Daniel Sherzer v. Homestar Mortgage Services

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________

No. 11-4254
___________

DANIEL R. SHERZER;
GERALDINE SHERZER,

Appellants

v.

HOMESTAR MORTGAGE SERVICES;
HSBC BANK USA;
DANA CAPITAL GROUP, INC.;
THE CIT GROUP CONSUMER FINANCE, INC.;
MERCURY MORTGAGE PARTNERS
__________

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 07-cv-05040)
District Judge: Honorable Mary A. McLaughlin
___________

Argued September 19, 2012
Before: SLOVITER, RENDELL and
HARDIMAN, Circuit Judges.

(Filed: February 5, 2013)
Matthew B. Weisberg [ARGUED]
Weisberg Law
7 South Morton Avenue
Morton, PA 19070
Attorneys for Plaintiffs-Appellants

Sandra M. Di Iorio
Joe N. Nguyen
Nipun J. Patel
Henry F. Reichner [ARGUED]
Reed Smith
1650 Market Street
2500 One Liberty Place
Philadelphia, PA 19103

Edmund D. Krulewicz
Kellie A. Lavery
Reed Smith
136 Main Street
Suite 250, Princeton Forrestal Village
Princeton, NJ 08540
Attorneys for Appellees Homestar Mortgage Services
and HSBC Bank USA

Kirk D. Jensen [ARGUED]
Michael R. Williams
BuckleySandler
1250 24th Street, N.W.
Suite 700
Washington, DC 20037
Attorneys for Amicus Appellee American Bankers
Assn.

2
Peter G. Wilson [ARGUED]
Consumer Financial Protection Bureau
1700 G Street, N.W.
Washington, DC 20006

Rachel Rodman
Consumer Financial Protection Bureau
1500 Pennsylvania Avenue, N.W.
Attn: 1801 L Street, N.W.
Washington, DC 20229
Attorneys for Amicus Curiae Consumer Financial
Protection Bureau

____________

OPINION OF THE COURT
____________

HARDIMAN, Circuit Judge.

This appeal arises under the Truth in Lending Act
(TILA), 15 U.S.C. § 1601 et seq. Congress enacted TILA in
1968 to promote the ―informed use of credit.‖ Id. § 1601(a).
To achieve this goal, TILA sought ―to assure a meaningful
disclosure of credit terms so that the consumer will be able to
compare more readily the various credit terms available to
him and avoid the uninformed use of credit.‖ Id. A
consumer who does not receive the requisite disclosures
regarding a loan secured by his principal dwelling may
rescind the loan agreement. See id. § 1635.

Consumers have an absolute right to rescind for three
business days after closing on the loan. Id. § 1635(a). To
exercise this ―no questions asked‖ right of rescission, the

3
obligor on the mortgage note must simply notify the creditor
of his intention to do so, consistent with the applicable
regulations. Id. § 1635(a), (b). No court filing is necessary to
effectuate this right.

If the lender fails to make the requisite disclosures
before the loan commences, the three-day restriction on the
right of rescission does not begin to run. A consumer who
does not receive the requisite disclosures has a right to
rescind that lasts until three days after the disclosures are
received. Id. § 1635(a). That right of rescission is not
perpetual, however, even if the consumer never receives all of
the requisite disclosures. The right ―expire[s] three years
after the date of consummation of the transaction or upon the
sale of the property, whichever occurs first.‖ Id. § 1635(f).
This appeal requires us to decide what action an obligor must
take to exercise the right of rescission before that three-year
period expires.

I

Appellants Daniel and Geraldine Sherzer obtained two
loans secured by mortgages on their principal dwelling from
Homestar Mortgage Services: one for $705,000 and one for
$171,000. The loans closed on August 26, 2004, and
Homestar later assigned both loans to HSBC Bank. On May
11, 2007—less than three years after the closing date—the
Sherzers‘ counsel wrote a letter to Homestar and HSBC
(collectively, Lenders), which asserted that Homestar had
failed to provide all of the disclosures required by TILA. The
letter also claimed that these failures were material violations,
and informed the Lenders that the Sherzers were exercising
their right to rescind the loan agreements under 15 U.S.C.
§ 1635.

4
 HSBC agreed to rescind the smaller of the two loans.
As for the much larger loan, however, HSBC denied that
rescission was appropriate, claiming that Homestar had not
materially violated TILA. The Sherzers filed suit in the
United States District Court for the Eastern District of
Pennsylvania against the Lenders on November 30, 2007—
more than three years after their closing date—seeking a
declaration of rescission, remedies for rescission, and
damages.

The Lenders filed a motion for judgment on the
pleadings, arguing that suits for rescission filed more than
three years after a loan‘s closing date are time-barred under
15 U.S.C. § 1635(f), even when the obligor mailed a notice of
rescission within the three-year period. The Sherzers
responded that they exercised their right of rescission and
rescinded the loan agreement by mailing a written notice;
they were not also required to file suit within the three-year
period. The District Court agreed with the Lenders, granted
the motion for judgment on the pleadings, and dismissed the
case. The Sherzers appealed.

