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‘Notice’ triggers TILA rescission right

Lawyers who represent consumers notched a win last week in the 4th U.S. Circuit Court of Appeals, in a case says they don’t have to hustle to court as fast as they thought.

Homeowners facing foreclosure on refis have had some modest success with claims under the Truth in Lending Act. But there’s a three-year window on a borrower’s right to rescind a refinancing loan for certain kinds of TILA violations.

In order to invoke their rescission right, buyers have to file a TILA lawsuit, Virginia federal courts have ruled.

But last week the 4th Circuit said an owner’s letter to a lender was enough to trigger the right to rescind. They remanded Rex and Daniela Gilbert’s suit on their $525,000 loan for their home in Okracoke, N.C. After the Gilberts defaulted on their loan, a substitute trustee filed a foreclosure action. The Gilberts’ lawyer sent a letter to GMAC Mortgage LLC alleging TILA violations and notifying GMAC the owners were rescinding their mortgage transaction. GMAC refused to rescind the transaction and the Gilberts’ state court lawsuit was removed to, and dismissed by, a federal court.

The 4th Circuit acknowledged a split of authority on whether a borrower had to file a lawsuit – or just provide notice – within three years of closing a loan in order to rescind the transaction under the TILA.

“Neither 15 U.S.C. § 1635(f) nor Regulation Z says anything about the filing of a lawsuit, and we refuse to graft such a requirement upon them,” wrote Judge Henry F. Floyd in the court’s published opinion in Gilbert v. Residential Funding LLC (VLW 012-2-101). The panel remanded the TILA claim along with the owners’ claims under North Carolina state law.
–Deborah Elkins

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