Eighth Circuit Extends Recent TILA Rescission Holding

TILA Mortgage Origination Mortgage Servicing

On August 19, the U.S. Court of Appeals for the Eighth Circuit held that borrowers facing foreclosure were required to file suit prior to the foreclosure sale to complete the exercise of their right to rescind under TILA. Hartman v. Smith, No. 12-1947, 2013 WL 4407058 (8th Cir. Aug. 19, 2013). In this case, the bank moved to foreclose after the borrowers failed to make payments to a real estate financing firm with which the borrowers had placed mortgages on the property. After the property was sold at a sheriff’s sale, the borrowers sued the bank and the financing firm, seeking, among other things, to rescind the loans under TILA on the basis that they provided written notice of rescission prior to the foreclosure sale. Applying its recent holding in Keiran v. Home Capital, Inc., 720 F.3d 721 (8th Cir. Jul. 12, 2013) that a borrower seeking rescission under TILA must file suit within three years to preserve the borrower’s right of rescission, the court again held that providing notice under TILA is a necessary but not sufficient predicate to exercising the right to rescind. Here, where the foreclosure sale occurred within the three-year rescission period, the court held that the borrowers were required to file a rescission action in a court prior to the foreclosure sale. Because they failed to do so, the court held that their rescission claim was barred.