The U.S. Supreme Court recently held that a borrower exercising his right to rescind under the federal Truth in Lending Act only needs to provide written notice to the lender within the 3-year period under 15 U.S.C. 1635(f), and does not need to file a lawsuit within that period in order to exercise the right to rescind.
A copy of the opinion is available at: http://www.supremecourt.gov/opinions/14pdf/13-684_ba7d.pdf
On February 23, 2007, the borrowers refinanced the mortgage on their home. Exactly 3 years later, on February 23, 2010, the borrowers mailed a letter attempting to rescind the loan.
The lender responded to the rescission letter on March 12, 2010, refusing to accept the rescission as valid. The borrowers filed suit in U.S. District Court on February 24, 2011, four years and one day after the loan closed, seeking a declaratory judgment of rescission and damages under the federal Truth in Lending Act.
The District Court entered judgment on the pleadings for the lender, ruling that a borrower must file suit within 3 years of the date the loan was consummated in order to exercise his right to rescind the loan under TILA, 15 U.S.C. 1635(a) and (f). The Eighth Circuit Court of Appeals affirmed, and the borrowers appealed to the U.S. Supreme Court.
The U.S. Supreme Court ruled that the Eighth Circuit’s reliance on Kieran v. Home Capital, 720 F. 3d 721, 727-728 (2013), which held that unless a borrower has filed suit for rescission within 3 years of the transaction’s consummation, section 1635 (f) extinguishes the right to rescind and bars relief, was error.
The Court then turned to 15 U.S.C. 1635(a), which explains how the right to rescind needs to be exercised. Relying on the statutory text that a borrower has the right to rescind “by notifying the creditor, in accordance with regulations of the Board, of his intention to do so”, the Court held that as long as the borrower gives written notice within 3 years after the transaction was consummated, rescission under TILA is timely and the statute does not also require the borrower to sue within 3 years.
Turning to TILA section 1635(f), the Court clarified that it governs when the right to rescind must be exercised, but says nothing about how the right is exercised.
Reversing the Eighth Circuit’s judgment and remanding the case for further proceedings, the U.S. Supreme Court concluded that because the borrowers mailed their written notice of intent to rescind within 3 years after their loan was consummated, that is all they needed to do to exercise the right under TILA and the trial court erred in dismissing the complaint.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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