II

The District Court had jurisdiction over the Sherzers‘
claims pursuant to 28 U.S.C. § 1331 and we have jurisdiction
under 28 U.S.C. § 1291. We exercise plenary review over a
judgment on the pleadings. Allstate Prop. & Cas. Ins. Co. v.
Squires, 667 F.3d 388, 390 (3d Cir. 2012). Judgment on the
pleadings is appropriate if the Lenders, as the movants,
establish that there is no issue of material fact and that they
are entitled to judgment as a matter of law. See id. In
considering the motion for judgment on the pleadings, the
District Court was required to accept all of the Sherzers‘
allegations as true and draw all reasonable inferences in their
favor. See id.

5
 III

The question presented by this appeal is simple: does
an obligor exercise his right to rescind a loan subject to TILA
by so notifying the creditor in writing, or must the obligor file
suit before the three-year period expires? The answer to the
question is more complicated.

The Sherzers and their amicus, the Consumer
Financial Protection Bureau (CFPB), argue that § 1635
―establishes a private, non-judicial mechanism for consumers
to rescind mortgage loans by providing notice to their
lenders.‖ Br. of CFBP at 11. Under this view, an obligor
who has not received material disclosures can exercise his
right to rescission and rescind his loan agreement simply by
sending written notice to the lender within the three-year
period. After notice has been sent, the lender and the
borrower incur certain obligations under § 1635(b).
Specifically, the lender must return any money or property
that it received as downpayment, and must take any actions
necessary to show that it no longer has a security interest in
the property. See 15 U.S.C. § 1635(b). If the lender does not
comply with § 1635(b)—because, for example, it contends
that all relevant disclosures have been made such that the
obligor had no right to rescind the agreement—the obligor
may file an action to recover the money and property owed
and to quiet title. Under this view, rescission of the loan
agreement occurs when a valid notice of rescission is sent, not
when a court enters an order enforcing the obligor‘s rights.
The subsequent legal action would simply determine whether
a valid rescission had occurred, and, if so, the court would
enforce the respective obligations of the parties. This
interpretation of § 1635 accords with the Eleventh Circuit‘s
description of the rescission process in Williams v. Homestake
Mortgage Co., 968 F.2d 1137, 1139–40 (11th Cir. 1992)
(explaining that rescission occurs automatically upon notice),

6
and would lead to the same result reached by the Fourth
Circuit in Gilbert v. Residential Funding LLC, 678 F.3d 271,
277–78 (4th Cir. 2012) (holding that a consumer need only
send notice of rescission within three years of the closing
date).1

The Lenders and their amici—the American Bankers
Association, Consumer Bankers Association, and Consumer
Mortgage Coalition—argue that a consumer‘s unilateral
notice of rescission does not automatically rescind a loan
agreement. See Rosenfield v. HSBC Bank, USA, 681 F.3d
1172, 1188 (10th Cir. 2012); Yamamoto v. Bank of N.Y., 329
F.3d 1167, 1172 (9th Cir. 2003); Large v. Conseco Fin.
Servicing Corp., 292 F.3d 49, 54–55 (1st Cir. 2002). The
Lenders argue that when there is a dispute regarding the
propriety of rescission, the obligor must file suit within three
years of the closing date to exercise his right of rescission or

1
In Gilbert, the Fourth Circuit held that an obligor can
exercise his right to rescission simply by sending written
notice of his intent to rescind within the three-year period. If
the borrower has sent timely written notice, then he can file
suit to enforce his right to rescission after the three-year
period has passed. The loan agreement is not technically
rescinded until a court enters an order granting a rescission.
Gilbert, 678 F.3d at 277 (distinguishing between ―the issue of
whether a borrower has exercised her right to rescind‖ and
―the issue of whether rescission has, in fact, been completed
and the contract voided,‖ and explaining that ―[t]o complete
the rescission and void the contract . . . . [e]ither the creditor
must acknowledge that the right of rescission is available and
the parties must unwind the transactions amongst themselves,
or the borrower must file a lawsuit so that the court may
enforce the right to rescind.‖ (internal quotation marks
omitted)).

7
he will be forever time-barred. This view has been adopted
by the Ninth and Tenth Circuits. See Rosenfield, 681 F.3d at
1188; McOmie-Gray v. Bank of Am. Home Loans, 667 F.3d
1325, 1326 (9th Cir. 2012). Under this view, rescission
occurs when the parties agree or when a court enters an order
of rescission. According to the Lenders, the Supreme Court
―implicitly recognized‖ that an obligor must both send written
notice and file suit within three years of the closing date in
Beach v. Ocwen Federal Bank, 523 U.S. 410, 411–13 (1998).

In our opinion, the text of § 1635 and its implementing
regulation (Regulation Z) supports the view that to timely
rescind a loan agreement, an obligor need only send a valid
notice of rescission. Beach is consistent with this view, as it
does not address how an obligor must exercise his right of
rescission within the three-year period. Although the
Lenders‘ amici have raised practical concerns that may arise
if obligors are permitted to rescind their loans through written
notice alone, we find ourselves constrained by the text of
§ 1635 in spite of those concerns.

