The Third Circuit recently held that the invocation of the right to rescind under the federal Truth-in-Lending Act (TILA) does not toll the running of the statute of limitations. According to the Court, the borrower’s letter to Wells Fargo Home Mortgage Inc. requesting rescission from a loan she obtained for home improvements did not preserve the right to rescind beyond the TILA three-year limitations period. Thus the Third Circuit affirmed the lower court’s ruling awarding summary judgment to the lender. Paula Williams v. Wells Fargo Home Mortgage Inc., et al.(pdf), No. 10-1493, 3rd Cir. 2011.
The Third Circuit also found that the lower court did not err in finding that the loan obtained by the borrower, Paula Williams, was not subject to the Pennsylvania Home Improvement Finance Act (HIFA) or the federal Home Ownership Equity Protection Act (HOEPA). The panel explained that the loan transaction was not covered by HIFA because Williams, not the person doing the home improvement work, was under contract for the loan.
Williams, who is blind and disabled, paid off the mortgage on her Philadelphia home in 1997. In 2002, she received a flier from Target Home Remodeling (Target) and contacted the owner, Buddy Beegal, about having work done to her home. Beegal inspected the house and provided Williams with an estimate for home improvement work in the amount of $25,000. Williams testified that Beegal said he would obtain financing for Williams and that he advised her one month later that financing for the repairs had been approved.
H.E.M., a mortgage broker, submitted a loan application for Williams to Wells Fargo, but the paperwork did not reveal any agreement concerning home improvements done by Target. On November 14, 2002, Williams executed the loan agreement and borrowed $28,000 from Wells Fargo. Williams agreed to repay this amount at an interest rate of 9.375 percent, and she received $13,820.83 in proceeds from the loan after paying off delinquent real estate taxes, an overdue gas bill, and a bill due to a vendor.
In April 2003, Williams failed to make her mortgage payment in full and defaulted on the loan. Wells Fargo thereafter initiated foreclosure in the Philadelphia County Court of Common Pleas and in September 2003, obtained a default judgment. Thereafter, counsel for Williams sent a letter to Wells Fargo in November 2004 seeking to rescind the loan under TILA, but Wells Fargo did not respond.
Williams sued Wells Fargo and others in the Eastern District of Pennsylvania and accused the lender of violating TILA, HOEPA and HIFA. U.S. District Judge Legrome D. Davis awarded summary judgment to Wells Fargo after finding that Williams’ damages and rescission claims under TILA were time-barred. The judge also concluded that HIFA and HOEPA did not apply to the loan transaction. Williams appealed.
The Third Circuit held that TILA’s three-year statute of repose cannot be preserved by the invocation of the right to rescind. The appeals panel further found that the right to rescind is not subject to the doctrine of equitable tolling.