Today's Trends in Credit Regulation

U.S. Supreme Court Settles Circuit Split on Borrower's Rescission Rights Under TILA
By Katie Hawkins

On Jan. 13, 2015, the United States Supreme Court issued a ruling in Jesinoski v. Countrywide Home Loans, Inc., 135 S.Ct. 790 (2015), resolving a circuit split over the notice requirements under the Truth In Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., for rescission of a mortgage.

Among other things, TILA requires lenders to provide certain mandatory disclosures to borrowers in mortgage transactions. TILA also grants borrowers the right to rescind a mortgage transaction involving a primary residence within certain time periods. A borrower may rescind the mortgage for up to three days following the closing of the mortgage transaction for any reason. If, however, the lender fails to make any of the required disclosures, the borrower has three years to rescind the mortgage. See 15 U.S.C. § 1635(f).

The question presented in Jesinoski was what action must a borrower take within three years in order to exercise the borrower's right to rescind the mortgage. Specifically, whether sending a notice to the lender within three years was sufficient, or in the event the lender does not accept the notice, a related lawsuit must be filed within the same three-year timeframe. Appellate courts previously split on this question with some holding that so long as a notice is filed within three years, a borrower may file a related lawsuit outside of the three-year timeframe (but within the relevant limitation period for claims under TILA). Other courts, such as the lower courts in Jesinoski, found that a lawsuit filed outside of the three-year timeframe was untimely.

The Jesinoskis refinanced a mortgage on their primary residence and exactly three years later mailed a notice of rescission to the lender, Countrywide Home Loans ("Countrywide"). In support of their notice, the Jesinoskis alleged that they had not received two copies of the required disclosures from Countrywide. Their notice of rescission was denied by Countywide as baseless because the Jesinoskis had acknowledged receipt of two copies of the required disclosures. The Jesinoskis sued in the Minnesota District Court. However, the district court dismissed the case, holding that TILA required the Jesinoskis to sue within three years after the consummation of the mortgage transaction. On appeal, the Eighth Circuit Court of Appeals agreed with the decision of the district court.

The Supreme Court reversed the lower court's decision finding that Section 1635(a) of TILA explains in "unequivocal terms" how the right to rescind is exercised. Specifically, it provides that a borrower "shall have the right to rescind ... by notifying the creditor, in accordance with the regulations of the [Consumer Financial Protection Bureau], of its intention to do so." Speaking for the unanimous court, Justice Scalia wrote that "the language of [Section 1635(a)] 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." Jesinoski, 135 S.Ct. at 792.

After Jesinoski, a borrower still must send a notice of rescission to its lender within three years; however, if the lender does not accept the notice and proceed with rescission of the mortgage, it is now settled that the borrower has additional time to file a lawsuit. This ruling provides valuable guidance to mortgage lenders, servicers and their counsel in addressing TILA rescission claims by removing any uncertainty about a borrower's required actions within the three-year timeframe if a borrower alleges it did not receive required disclosures and seeks to rescind the mortgage. There is concern among financial institutions that this ruling could provide unscrupulous borrowers with an opportunity to further prolong a foreclosure proceeding by filing a notice of rescission within three years of the mortgage transaction and then filing a potentially meritless lawsuit after the expiration of the three-year timeframe. Whether the number of rescission-related lawsuits will increase after Jesinoski will be seen in the coming months.

Katie Hawkins is an associate in the Portland, Maine office of Hudson Cook, LLP. Katie can be reached at 207-210-6836 or by email at

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