A

In determining what the Sherzers had to do to rescind
their loan agreement pursuant to § 1635, we begin with the
statutory text. United States v. Ron Pair Enters., Inc., 489
U.S. 235, 241 (1989). When ―the statute‘s language is plain,
the sole function of the courts is to enforce it according to its
terms.‖ Id. (internal quotation marks omitted). Here, the
language of the statute provides that an obligor exercises his
right of rescission when he sends notice to the creditor; it says
nothing about a court filing.

Sections 1635(a) and (b) explicitly address both how
the right of rescission is exercised and when the rights and
corresponding obligations flowing therefrom are incurred by

8
the parties to the loan. Section 1635(a) provides that ―the
obligor shall have the right to rescind the transaction . . . by
notifying the creditor, in accordance with regulations of the
Bureau, of his intention to do so.‖ 15 U.S.C. § 1635(a)
(emphasis added). Regulation Z, in turn, specifies that the
obligor must notify his lender ―by mail, telegram, or other
means of written communication.‖ 12 C.F.R.
§§ 1026.15(a)(2), 1026.23(a)(2). Neither § 1635(a) nor
Regulation Z states that the obligor must also file suit; both
refer exclusively to written notification as the means by
which an obligor exercises his right of rescission.

Section 1635(b), which describes the ―[r]eturn of
money or property following rescission,‖ suggests that
rescission occurs automatically when the obligor validly
exercises his right to rescind. It states, in relevant part:

When an obligor exercises his right to rescind
under subsection (a) of this section, he is not
liable for any finance or other charge, and any
security interest given by the obligor, including
any such interest arising by operation of law,
becomes void upon such a rescission. Within
20 days after receipt of a notice of rescission,
the creditor shall return to the obligor any
money or property given as earnest money,
downpayment, or otherwise, and shall take any
action necessary or appropriate to reflect the
termination of any security interest created
under the transaction.

15 U.S.C. § 1635(b) (emphasis added). When an obligor
exercises his right to rescind as defined in § 1635(a)—that is,
as Regulation Z states, when he notifies the creditor by mail,
telegram, or other means of written communication that he is
rescinding—he is free of any liability for payments, the

9
security interest ―becomes void,‖ and the creditor incurs an
obligation to return money or property given. As with
§ 1635(a), there is no mention of filing a suit at law or equity.
Rather, § 1635(b) states that the creditor must return money
or property ―[w]ithin 20 days after receipt of a notice of
rescission‖—not within twenty days of a court order stating
that the obligor is entitled to rescind. See id.2

Additional support for the proposition that rescission
occurs upon transmittal of valid written notice is also found in
§ 1635(f). That section, which establishes the three-year
limitation, makes no mention of filing a suit or bringing a
claim:

An obligor‘s 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 . . . .

Id. § 1635(f) (emphasis added); see also Beach, 523 U.S. at
417 (―[Section 1635(f)] says nothing in terms of bringing an
2
Regulation Z uses similar language, except that it
refers to ―[w]hen a consumer rescinds a transaction,‖ as
opposed to ―when an obligor exercises his right to rescind.‖
12 C.F.R. §§ 1026.15(d), 1026.23(d) (stating that the
―security interest . . . becomes void‖ and that the ―creditor
shall return‖ money or property given). The reference to a
consumer rescinding the transaction—as opposed to a court
granting rescission—further supports the view that rescission
occurs upon transmission of valid written notice.

10
action but instead provides that the ‗right of rescission [under
the Act] shall expire‘ at the end of the time period.‖);
McOmie-Gray, 667 F.3d at 1327 (―Section 1635 does not
explicitly establish a time limit in which borrowers must
bring suit for rescission if a lender does not comply with the
rescission request. Indeed, it ‗says nothing in terms of
bringing an action‘ or ‗a suit‘s commencement.‘‖ (quoting
Beach, 523 U.S. at 417)). In contrast, statutes that
circumscribe the time for bringing suit—statutes of limitation
and statutes of repose alike—typically refer either to causes
of action or the commencement of a civil action.3 Thus, the

3
See Beach, 523 U.S. at 416 (―[M]ost statutes of
limitation provide either that ‗all actions . . . shall be brought
within‘ or ‗no action . . . shall be brought more than‘ so many
years after ‗the cause thereof accrued.‘‖ (quoting Note,
Developments in the Law—Statutes of Limitations, 63 Harv.
L. Rev. 1177, 1179 (1950))); Lieberman v. Cambridge
Partners, L.L.C., 432 F.3d 482, 490 (3d Cir. 2005) (―Unlike a
statute of limitations, a statute of repose is not a limitation of
a plaintiff‘s remedy, but rather defines the right involved in
terms of the time allowed to bring suit.‖ (quoting P. Stolz
Family P’ship v. Daum, 355 F.3d 92, 102 (2d Cir. 2004)));
see also, e.g., 15 U.S.C. § 78i(f) (―No action shall be
maintained to enforce any liability created under this section,
unless brought within one year after the discovery of the facts
constituting the violation and within three years after such
violation.‖) (recognized as a statute of repose in Lampf,
Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S.
350, 360 n.6, 363 (1991)); 42 Pa. Cons. Stat. Ann. § 5536(a)
(―[A] civil action or proceeding . . . must be commenced
within 12 years after completion of construction of such
improvement to recover damages . . . .‖) (recognized as a
statute of repose in Luzadder v. Despatch Oven Co., 834 F.2d
355, 358 (3d Cir. 1987)).

