The borrowers in U.S. Bank Nat’l Assn. v. Miller, 2020 IL App (1st) 191029 (March 20, 2020) appealed from a judgment dismissing their counterclaim in a foreclosure proceeding to rescind their mortgage under the Truth in Lending Act (“TILA”). In a case of first impression, an Illinois appellate affirmed holding that the one year statute of limitations for damage claims under TILA should also apply to rescission claims.
The borrowers took out a mortgage in 2007. Two years later, the lender’s assignee, the plaintiff, commenced foreclosure. The borrowers filed defenses and counterclaims alleging, inter alia, that the lender violated TILA by materially changing the terms and type of the loan at closing. They alleged they rescinded the loan, in writing, in June, 2010, but the neither the lender nor the plaintiff responded to the rescission. The trial court ultimately dismissed the claims and defenses and entered a foreclosure judgment for the plaintiff. The borrowers appealed.
In the version of the opinion that was released by the court, which is still subject to withdrawal or revision, it read that the judgment of the trial court was “reverse[d] [and] the judgment of the circuit court of Cook County [was] remand[ed] for further proceedings.” This was clearly a mistake. The text of the opinion and the conclusion of the court make it abundantly clear that the judgment of the trial court was affirmed.
The court held that under section 1640 of TILA the statute of limitations on a claim for damages under TILA is one year. The limitation period for the rescission claim is not so clear because the provision governing rescission, section 1635, does not provide a limitations period.
The Ninth Circuit, in Hoang v. Bank of Am., N.A., 910 F.3d 1096 (9th Cir. 2018) explained that where there is no statute of limitations expressly applicable to a federal statute, a state limitations period for an analogous cause of action is borrowed and applied to the federal claim. The Hoang court applied this principle and borrowed Washington’s statute of limitations for contract actions to the plaintiff’s rescission claim. It explicitly rejected application of section 1640(e)’s one-year statute of limitations.
The Illinois court noted that in a string of district court cases, courts have borrowed the one-year statute of limitations from section 1640. “This split in federal authority begs our supreme court to take up the question…” but in the interim, it concluded that the line of cases leading to the district courts’ conclusion to be the more reasonable path to resolution of this issue.
Borrowing a lengthy statute of limitations, rather than using the one-year statute, “allows a borrower to sit on a claim to enforce rescission of the mortgage while keeping both the property and the loan proceeds… This seems far more generous to borrowers than is necessary to enforce the important disclosure obligations of TILA. It also seems far afield from the underlying intent of the statute.” The court also noted that within 20 days of sending a notice of rescission, the borrower knows whether the bank will respect that notice. “It is difficult to conceive of a justification for a lengthy statute of limitations, where the accrual of a claim is so straight forward.”
The court rejected the Hoang court’s holding that the limitation period under contract law should apply. Rescission under TILA has little to do with common law contract rights. Under TILA, the borrower does not need to show any fraud or misconduct by the bank, as it would under contract law. Rather, there is an absolute right to rescind under TILA. Therefore, section 1640 provides a closer analogy for a statute of limitations for actions to enforce a rescission than the 10-year statute for written contracts in Illinois.Download Related Document