The Illinois Appellate Court for the First District recently confirmed 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 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 untimely.
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 Law."
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 (1998).
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.
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