Banking Law Roundup

Sharp  Thinking

No. 186  Perspectives On Developments In The Law From Sharp-Hundley, P.C.  August 2020

One-Year Statute Controls TILA Rescission Suit

A debtor’s right to file suit to rescind a mortgage under § 1635 of the federal Truth-In-Lending Act (“TILA”) (15 U.S.C. § 1635) should be subject to a one-year statute of limitations, a panel of the Illinois Appellate Court in Chicago has held.

Acting in U.S. Bank N.A. v. Miller, 2020 IL App (1st) 191029, the panel dealt with the length of time after giving notice of rescission the debtor had to file suit to enforce that notice.  15 U.S.C. § 1635(f) itself requires that the notice of rescission be given within three years after consummation of the transaction or sale of the property, but the Supreme Court in Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. 259 (2015), ruled that the suit did not have to be filed within that three-year period.  In the days since Jesinoski, most courts have borrowed statutes of limitations from the states in which they sit, but the Miller court found that inappropriate.  It rejected the idea that the state statute for written contracts (10 years, 735 ILCS 5/13-206) was the more appropriate limitation.

Instead, the panel borrowed the one-year limitation from § 1640 of TILA.  It said this was preferable because borrowing a lengthy state statute of limitations would allow a borrower “to sit on a claim to enforce rescission of the mortgage while keeping both the property and the loan proceeds.”  It said that would be “far more generous to borrowers than is necessary to enforce the important disclosure obligations of TILA.”

Accordingly, it held that the one-year statute imposed in other contexts under 15 U.S.C. § 1640(e) “provides a closer analogy for a statute of limitations for actions to enforce a rescission than the 10-year statute for written contracts in Illinois.”

Failure Of Notice Of Acceleration Defense May Be Forfeited

The right to object that the lender has not provided notice of acceleration as required by the mortgage may be forfeited at the pleading stage, the Appellate Court’s Second District has held.

In U.S. Bank, N.A. v. Reinish, 2020 IL App (2d) 190175, the mortgagee filed suit using the “short form” complaint permitted by § 15-1504(a) of the Mortgage Foreclosure Law, 735 ILCS 5/15-1504(a).  Under § 15-1504, that short-form complaint contained a “deemed” (but unexpressed) allegation that “any and all notices of default or election to declare the indebtedness due and payable or other notices required to be given have been duly and properly given.”  The debtor did not specifically deny this deemed allegation in her answer, but sought to do so in response to the mortgagee’s motion for summary judgment.

“Simply put, because U.S. Bank’s foreclosure complaint conformed to the format prescribed in section 15-1504(a), it is deemed to allege that U.S. Bank provided Reinish a notice of acceleration,” the court said.

The court next turned to whether the debtor had effectively denied the deemed allegation in her answer.  Citing Illinois Supreme Court Rule 133(c), the court said that “where a complaint for breach of contract alleges the performance of a condition precedent, the failure to deny the same with specific facts in a party’s responsive pleading results in a forfeiture of the issue of whether the condition precedent was performed.”

Indeed, it said, a “nonspecific denial is deemed a judicial admission that cannot later be disputed to defeat a motion for summary judgment.”  Because the debtor “neither denied receiving notice of acceleration nor filed an affirmative defense claiming lack of notice . . . Reinish is deemed to have judicially admitted U.S. Bank’s allegation that proper notice was provided. . . . She could not properly assert a contrary position in opposition to U.S. Bank’s motion for summary judgment.”

Summary judgment for the lender was affirmed.

Action On Undemanded Demand Note Barred After 10 Years

The statute of limitations on a demand note on which no demand is made is 10 years from the date of issuance of the note, a panel of the Appellate Court in Chicago has held.

In In re Estate of Heck, 2019 IL App (1st) 182414, the court dealt with a 1988 note which provided:  “Perpetual 90 day note[.]  Borrower shall make a single payment on demand within 90 days of demand letter.  If payment is not demanded or paid by borrower[,] this note will renew automatically in full force of the terms until said note is paid.”   It earned 7% interest compounded annually.  Borrower died in 2016, without ever having made a payment on the note and without the lender ever having demanded one.  The lender then made a claim against the borrower’s estate, which the executor denied.

The court held that the “perpetual renewal” note was a demand note.  “A note is a demand note if it states that it is payable on demand, otherwise indicates that it is payable at the will of the holder, or does not state a definite time for payment,” the court said.  Because the due date was indefinite and the obligation to pay triggered by a demand, the panel said the note was a demand note.

“Generally, a cause of action against the maker of a demand note accrues upon the date of issue,” the court continued.  “As the claimant in this case could have demanded payment on the date of the note’s execution and the decedent would have been required to make payment thereon within 90 days thereafter, any cause of action against the decedent based on the note accrued either on execution or, at the very latest, 90 days thereafter.”

• John T. Hundley