Rescission & Recoupment

I saw your answer to Rae Jean–I though that under foreclosure rescission was unlimited?

What is the difference between rescission, recoupment and setoff?

Jansen

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Hello Jansen,

Under the TILA, rescission is a cancelling of the loan or unwinding of the transaction – as if it was never done – to return the parties to status quo ante or ‘the way things were before’. 

Recoupment and set-off are similar in that they permit a defendant to raise a claim defensively.  Recoupment involves a claim based on the same transaction and may be plead after the applicable limitations period has run, whereas set-off involves a claim raised defensively on a different transaction. 

15 U.S.C. §1640(e) provides for a one-year statute of limitations period for an affirmative suit but also states (in part):

“This 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.”

As the answer to Rae Jean indicated, the SCOTUS in Beach v. Ocwen Fed. Bank, 523 U.S. 410, 118 S. Ct. 1408, 140 L. Ed. 2d 566 (1998) interpreted that the TILA “completely extinguishes the right of rescission at the end of the 3-year period” and recoupment or set-off after that date do not apply to the extended right to rescind under the Federal law; however, your State law might offer such a remedy either with its own version of a TILA or UDAP.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.