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Does Equitable Tolling apply in TILA

rescission cases?
Posted by Vondran Real Estate Litigation+ on March 1, 2015 Leave a Comment

Truth in Lending essentials Can the three year right to rescind your mortgage
loan be equitably tolled?

Truth in lending law is heating up once again. We have talked FOR YEARS (just search our blog
for proof) about Federal Truth in Lending Act (TILA) and how in many cases this is the most
powerful weapon a homeowner or borrower has when dealing with securitized loan trusts and
other creditors. Things are heating up once again given the recent decision in Jesinoski v.
Countywide Home Loans (a case dealing with a borrower trying to rescind their mortgage loan
with Bank of America). Does equitable tolling apply to TILA mortgage loan rescission cases?
This blog takes a look at this fascinating legal issue.

Three year extended right to rescind your mortgage loan

As discussed in the Beach v. Ocwen and Jesinoski United States Supreme Court decisions below,
there is nothing to indicate that the United States Supreme Court has any intention of applying
equitable tolling to the TILA loan rescission case to extend rescission right out beyond three
years (meaning, the rights will need to be executed within the three year period to be safe from a
statute of limitations attack. However, this blog discusses the concept of whether there is ever a
chance that this will be the law, and that equitable tolling in a TILA case may one day be the law.

What is Equitable Tolling?

A good case from the California Supreme Court which discusses equitable tolling doctrine is
McDonald v. Antelope Valley Cmty. Coll. Dist., 45 Cal. 4th 88, 99-100, 194 P.3d 1026, 1031-32
(2008). This case lays out some good language for real estate foreclosure practitioners to
consider in a TILA loan rescission case (in trying to determine whether it could be argued, in
good faith, to extend, reverse or modify existing case law in regard to when the extended three
year right to rescind the mortgage loan ends):
The equitable tolling of statutes of limitations is a judicially created, nonstatutory doctrine. It
is designed to prevent unjust and technical forfeitures of the right to a trial on the merits when
the purpose of the statute of limitationstimely notice to the defendant of the plaintiffs claims
has been satisfied. Where applicable, the doctrine will suspend or extend a statute of
limitations as necessary to ensure fundamental practicality and fairness. Though the doctrine

operates independently of the language of the Code of Civil Procedure and other codified sources
of statutes of limitations its legitimacy is unquestioned. We have described it as a creature of
the judiciarys inherent power to formulate rules of procedure where justice demands it.
Broadly speaking, the doctrine applies [w]hen an injured person has several legal remedies
and, reasonably and in good faith, pursues one. Thus, it may apply where one action stands to
lessen the harm that is the subject of a potential second action; where administrative remedies
must be exhausted before a second action can proceed; or where a first action, embarked upon in
good faith, is found to be defective for some reason. Its application in such circumstances serves
the need for harmony and the avoidance of chaos in the administration of justice. Tolling
eases the pressure on parties concurrently to seek redress in two separate forums with the
attendant danger of conflicting decisions on the same issue. By alleviating the fear of claim
forfeiture, it affords grievants the opportunity to pursue informal remedies, a process we have
repeatedly encouraged. The tolling doctrine does so without compromising defendants
significant interest in being promptly apprised of claims against them in order that they may
gather and preserve evidence because that notice interest is satisfied by the filing of the first
proceeding that gives rise to tolling. Lastly, tolling benefits the court system by reducing the
costs associated with a duplicative filing requirement, in many instances rendering later court
proceedings either easier and cheaper to resolve or wholly unnecessary.
Other California courts have chimed in:
The doctrine of fraudulent concealment, which is judicially created, limits the typical
statute of limitations. [T]he defendants fraud in concealing a cause of action against him
tolls the applicable statute of articulating the doctrine, the courts have had as
their purpose to disarm a defendant who, by his own deception, has caused a claim to become
stale and a plaintiff dilatory. See Regents of Univ. of California v. Superior Court, 20 Cal. 4th
509, 533, 976 P.2d 808, 822 (1999).
In Sagehorn v. Engle, 141 Cal. App. 4th 452, 460-61, 46 Cal. Rptr. 3d 131, 135 (2006) the
California Court of Appeals held:
Equitable tolling halts the running of the limitations period so long as the plaintiff uses
reasonable care and diligence in attempting to learn the facts that would disclose the defendants
fraud or other misconduct. (4 Wright & Miller, Federal Practice and Procedure (3d ed. 2002)
Commencement of Action, 1056, p. 255.) The doctrine focuses primarily on the plaintiffs
excusable ignorance of the limitations period. [Citation.] [It] is not available to avoid the
consequences of ones own negligence. To establish that equitable tolling applies, a plaintiff
must prove the following elements: fraudulent conduct by the defendant resulting in
concealment of the operative facts, failure of the plaintiff to discover the operative facts that
are the basis of its cause of action within the limitations period, and due diligence by the
plaintiff until discovery of those facts. So as a threshold issue in any type of legal case TILA or
otherwise, where any party wants to rely on this legal doctrine, facts to justify the imposition
would need to be explored to see if an honest and reasonable argument can be made.

