Supreme Court Holds Lawsuit for Loan Rescission Under TILA Only Requires Notice to Creditor Within Three Years
On January 13, 2015, the United States Supreme Court issued an opinion in a case captioned Jesinoski et ux v. Countrywide Home Loans, et al., (October term, 2014 – No. 13-684) interpreting the rescission provisions applicable to mortgage loans under the Truth-in-Lending Act, 15 U.S.C. §§ 1601 et seq. and Regulation Z, 12 C.F.R. Part 1026 (“TILA”). CLICK HERE for the full opinion.
In that case the Plaintiffs had obtained a mortgage refinance loan from Countrywide that was subject to their right to rescind under 15 U.S.C. § 1635 (part of TILA). That section provides that a borrower may rescind a loan subject to the rule for up to three days after consummation. However, if the creditor does not provide both an accurate TILA loan cost disclosure and a properly drawn Notice of Right to Rescind, the deadline for rescission extends to up to three (3) years after consummation.
The Plaintiffs notified Countrywide of their decision to rescind the loan within the three year limit, but did not file suit to enforce that right until four years and one day after consummation of the loan. The trial level court and the 8th Circuit Court of Appeals both held that the Plaintiffs’ right to rescind expired because they failed to file a law suit within the three year limit. However, the Supreme Court reversed, holding that 12 U.S.C. § 1635 prescribes the manner by which a borrower may rescind a loan, and that nothing in that statute requires a borrower to file suit at all, much less within the three year limit.
Lenders should take not of this very “bright line” decision and adjust their practices with respect to rescindable mortgage transactions accordingly.
Shumaker Williams, P.C. has considerable experience helping our clients with compliance matters, including TILA, RESPA, ECOA and other federal and state statutes governing consumer finance. If we can be of assistance to you in these areas, please call Steve Lovejoy at (410) 825-5223 or Paul Adams at (717) 763-1121.