Federal Court Holds Borrowers Must Allege Sufficient Basis To Exercise TILA Three-Year Right of Rescission

TILA

On February 28, 2013, the U.S. Court of Appeals for the Fourth Circuit held that a borrower failed to state sufficient facts to avail herself of TILA’s extended three-year right to rescind her mortgage. Wolf v. Federal Nat’l Mortg. Assoc., No. 11-2419, 2013 WL 749652 (4th Cir. Feb. 28, 2013). Nearly three years after refinancing her loan, and just a few days before the scheduled foreclosure sale, the borrower attempted to rescind her mortgage loan pursuant to TILA, based on arguments that the original lender under-disclosed certain material finance charges. The district court held that the borrower’s TILA claims were untimely because she failed to file a lawsuit within the three-year deadline. Since the district court’s decision was issued, the Fourth Circuit held in another case, Gilbert v. Residential Funding LLC, 678 F.3d 271 (4th Cir. 2012), that a borrower need not file a lawsuit seeking rescission within the three-year deadline but instead must only notify the lender that she is exercising her rescission right. The Fourth Circuit reasoned that, in light of Gilbert, the borrower’s claim had not necessarily expired and the relevant question centered on whether she had adequately alleged facts that the three-year deadline applied. The Fourth Circuit found that the borrower’s allegations amounted to bare assertions and presented no facts as to why the charges were unreasonable. The court also rejected the borrower’s argument that the lender had inadequately disclosed the right to rescind. Accordingly, the Fourth Circuit affirmed the district court’s ruling – on different grounds – and dismissed the TILA claims. The Fourth Circuit also held that the borrower had failed to state claims for fraud, defamation, breach of the implied covenant of good faith and fair dealing, and a claim that the assignment was invalid, thus invalidating the foreclosure sale.