The U.S. Court of Appeals for the Ninth Circuit decided a case in early December of 2018 that decided the following question: when a borrower effectively rescinds a loan under TILA, but the lender takes no action to wind up the loan, when must a borrower file suit to enforce the rescission?
In Hoang v. Bank of America, N.A. 2018 S.O.S. 17-35993, (Dec. 6, 2018), the Ninth Circuit panel reversed the district court’s dismissal of an action brought by a borrower against Bank of America, N.A., alleging claims under the Truth in Lending Act (“TILA”) after the bank declared the borrower in default on a loan and initiated non-judicial foreclosure proceedings.
The Hoangs bought a home and financed the purchase with a loan from Wells Fargo Bank. Later they refinanced with Bank of America and the Federal National Mortgage Association (the “Bank”). At the time of the refinancing, the Bank failed to give the Hoangs notice of the right to rescind the loan, thereby violating TILA’s disclosure requirement.
If a creditor fails to make required disclosures under TILA, borrowers are allowed three years from the loan’s consummation date to rescind certain loans. 15 U.S.C. § 1635(f). The borrower sent the bank notice of intent to rescind the loan within three years of the consummation date.
Once the Bank declared a default and initiated non-judicial foreclosure proceedings, the Hoangs asserted a claim in federal court requesting monetary, declaratory, and injunctive relief. Although the Hoangs rescinded the loan within the three-year limitations period, it failed to timely file suit and the district court granted the Bank’s motion to dismiss. Since the court ruled that all of the Hoangs’ claims were time-barred, it dismissed the case without leave to amend. In finding the claims time barred, the district court adopted the one-year statute of limitations applicable to TILA claims for monetary damages, 15 U.S.C. § 1640(e).
Previously, the Ninth Circuit required that borrowers effectuate TILA loan rescissions by giving lenders their notice of rescission and also bringing suit to enforce that rescission within the three-year window set forth in 15 U.S.C. § 1635(f). In Jesinoski v. Countrywide Home Loans, 135 S. Ct. 790 (2015), the Supreme Court altered that usual procedure by eliminating the requirement that a borrower bring suit within the three-year limitations period to exercise rescission under TILA.
Instead, the court held “rescission is effected when the borrower notifies the creditor of his intention to rescind.” Jesinoski, 135 S. Ct. at 792. “[S]o long as the borrower notifies within three years after the transaction is consummated, his rescission is timely. The statute does not also require him to sue within three years.” Id. However, in emphasizing that the borrower must only give notice of rescission within three years, the Court did not clarify when a suit to enforce the rescission must be brought after a lender’s failure to act on that notice of rescission.
In this legal circumstance, courts must borrow the most analogous state law statute of limitations and apply that limitation period to TILA rescission enforcement claims. Here, the Ninth Circuit disagreed with the Statute of limitations applied by the district court. The court applied Washington’s statute of limitation that applies to general contracts or “action(s) upon a contract in writing, or liability express or implied arising out of a written agreement.” Wash. Rev. Code § 4.16.040.
It held that the action to rescind arose out of the Hoangs’ loan agreement, a written agreement, and, therefore, since contract law provided the court with the best analogy, it adopted Washington’s six-year general contract law statute of limitations. Because the Hoangs brought their suit within six years, the district court erred in dismissing the claim as time-barred and its decision was reversed.
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