FIRST DIVISION

March 29, 2010

No. 1-09-0617

WELLS FARGO BANK, N.A., as Trustee,) Appeal from the

) Circuit Court of

Plaintiff and ) Cook County.

Counterdefendant-Appellee, )

)

 v. )

)

ERNESTINE TERRY, UNKNOWN OWNERS, )

and NONRECORD CLAIMANTS, )

)

Defendants )

)

(Ernestine Terry, ) No. 07 CH 10211

)

Counterplaintiff-Appellant )

and Third-Party )

Plaintiff-Appellant, )

)

v. )

)

Option One Mortgage Corporation, )

) The Honorable

Third-Party Defendant- ) David B. Atkins,

Appellee). ) Judge Presiding.

JUSTICE GARCIA delivered the opinion of the court.

Ernestine Terry, defendant, counterplaintiff, and thirdparty plaintiff, appeals the dismissal of her affirmative

defense, counterclaim, and third-party complaint that the circuit

court granted pursuant to section 2-615 of the Illinois Code of

Civil Procedure. 735 ILCS 5/2-615 (West 2008). The circuit

court held that her right to rescind a mortgage issued by

appellees Wells Fargo Bank and Option One Mortgage Corporation
No. 1-09-0617

2

(the lenders), upon which all of her pleadings were founded,

expired under the Truth in Lending Act (the TILA) (15 U.S.C.

§1601 et seq. (2006)) when she failed to exercise it within three

years of receiving the mortgage. The lenders assert that even if

she had exercised her right of rescission in a timely manner, her

claim under that right would have failed on the merits.

Terry contends that under section 1635(i)(3) of the TILA,

her "right of rescission in recoupment under State law" (15

U.S.C. §1635(i)(3) (2006)) survives. She asserts in her brief:

"[Section] 1635(i)(3) is a 'savings clause' allowing defensive

TILA rescission claims under state law, even after the 3-year

period has passed." 

Because we find that under Illinois law there is no right of

rescission in recoupment that falls within the provision of

section 1635(i)(3) of the TILA, we are compelled to reject

Terry's claim. We affirm Judge Atkin's ruling that Terry's

affirmative defense, counterclaim, and third-party complaint fail

as a matter of law.

BACKGROUND

On October 25, 2002, Terry entered into an adjustable rate

note and mortgage from Option One for a home mortgage refinance

loan. In connection with the refinance of her mortgage, Terry

received a United States Department of Housing and Urban
No. 1-09-0617

1 In her notice of appeal, Terry also sought reversal of the

circuit court's February 19, 2009, judgment for foreclosure and

sale. Because no argument for this relief is asserted in her

brief, we do not address it.

3

Development settlement statement at closing. She contends the

settlement statement indicated she was charged $3,720 in fees

that were not disclosed on the federal "Truth-In-Lending

Disclosure Statement" she received.

After closing, Option One assigned Terry's mortgage to Wells

Fargo. On April 12, 2007, Wells Fargo filed a complaint to

foreclose the mortgage alleging Terry failed to make payments on

her note. On January 29, 2008, Terry filed an affirmative

defense, a counterclaim, and a third-party complaint against the

lenders. The affirmative defense, counterclaim, and third-party

complaint all sought rescission under the TILA. 

The lenders moved to dismiss the affirmative defense,

counterclaim, and third-party complaint pursuant to section 2-615

of the Code of Civil Procedure. 735 ILCS 5/2-615 (West 2008). 

Judge David B. Atkins granted the motion on September 8, 2008,

finding Terry's right of rescission had expired. On February 19,

2009, Judge Atkins entered judgment for foreclosure and sale that

was "fully dispositive of the interest of all defendants." 

This timely appeal followed.1
No. 1-09-0617

4

ANALYSIS

Standard of Review

"This court reviews the grant of a section 2-615 motion to

dismiss de novo, and we accept all well-pleaded facts in the

complaint as true and draw all reasonable inferences from those

facts in favor of the nonmoving party." Addison v. Distinctive

Homes, Ltd., 359 Ill. App. 3d 997, 1000, 836 N.E.2d 88 (2005).

