The statute of limitations on a suit to enforce the rescission of a mortgage loan in Washington is six years, according to the U.S. Court of Appeals for the Ninth Circuit. The Truth in Lending Act does not specify a time limit, the court said, which means the most similar state law time limit is to be borrowed. In Washington, that is the six-year limit on suits under written contracts (Hoang v. Bank of America, N.A., Dec. 6, 2018, Smith, N.R.).
According to the opinion, the homeowners refinanced their mortgage loan in 2010, but the lenders—Bank of American and Fannie Mae—failed to disclose that under the Truth in Lending Act they had three business days to rescind the new loan. That failure extended the three-day limit to three years.
The homeowners notified the lenders of their intent to rescind the loan two weeks before the end of the three-year period. However, the lenders took no steps to wind up the loan as TILA required. When the lenders began a nonjudicial foreclosure nearly four years after the rescission demand, the homeowners sued to enforce the rescission, essentially claiming that the rescission of the loan meant there was no security interest to be foreclosed.
Time limits. In 2015, the Supreme Court resolved one outstanding issue about rescinding loans, deciding that a rescission is effective when it is properly served (Jesinoski v. Countrywide Home Loans, Banking and Finance Law Daily, Jan. 13, 2015). However, the Court left open a second issue—what is the time limit on a homeowner’s suit to enforce a rescission if the lender does not act?
TILA sets a one-year time limit on suits for damages that are caused by a failure to complete a rescission. However, the consumers were seeking a declaratory judgment and an injunction, not damages.
The question for the appellate court was whether the homeowners’ attempt to enforce the rescission nearly four years after their notice was timely.
Possible statutes of limitations. The trial court arguments and the U.S. district court judge’s decision offered three possible statutes of limitations:
- The homeowners argued that, since TILA set no time limit, there was no time limit.
- The lenders argued that the Washington state law two-year "catch-all" time limit should apply.
- The district court judge rejected both arguments and borrowed TILA’s one-year time limit on suits for damages.
The appellate court rejected all three theories.
According to the court, it was clear that TILA did not provide a statute of limitations on suits for equitable remedies. However, it could not be assumed that Congress intended to create the unusual situation of no time limit; rather, the federal courts are to follow the standard procedure of determining which state law cause of action was most analogous and borrow the applicable state law statute of limitations.
The mortgage loan agreement was a written contract between the lenders and the homeowners, and the suit was an attempt to rescind that written contract, the court said. The Washington time limit on suits under written contracts was to be borrowed because no state or federal law provided a closer analogy to a suit to enforce a rescission notice. That time limit was six years, and the homeowners’ suit had been filed less than four years after the loan closed.
As a result, the suit was not too late, the court concluded.
The case is No. 17-35993.
Attorneys: Jill J. Smith (Natural Resource Law Group PLLC) for Jerry Hoang and Le Uyen Thi Hoang. Elizabeth Holt Andrews (Severson & Werson) for Bank of America, N.A. and Federal National Mortgage Association, Inc.
Companies: Bank of America, N.A.; Federal National Mortgage Association, Inc.
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