Three years after borrowing money from Countrywide Home Loans, Larry and Cheryle Jesinoski sent Countrywide and Bank of America Home Loans a letter notifying them that they intended to rescind the transaction because the lender had violated the Truth in Lending Act (TILA). The Jesinoskis, who refinanced their home mortgage with Countrywide in 2007, stated that they hadn’t received copies of two disclosure forms required under federal law. Bank of America, which had acquired Countrywide, refused to acknowledge the rescission’s validity, so the Jesinoskis filed suit in federal court, seeking a declaration of rescission and damages.
Regulation Z of TILA imposes a series of disclosure requirements on any lender who extends credit to a consumer and takes security interest on the consumer’s principal dwelling. The mandatory material disclosures include various terms and costs of the loan, as well as notice of the right of rescission to each consumer in the transaction. While the consumer has a guaranteed three-day right of rescission when the lender complies with the disclosure requirements, if the lender fails to do so, the right of rescission extends to three years.
The question presented to the Court was whether a borrower exercises this right by providing written notice to the lender, or whether the consumer must also file a lawsuit before the 3-year period elapses. A federal judge ruled that a borrower can exercise TILA’s right to rescind a loan, only by filing a lawsuit within three years of the date the loan was consummated, meaning the Jesinoskis should have filed a lawsuit instead of sending the letter. The 8th U.S. Circuit Court of Appeals affirmed.
Resolving a split among lower courts, the U.S. Supreme Court said unanimously that the law says nothing about how a borrower exercises the right to rescind within the three years allowed. Justice Antonin Scalia, who delivered the opinion of the Court, said the resolution of the case was simple because the Jesinoskis mailed the bank their notice before the three-year deadline. “This is all that a borrower must do in order to exercise his right to rescind,” he said.
With this ruling, the U.S. Supreme Court gave homeowners more ability to cancel their mortgages if lenders don’t provide the required disclosures; however, the ruling doesn’t necessarily mean homeowners will be able to escape paying their mortgages. This is a setback for the banking industry as they say this issue is one that has arisen frequently in recent years with borrowers who are in default on their mortgages and are facing foreclosure.
The Jesinoski case now returns to a lower court. Bank of America will have the chance to argue that the Jesinoskis received the required forms, as they have stated the Jesinoskis signed an acknowledgment that they were provided with the disclosures.