that an attempt to rescind a mortgage loan made more than three years
after the borrowers received the mortgage was untimely, and held that the
borrower's earlier alleged attempt at rescission within the three-year
period was inadequate, as it was not a written communication that clearly
stated that the borrower was rescinding the loan.
A copy of the opinion is available at:
The borrowers defaulted on their mortgage loan, and the investor
instituted a foreclosure action. In the course of settlement
negotiations, the borrowers frequently alleged TILA violations, and
threatened to rescind the subject Note and Mortgage. In one letter, the
borrowers included an unfiled counterclaim, which stated that "[t]he
borrowers, by the filing of this action, elect to rescind the subject
transaction." The borrowers provided the investor's counsel with this
unfiled counterclaim within three years of receiving their mortgage.
The borrowers filed their counterclaim "exactly three years and one day"
after they entered into the loan agreement. In addition to attempting to
rescind the loan, the borrowers' counterclaim sought damages under TILA.
The lower court dismissed the counterclaim on the basis that it was
The borrowers appealed, contending among other things that (1) that their
election to rescind was timely; and (2) even if it was not, the election
should survive under a "right of rescission in recoupment under state
As you may recall, TILA provides that "[a]n obligor's right of rescission
shall expire three years after the date of the consummation of the
transaction." 15 U.S.C. Sec. 1635(f) (2006). TILA's implementing
regulation provides that "[t]o exercise the right to rescind, the consumer
shall notify the creditor of the rescission by mail, telegram, or other
means of written communications." 12 C.F.R. Sec. 226.23(a)(2) (2006).
The Court began its analysis by noting that the Supreme Court held that
TILA "completely extinguish[es] the right of rescission at the end of the
three year period." Beach v. Ocwen Federal Bank, 523 U.S. 410, 412-14
Finding that holding unambiguous, the Court turned its attention to the
manner in which a borrower must provide notice to the creditor under TILA,
which it found to be an issue of first impression in Illinois. Based on
the plain language of TILA and its implementing regulation, the Court held
that TILA "requires that the written communication clearly state that the
borrower is rescinding the mortgage in the present; it nowhere speaks of
merely notifying the creditor of an intention to rescind at some
unspecified point in the future."
Under the facts at issue here, the Court observed that none of the
borrowers' communications contained an unqualified statement of the
borrowers' intention to rescind the loan. In particular, the borrowers'
counterclaim stated that the borrowers' intended to rescind the loan "by
the filing of this counterclaim."
However, the counterclaim was not timely filed. Therefore, the Court held
that the borrowers "failed to rescind their loan within the three-year
statute of repose" imposed by TILA.
The Court next examined the borrowers' contention that they should be
allowed to proceed under a "defense in recoupment" per Illinois law. The
Court found that a recent decision held that "Illinois law.does not
authorize an action in recoupment in defense of foreclosure actions
brought outside of the three-year requisite period." Wells Fargo Bank,
N.A. v. Terry, 401 Ill App 3d 18 (2010) ("Terry").
In Terry, the court held that under Illinois law, the right of rescission
would only survive the expiration of the three-year period if the relevant
portion of TILA were a statute of limitations. Id. at 21.
However, the U.S. Supreme Court in Beach v. Ocwen held that TILA is a
statute of repose. See Beach v. Ocwen, 523 U.S. at 417. Therefore, the
Court held that the borrowers' argument failed, and their rescission claim
was properly dismissed.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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