“An obligor‘s right to rescind a loan pursuant to TILA ―expire[s] three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first.‖ 15 U.S.C. § 1635(f). According to the most natural reading of the statutory language, an obligor must send valid written notice of rescission before the three years expire. Because the statute says nothing about filing a suit within that three-year period, we hold that the District Court erred as a matter of law when it dismissed the Sherzers‘ complaint as untimely. Accordingly, we will reverse the judgment of the District Court and remand for further proceedings consistent with this opinion.”
Court Decision Gives Lenders A Headache, Borrowers An Ace In The Hole
A recent decision by the Third Circuit Court of Appeals gives borrowers an indefinite period to rescind their home-equity loans, complicating life for lenders and setting up a conflict that may have to be resolved at the Supreme Court.
Home buyers normally have three days to rescind a loan, and after that mortgages to purchase a property can’t be reversed. But federal law allows other types of loans to be rescinded for up to three years if the borrower can prove violations of the Truth in Lending Act, such as an inaccurate interest rate or undisclosed finance charges. If they prevail — and have enough cash to repay the loan principal — borrowers can get a refund of their interest and fees. Most courts, including the Ninth Circuit Court of Appeals, have held that borrowers who want to do this also must sue the bank within the three-year deadline.
But the Third Circuit, in Sherzer vs. Homestar, ruled that borrowers only have to send a letter of notice to the bank. They can sue whenever they want after that, leaving a potential cloud on the lender’s claim against the property that can only be resolved if the lender gets a declaratory judgment denying the recission. The ruling released Tuesday follows a similar decision by the Fourth Circuit and gives borrowers another tactic for delaying lenders that want to seize the collateral backing their loan.
“If you’re having trouble making payments and worried about foreclosure, you could fire off letter to the lender saying you believe there was a material TILA violation,” said Martin Bryce Jr., a partner with Ballard Spahr in Philadelphia. “Then you get to sit back and hold that in your pocket.”
Check out the rest here…
Copy of the decision below…
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