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Defenses Raised to a Foreclosure Action and an Unlawful Detainer Action: Case Law Updates from: Illinois

Posted By USFN, Monday, May 1, 2017
Updated: Tuesday, April 18, 2017

May 1, 2017

by Robert J. Deisinger
Anselmo Lindberg Oliver LLC
USFN Member (Illinois)

TILA Rescission and Damages Claims as Counterclaims to Foreclosure — Defenses predicated on the Truth in Lending Act (TILA or Act), 15 U.S.C. §§ 1601, et seq., and Regulation Z, 12 C.F.R. part 226, can sometimes be troublesome for mortgagees to defend because a borrower may assert a right to rescission (or damages) years after the loan closing. A recent appellate decision gives lenders a powerful new argument to defeat certain TILA damage claims. [Beneficial Illinois, Inc. v. Parker, 2016 Ill. App. Ct. (1st) 160186 (Dec. 12, 2016)].

In response to a foreclosure complaint brought by Beneficial, Randall Parker filed a counterclaim in which he alleged that he had timely exercised the right to rescind the mortgage loan as permitted by section 1635 of TILA. Under the Act, if a borrower does not receive the information and disclosures required by TILA and Regulation Z, a borrower may exercise a right to rescind the mortgage transaction up to three years after the consummation of the transaction. Parker’s countersuit claimed that he did not receive the information and disclosures required by law when his mortgage loan was originated. Parker also alleged that he exercised his right to rescind the mortgage transaction when his attorney mailed a letter to Beneficial within three years of the loan closing, but that Beneficial had failed to honor his rescission.

Parker’s counterclaims sought an order declaring the rescission to be proper, damages for failure to make proper material and required disclosures, and damages for failure to honor his election to rescind the transaction. The trial court dismissed the counterclaims as untimely, ruling that even if the notice of rescission had been tendered within three years of the loan closing, the counterclaim itself was untimely because it was brought more than three years after the closing.

Several months after the trial court dismissed Parker’s counterclaims, the U.S. Supreme Court held that “a borrower need only provide written notice to a lender in order to exercise his right to rescind.” Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. __, 135 S. Ct. 790, 793 (2015). When Beneficial voluntarily dismissed its foreclosure case, Parker filed an appeal of the involuntary dismissal of his counterclaims, asserting that Jesinoski demonstrated that his claims were not untimely. In light of the U.S. Supreme Court’s unambiguous ruling in Jesinoski, the Illinois Appellate Court in Beneficial v. Parker ruled that if Parker had mailed his notice of rescission to Beneficial, then he would have a plausible claim for rescission. However, the Appellate Court also ruled that neither Jesinoski nor TILA is so broad as to save all of Parker’s claims.

Among the claims asserted by Parker was a direct claim for damages arising from the purported failure to provide proper TILA disclosures in connection with the loan closing. The Act ordinarily requires those claims to be brought within one year of the closing. 15 U.S.C. § 1640(e). Conversely, the Act also contains another provision which states that “[t]his subsection does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law.”

Parker maintained that this exception to the general limitations provision permitted him to revive his stale damages claim because it was asserted in defense of a foreclosure action. Because TILA permits the claims “except as otherwise provided by State law,” the Appellate Court looked to Illinois law to determine whether Parker’s claim was timely. Illinois law is clear that stale counterclaims may only be brought if viable when the cause of action forming the basis of the plaintiff’s primary claim arises. (See 735 ILCS 5/13-207.) Accordingly, because Parker’s damages claim would not be permitted under Illinois State law, as it was time-barred before the foreclosure action accrued, the Appellate Court ruled that this claim for damages was properly dismissed.

In sum, if the limitations period on a TILA damages claim for improper disclosures runs out before the borrower defaults on his or her mortgage, the borrower may not assert that damage claim as a counterclaim to the foreclosure action. Once that claim is barred by the statute of limitations, it cannot be revived.

Editor’s Note: The author’s firm represented the plaintiff-appellee Beneficial Illinois, Inc. in the Beneficial v. Parker case summarized here.

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