As discussed previously Minnesota Litigator nearly a year ago, Margaret Coleman was enticed into a bad deal — a high interest loan secured by a mortgage on her house — except that Coleman had a viable claim against the lender for a violation of the Truth in Lending Act (“TILA”). In the original December, 2009 post, however, Minnesota Litigator highlighted the next challenging step in Coleman’s lawsuit against First Commercial Bank and others: how do you rescind or unwind a three year-old loan when the borrower used almost all of the loan proceeds to pay off other debt and the security in the home has been voided?
U.S. District Court Judge Patrick J. Schiltz (D. Minn.), along with some fairly cutting criticism of the defendant lender and/or its counsel for conduct during the litigation and for legal arguments bordering on frivolous or absurd (and praise for Coleman’s Legal Aid lawyers), has tried his hand at resolving this intractable problem in a bold stroke.
The problem, in a nutshell, is this: Coleman obtained a $180,000 loan (“the problem loan”), she paid off $125,000 of preexisting debt, she turned around and made some payments on the problem loan with the loan proceeds themselves, and she does not have the +/- $161,000 she would have to tender in order to have a rescission (an “unwinding” of the original transaction to put the parties back where they were “as if there never had been a loan”). (Coleman does not have to come up with the whole $180,000 because of payments she made on the loan and statutory damages.)
Judge Schiltz’s answer, perhaps ironically, is that Coleman should have to pay back the money, over time, secured by a mortgage on her home — that is, not so much a rescission as a novation (status quo alter vs. status quo ante?).
(The lender, incidentally, was made to pay $90,000 in Coleman’s attorneys’ fees, even though she was represented pro bono by Legal Aid.)