11
absence of any reference to causes of action or the
commencement of suits in § 1635 also suggests that
rescission may be accomplished without a formal court filing.

B

Only two provisions in § 1635 make any mention of
courts, and both are silent as to whether court involvement is
necessary to effect rescission. First, § 1635(b) notes that
―[t]he procedures prescribed by this subsection shall apply
except when otherwise ordered by a court.‖ Under this
provision a court may intervene in the process that ensues
after the obligor has sent written notification. That is, if
either the obligor or the creditor sues after the obligor sends
notice of rescission, the court has the discretion to modify the
order in which the obligor and creditor are required to
exchange property or disclaim security interests. See
Williams, 968 F.2d at 1141–42. This provision in no way
suggests that court involvement is a sine qua non for
rescission.

Second, § 1635(g), which was added as part of the
1980 amendments to TILA, states that ―in addition to
rescission the court may award relief under section 1640 of
this title for violations of this subchapter not relating to the
right to rescind.‖ This provision was added simply to clarify
that an obligor who rescinds pursuant to § 1635 is not
precluded from also seeking damages under 15 U.S.C.
§ 1640. See Brown v. Nationscredit Fin. Servs. Corp., 349 F.
Supp. 2d 1134, 1137 (N.D. Ill. 2005) (―Prior to the [1980]
amendment, some courts did not allow plaintiffs to
concurrently sue for rescission under § 1635 and damages
under § 1640, but instead required borrowers to elect one of
the two remedies.‖); S. Rep. No. 96-368, at 29 (1979) (―[T]he
bill explicitly provides that a consumer who exercises his
right to rescind may also bring suit under the Act for other

12
violations not relating to rescission. The Act is currently
ambiguous on this issue, and this section codifies the majority
position of the courts.‖); see also Vallies v. Sky Bank, 591
F.3d 152, 163 n.17 (3d Cir. 2009) (―Section 1635 provides
the rescission remedy independently, explicitly, and in
addition to civil damages under § 1640.‖ (citing 15 U.S.C.
§ 1635(g))); Andrews v. Chevy Chase Bank, 545 F.3d 570,
576 (7th Cir. 2008) (―Section 1635(g) is a simple remedial
cross-reference; it provides that rescission plaintiffs may also
seek damages under § 1640. It does no more.‖). Thus,
§ 1635(g) sheds no light on what an obligor must do to
exercise his right of rescission.

In sum, nothing in the text of the statute supports the
view that ―it is the filing of an action in a court . . . that is
required to invoke the right limited by the TILA statute of
repose,‖ Rosenfield, 681 F.3d at 1183 (rejecting the notice-
only view). See Gilbert, 678 F.3d at 277 (―Simply stated,
neither 15 U.S.C. § 1635(f) nor Regulation Z says anything
about the filing of a lawsuit, and we refuse to graft such a
requirement upon them.‖). But see Large, 292 F.3d at 54–55
(suggesting that the ―natural reading of [the] language [in
§ 1635(b)] is that the security interest becomes void . . . either
because the creditor acknowledges that the right of rescission
is available, or because the appropriate decision maker has so
determined,‖ but failing to explain what statutory language
―natural[ly]‖ supports that reading).4 Adopting the

4
The Lenders‘ amici argue that rescission, as it is
generally understood, ―is a court-ordered ‗unwinding‘ of a
contract,‖ which necessarily ―involves a judicial termination
of a party‘s contractual obligations.‖ Br. of ABA at 7
(quoting Jones v. InfoCure Corp., 310 F.3d 529, 535 (7th Cir.
2002) (discussing whether parties were entitled to the
equitable remedy of rescission)). This is only partly true.

