The U.S. Court of Appeals for the Seventh Circuit recently held that, following the confirmation of a foreclosure sale in Illinois, the only remedy available to a borrower under 15 U.S.C. § 1635 was damages, and therefore the one-year limitation period under 15 U.S.C. § 1640(e) applied and his claims were barred despite the fact that he provided rescission notices within three years of the loan closing, and despite the fact that the parties engaged in back-and-forth communications after the demands were first sent.
Accordingly, the Seventh Circuit affirmed the dismissal of the borrower’s claims by the trial court.
A copy of the opinion is available at: Link to Opinion.
In 2007, the defendant (“mortgagee”) extended a loan to the plaintiff (“borrower”), which loan was secured by a mortgage on his home. On Aug. 15, 2008, April 16, 2009, and June 17, 2010, the borrower alleges he notified the mortgagee that he was rescinding the loan under the federal Truth in Lending Act (TILA), 15 U.S.C. § 1635.
As you may recall, section 1635 provides borrowers with the right to rescind certain consumer credit transactions secured by a borrower’s principal dwelling. Where applicable, the borrower may rescind such a transaction for any reason within three days of the loan closing, and for some reasons within three years of the loan closing.
The mortgagee allegedly ignored the first two rescission notices from the borrower and rejected the third. The mortgagee later filed a foreclosure action in Illinois state court in 2011, and obtained a final judgment confirming the foreclosure sale on March 23, 2016.
The borrower subsequently filed a lawsuit in federal court asking it to declare that the state court’s ruling was erroneous. After the trial court dismissed the borrower’s complaint as barred by the statute of limitations, he appealed to the Seventh Circuit.
On appeal, the Seventh Circuit first noted that under the Rooker-Feldman doctrine, federal trial courts generally lack the authority to revise the judgments of state courts. The Court noted that the borrower asked “the district court to declare that the state court’s decision was erroneous, but that would have been an advisory opinion – a legal declaration that could not affect anyone’s rights.”
The Court further noted that “there remains the possibility of relief that takes as a given the judgment in the state litigation that would not be problematic under the Rooker-Feldman doctrine,” but “might be problematic as a matter of issue or claim preclusion.” However, the mortgagee did not assert issue or claim preclusion, and therefore the issue was not relevant to the appeal.
Instead, the mortgagee relied on the statute of limitations defense. Specifically, the mortgagee argued that the borrower’s claims were barred under section 1640(e), which sets a one-year period of limitations for any claim under section 1640 as a whole. As you may recall, section 1640(a)(1) authorizes an award for damages for violations of TILA, including section 1635.
The borrower argued that no statutory time limit applied to his claims for rescission. Specifically, the borrower argued that section 1635(f) gives a borrower three years to notify a creditor of an election to rescind when the creditor failed to provide information required by TILA. The borrower’s notices all came within the three-year period, and section 1635 does not provide a time limit to file a lawsuit if the creditor fails to acknowledge or implement a proper rescission.
The Seventh Circuit rejected the borrower’s argument, noting that section 1640(e) sets a one-year period of limitations for suits under section 1640(a). Further, the Court determined that by the time the borrower filed his lawsuit in 2016, “the only possible relief was damages” due to the “state court’s conclusive judgment of foreclosure.” Moreover, “by 2016, it was far too late to seek damages, given §1640(e).”
When the borrower sent his first notice of rescission on Aug. 15, 2008, the mortgagee “had 20 days to act on [the] notice. 15 U.S.C. § 1635(b); 12 C.F.R. § 226.23(d).” Thus, by “Sept. 4, 2008, after the [mortgagee] ignored the notice, [the borrower] had suffered a legal wrong (if he was indeed entitled to rescind) and could have sued.” The Court held that the borrower’s claim therefore accrued at that time.
The borrower argued that the later notices and sporadic communications with the mortgagee extended the time to file suit. The Court disagreed, ruling that “negotiations, requests for reconsideration, and new demands for action do not affect the time to sue on a claim that has already accrued.”
Accordingly, the borrower’s “claim for damages had expired more than six years before he filed this suit, which was properly dismissed.”