Avoid Foreclosure in Florida by invoking the Truth in Lending Defense

Truth in Lending Act in Florida

Case Law
Beach v. Ocwen Fed. Bank
523 U.S. 410

In 1986, Beach mortgaged his house to secure the payment of a loan evidenced by a promissory note. In 1991, he stopped paying his obligation, prompting the mortgagee bank to institute foreclosure proceedings. Beach admitted the fact of default but raised a defense that the bank's failure to make disclosures as required by the Truth in Lending Act gave them the statutory right under 15 U.S.C. § 1635 to rescind the mortgage contract.

The lower court rejected Beach's defense declaring that any right to rescind under 15 U.S.C. § 1635 the mortgage contract shall expire three years after the loan closes.

Unpersuaded, Beach elevated the matter to the Supreme Court which in turned denied Beach's appeal. The Court remarked that § 1635(f)'s plain language evidences an unconditional congressional intent to limit the right of rescission to three years.

Issue: Can a mortgagor rescind a mortgage contract beyond three years from the execution of the loan contract alleging non compliance with the disclosure requirement of the Truth in Lending Act?

Ruling: No. A mortgagor cannot assert a right to rescind under 15 U.S.C. § 1635 as an affirmative defense in a collection action brought by the mortgagee bank after a 3-year period has run. The 3-year period of § 1635(f), however, is not a period for prescription that governs only the institution of suit; instead, it operates, with the lapse of time, to extinguish the right of rescission. The law on 15 U.S.C. § 1635 manifests an uncompromising congressional intent to extinguish completely the right of rescission at the end of the 3-year period.

Lesson Learned: The Truth in Lending Act is a law intended to benefit loan borrowers because it assures a meaningful disclosure of credit terms. It also allows consumer to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect him against inaccurate and unfair credit billing and credit card practices.

However, the borrower should invoke the defense of non compliance with Truth in Lending Act within a period of three years from the time the loan was consummated. Beyond the three year period, he can no longer invoke right to rescind the loan contract on ground of violation of the Truth in Lending Act.

Borrower should not sleep on his rights. He should invoke it within the three year period otherwise he will be barred forever from invoking any infirmity of the loan contract for alleged violation of the Truth in Lending Act.

Written by Kevin Levonas and Jerry L.