13
interpretation of the statute advocated by the Lenders would
require us to infer that the statute contains additional,
unwritten requirements with which obligors must comply—
an inference that seems particularly inappropriate in light of
the fact that TILA is a remedial statute that we must construe
liberally. See Ramadan v. Chase Manhattan Corp., 156 F.3d
499, 502 (3d Cir. 1998). We thus join the Fourth Circuit in
holding that an obligor exercises his right of rescission by

Historically, two types of rescission have been available to
parties in other contexts: rescission in equity and rescission at
law. See Omlid v. Sweeny, 484 N.W.2d 486, 490 & n.3 (N.D.
1992) (distinguishing between rescission at law and rescission
in equity); Dan B. Dobbs, Law of Remedies § 4.8 (2d ed.
1993) (same). The first, rescission in equity, does involve a
court-ordered unwinding of a contract. See Omlid, 484
N.W.2d at 490 n.3 (explaining that ―the contract continues to
exist until set aside by the equity decree‖ (quoting Hugh S.
Koford, Comment, Rescission at Law and in Equity, 36 Calif.
L. Rev. 606, 606 (1948))). But the second, rescission at law,
operates akin to the way the Sherzers suggest that § 1635
operates: it occurs automatically when parties have taken the
requisite action, and any subsequent suit is brought to enforce
the rights flowing from rescission. Williams, 968 F.2d at
1140 (describing § 1635(b) as a ―reordering of common law
rules governing rescission‖); see also Peterson v. Highland
Music, Inc., 140 F.3d 1313, 1322 (9th Cir. 1998) (―When a
party gives notice of rescission, it has effected the rescission,
and any subsequent judicial proceedings are for the purpose
of confirming and enforcing that rescission.‖); Omlid, 484
N.W.2d at 490 n.3; Jones v. Bohn, 311 N.W.2d 211, 213
(S.D. 1981). Thus, little can be inferred from the way that
rescission operates in other contexts, as the interpretations
proffered by both parties have historical analogues.

14
sending the creditor valid written notice of rescission, and
need not also file suit within the three-year period.5 See
Gilbert, 678 F.3d at 278; see also Williams, 968 F.2d at
1139–40 (discussing whether a court may modify procedures
for rescission, and explaining in the course of that discussion
that rescission occurs automatically upon notice).

IV
As we indicated at the outset, the answer to the
question presented by this appeal is not pellucid, although we
do think it is controlled by the statutory language. While the

5
We disagree, to some extent, with the Fourth
Circuit‘s characterization of the rescission process. As noted
above, the court in Gilbert distinguished between ―the issue
of whether a borrower has exercised her right to rescind‖ and
―the issue of whether rescission has, in fact, been completed
and the contract voided.‖ 678 F.3d at 277. It determined that
borrowers need only send written notice within three years to
exercise the right of rescission. Borrowers who had timely
exercised their right of rescission could file suit after the
three-year period had passed. Id. at 277–78. It also
explained, however, that rescission does not occur
automatically; the actual rescission of the loan agreement
occurs when the parties agree to rescission or when the court
enters an order granting rescission. Id. at 277. We find that
the statutory language of §§ 1635(a) and (b) suggests that
rescission occurs at the time the obligor exercises his right to
rescission, and hold today that the contract is voided at the
time valid notice is sent, pursuant to 15 U.S.C. § 1635(b).
We agree, however, with the Fourth Circuit‘s determination
that the § 1635(f) bar does not preclude consumers from
filing suit after the three-year period has passed, as long as
they send written notice of rescission within that three-year
period.

15
Lenders and their amici raise several concerns worthy of our
careful attention, we find them unpersuasive for the reasons
that follow.
A

First, the Lenders and their amici argue that our
interpretation of § 1635 is foreclosed by the Supreme Court‘s
decision in Beach. This view has been adopted by two of our
sister courts. See Rosenfield, 681 F.3d at 1182 (―[W]e believe
that Beach is dispositive of the instant question.‖); McOmie-
Gray, 667 F.3d at 1328 (―Were we writing on a blank slate,
we might consider whether notification within three years of
the transaction could extend the time limit imposed by §
1635(f). But under the case law of this court and the Supreme
Court, rescission suits must be brought within three years
from the consummation of the loan, regardless whether notice
of rescission is delivered within that three-year period.‖).
According to this view, Beach implicitly recognized that it is
insufficient for consumers to mail notice to their lenders
within the three-year period required by § 1635(f); they must
file suit within the three-year period as well. E.g. Rosenfield,
681 F.3d at 1182 (adopting the view that ―the Supreme Court
has definitively foreclosed—through the implicit instruction
of Beach—any argument that a consumer may exercise her
right to rescind [by notifying the creditor of her intent to
rescind in writing within the prescribed time limit].‖).

Unlike these courts, we do not read Beach to answer
the question presented in this appeal. Beach addressed
whether obligors who failed to provide notice of rescission
within the three-year period may nevertheless assert
rescission as an affirmative defense in foreclosure
proceedings. Beach, 523 U.S. at 411–13. The borrowers in
Beach refinanced their house in 1986, and took no action
between 1986 and 1989 that could be construed as exercising
their right to rescind. They simply stopped making mortgage

16
payments five years after the closing, and the bank began
foreclosure proceedings. Id. at 413. During the foreclosure
proceedings, the borrowers asserted as an affirmative defense
that the bank had failed to provide certain material
disclosures. Id. at 413–14. They argued that because
§ 1635(f) is a statute of limitations, it bars only the
commencement of a suit, not the defensive use of rescission.
Id. at 415.