The Truth in Lending Act

"Under the Truth in Lending Act, 82 Stat. 146, 15

U.S.C. §1601 et seq., when a loan made in a consumer credit

transaction is secured by the borrower's principal dwelling,

the borrower may rescind the loan agreement if the lender

fails to deliver certain forms or to disclose important

terms accurately." Beach v. Ocwen Federal Bank, 523 U.S.

410, 411, 140 L. Ed. 2d 566, 569, 118 S. Ct. 1408, 1409

(1998), citing 15 U.S.C. §1635 (1994). "Within 20 days after

receiving notice of rescission, the lender must 'return to the

[borrower] 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.' " Beach, 523 U.S. at 412-13, 140

L. Ed. 2d at 570, 118 S. Ct. at 1410, quoting 15 U.S.C. §1635(b)

(1994).
No. 1-09-0617

5

A borrower's right to seek rescission under the TILA is not

indefinite. Subsection (f) of section 1635, titled "Time limit

for exercise of right," provides:

"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 ***." 

15 U.S.C. §1635(f) (2006). 

It is undisputed that more than three years elapsed between

the closing of Terry's refinance mortgage and the filing of her

claim for rescission under the TILA, which suggests her claim is

time-barred. However, Terry contends that she "brought [the]

claim for recoupment in defense to Wells Fargo's foreclosure

action and therefore the three-year expiration date does not

preclude Terry's TILA rescission claim, so long as Illinois law

allows it." Thus, she presents the question before us: Does

Illinois law allow Terry's claim for recoupment in defense of

Wells Fargo's foreclosure action apart from her claim under the

TILA?
No. 1-09-0617

6

Terry cites three cases to support her position: Beach, 523

U.S. 410, 140 L. Ed. 2d 566, 118 S. Ct. 1408; Johnson v. Long

Beach Mortgage Loan Trust, 451 F. Supp. 2d 16 (D.D.C. 2006); and

In re Botelho, 195 B.R. 558 (Bankr. D. Mass. 1996). The

difficulty for Terry is that none is an Illinois case, which

means none stands as authority for Illinois law. See Marchlik v.

Coronet Insurance Co., 40 Ill. 2d 327, 332-33, 239 N.E.2d 799

(1968) (cause of action under Wisconsin law properly barred in

Illinois courts when the cause of action was not recognized in

Illinois). Because Beach references an Illinois case, we look

only to Beach to determine whether it supports Terry's position. 

Terry reads Beach to hold that "when a consumer brings a

defensive rescission claim in a state where recoupment is

allowed, such as Illinois, then the expiration of the three year

period is not a bar to her TILA claim." 

Under Illinois law, "[r]ecoupment is *** a cross-action in

which a defendant alleges that it has been injured by a breach by

plaintiff of another part of the contract on which the action is

founded." Cox v. Doctor's Associates, Inc., 245 Ill. App. 3d

186, 199, 613 N.E.2d 1306 (1993); 735 ILCS 5/2-608 (West 2008) (a

claim by a defendant against a plaintiff "in the nature of ***

recoupment *** may be pleaded as a cross claim in any action, and

when so pleaded shall be called a counterclaim"). 
No. 1-09-0617

7

Under existing Illinois case law, Terry's claim would

survive the expiration of the three-year period as a defensive

claim against the lenders' action if section 1635(f) of the TILA

were a statute of limitations. See Barragan v. Casco Design

Corp., 216 Ill. 2d 435, 437, 837 N.E.2d 16 (2005) (counterclaim

otherwise barred by statute of limitations permitted to proceed

where plaintiff's underlying claim was timely), citing 735 ILCS

5/13-207 (West 2008) ("A defendant may plead a set-off or

counterclaim barred by the statute of limitation, while held and

owned by him or her, to any action, the cause of which was owned

by the plaintiff or person under whom he claims, before such

set-off or counterclaim was so barred, and not otherwise").

However, the United States Supreme Court made clear in

Beach, "[s]ection 1635(f) is a statute of repose, not a statute

of limitation." In re Hunter, 400 B.R. 651, 660 (Bankr. N.D.

