Supreme Court Favors Consumers in Mortgage Rescission Case

In a decisive opinion, the Supreme Court recently handed consumers a rare victory under the Truth in Lending Act (“TILA”). On January 13, 2015, in a 9-0 decision authored by Justice Scalia, the Court held that consumers need only notify their lender of their intention to rescind their mortgage and are not required to file a lawsuit within the three-year period. See Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015).

TILA, 15 U.S.C. §§1601, et seq., governs various consumer credit transactions, including mortgages and credit cards. In the case of mortgages, the statute gives borrowers the right to rescind a mortgage loan in two circumstances: (1) as a matter of right for three business days following the loan; and (2) for up to three years in certain circumstances where the necessary disclosures were not made.

In Jesinoski, the borrowers refinanced their home and exactly three years later they mailed Countrywide “a letter purporting to rescind the loan.” 135 S. Ct. at 791. Countrywide did not accept the lender’s attempt to rescind and Jesinoskis subsequently filed a lawsuit more than one year later. Id.

The District Court rejected their attempt to rescind, finding that “[a]lthough the Jesinoskis notified respondents of their intention to rescind within [the three-year period], they did not file their first complaint until four years and one day after the loan’s consummation.” Id. (citing Jesinoski v. Countrywide Home Loans, Inc., 2012 WL 1365751, *3 (D. Minn., Apr. 19, 2012)). The Court of Appeals affirmed the trial court’s decision. See Id. (citing Jesinoski v. Countrywide Home Loans, Inc., 729 F. 3d 1092, 1093 (2013) (per curiam)).

In reversing the lower court decisions, the Court made clear that the answer was found in the language of the statute, which provides “that a borrower ‘shall have the right to rescind . . . by notifying the creditor, in accordance with regulations of the Board, of his intention to do so’” Id. at 792 (emphasis added). The Court stated:

The language 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.

Id.

The Court, in succession, knocked down each of Countrywide’s three arguments:

First, the Court that its decision was not in conflict with its previous decision in Beach v. Ocwen Fed. Bank, 523 U. S. 410 (1998), that held only that there was “‘no federal right to rescind, defensively or otherwise, after the 3-year period of §1635(f) has run,’ not that there was no rescission until a suit is filed.” Id. (quoting Beach, 523 U.S. at 419).

Second, the Court rejected Countrywide’s argument that under §1635(a) “if the parties dispute the adequacy of the disclosures—and thus the continued availability of the right to rescind—then written notice does not suffice.” Id. The Court made clear that “Section 1635(a) nowhere suggests a distinction between disputed and undisputed rescissions, much less that a lawsuit would be required for the latter.” Id.

Third, the Court swept aside Countrywide’s attempted reliance on common law as a trump to the clear statutory language. The Court noted that “[i]t is true that rescission traditionally required either that the rescinding party return what he received before a rescission could be effected (rescission at law), or else that a court affirmatively decree rescission (rescission in equity).” Id. (citation omitted). In rejecting this argument, the Court stated:

It is also true that the Act disclaims the common-law condition precedent to rescission at law that the borrower tender the proceeds received under the transaction. 15 U. S. C. §1635(b). But the negation of rescission-at-law’s tender requirement hardly implies that the Act codifies rescission in equity. Nothing in our jurisprudence, and no tool of statutory interpretation, requires that a congressional Act must be construed as implementing its closest common-law analogue.

Id. (citation omitted). The Court found “this is simply a case in which statutory law modifies common-law practice.” Id.

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

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