Beach v. Ocwen is TILA 15 U.S.C. 1635(f) an ABSOLUTE limit on the

timeframes to rescind under TILA? (Statute of Repose)

This is one of the main truth in lending cases that discusses when the right to rescind a mortgage
loan under TILA ends. This case dealt with another borrower challenge seeking to rescind their
mortgage loan over three years after the consummation of the loan, and the Court did not go for
it. This case was relied on by many other courts to deny any attempts to rescind a mortgage
beyond three years from the date the loan was consummated (which has been held to be a
matter of state by state law).
Beach v. Ocwen Fed. Bank, 523 U.S. 410, 419, 118 S. Ct. 1408, 1413, 140 L. Ed. 2d 566 (1998)
Section 1635(f), however, takes us beyond any question whether it limits more than the time for
bringing a suit, by governing the life of the underlying right as well. The subsection says nothing
in terms of bringing an action but instead provides that the right of rescission [under the Act]
shall expire at the end of the time period. It talks not of a suits commencement but of a
rights duration, which it addresses in terms so straightforward as to render any limitation on
the time for seeking a remedy superfluous. There is no reason, then, even to resort to the canons
of construction that we use to resolve doubtful cases, such as the rule that the creation of a right
in the same statute that provides a limitation is some evidence that the right was meant to be
limited, not just the remedywe respect Congresss manifest intent by concluding that the Act
permits no federal right to rescind, defensively or otherwise, after the 3-year period of
1635(f) has run. Accordingly, we affirm the judgment of the Supreme Court of Florida.
In short, the Supreme Court showed no intent to lengthen the statutory period beyond three
years, and the recent Jesinoski decision did not overrule Beach v. Ocwen (while also citing the
case in its decision). So these decisions would appear to make it difficult to bring an equitable
tolling claim in a TILA loan rescission case. But thats not the end of the discussion.

Some cases that might suggest a right to equitably toll 15 U.S.C. 1635(f)
These cases need to be considered carefully, and you will probably want a skilled attorney to
look into these types of equitable tolling claims. Attorney in most states are normally permitted
to argue for good faith changes, modifications, and reversal to existing case law. (In California
see ethical rule 3-200). When there are people dying of cancer, have family homes equipped with
ADA ramps and rails, and other elderly persons socked away into predatory negative
amortization option arm loans, all tools available to the foreclosure defense counsel to advocate
on behalf of the client should be explored. Please do not rely on these decisions as our
interpretation may not be accurate. These are simply presented as some things to think about if
you are representing a borrower of a bank.

A. Rodenhurst v. Bank of Am., 773 F. Supp. 2d 886, 893-94 (D. Haw. 2011)
This case noted:

In its entirety, 15 U.S.C. 1635(f) provides:

An obligors right of rescission shall expire three years after the date of consummation of the
transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that
the information and forms required under this section or any other disclosures required under this
part have not been delivered to the obligor, except that if (1) any agency empowered to enforce
the provisions of this subchapter institutes a proceeding to enforce the provisions of this section
within three years after the date of consummation of the transaction, (2) such agency finds a
violation of this section, and (3) the obligors right to rescind is based in whole or in part on any
matter involved in such proceeding, then the obligors right of rescission shall expire three years
after the date of consummation of the transaction or upon the earlier sale of the property, or upon
the expiration of one year following the conclusion of the proceeding, or any judicial review or
period for judicial review thereof, whichever is later.
15 U.S.C. 1635(f); see also 12 C.F.R. 226.23(a)(3) ([T]he right to rescind shall expire 3
years after consummation, upon transfer of all of the consumers interest in the property, or upon
sale of the property, whichever occurs first.). Plaintiffs here executed the applicable loan
documents on March 23, 2007, but sought rescission on May 2, 2010more than three years
after the consummation of the transaction. [Section] 1635(f) is a statute of repose, depriving
the courts of subject matter jurisdiction when a 1635 claim is brought outside the three-year
limitation period. See Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir.2002).
Accordingly, because Plaintiffs right to rescind expired before Plaintiffs sent rescission requests
or filed the instant Complaint, Plaintiffs rescission claim under TILA is untimely.
This analysis appeared to end the claim, but the Court marched on with its analysis:
Nor are the allegations here sufficient to satisfy equitable tolling. The First Amended
Complaint pleads no facts indicating Defendant BofA prevented Plaintiffs from discovering the
alleged TILA violations or caused Plaintiffs to allow the filing deadline to pass. See, e.g.,
ODonnell v. Vencor Inc., 466 F.3d 1104, 1112 (9th Cir.2006) (Equitable tolling is generally
applied in situations where the claimant has actively pursued his judicial remedies by filing a
defective pleading during the statutory period, or where the complainant has been induced or
tricked by his adversarys misconduct into allowing the filing deadline to pass. (citation and
quotation marks omitted)); see also Araki v. One West Bank FSB, Civ. No. 1000103 JMS/KSC,
2010 WL 5625969, at *67 (D.Hawaii Sept. 8, 2010).

