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Fourth Circuit TILA rescission decision adopts CFPB position

Posted in Mortgages

In an opinion issued on May 3, 2012, the U.S. Court of Appeals for the Fourth Circuit has held that a lawsuit seeking rescission is timely where the consumer provided notice of rescission within three years of closing but did not file suit until after the three-year deadline had passed. The Fourth Circuit’s decision in Gilbert v. Residential Funding LLC, et. al is the first by a federal appellate court to hold that a borrower need only send notice of rescission within the three-year period to validly exercise a right to rescind. We have prepared a legal alert with more information on Gilbert.

The Fourth Circuit’s decision represents a victory for the CFPB, which had filed an amicus brief in Wolf v. Federal National Mortgage Association, another Fourth Circuit appeal involving the same rescission issue. In its brief, the CFPB took the position that notice within the three year period is all that’s required to validly exercise a right to rescind. The CFPB has filed amicus briefs taking the same position in the Third, Eighth and Tenth Circuits.

As my partner Chris Willis and I observed in our prior blog posts on the CFPB’s Tenth Circuit amicus brief, while arguing that a borrower need not also file a rescission lawsuit within the three-year period, the CFPB provided no clear answer in that brief for the question of how long a borrower can wait to file suit. It also provided no clear answer in its Fourth Circuit brief. Instead, in both briefs, the CFPB suggests only that a time limit for bringing a rescission lawsuit may exist and offers possible sources for that limit. The question is similarly left unanswered by the Fourth Circuit, which merely acknowledges that after exercising a right to rescind, the creditor would either have to agree to rescind or the borrower would have to file a lawsuit for the rescission to be completed and the loan voided.