Ill. 2009), citing Beach, 523 U.S. at 417, 140 L. Ed. 2d at 573,

118 S. Ct. at 1412. The provision "talks not of a suit's

commencement but of a right's duration." Beach, 523 U.S. at 417,

140 L. Ed. 2d at 573, 118 S. Ct. at 1412. Accordingly, "the

[TILA] 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, 140 L. Ed. 2d at 574, 118 S. Ct. at 1413. 

Illinois law observes the same distinction between a statute
No. 1-09-0617

8

of limitations and a statute of repose. "[A] statute of repose

differs from a statute of limitations in that a statute of

limitations governs the time within which lawsuits may be

commenced after a cause of action has accrued, while a statute of

repose extinguishes the action itself after a fixed period of

time, regardless of when the action accrued." DeLuna v.

Burciaga, 223 Ill. 2d 49, 61, 857 N.E.2d 229 (2006).

Of the cases cited by Terry that were decided after Beach,

there is only one case that expressly finds state law to support

a recoupment claim. In In re Fidler, 226 B.R. 734, 735 (Bankr.

D. Mass. 1998), the mortgage debtors filed defensive claims of

recoupment under both the TILA and the Massachusetts Consumer

Credit Cost Disclosure Act (the CCCDA) (Mass. Gen. Laws ch. 140D,

§1 et seq.), seeking rescission more than three years after

consummating a mortgage transaction. Fidler, 226 B.R. at 735. 

The CCCDA was modeled directly after the TILA and has the same

objective of protecting debtors. Fidler, 226 B.R. at 736. 

Because of an exemption by the Board of Governors of the Federal

Reserve System (Fidler, 226 B.R. at 736, citing 48 Fed. Reg.

14882, 14890 (April 6, 1983)), "the transaction at issue [was]

governed not by [the] TILA but by [the] CCCDA." Fidler, 226 B.R.

at 736. Even if the TILA had controlled, the court stated

"§1635(i)(3) *** would direct its inquiry to [the] CCCDA and
No. 1-09-0617

2 As the United States Supreme Court noted in a footnote,

section 1635(i)(3) had no application in Beach because "there is

no claim *** that Florida law purports to provide any right to

rescind defensively on the grounds relevant under the [TILA]." 

Beach, 523 U.S. at 418 n.6, 140 L. Ed. 2d at 573 n.6, 118 S. Ct.

at 1413 n.6. 

9

other Massachusetts law concerning recoupment." Fidler, 226 B.R.

at 736 n.6.

Applying Massachusetts law, the court in Fidler adhered to

the CCCDA's provision that " 'Nothing in this section shall be

construed so as to affect a consumer's right of recoupment under

the laws of the commonwealth.' " Fidler, 226 B.R. at 737,

quoting Mass. Gen. Laws ch. 140D, §10(i)(3). The court followed

the CCCDA's clear statutory mandate and granted the debtors the

common law right of recoupment. Fidler, 226 B.R. at 737. The

debtors' claim was barred under the TILA, but not under the

CCCDA. Fidler, 226 B.R. at 738.

Thus, section 1635(f) constitutes an absolute bar to Terry's

action under the TILA unless, under Illinois law, her right of

rescission in recoupment pursuant to section 1635(i)(3) is

preserved.2 In other words, to save her claim, there must exist

an Illinois statute analogous to the CCCDA of Massachusetts. 

Terry, however, does not point us to any Illinois statute
No. 1-09-0617

10

remotely similar to the CCCDA; nor have we have found such an

Illinois statute. 

Thus, Terry's position before us is identical to the

debtor's position in In re Williams, 276 B.R. 394 (Bankr. E.D.

Pa. 2002). The court in Williams observed Fidler had relied on

"specific language in a Massachusetts statute" to permit a

borrower to rescind a mortgage transaction after the three-year

period expired. Williams, 276 B.R. at 397. There was, however,

"no similar state law *** in Pennsylvania." Williams, 276 B.R.

at 397, citing In re Roberson, 262 B.R. 312, 320 (Bankr. E.D. Pa.

