7th Circuit Finds Borrower’s Suit for Loan Rescission under TILA Untimely
A borrower who sued the bank from which he borrowed money, secured by his home, was not able to overcome a later foreclosure action by the bank despite three attempts to rescind the loan transaction. He argued that the Truth In Lending Act (TILA) rescission provisions of 15 USC § 1635 should have allowed him to overcome the state foreclosure proceeding and collect damages under TILA, but the Seventh Circuit Court of Appeals disagreed and dismissed his suit.
The borrower executed a loan with the bank in 2007, and notified the bank of his desire to rescind the loan in 2008, 2009, and 2010. Under § 1635, loan rescission is permitted within three days for any reason and within three years for certain reasons. In 2011, the bank, which effectively ignored the borrower’s rescission notices, filed and won a state foreclosure action. The borrower did not file suit in federal court seeking rescission of the 2007 transaction until 2016, after a final judgment was entered confirming the foreclosure sale. At that point, the borrower’s suit asked the federal district court to declare the state court foreclosure decision erroneous.
The Seventh Circuit Court of Appeals pointed out that federal courts lack authority to revise state court judgments and declined to do so here. Furthermore, the bank argued that the borrower’s suit was untimely under 15 USC § 1640. That section authorizes damages for violations of TILA, including § 1635, and sets a one-year limitations period for such statutory damages claims. The borrower countered that there is no statutory time limit on claims for rescission under § 1635, but the Seventh Circuit disagreed, and found that the one-year statute of limitations did apply to the borrower’s claim for statutory damages.
The court pointed out that had the borrower filed suit before 2011, when the foreclosure action started, he might have been able to argue in favor of rescission under the TILA provisions. Based on the theory that the borrower’s “injury” resulted from the bank ignoring his notices of rescission and initiating foreclosure, however, the court found that because the borrower did not file a claim for statutory damages within one year of his injury, his suit was properly dismissed.
The court rejected the possibility that the borrower’s time for filing suit could have been extended under theories of equitable tolling or equitable estoppel and pointed out that the borrower’s claim accrued as soon as he knew he had been injured. The borrower’s rescission attempts in the intervening years between the claim accrual and the bank’s foreclosure did not affect his ability to file suit on a claim that had already accrued.
