In a precedent-setting decision that could have widespread implications for lenders, the U.S. Court of Appeals for the Third Circuit has ruled that a rescission action, filed by borrowers more than three years after the closing on their loan, was timely. In that case, the court held that a borrower’s sending of a notice of rescission to the lender within the statutory required three-year period is all that is required to exercise the right to rescind under the Truth in Lending Act (TILA). Sherzer v. Homestar Mortgage Services, No. 11-4254, 2013 U.S. App. Lexis 2486 (3d Cir. Feb. 5, 2013).
TILA was enacted by Congress to promote the "informed use of credit" by requiring "meaningful disclosures of credit terms." 15 U.S.C. 1601(a). Under TILA, if a lender fails to provide the requisite disclosures of a loan secured by the borrower’s principal dwelling, the borrower has a right for three years after the transaction to rescind the loan agreement. 15 U.S.C. 1635(f). The question before the Third Circuit in Sherzer was what action a borrower "must take to exercise the right of rescission" within that three-year period.
