- Gilbert v. Residential Funding LLC, Case No. 10-2295 (4th Cir., May 3, 2012)
- A lawsuit seeking rescission of a mortgage loan is timely under the Truth in Lending Act where the consumer provided notice of rescission to the subservicer within three years of closing but did not file suit until after the three-year deadline under the TILA had passed. The Fourth Circuit rejected the subservicer's reliance on the U.S. Supreme Court's desicion in Beach v. Ocwen Federal Bank, observing that Beach "did not address the proper method of exercising a right to rescind or the timely exercise of that right" but only addressed whether 15 U.S.C. §1635 was a statute of limitations that operated to extinguish the right after three years.
- Procedural context:
- The Gilberts appealed the district court's dismissal of their claims against the holder and owner of the mortgage on the Gilberts' home, and the master and sub-servicers of that mortgage for violations of the Truth in Lending Act and other state-related lender liability laws. The district court dismissed the Gilberts' TILA claims in part because it determined that the GIlbert's had failed to exercise their right to rescind in a timely manner and because the Gilberts' money damages claims under TILA were barred by the one-year statute of limitations. The district court also determined that certain of the Gilberts' claims were barred by res judicata. The Court of Appeals reversed these determinations and remanded for further proceedings.
- The Gilberts executed an adjustable rate mortgage and a deed of trust on their residence in May 2006. As part of the transaction, the lender provided several disclosures, including the requisite disclosures under the Truth in Lending Act. The Gilberts defaulted on the loan in 2008. The lender through a trustee pursed a foreclosure action against the Gilberts in state court. In April 2009, the Gilberts' counsel wrote a letter to the subservicer of the loan alleging several TILA violations and provided notice that the Gilberts were rescinding their mortgage transaction. The sub-servicer responded that it disagreed and stated that they would not rescind the transaction. In June 2009, the state court conducted a foreclosure hearing and granted the trustee the authority to proceed with the foreclosure. The Gilberts appealed the decision to the North Carolina Court of Appeals. On September 14, 2009, while the appeal was pending, the Gilberts filed suit against the holder of the note, the trustee, the master servicer and the subservicer in state court alleging violations of TILA and other state court lender liability laws. The suit was removed to the district court and the district court dismissed the Gilberts' claims based in part on its determination that the TILA claims were untimely and that the claims were barred by res judicata because the state court had previously ruled that the debt was valid at the foreclosure hearing. In reversing the district court, the Fourth Circuit noted that there is a split of authority as to whether the borrower must file a lawsuit within three years after the consummation of a loan transaction to exercise the right to rescind, or whether the borrower need only assert the right to rescind through a written notice within the three-year period. The Court of Appeals concluded that the plain meaning of TILA, specifically 15 USC § 1635(f) and its corresponding regulations, only requires that a borrower exercise her right to rescind by providing notice within the three year time period. No lawsuit is required. Therefore, the Fourth Circuit concluded that the Gilberts had timely exercised their right to rescind through their April 2009 letter, which was sent within 3 years of executing the mortgage. The Fourth Circuit rejected the subservicer's reliance on the U.S. Supreme Court's desicion in Beach v. Ocwen Federal Bank, observing that Beach "did not address the proper method of exercising a right to rescind or the timely exercise of that right" but only addressed whether 15 U.S.C. §1635 was a statute of limitations that operated to extinguish the right after three years.
- Chief Judge Traxler, Judge Floyd and J. Michelle Childs, United States District Judge, District of South Carolina (sitting by designation)
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3123 in the system
2 Being Processed