In addressing the borrowers‘ claims, the Supreme
Court considered ―whether § 1635(f) is a statute of limitation,
that is, whether it operates, with the lapse of time, to
extinguish the right which is the foundation for the claim or
merely to bar the remedy for its enforcement.‖ Id. at 416
(internal quotation marks and alteration omitted). It held that
§ 1635(f) does not merely limit the time for filing a suit;
instead, it provides that the right of rescission itself lasts for
three years. Id. at 417 (explaining that § 1635(f) is phrased in
terms of the duration of the right). As a result, obligors who
have not exercised their right of rescission within the three-
year period cannot later assert rescission as an affirmative
defense. See id. at 417–19. Thus, under Beach, an obligor
must exercise his right of rescission within three years of the
commencement of the loan; the right is extinguished once that
period has passed. Id. at 419.

Critical to this appeal, nowhere in Beach does the
Court address how an obligor must exercise his right of
rescission within that three-year period. This omission is
unsurprising since the obligors in Beach did not claim to have
taken any action to rescind their loan before the bank initiated
foreclosure proceedings. See Gilbert, 678 F.3d at 278 (―The
Beach Court did not address the proper method of exercising
a right to rescind or the timely exercise of that right.‖); Calvin
v. Am. Fid. Mortg. Servs., Inc., 2011 WL 1672064, at *2
(N.D. Ill. May 3, 2011) (―Beach determined only that the

17
right to rescission expired after three years for purposes of its
assertion as a defense as well as for bringing suit. Beach did
not discuss how the right must be asserted within the three-
year period.‖ (internal citation omitted)). Nevertheless, the
Lenders argue that certain language in the opinion implies
that, when rescission is disputed, obligors must file suit
within three years of the closing.

Some of the language upon which the Lenders rely has
no obvious relevance to whether rescission is effected by
sending notice or through filing suit. For example, the
Lenders highlight the following statement: ―[T]he Act permits
no federal right to rescind, defensively or otherwise, after the
3-year period of § 1635(f) has run.‖ Beach, 523 U.S. at 419;
see also Rosenfield, 681 F.3d at 1187 (emphasizing this
statement); McOmie-Gray, 667 F.3d at 1328 (same). This
passage is consistent with the view that obligors must file suit
within three years, but it is also consistent with our view that
they need only send notice of rescission to their lenders
during that period, if that is how the right of rescission is
exercised. The most that can be gleaned from the oft-quoted
statement is that, however the right of rescission is to be
exercised, it must be done within three years.

Other language identified by the Lenders provides only
weak support for the view that obligors must file suit within
three years. They emphasize the following statement:

Section 1635(f) . . . 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 suit‘s

18
 commencement but of a right‘s duration, which
it addresses in terms so straightforward as to
render any limitation on the time for seeking a
remedy superfluous.

Beach, 523 U.S. at 417 (alterations in original); see also
Rosenfield, 681 F.3d at 1181 (emphasizing this statement);
McOmie-Gray, 667 F.3d at 1328 (same). The Lenders are
correct that some of this passage could be read as inconsistent
with the notice-only view; if obligors could exercise their
right of rescission simply by sending written notice within
three years, and then file a suit to enforce the rights flowing
from rescission after the three-year period has passed, then a
―limitation on the time for seeking a remedy‖ would not be
―superfluous.‖ But portions of the passage could be used as
support for our notice-only view, as well. The Court
explicitly observed that § 1635(f) ―says nothing in terms of
bringing an action,‖ Beach, 523 U.S. at 417, and this silence
supports the Sherzers‘ view that § 1635 operates as a private
enforcement mechanism. In any event, because the Court
was not considering the method by which an obligor must
exercise his right of rescission, the passage provides only
tenuous support for either view. In resolving the question at
issue here, we rely on the statutory language, not on the
debatable implications of dicta.

B

The Lenders and their amici also suggest that it would
be problematic for a court to recognize that rescission has
occurred after the three-year period has passed because the
obligor would no longer have a ―right of rescission‖ to
enforce at the time of the suit. E.g. Br. of ABA at 7
(―Perhaps more fundamentally, courts have never assumed
the role of enforcing a right that has already been
extinguished.‖). But while the obligor no longer has the right

19
of rescission after the three-year period has passed, he does
have the right to the return of his property and to clear title—
the rights flowing from rescission—and it is these rights that
permit him to bring suit.

We also note that, if an obligor could never seek court
enforcement after his right of rescission has expired, as the
Lenders suggest, it is difficult to imagine how the obligor‘s
three-day, absolute right of rescission could operate
effectively. If an obligor who has received all material
disclosures does not exercise his three-day right to rescission,
it expires; he has no right, on the fourth day, to demand
rescission.6 But if the obligor does exercise this right, then
the lender has twenty days to respond by returning any money
or property that it has received from the obligor, and to ―take
any action necessary or appropriate to reflect the termination
of any security interest created under the transaction.‖ 15
U.S.C. § 1635(b). If, after twenty days have passed, the
lender fails to respond to the obligor‘s notice, the obligor may
file suit against the lender—even though the three-day period
in which he has the absolute right of rescission has long since
passed. The obligor is not required to file suit against the
creditor during the three-day period; indeed, because the
lender has twenty days to respond to the consumer‘s notice,

6
Nor could the consumer raise the fact that he had a
three-day right of rescission as an affirmative defense in later
foreclosure proceedings, or claim that equitable tolling should
extend the three-day period. Thus, like § 1635(f), this
provision operates in at least some respects like a statute of
repose. See, e.g., Rosenfield, 681 F.3d at 1181 (finding that,
because the Beach Court held that the consumers could not
assert the right to rescind as an affirmative defense in
foreclosure proceedings under § 1635(f), § 1635(f) is a statute
of repose).

