Third Circuit Rules Loan Rescission Simply Requires Notice

In a case of first impression, the U.S. Court of Appeals for the Third Circuit has ruled that a lendee who has not received all of the required disclosures from the lender exercises the right to rescind a loan under the federal Truth in Lending Act simply by notifying the lender in writing within three years of consummating the transaction. The lendee does not, however, need to file suit seeking declaration of rescission within that three-year time period, the court found.

A three-judge Third Circuit panel in Sherzer v. Homestar Mortgage Services reversed a ruling by U.S. District Court for the Eastern District of Pennsylvania Judge Mary A. McLaughlin that had held that suits for rescission filed more than three years after a loan’s closing date are time-barred under Section 1635(f) of the TILA, which states that an obligor’s right to rescind a loan "expire[s] three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first."