2001) ("reject[ing] Plaintiff's argument that Pennsylvania state

law allows a consumer to raise his or her right to rescission

under [the] TILA defensively beyond the three year bar in

§1635(f)"). The Williams court concluded, "unlike the statute in

Fidler, neither statute [cited by the debtor] provides rescission

rights to the borrower or reserves a borrower's recoupment

rights." Williams, 276 B.R. at 397. "Accordingly, [Section]

1635(f) renders the Debtor's belated attempt to rescind the loan

transaction invalid." Williams, 276 B.R. at 399. See Beach v.

Great Western Bank, 692 So. 2d 146, 153 (Fla. 1997) (per curiam)

(distinguishing Florida statute of limitations cases and holding

"under Florida law, an action for statutory right of rescission

pursuant to 15 U.S.C. §1635 may not be revived as a defense in
No. 1-09-0617

3 This case became the Beach case. Ocwen Federal Bank

replaced Great Western Bank as the plaintiff while the case was

pending. Beach, 523 U.S. at 414 n.4, 140 L. Ed. 2d at 571 n.4,

118 S. Ct. at 1411 n.4.

11

recoupment beyond the three-year expiration period contained in

section 1635(f)").3

Like the debtors in Williams and Roberson, Terry has failed

to identify a statute, case, or any other source of Illinois law

that might afford her a right of rescission in recoupment

analogous to a claim under the TILA. She does not cite a single

case decided subsequent to Beach. Every authority she cites is

either no longer good law following Beach (Federal Deposit

Insurance Corp. v. Ablin, 177 Ill. App. 3d 390, 395, 532 N.E.2d

379 (1988) (explicitly abrogated); Westbank v. Maurer, 276 Ill.

App. 3d 553, 658 N.E.2d 1381 (1995) (incorrectly treating section

1635(f) as a statute of limitations)) or simply inapposite (Mt.

Vernon Memorial Estates, Inc. v. Wood, 88 Ill. App. 3d 666, 410

N.E.2d 995 (1980) (interpreting section 1640 of the TILA, as

opposed to section 1635); National Boulevard Bank of Chicago v.

Thompson, 85 Ill. App. 3d 1145, 1146, 407 N.E.2d 739 (1980)

(same); 735 ILCS 5/13-207 (West 2008) ("A defendant may plead a

set-off or counterclaim barred by the statute of limitation

***")). 
No. 1-09-0617

12

In the absence of an Illinois statute similar to the

Massachusetts statute in Fidler, section 1635(i)(3) provides no

basis to save Terry's claim for rescission.

CONCLUSION

Beach makes clear that section 1635(f) is a statute of

repose that extinguishes all claims for rescission outside the

three-year period. Section 1635(i)(3) does not "save" Terry's

TILA claim in the absence of an Illinois statute that expressly

allows a defensive rescission claim. Accordingly, Terry's

rescission claim is barred because it was not filed within three

years of obtaining her home mortgage refinance loan. We do not

reach the lenders' argument that the claim fails on its merits.

Affirmed.

HALL, P.J., and PATTI, J., concur.
No. 1-09-0617

13

REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT

___________________________________________________________________________

WELLS FARGO BANK, N.A., as Trustee,

Plaintiff and Counterdefendant-Appellee,

 v. 

ERNESTINE TERRY, UNKNOWN OWNERS, and NONRECORD CLAIMANTS, 

Defend

ants

(Ernestine Terry, 

Counterplaintiff-Appellant and Third-Party Plaintiff-Appellant,

v.

Option One Mortgage Corporation,

Third-Party Defendant-Appellee).

________________________________________________________________

No. 1-09-0617

 Appellate Court of Illinois

First District, First Division

Filed: March 29, 2010

_________________________________________________________________

JUSTICE GARCIA delivered the opinion of the court.

HALL, P.J., and PATTI, J., concur.

_________________________________________________________________

Appeal from the Circuit Court of Cook County

Honorable David B. Atkins, Judge Presiding

_________________________________________________________________

For DEFENDANT-APPELLANT: For PLAINTIFF-APPELLEE:

Lloyd Brooks Dianne E. Rist,

The Brooks Law Firm S. Todd Sipe

15008 Woodlawn Avenue Gina M. Lavarda

Dolton, IL 60419 Chapman and Cutler LLP

111 West Monroe Street

Chicago, IL 60603
No. 1-09-0617

14