In a unanimous opinion last week, the Supreme Court of the United States explained that a home loan borrower exercising her right to rescind under the Truth in Lending Act (“TILA”) need only provide written notice to his lender within the three-year period, not file suit within that period. Jesinoski v. Countrywide Home Loans, Inc., No. 13-684 (U.S. S.Ct., Jan. 13, 2015). The Supreme Court’s opinion is remarkably short, and it essentially resolves the entire case based on the straightforward, plain reading of the statutory text.
Under TILA, home loan borrowers have the right to rescind a loan within three days of closing the transaction for any reason. This grants borrowers an unconditional right to rescind for three days, after which they may rescind only if the lender fails to make TILA disclosures. Even if a lender does not make the TILA disclosures, the three-year right of rescission expires three years after the closing or upon sale of the property, whichever comes first. 15 U.S.C. § 1635(f).
In Jesinoski, exactly three years after the closing, the borrowers sent a letter to Bank of America (successor to Countrywide) purporting to rescind the transaction. One year and one day later, the borrowers filed a lawsuit in federal court seeking a declaration of rescission and damages. Bank of America argued that unless the borrower filed a suit for rescission within three years of the closing, TILA extinguishes the right to rescind and bars relief, and the Eighth Circuit Court of Appeals agreed with this conclusion.
The Supreme Court reversed. It held that the plain language of the statute leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. The statute does not require a lawsuit within three years. Bank of America made several arguments to support its position, but the Supreme Court disagreed with those positions in favor of the statutory text.
To the extent that financial institutions receive a letter rescinding the transaction within three years, they will need to take careful action. Mortgage lenders should consider steps to ensure their security interest is declared valid if the borrower “rescinds” through sending a letter within three years from closing.
Should you have questions about the impact of this decision on your institution’s processes and procedures, please contact Spilman.
By: R. Scott Adams