No Trigger from TILA Rescission Notice

An Alexandria U.S. District Court denies reconsideration of its earlier dismissal of plaintiff borrower’s suit under the Truth in Lending Act as time-barred because filed outside the TILA’s three-year statute of repose [VLW 011-3-463]; the court’s earlier decision correctly dismissed the TILA wrongful failure-to-rescind-claim because that claim, based on the erroneous premise that a borrower’s notice to a lender of intent to rescind triggers the lender’s duty to effect rescission, fails to state a claim on which relief can be granted.

When the statutorily prescribed rescission process is traced from beginning to end, it becomes quite clear that the borrower’s notice of intent to rescind, by itself, imposes no duties to rescind on the lender under 15 U.S.C. § 1635(b). Only after a court recognizes that the borrower is entitled to rescission does § 1635(b) impose any affirmative obligation on a lender. It follows that a cause of action in damages for a lender’s failure to effect rescission does not accrue where, as here, a borrower has sent the lender a notice of intent to rescind, but no court has yet ruled that he is entitled to rescission.

Although there is no controlling circuit precedent, analogous circuit authority firmly supports the result reached here, namely, that a borrower’s notice to the lender of his intent to rescind does not automatically trigger the lender’s obligation to effect rescission. In light of the 4^th Circuit’s reasoning in Am. Mortg. Network Inc. v. Shelton, 486 F.3d 815 (4^th Cir. 2007), it cannot be that a borrower’s notice of intent to rescind is at once insufficient to render the security interest void (as the 4^th Circuit held), and yet also sufficient to require that the lender void the security interest on its own (as plaintiff argues). Several district court decisions in this circuit and elsewhere accord with the result reached here, namely, that mere notice of intent to rescind does not obligate a lender under § 1635(b) to effect rescission. Other courts have recognized a contrary result, although much of this disagreement appears in unpublished decisions. Most courts of appeals that have reached such a contrary result have done so only in dicta, but the 1^st Circuit has squarely held, as a matter of first impression in that circuit, that a lender’s failure to effect rescission within 20 days of receiving a borrower’s notice of intent to rescind is actionable under § 1635(b).

Because § 1635(b) does not trigger a lender’s obligation to rescind simply by reason of the lender’s receipt of a borrower’s notice of intent to rescind, it is plain that plaintiff failed to state a claim that any defendant violated § 1635(b) at any point. Dismissal of his claim was proper and his motion to reconsider is denied.

Bradford v. HSBC Mtge. Corp. (Ellis) No. 1:09cv1226, March 5, 2012; USDC at Alexandria, Va. VLW 012-3-102, 17 pp.