20
the consumer would seemingly have no basis for filing a suit
during that time. But he can file suit to compel the lender to
comply with § 1635(b) if the lender does not, for example,
return within twenty days any loan fees that were paid. After
the three-day period has expired, the obligor no longer has a
―right of rescission‖—but because he exercised that right in a
timely manner, he now has a statutory right to his property
and to clear title. The three-year right of rescission should be
understood to work in the same way: it expires if it is not
exercised in three years, but borrowers who have exercised
the right can file suit after the three-year period has passed.

C

The Lenders‘ amici express several practical concerns
that may arise if rescission can be effected simply by sending
valid written notice. First and foremost is the problem of the
obligor transmitting notice of rescission when he has no cause
to do so. They argue that allowing obligors to unilaterally
rescind by sending notice empowers them to void a lender‘s
security interest, even when the obligor has, in fact, received
all required disclosures. Second, they argue that this
interpretation may create increased uncertainty with respect to
title, and could increase costs for both lenders and consumers.
We find the first concern unwarranted, and the second
concern, while likely valid, does not permit us to disregard
the text of § 1635.

According to the Lenders‘ amici, under the notice-only
interpretation, the lender‘s security interest would become
instantly void by law even when the obligor sends an invalid
notice. This concern has also been expressed by the Ninth
Circuit. See Yamamoto, 329 F.3d at 1172 (―[I]t cannot be that
the security interest vanishes immediately upon the giving of
notice. Otherwise, a borrower could get out from under a
secured loan simply by claiming TILA violations, whether or

21
not the lender had actually committed any.‖). The notice-
only holding we adopt today will not lead to such a result.
Rescission of the loan agreement occurs when an obligor with
a valid TILA claim provides the lender with written notice.
That notice may be ineffective because the obligor has, in
fact, received all material disclosures. It may also be
ineffective because it is fraudulent—if, for example, the
obligor does not have the intent or the ability to return the
loan proceeds that he has received from the lender.7 If the
borrower fails to exercise a valid right to rescission, the
lender maintains its security interest in the property and does
not incur any obligations toward the borrower. A lender who
believes an obligor‘s notice of rescission is invalid may
choose to file suit to resolve any uncertainty.

Even when the obligor does validly rescind the loan,
certain protections ensure that the lender does not become an
unsecured creditor in the event the obligor cannot repay the
loan proceeds. Section 1635(b) provides that the lender‘s
security interest ―becomes void‖ at the time of rescission—
before the obligor incurs any repayment obligations. But if
the obligor rescinds his loan and then later determines that he
does not have the ability to return the loan proceeds, courts
are not required to treat the lender as an unsecured creditor.
One of the goals of § 1635 is ―to return the parties most
nearly to the position they held prior to entering into the
transaction.‖ Williams, 968 F.2d at 1140. To achieve this
goal, courts are permitted to rearrange the parties‘ obligations

7
By sending a notice of rescission, the obligor
becomes obliged to tender any property he has received from
the lender ―[u]pon the performance of the creditor‘s
obligations.‖ 15 U.S.C. § 1635(b). Thus, a notice of
rescission is not effective if the obligor lacks either the
intention or the ability to perform, i.e., repay the loan.

22
to one another under § 1635(b). A court may find that
rescission has occurred, but choose to condition the release of
a security interest on the return of the loan proceeds to protect
the lender.

Second, the Lenders‘ amici contend that allowing
obligors to rescind by written notice alone may cloud title
held by banks on foreclosure, a concern noted by the Supreme
Court in Beach. 523 U.S. at 418–19. If obligors were
required to bring suit to exercise the right of rescission, both
the lender and the obligor could know with more certainty the
status of the loan agreement (whether is has been rescinded,
or may be in the future) and the secured property (whether the
lender has a security interest in it). Three years after the
closing date of the loan, if the obligor had not filed suit
demanding rescission, he would never be able to claim that
rescission should have occurred. Ten years after the closing
date, if the lender initiates foreclosure proceedings, it could
be confident that the obligor would not be able to claim as a
defense that the agreement had actually been rescinded.

