On January 13, 2015, the Supreme Court of the United States clarified the scope of a mortgagor’s right of rescission pursuant to the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq. In Jesinoski v. Countrywide Home Loans, Inc., the Court resolved the issue of whether a borrower must exercise the right of rescission by merely “notifying the creditor” within the three-year time period, or whether the borrower must file a lawsuit within that time in order to rescind. In a unanimous decision, the Court held that borrowers need only notify the creditor within three years of their intention to rescind rather than file a lawsuit for rescission.
TILA provides that a borrower who secures a loan with a principal dwelling, and who does not receive all the information and rescission forms that TILA requires, has the right to rescind a loan “until midnight of the third business day following . . . the delivery of the information and rescission forms required . . . by notifying the creditor . . . of his intention to do so.” 15 U.S.C. § 1635(a). Borrowers have an unconditional right to rescind the loan for three days, after which they may rescind only if the lender failed to satisfy TILA’s disclosure requirements. A borrower wishing to exercise the right of rescission after the expiration of three-day period must do so within three years “after the date of consummation of the transaction or upon the sale of the property, whichever comes first,” even if the lender has not delivered all required disclosures by that time. Id. § 1635(f).
In Jesinoski, Petitioners Larry and Cheryle Jesinoski alleged that they did not receive a complete set of disclosures when they refinanced their mortgage loan with Countrywide Home Loans, Inc. Seeking to exercise their right of rescission under TILA, they sent their creditor a written notice exactly three years after the transaction. The creditor refused to rescind. The Jesinoskis filed a lawsuit a year later, but the district court dismissed it as time-barred. The Eighth Circuit affirmed the dismissal, holding that “a party seeking to rescind a loan transaction must file suit within three years of consummating the loan.” Jesinoski v. Countrywide Home Loans, Inc., 729 F.3d 1092 (8th Cir. 2013) (per curiam).
Before the Court’s decision in Jesinoski, those circuits that weighed in on the question have fallen into two camps, reaching opposite conclusions: the Third, Fourth, and Eleventh Circuits have held that written notification is sufficient, while the First, Sixth, Eighth, Ninth, and Tenth Circuits have held that a lawsuit must be filed within the three-year period.
The Court resolved the split in no uncertain terms: “The language [of Section1635(f)] leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely. The statute does not also require him to sue within three years,” Justice Antonin Scalia wrote for the Court in a unanimous opinion.
Frankly, the Court’s decision is not surprising considering that Justice Stephen Breyer suggested to Countrywide’s counsel that he would have to be “a Houdini” to escape Justice Breyer’s plain reading of the statute. Whether this decision will result in an uptick in TILA claims, however, remains to be seen.