Supreme Court Resolves Circuit Split Over TILA Rescission

Lending/Lender Issues and Mortgage Issues by Peter N. Brewer, Esq.

Larry and Cheryle Jesinoski (“Jesinoskis”) refinanced their loan on February 23, 2007 with Countrywide Home Loans, Inc. (“Countrywide”).  Three years later, they sent a written letter to rescind the loan pursuant the Truth in Lending Act (“TILA”).  A year later, after Countrywide refused to rescind the loan, the Jesinoskis filed suit to rescind.  Under TILA, a borrower has the right to rescind their loan within 3 days for any reason.  After that, they have three years to rescind the loan if the lender failed to provide required disclosures.

At the trial court level, the court agreed with Countrywide’s argument that the Jesinoskis were required to file suit to rescind the loan within three years, not just send a written notice.  Accordingly, the trial court dismissed the law suit.  On appeal, the Eight Circuit Court of Appeals concurred with the trial court noting that although there was a split in authorities at the appellate level, their previous decision required a borrower to file a lawsuit within three years also.  The case was then appealed to the United States Supreme Court.

THE DECISION:

The United States Supreme Court overturned the lower court’s decision and remanded the matter back to the appellate court.  In Jesinoski v. Countrywide Home Loans, Inc., the Supreme Court held that TILA required only written notice of rescission to be given within three years of obtaining the loan.  The Court reasoned that the plain reading of the statute only requires notice, not a lawsuit.

WHY THIS DECISION IS IMPORTANT:

Prior to this decision, it was unclear just how much time a borrower had to rescind a loan.  Depending on the state, borrowers could have had substantially more time.  However, this case resolves the split.  The ruling was largely unsurprising as the statute seemed clear that only written notice was required.  In fact, even in the Eight Circuit, two of the judges noted that if they had a clean slate, they would have ruled the other way.  However, since a previous holding had required a lawsuit to be filed, they were required to rule in favor of Countrywide.  In the shortest opinion of the year, the Supreme Court unanimously overturned the lower court’s decision and resolved the dispute.

COMMENT:

This decision could pave the way towards substantial liability for lenders who fail to provide the required disclosures.  While a rescission under TILA requires a borrower to return the money received, that requirement triggers only after the lender reconveys the deed of trust.  It will be interesting to see if any creative borrowers attempt to circumvent the repayment by filing for bankruptcy protection when the lender is an unsecured creditor, resulting in borrowers owning the property free and clear.

Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015)

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