B. Jones v. Saxon Mortgage, Inc., 980 F. Supp. 842, 845-46 (E.D. Va. 1997) affd,
161 F.3d 2 (4th Cir. 1998) and affd, 537 F.3d 320 (4th Cir. 1998)
In this case, the Court held:
Generally, statutes of limitations and statutes of repose are not subject to equitable tolling.
(typically, statutes of repose are not subject to tolling). But see Greyhound Corp. v. Mt. Hood
Stages Inc., 437 U.S. 322, 337 n. 21, 98 S.Ct. 2370, 2378 n. 21, 57 L.Ed.2d 239 (1978) (statute
of repose may be subject to equitable tolling); id. at 338, 98 S.Ct. at 2379 (C.J.Burger,
concurring); American Pipe and Construction Co. v. Utah, 414 U.S. 538, 558, 94 S.Ct. 756, 768,
38 L.Ed.2d 713 (1974); Burnett v. New York Central R.R. Co., 380 U.S. 424, 427 n. 2, 85 S.Ct.
1050, 1054 n. 2, 13 L.Ed.2d 941 (1965). Cf. King v. California, 784 F.2d 910, 915 (9th Cir.1986)
(finding the TILAs one year limitation on damages subject to equitable tolling) cert.
denied, 484 U.S. 802, 108 S.Ct. 47, 98 L.Ed.2d 11 (1987). The Court of Appeals for this circuit

has not decided whether the rescission period provided in 1635(f) is a statute of limitation or
as a statute of repose. However, no matter which characterization is ascribed to 1635(f), this
action is barred unless the limitation period was tolled. For the reasons which follow, Jones
cannot prevail on his tolling theory. The doctrine of equitable tolling is applied sparingly. Jones
relies on two of the several possible grounds for equitable tolling. First, Jones alleges fraudulent
concealment, claiming that he has been induced or tricked by his adversarys misconduct
into allowing the filing deadline to pass. Id. (citing Glus v. Brooklyn Eastern Dist. Terminal,
359 U.S. 231, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959). Second, Jones asserts that equitable
estoppel applies here because he has actively pursued his judicial remedies by filing a defective
pleading during the statutory period. Irwin, 498 U.S. at 96, 111 S.Ct. at 458 (citing Burnett v.
New York Central R.R. Co., 380 U.S. 424, 85 S.Ct. 1050, 13 L.Ed.2d 941 (1965). These general
principles, however, must be considered in the context of equitys basic rule that [o]ne who
fails to act diligently cannot invoke equitable principles to excuse that lack of diligence.
Baldwin County Welcome Center v. Brown, 466 U.S. 147, 155, 104 S.Ct. 1723, 172728, 80
L.Ed.2d 196 (1984). This principle finds expression in the tolling theories on which Jones relies.
As explained below, Jones has not acted diligently and for that reason and others, his claim of
tolling must fail.
The Court then went on to discuss the fraudulent concealment prong:
Fraudulent Concealment
To invoke the doctrine of fraudulent concealment as a grounds for equitable tolling, a plaintiff
must demonstrate that: (1) the party pleading the statute of limitations fraudulently concealed
facts that are the basis of the plaintiffs claim, and (2) the plaintiff failed to discover those facts
within the statutory period, despite (3) the exercise of due diligence. Supermarket of Marlinton
Inc. v. Meadow Gold Dairies, Inc., 71 F.3d 119, 122 (4th Cir.1995) (citing Weinberger v. Retail
Credit Co., 498 F.2d 552, 555 (4th Cir.1974)) (emphasis added). Jones claim of fraudulent
concealment is based on the failure of Lenders and the Broker to own up to their improper
kickback arrangement. Thus, this claim of fraudulent concealment fails simply because neither
Saxon nor TCB, the parties pleading the bar of the statute, fraudulently concealed facts that were
the basis for Jones TILA claims.
Again, the facts of these cases should be closely reviewed and your case facts need to be applied
to see if there is any credible argument to be made.

Contact a mortgage lending & real estate law firm before taking any action in
regard to TILA loan rescission
These cases make clear that it appears there is room for good faith discussion in this area when
TILA rights are concerned. Clearly the law as it stands supports the position that there is no
equitable tolling in regard to a three year exercising of federal loan rescission rights. But keep in
mind lawyers and litigants are allowed to argue for good faith extension, modification, or
reversal of existing law. If not Separate but Equal would still be the law. However, it appears it
would take a case with unique facts to be able to assert equitable tolling. I am sure we will see
some challenges where the appropriate fact patterns supports application of this equitable legal
doctrine designed to prevent injustice. We are handling TILA rescission and recoupment claims
for Plaintiffs and Defendants in state, federal, and bankruptcy Court adversary proceedings. Call
us at (877) 276-5084 to discuss your case with truth in lending legal counsel.