Don't Bet the Business

It is not common for decision at the United States Supreme Court to have direct application to common, everyday residential mortgage transactions. That soon might change. 

Section 1635(f) of the Truth in Lending Act (TILA) provides that “An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first ... .”  On Nov. 4, 2014, the Supreme Court will hear argument in the case of Jesinoski v Countrywide Home Loans.  

In Jesinoski the Supreme Court will examine the question of whether a residential mortgage loan borrower timely exercises the right to rescind under §1635 by notifying the lender in writing within three years of the loan closing (as the Third, Fourth and Eleventh circuits have held), or whether the borrower must actually file a lawsuit to enforce the right to rescind within the three years permitted under TILA (as the First, Second, Sixth, Eighth, Ninth and Tenth circuit courts have concluded).

Put another way, and paraphrasing from Countrywide’s brief, the question presented is whether, when a borrower seeks to rescind his mortgage loan after TILA’s three-day unconditional rescission period expires and the lender disputes the right to rescind based on an alleged failure to provide the required disclosures when the loan closed, must the borrower sue for rescission before any right to rescind expires under §1635(f)?

The import of the Supreme Court’s decision is readily apparent. In a market where borrowers in default might reach for any rope to help forestall foreclosure imagine the potential chaos that could ensue if a borrower could unilaterally rescind a mortgage loan simply by stating an intention to do so – years after the closing. 

While it seems that requiring the filing of a lawsuit is consistent with not only the language found in the statute, its purpose and the overall intent of statutes of repose, and utter confusion could reign if the minority view were to be adopted thereby allowing a borrower to indefinitely toll TILA’s statute of repose until the borrower got around to filing a lawsuit, there is plainly a split in the circuit courts, one that the Supreme Court has decided the time is right to resolve. 

Stay tuned.