Borrower Cannot Sue After Three Years to Rescind Mortgage Loan, 10th Circuit Rules


A borrower cannot bring a lawsuit seeking rescission more than three years after loan consummation, the U.S. Court of Appeals for the 10th Circuit has ruled.

In its June 11, 2012, decision in Rosenfield v. HSBC Bank, USA, the 10th Circuit rejected the borrower’s argument that her lawsuit was timely because, before the three-year period ended, she had sent a notice of rescission to the holder of her mortgage loan.

The borrower’s position—that she needed only to send notice of rescission within the three-year period to validly exercise her rescission right—was not compelled by the plain language of the Truth in Lending Act or Regulation Z and conflicted with TILA Section 1635(f), which provides that the right to rescind expires after three years, the 10th Circuit concluded.

The borrower in Rosenfield had sent her rescission notice following the filing of a foreclosure action by her mortgage holder. In doing so, she employed a tactic that borrowers have routinely used since the mortgage foreclosure crisis began to delay a foreclosure. This tactic is used even when the borrower has no real intention of rescinding—and perhaps even when the borrower does not know if he or she has any basis for rescinding or the ability to tender back the principal.

Perhaps recognizing this reality, the 10th Circuit observed that the borrower’s position “could work to cloud the title of the property for an indefinite period of time” and that “allowing uncertainty of title to drag on past the already-generous three-year repose period would run counter to the commercial-certainty concerns…that led Congress to establish the fixed and limited repose period of § 1635(f) in the first place.”

The 10th Circuit has now joined the Third and Ninth circuits in holding that notice alone within the three-year period is insufficient to validly exercise a right to rescind.

By contrast, the Fourth Circuit, in its decision in Gilbert v. Residential Funding LLC, is the only federal appeals court to hold to the contrary. Commenting on Gilbert, the 10th Circuit stated that it “simply [could not] square the Fourth Circuit’s view with the Supreme Court’s strong pronouncement in Beach [v. Ocwen Federal Bank] that the TILA rescission right is extinguished if it is not exercised within the three-year statutory period.” (For more information on Gilbert, see our prior legal alert and  blog post.)

In Rosenfield, the 10th Circuit referred to the amicus brief filed by the Consumer Financial Protection Bureau supporting the borrower’s position that notice within the three-year period was sufficient. The CFPB argued in its brief that rescission may be exercised other than by filing a lawsuit.

While observing that the CFPB’s arguments had “superficial appeal,” the 10th Circuit found them to be  inconsistent with Beach, which, in the 10th Circuit’s view, mandated the conclusion that litigation is necessary to assert a rescission claim. The CFPB had also filed amicus briefs in a Fourth Circuit case other than Gilbert involving the same rescission issue and in cases before the Third and Eighth Circuits. (For more information on the CFPB’s amicus brief in Rosenfield, read our blog posts on March 29 and March 30, 2012.)

Ballard Spahr attorneys are currently acting as co-counsel to the defendants in Gilbert in filing a petition with the Fourth Circuit asking for a rehearing by the panel or before the full court.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). The group includes the firm’s Mortgage Banking Group, which combines broad regulatory experience assisting clients in both the residential and commercial mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions.

The CFS Group also produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe to the blog, use the link provided to the right.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or; CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or; Martin C. Bryce, Jr., at 215.864.8238 or; John L. Culhane, Jr., at 215.864.8535 or; Mortgage Banking Practice Leader Michael S. Waldron at 202.661.2234 or; or Mortgage Banking Practice Leader Richard J. Andreano, Jr., at 202.661.2271 or

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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