Alert June 12, 2012

Tenth Circuit Holds Notice Alone Is Insufficient to Effectuate TILA Rescission

The Tenth Circuit held that a borrower’s written notice of rescission within TILA’s three-year rescission period is insufficient to effectively exercise or preserve the right to rescind, when the borrower does not also timely bring an action for rescission. The Court relied in part on the Supreme Court’s decision in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), which established that 15 U.S.C. § 1635(f)’s is a statute of repose meant to limit uncertainty in title. The Court also noted that references in TILA and Regulation Z to notifying the creditor establish that providing “notice is a necessary predicate act” to exercising the right to rescind, but the references do not establish that providing notice is sufficient to exercise the right. The Tenth Circuit’s decision furthers the circuit split on the rescission period under TILA (see February 21, 2012 and May 15, 2012 Alerts).

The Court also found that the borrower’s raising rescission as a defense to a Colorado Rule 120 Proceeding— a non-judicial foreclosure hearing to address the issue of default—within the three-year period was insufficient to exercise the right to rescission. The Court reasoned that a streamlined Rule 120 proceeding does not contemplate the adjudication of rescission claims. Click here for the opinion.