The Fourth Circuit Court of Appeals sided with the Consumer Financial Protection Bureau’s (CFPB) reasoning in an amicus brief and broke ranks with other courts in ruling on a borrower’s right to rescind and void a mortgage contract.  

It is customary for servicers to assume a homeowner’s right to rescind a mortgage expires three years after origination if the borrower hasn’t filed a lawsuit. (Plaintiffs can sue lenders claiming they violated the Truth in Lending Act by incorrectly disclosing key features of their mortgage.)   

The Richmond appeals court ruled, however, that a borrower has up to three years to file a notice of rescission with the creditor.  And the borrower can file a lawsuit at a later date.  The circuit judges did not comment on how long the borrower can wait before filing such a lawsuit.

The plaintiffs in the case, Rex and Daniela Gilbert, met that three-year deadline for filing a notice of rescission.

Although, the Gilberts failed to seek enforcement of their right to rescind within the three years, it “does nothing to take away from the fact that they exercised their right of rescission,” the appeals court says in Gilbert v. Residential Funding/GMAC.

Attorneys at Ballard Spahr noted the decision “possibly opens the door to renewed foreclosure delays.”  It is already standard practice for consumer attorneys to file a notice of rescission even when the borrower has no intention of challenging a foreclosure action.

“While we disagree with the Fourth Circuit Court’s conclusion that borrowers can bring rescission lawsuits more than three years from loan consummation, we believe that, if borrowers are allowed to do so, a one-year statute of limitations should apply,” the Philadelphia lawyers say in a recent article.

The Ballard Spahr attorneys also note the “decision represents a victory” for the CFPB, which filed an amicus brief with the Fourth Circuit in a similar rescission case. 

The consumer bureau has filed similar amicus briefs with the Third, Eighth and Tenth circuit courts.  

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