An Illinois appellate court recently confirmed that the right to rescind under TILA expires three years after the closing of a mortgage loan, notwithstanding a state law rule limiting statute of limitations defenses for counterclaim. A copy of the opinion is attached.
The borrower entered into an adjustable rate note and mortgage with Option One Mortgage Corporation in 2002. The borrower claimed that the HUD settlement statement from closing indicated $3,720 in fees that did not appear on the federal Truth in Lending Disclosure statement. The mortgage was assigned to Wells Fargo N.A., as trustee after closing. In April 2007, Wells Fargo initiated foreclosure proceedings. The borrower's affirmative defense, counterclaim, and third-party complaint, filed in January 2008, all sought rescission under TILA. The lower court granted the foreclosing plaintiff's motion to dismiss the TILA rescission counterclaim and affirmative defense, finding that the borrower's "right of rescission had expired."
On appeal, the appellate court agreed with the lower court. At issue in this case was 15 U.S.C. 1635(f), which states that a borrower's "right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of property, whichever occurs first," and 15 U.S.C. 1635(i)(3), which allows that "[n]othing in this subsection affects a consumer's right of rescission in recoupment under State law."
Trying to take advantage of a perceived lack of clarity in the U.S. Supreme Court's Beach v. Ocwen ruling, the borrower argued that, under 15 U.S.C. 1635(i)(3), her "right of rescission in recoupment under State law survives," and that her rescission claim was timely because, under Illinois law, a defendant may plead a counterclaim otherwise barred by the statute of limitations under certain circumstances.
However, the appellate court held that "section 1635(f) is a statute of repose, not a statute of limitations," and "TILA permits no federal right to rescind, defensively or otherwise, after the 3-year period of § 1635(f) has run." The appellate court held that the borrower would have to point to an Illinois law that provides a rescission in recoupment right in this action. However, the borrower, "failed to identify a statute, case, or any other source of Illinois law that might afford her a right of rescission in recoupment." Therefore, the appellate court determined that the borrower's claim was barred because it was not filed within three years of obtaining the mortgage loan, and Illinois law provides no independent right of rescission in recoupment.
Ralph T. Wutscher
Kahrl Wutscher LLP
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