A Third Circuit Court of Appeals decision that gives borrowers an indefinite period to rescind their home-equity loans has the potential to complicate life for lenders and sets up a conflict that the U.S. Supreme Court may have to resolve.

In Sherzer vs. Homestar, the Third Circuit ruled that borrowers can bring a lawsuit seeking rescission based on alleged violations of the Truth in Lending Act (TILA) more than three years after the loan is consummated, as long as the borrower has sent a written notice of rescission within the three-year period.

“If you’re having trouble making payments and worried about foreclosure, you could fire off [a] letter to the lender saying you believe there was a material TILA violation,” said Ballard Spahr partner Martin C. Bryce, Jr. “Then you get to sit back and hold that in your pocket.”

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