Don't Bet the Business

Last year I wrote about the case of Jesinoski v Countrywide Home Loans. In Jesinoski the Supreme Court chose to examine whether a residential mortgage loan borrower timely exercises the right to rescind under §1635 of the Truth in Lending Act by notifying the lender in writing within three years of the loan closing, or whether the borrower must actually file a lawsuit to enforce the right to rescind within the three years permitted under TILA.

Three years after borrowing money from Countrywide to refinance a home mortgage, the Jesinoskis sent Countrywide and Bank of America Home Loans, which had acquired Countrywide, a letter rescinding the loan. Bank of America refused to acknowledge the rescission.

One year and a day later, the Jesinoskis filed suit in federal court seeking a declaration of rescission and damages. The district court dismissed the suit concluding that a borrower can only exercise the TILA's rescission right by filing a lawsuit within three years of the date the loan was closed thus making the Jesinoskis' complaint untimely.  The Eighth Circuit Court of Appeals affirmed.

Section 1635(f) of 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 . . . .”  To this author, the requirement of the filing of a lawsuit to rescind a completed loan was consistent with not only the language in §1635(f) and what I viewed as the overall intent of statutes of repose, I also felt this construction served to avoid the confusion that could result if a borrower could indefinitely toll TILA’s statute of repose. Interestingly, the Supreme Court went the other way.

Specifically, the Supreme Court ruled that a borrower exercising a TILA right to rescind need only provide written notice to the lender within the three year period; a lawsuit during that period is not required. This is so, according to the Supreme Court, because §1635(a)'s terms are clear—a borrower “shall have the right to rescind ... by notifying the creditor ... of his intention to do so.”

This leaves no doubt, according to the Supreme Court, that rescission is triggered when the borrower notifies the lender of the intention to rescind. The Supreme Court found this conclusion was not altered by §1635(f). While §1635(f) provides when the right to rescind is to be exercised, it is silent as to how one must exercise the rescission right.

Similarly, § 1635(g) did not change the result. That section states that “in addition to rescission the court may award relief ... not relating to the right to rescind.” The Supreme Court reasoned that rescission is not necessarily a consequence of judicial action. Put another way, the Supreme Court concluded that while §1635(b) of TILA modified the common-law condition precedent to rescission at law that did not imply TILA codified rescission in equity.

The Supreme Court concluded that because the Jesinoskis mailed their written notice of their intention to rescind within three years of their loan's closing, and this was all that TILA required, the trial court erred in dismissing the complaint.

The Jesinoski decision provides clarity as to TILA’s rescission right to be sure. Time will tell if it is the clarity Congress intended.