2d 426 (1992); Brown v. National
Permanent Federal Savings and Loan Association, 683 F.2d 444, 449
(D.C.Cir. 1982); Powers v. Sims and Levin, 542 F.2d 1216, 1222 (4th Cir.
1976). That discretion has been recognized in this district as recently
as a few months ago in Clay v. Johnson, 77 F. Supp.2d 879, 890-91
Defendants do not dispute the existence of that discretion, but they
contend that its exercise on behalf of the plaintiff here is
inappropriate, particularly at the summary judgment stage. They point out
that the cases conditioning rescission upon repayment generally involve
rescission long after the loan has been made, and here they rescinded
before the funds should have been disbursed. The fact remains, however,
that the defendants have had and will continue to have the benefit of
those funds until they are repaid. We are advised of the efforts
plaintiff has made to make its mortgage loan more attractive, but
defendants have continued to refuse to enter into any kind of arrangement
with plaintiff or anyone else.
We conclude that the equities lead to a requirement that the amounts be
repaid before the security interest is relinquished. At the same time we
recognize that the present situation arises from plaintiff's improperly
premature disbursements. In those circumstances we direct the plaintiff to
reinstate its last proposed terms, the defendants within sixty days
either to accept that proposal or to tender $125,590.96 to plaintiff, and
plaintiff to relinquish its security interest if the principal amount is
Finally, we do not believe plaintiff can prosecute an unjust enrichment
claim in light of the Truth in Lending Act, but we can, in conditioning
rescission, recognize that defendants have had the benefit of the funds
for many months. When plaintiff disbursed the funds it created a problem
for defendants — should they refinance with plaintiff or should
they seek to refinance elsewhere? That obviously required some
consideration, but certainly by the end of 1999 defendants should have
done what this court now directs them to do. We therefore further
condition rescission on payment to plaintiff of eight per cent interest
on the outstanding balance from and after January 1, 2000, either by an
add-on to a mortgage with plaintiff or by an increase in the amount
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