Third Circuit Holds that Notice Alone is Sufficient to Exercise a Consumer’s Right of Rescission under TILA

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Third Circuit Holds that Notice Alone is Sufficient to Exercise a Consumer’s Right of Rescission under TILA

Third Circuit Holds that Notice Alone is Sufficient to Exercise a Consumer’s Right of Rescission under TILA

You can read this case here: Sherzer, et al v. Homestar Mortgage Services, et al | re TILA Recission. Banksters TRIED to bend the Statute; but 3rd Circuit was at least partially swayed by a CFPB Amicus Brief

Hunton & Williams-

On February 5, 2013, the Third Circuit weighed-in on the developing Circuit Court split regarding whether notice alone is sufficient to exercise a valid right to rescind under the Truth in Lending Act.1 The Third Circuit’s decision and the Circuit Court split, along with the CFPB’s focus on this issue, create uncertainties for lenders concerning the potential invalidity of liens upon merely receiving a borrower’s notice of rescission. The Third Circuit’s decision also suggests that after receipt of a borrower’s notice of rescission, if a lender does not consent to the rescission, then the lender may need to consider filing suit to resolve the potential lien validity issues because there may be no clear deadline by which the borrower must initiate rescission litigation.

In its opinion in Sherzer v. Homestar Mortgage Services et. al.,2 the Third Circuit aligned with the Fourth Circuit, holding that “an obligor exercises the right to rescission by sending the creditor valid written notice of rescission, and need not also file suit within three years of consummation of the loan transaction.”3 In so doing, the Third Circuit adopted the position advocated by the Consumer Financial Protection Bureau (“CFPB”) in an amicus brief. In June 2012, the Tenth Circuit in Rosenfield v. HSBC Bank, USA, N.A.4 had rejected a similar argument advocated by the CFPB and instead followed the Ninth Circuit, concluding that “notice by itself is not sufficient to exercise (or preserve) a consumer’s right of rescission under TILA. The commencement of a lawsuit within the three-year TILA repose period [is] required.”5 The Eighth Circuit is currently considering this issue in Sobieniak v. BAC Home Loans Servicing, in which oral argument was held on October 16, 2012.6

[HUNTON & WILLAMS]

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