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REAL ESTATE LAW BLOG Dont Lose Your Rescission Rights under the Truth in Lending Act: District Court Holds that Timely Notice of Mortgages Rescission Does Not Toll the Time to Legally Enforce Rights

Filed under: right of rescission, Truth in Lending Act, mortgage disclosures, 15 U.S.C. 1635

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03/01/2011 12:26:00 PM EST

Dont Lose Your Rescission Rights under the Truth in Lending Act: District Court Holds that Timely Notice of Mortgages Rescission Does Not Toll the Time to Legally Enforce Rights
Posted by Travis Burchart

Recently, a Colorado district court held that the timely filing of a 15 U.S.C. 1635 notice of rescission will not toll the time limit for a mortgagee to sue on his rescission rights. In Barry v. Countrywide Home Loans, F.S.B., 2011 U.S. Dist. LEXIS 12519 (D. Colo. Feb. 8, 2011) [enhanced version available to lexis.com subscribers], the court expanded upon the Supreme Court's decision in Beach v. Ocwen Fed. Bank, 523 U.S. 410 (U.S. 1998) [enhanced version / unenhanced version available from lexisONE Free Case Law], which held that a borrower could not assert 1635's right to rescind as an affirmative defense after 1635(f)'s 3-year period had expired. In Barry, the mortgagees consummated a home equity line of credit on June 25, 2007, and on June 25, 2010, they sent a written notice of rescission to the mortgagor, claiming that the mortgagor had violated the disclosure requirements of the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq. Thus, the notice of rescission was timely under 1635(f)'s 3-year period. On June 28, 2010, the mortgagees filed an action against the mortgagor, seeking a declaration that their transaction had been rescinded and requesting an injunction preventing the mortgagor from foreclosing on their residence. The question before the court was whether a party who had timely filed a notice of rescission may then file a

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claim to enforce the right of rescission after the expiration of the statutory period of repose. Though the Tenth Circuit had not addressed the issue, the court noted that in Rosenfield v. HSBC Bank, USA, 2010 U.S. Dist. LEXIS 90218 (D. Colo. Aug. 31, 2010) [enhanced version], a case in which the borrower had given notice of rescission before the expiration of the right to rescind but filed her claim to enforce the right after the three year deadline, the district court had held that the right to rescind "must both be invoked and sued upon within the three-year period . . . ." The court noted that this was consistent with the Supreme Court's decision in Beach. Although the facts of that case were distinguishable, the court underscored Beach's strong assertion that an obligor's right of rescission was "completely" extinguished after three years. The court went on to hold that: The majority of courts considering the operation of 1635(f) in similar circumstances have reached a similar conclusion: 1635(f) is a statute of repose which, without exception, extinguishes any right to rescind three years after a transaction has been consummated. Although at least one court has found that a Plaintiff may toll the TILA's statute of repose by filing a timely Notice of Rescission, I find this result inconsistent with the clear language of the statute. The right to exercise the right of rescission expires three years after the consummation of the transaction. As another court considering this issue has noted, "the right to rescission is not actually 'exercised' until the lender recognizes that rescission is available or a court declares it so." Plaintiffs' timely mailing of their Notice of Rescission does not constitute a timely "exercise" of their right to rescission. (citations omitted) For a better understanding of these issues, read:

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