The same is not true if obligors are only required to
send written notice to rescind. An obligor who has sent a
written notice of rescission to his lender but received no
response will not be able to wait indefinitely before filing a
lawsuit to enforce the rescission, recover his property, and
obtain the release of the security interest because statutes of
limitation will constrain his ability to file suit. See Graham
Cnty. Soil & Water Conservation Dist. v. United States ex rel.
Wilson, 545 U.S. 409, 414 (2005) (explaining that, if a federal
statute does not expressly supply a limitations period, courts
―generally ‗borrow‘ the most closely analogous state
limitations period‖); Agency Holding Corp. v. Malley-Duff &
Assocs., Inc., 483 U.S. 143, 146–50 (1987) (borrowing statute

23
of limitations from an analogous federal statute).8 Thus, if
the obligor mails a notice of rescission but takes no action for
ten years, the lender can at least be assured that the obligor
will not be able to file a timely court action. If, however, ten
years after the letter was sent the lender initiates foreclosure
proceedings, the obligor may be able to raise the fact of
rescission as a defense. See Beach, 523 U.S. at 415
(explaining that ―as a general matter a defendant‘s right to
plead ‗recoupment,‘ a ‗defense arising out of some feature of
the transaction upon which the plaintiff‘s action is grounded,‘
survives the expiration of the period provided by a statute of
limitation that would otherwise bar the recoupment claim as
an independent cause of action.‖ (internal citations omitted)).
Permitting obligors to assert defenses related to rescission
years after the three-year period has passed would be costly,9

8
The CFPB suggests that, in determining whether an
obligor seeking to enforce his rights has filed suit in a timely
manner, courts may borrow from the one-year statute of
limitations in § 1640 or from analogous state statutes of
limitations. Br. of CFPB at 26 n.6; see, e.g., In re Hunter,
400 B.R. 651, 661–62 (Bankr. N.D. Ill. 2009) (borrowing
from § 1640); Graham Cnty. Soil & Water Conservation
Dist., 545 U.S. at 422 (borrowing from state limitations
period). Because the Sherzers filed suit six months after
sending the notice of rescission, we do not reach the question
of what statute of limitations would apply in this context.
9
As Lenders‘ amici correctly note, rescission is
effectively an ―interest-free loan,‖ so ―the longer one allows
the right of rescission to be exercised, the greater the benefit
to the consumer, and the greater the penalty to the creditor.‖
Br. of ABA at 13 (quoting Daniel Rothstein, Truth in
Lending: The Right to Rescind and the Statute of Limitations,
14 Pace L. Rev. 633, 657 (1994)).

24
and the Lenders and their amici contend that this would
effectively create the same problem that the Supreme Court
sought to avoid in Beach. See id. at 418–19 (recognizing that
―a statutory right of rescission could cloud a bank‘s title on
foreclosure,‖ and so ―Congress may well have chosen to
circumscribe that risk‖ by refusing to allow parties to exercise
their right of rescission defensively after the three-year period
has passed).

The practical problem faced by the Court in Beach was
much broader than the problems the Lenders and their amici
argue a written notice regime will create. In Beach, the
question was whether obligors who have not taken any action
to rescind their loan may nevertheless assert rescission as a
defense in foreclosure proceedings. If obligors had been
permitted to take that kind of action, it would have created
tremendous uncertainty for the banks with respect to their
interest in the secured property. During foreclosure
proceedings, any obligor might claim that he did not receive
the requisite disclosures, and the bank might lose its interest
in the secured property. Here, in contrast, the uncertainty is
substantially more cabined because it would exist only as to
those loans for which obligors have sent the bank written
notice of rescission within the three-year period.
Additionally, lenders in these circumstances have options to
resolve that uncertainty. Once alerted to the cloud on its title,
a lender could sue to confirm that the obligor‘s rescission was
invalid or do nothing and assume the risk that a court might
later rule that the rescission was valid.

This is not to deny, however, that permitting obligors
to rescind by written notice could potentially impose
additional costs on banks, as it costs little for an obligor to
send a letter to the lender while, on the other hand, the lender
would incur some cost to sue to determine title. This may, in

25
turn, be more costly for borrowers insofar as lenders—like all
businesses—pass along costs occasioned by regulation or
taxation to their customers. See Michael Aikins, Off-Contract
Harms: The Real Effect of Liberal Rescission Rights on
Contract Price, 121 Yale L.J. Online 69, 79 (2011). But the
fact that this approach may be more costly is not, in and of
itself, a reason to disregard the text of the statute. Many
TILA regulations increase costs for lenders (and, in turn,
consumers), and it is for Congress—not the courts—to
determine whether those increases are warranted. See Fla.
Dep’t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33,
52 (2008) (noting that it is inappropriate for courts to
substitute their view of policy for the legislation that has been
passed by Congress).

****

An obligor‘s right to rescind a loan pursuant to TILA
―expire[s] three years after the date of consummation of the
transaction or upon the sale of the property, whichever occurs
first.‖ 15 U.S.C. § 1635(f). According to the most natural
reading of the statutory language, an obligor must send valid
written notice of rescission before the three years expire.
Because the statute says nothing about filing a suit within that
three-year period, we hold that the District Court erred as a
matter of law when it dismissed the Sherzers‘ complaint as
untimely. Accordingly, we will reverse the judgment of the
District Court and remand for further proceedings consistent
with this opinion.

26