Statute of Limitations on TILA Rescission: How long does the debt survive after notice of TLA rescission?

Posted on August 23, 2018 by Neil Garfield

The simple answer is that the debt, or the claim on the debt, ends 20 days after notice of rescission. Otherwise the statute 15 U.S.C. §1635 and SCOTUS would have had no meaning when it says that the rescission is effective by operation of law at the time the notice is delivered. It provides a  very short window for “lender’s” compliance.

In reality, I have referred to a one year limitation because the courts are trying to mitigate the punitive intent of the TILA rescission statute. 15 U.S.C. §1640(e) basically leans toward a one year limitation for borrower’s claims against “lenders” based upon disclosure which is what TILA rescission is all about.

The borrower has every right to force compliance and get a court order requiring (a) return of canceled note (b) filing a release and satisfaction of the encumbrance and (c) payment of money to the borrower — but they have no such right after one year has expired starting with the date of the notice or date of delivery.

Employing analysis based upon the goose and the gander, it would follow that the one year limitation would also apply to “lenders” seeking payment from the borrower based upon the statutory requirement that the borrower pays the debt.

If this analysis was adopted as doctrine it would create a window of opportunity for a lender in violation of the three statutory duties under TILA rescission to cure the violation and bring the claim for repayment. This interpretation would be contrary to the wording and intent of the TILA rescission statute — as it would cloud the purpose of the statute — to enable borrowers to get out of the deal they are in and seek a new deal instead. Nobody would lend to the borrower if there was a risk that they might still owe money to a prior lender, even though the law makes the debt unsecured. Nonetheless it is entirely possible that the courts will invent such a doctrine. 

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Any borrower claim based upon a remedy in the TILA statutes has a one year limitation. In TILA rescission, the claim for the debt arises not from the note and mortgage which are void, but from 15 USC §1635. The statute replaces the contract. The “lender” has a claim to collect the debt under that statute. But they must first comply with their three statutory duties before they can demand and then enforce collection of the debt. The debt can be satisfied by tendering title to the home. But a part of the debt is easily satisfied by the payment to the borrower from the Lender.

The confusion arises from the fact that statutory rescission is different from common law rescission. Common law rescission puts tendering payment on the debt first, whereas statutory rescission puts payment of the debt last.
In TILA Rescission, while there is no express limitation provision as to the ability of the lender to collect on the debt, they can never collect the debt unless, within 20 days, they have complied with the three duties set forth in the statutory scheme for statutory rescission. After that they are barred from enforcing the debt. It is intended to be punitive to encourage “lenders” to comply with disclosure requirements.
Theoretically then, they can never collect the debt because they never comply with the three duties that are condition precedent to seeking payment on the debt. So academically speaking the “lender” is barred after 20 days. But realistically the language of the statute leans heavily to one year for claims arising from TILA and that includes rescission although the statute doesn’t say that expressly.
So I have taken the position that they are barred after 20 days from ever expressing a claim on the debt or, if one wants to “interpret” the statute (against the advice of SCOTUS in Jesinoski) the limitation would be one year from the date of rescission or from the last day that “lender” compliance was due. That interpretation would mean, though, that the “lender” had complied with its duties under statutory rescission 15 U.S.C. § 1635.
Lastly there is another academic thread that would state that there is no limitation on the right of the lender to collect the debt as long as they complied with the statute even if it was outside of the 20 day period. This conclusion seems unlikely as it would change the wording in 15 U.S.C. §1635 and render lender’s compliance practically irrelevant. It would insert language into the statute that would mean that the rescission was not effective when mailed and there was nothing the borrower could do about that.

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4 Responses

  1. legisman, on August 24, 2018 at 4:28 pm said:

    Garfield continues to misinterpret the law, which is clearly detrimental to anyone following his posts. There have been several hundred post Jesinoski losses, and in almost everyone are the arguments that I have seen Garfield promote:

    “[A] foreclosure court has the discretion to deny rescission under TILA if the defendant cannot tender the balance of his or her loan.” US Bank Nat’l Ass’n v. Guillaume, 209 N.J. 449, 483 (2012). Defendants argue that the United States Supreme Court has recently ruled to the contrary. Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. ___, 135 S. Ct. 790 (2015). The Supreme Court ruled that a homeowner must notify the lender in writing of rescission within three years, but need not sue within that time period. Jesinoski, 574 U.S. ___, 135 S. Ct. at 792. The Court stated that tender of the loan is not necessary for the borrower to exercise his or her right to rescind. Id. at 793. THE UNITED STATES SUPREME COURT ONLY REACHED “THE NARROW ISSUE OF WHETHER [DEBTORS] HAD TO FILE A LAWSUIT TO ENFORCE A RESCISSION” OR “MERELY DELIVER A RESCISSION NOTICE WITHIN THREE YEARS OF THE LOAN TRANSACTION,” and “nothing in the Supreme Court’s opinion . . . would override TILA’s tender requirement”. Jesinoski v. Countrywide Home Loans, Inc., 196 F. Supp. 3d 956, 962 (D. Minn. 2016), aff’d, Jesinoski v. Countrywide Home Loans, Inc., No. 16-3385, 2018 U.S. App. LEXIS 4974 (8th Cir. Feb. 28, 2018).

    JESINOSKI ALSO DID NOT TAKE AWAY A COURT’S DISCRETION TO MODIFY THE RESCISSION PROCEDURES. See 15 U.S.C. § 1635(b) (stating that the rescission “procedures prescribed by this subsection shall apply except when otherwise ordered by a court”) (emphasis added); see also 12 C.F.R. 226.23(d)(4) (stating that the rescission “procedures outlined in paragraphs (d)(2) and (3) of [§ 226.23] may be modified by court order”) (emphasis added).

  2. David Seal, on August 24, 2018 at 1:51 pm said:

    Always leaves out the 3 day / 3 year and the SOL for filing suit to enforce the rescission.

  3. CementBoots, on August 23, 2018 at 4:25 pm said:

    Neil – what is the latest word on SCOTUS cases you previously mentioned were in process asking for Cert. on what to do with state & fed judges who spit on the High Court?

  4. louise, on August 23, 2018 at 2:15 pm said:

    Too bad that neither the judges nor the courts recognize TILA rescission which means, IMHO, they are rigged and money is changing hands.

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