Alert September 03, 2013

Eighth Circuit Reaffirms that Notice Alone is Insufficient to Effectuate TILA Rescission

The United States Court of Appeals for the Eighth Circuit affirmed a lower court’s opinion rejecting plaintiffs’ attempt to rescind a loan agreement after the loan had already been foreclosed, ruling that the foreclosure extinguished borrowers’ right to file suit to rescind under TILA. Plaintiffs, a husband and wife who defaulted on their loan, warned their lender that they intended to exercise their right to rescind before the foreclosure occurred, but did not actually file suit until the property was sold at a sheriff’s auction. Plaintiffs filed suit against their lender seeking to rescind their loan and alleging various state law violations. The lender moved for and was granted summary judgment. Plaintiff appealed.

Reaffirming its earlier decision in Keiran v. Home Capital Inc., et al, 720 F.3d 721 (8th Cir. 2013) (see July 23, 2013 Alert), the Eighth Circuit reasoned that while giving notice was “a necessary predicate act to the ultimate exercise of the right” of rescission, the notice was “not sufficient, in itself, to complete the exercise of that right.”  Rather, a lawsuit must be filed within the 3-year period of repose mandated by TILA. Accordingly, plaintiffs lost their right to rescind when the property was sold.

This ruling is a further rejection of the CFPB’s interpretation of rescission rights under TILA. In amici briefs filed with the Tenth Circuit (see April 3, 2012 Alert) and three other circuits including the Third, Fourth and Eighth circuits, the CFPB argued that the rescission period under TILA only defines the time to notify the lender and not the time to sue the lender. The concurrence, while recognizing that prior Eighth Circuit precedent compelled the result, opined that providing notice alone within 3 years of loan consummation should be sufficient to preserve the right to rescind under TILA—a position espoused by the CFPB espoused in its amici briefs.