PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
RITA WEINTRAUB; BARRY
WEINTRAUB,
Plaintiffs-Appellants,
v. No. 08-2373
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 Wein-
traub, Stafford, Virginia, for Appellants. Michael R. Ward,
MORRIS & MORRIS, Richmond, Virginia, for Appellee.
2 WEINTRAUB v. QUICKEN LOANS
OPINION
NIEMEYER, Circuit Judge:
Prior to closing on a loan to refinance their principal resi-
dence, 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 declara-
tory judgment that Quicken Loans violated the Truth in Lend-
ing 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 Wein-
traubs’ estimated house value of $340,000; and (2) an "Inter-
est Rate Disclosure-(Not Locked) and Deposit Agreement."
The Interest Rate Disclosure portion of this document pro-
vided:
WEINTRAUB v. QUICKEN LOANS 3
You have chosen not to "lock" the interest rate on
the above loan program. This means that your inter-
est 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 condi-
tional 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 applica-
tion process (including submitting all required docu-
mentation in a timely manner), choose to withdraw
your application, or choose not to close the transac-
tion 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
4 WEINTRAUB v. QUICKEN LOANS
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 esti-
mated 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 BUSI-
NESS 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 mort-
gage/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
WEINTRAUB v. QUICKEN LOANS 5
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 with-
draw 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 Wein-
traubs 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 con-
tained 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 prin-
6 WEINTRAUB v. QUICKEN LOANS
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 exer-
cised, the creditor must return to the debtor "any money or
property given as earnest money, downpayment, or other-
wise" 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 consum-
mated 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 mort-
gage 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 con-
text of an automobile loan that liability for improper disclo-
sures under § 1638 of TILA does not attach until after
WEINTRAUB v. QUICKEN LOANS 7
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 (Gen-
eral), 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 rea-
soning, 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 con-
sumer’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 per-
sons."* Accordingly, they reason that even without consum-
mation, a "consumer credit transaction" can exist and can be
"rescinded" anytime after two or more parties begin negotia-
tions for a potential extension of credit. While they acknowl-
edge 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 car-
ried out; a business agreement or exchange. 3. Any activity involving two
or more persons. . . ." Black’s Law Dictionary 1635 (9th ed. 2009).
8 WEINTRAUB v. QUICKEN LOANS
doing some business without regard to whether a final agree-
ment 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 financ-
ing.
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 consumma-
tion 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 con-
ditions 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 differ-
ent context in which we were faced with the question whether
liability under § 1638 of TILA attaches prior to consumma-
WEINTRAUB v. QUICKEN LOANS 9
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’ . . . sub-
ject 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 transac-
tion by signing the contract documents and delivering them,
but because the lender encountered problems finding financ-
ing 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 obli-
gated on the credit transaction, we held that Baxter was satis-
fied, 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 transac-
tion must be consummated to trigger TILA liability applies
10 WEINTRAUB v. QUICKEN LOANS
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 trans-
action" 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 dwell-
ing." 15 U.S.C. § 1602(w) (emphasis added). Similarly, a "re-
verse 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 Dictio-
WEINTRAUB v. QUICKEN LOANS 11
nary, they have failed to account for the alternative definition
geared more toward business contexts. See Black’s Law Dic-
tionary, 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 par-
ties’ 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 obliga-
tion 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 bor-
rower 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 reiterat-
ing 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 inter-
est 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
12 WEINTRAUB v. QUICKEN LOANS
the consumer’s property. Likewise, the discussion in the Offi-
cial 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 consum-
mation of the credit transaction, TILA would certainly not
apply to that transaction because it did not involve an exten-
sion 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 can-
not exercise the right to rescind created by § 1635(a) until
after consummation of a consumer credit transaction. Accord-
ingly, the judgment of the district court is affirmed.
AFFIRMED