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More thoughts on the CFPB’s TILA amicus brief

Posted in Mortgages

As my partner Marty Bryce reported, the CFPB has filed an amicus brief in the Tenth Circuit in a TILA case that presents the question whether a lawsuit seeking rescission is timely where the consumer provided notice of rescission to the lender within three years of closing but did not file suit until after the three-year deadline had passed. The CFPB’s position is that a borrower need only send notice of rescission to the lender within the three-year period to validly exercise a right to rescind (and the CFPB intends to file amicus briefs asserting this position in other appellate cases involving the same issue).

While many may dismiss this as a technical issue, it strikes me that the consequences for the mortgage industry could be very significant if the CFPB’s position prevails. Since the mortgage crisis began, it has become a routine foreclosure delaying tactic for a borrower to send a notice of rescission to the lender even when the borrower has no real intention of rescinding (and probably even when the borrower doesn’t know if there’s any basis for rescinding). As a result, it’s likely there are a significant number of pending and completed foreclosures, as well as mortgage loans headed for foreclosure, where the borrower sent a rescission notice before the three-year period expired but did not file suit. The court’s adoption of the CFPB’s position would create another opportunity for these borrowers to delay foreclosure, or in the case of a completed foreclosure, potentially to unwind the foreclosure.

How many and which of these borrowers would get that opportunity would depend on how long a borrower could wait to file suit. As Marty Bryce’s post indicates, the CFPB’s brief is murky on what the applicable statute of limitations would be for bringing a rescission lawsuit. We think the answer is clear. If borrowers are allowed to bring rescission lawsuits more than three years from closing (and we don’t for one moment believe that TILA allows them to do so), then we believe that the one-year statute of limitations in TILA section 130(e) (15 U.S.C. §1640(e)) should apply.