Supreme Court Endorses Loan-Rescission Notice

WASHINGTON (CN) - Federal courts improperly ruled against a couple who wanted their $611,000 home loan rescinded, the U.S. Supreme Court ruled Tuesday.

Three years to the day after consummating a $611,000 home loan in Minnesota, Larry and Cheryl Jesinoski had mailed notices to Bank of America subsidiary Countrywide Home Loans and others, seeking their loan rescinded on the basis of alleged violations of the Truth in Lending Act (TILA).

The lenders denied the couple's requests, and the Jesinoskis filed suit a year and a day from the date they mailed the letters.

A federal judge granted the lenders judgment on the pleadings, and the sole issue that went before the 8th Circuit was "whether mailing a notice of rescission within three years of consummating a loan is sufficient to 'exercise' the right to rescind a loan transaction pursuant to 15 U.S.C. § 1635(a)."

The St. Louis, Mo.-based federal appeals court also considered, "alternatively, whether a party seeking to rescind the transaction is required to file a lawsuit within the three-year statutory period."

After the court affirmed judgment for the lenders in September 2013, the U.S. Supreme Court agreed last year to determine whether borrowers exercise their rescission rights by providing written notice to their lender, or whether they must also file a lawsuit before the three-year period elapses.

The court's unanimous reversal for the Jesinoskis clocks in at just five pages.

"It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely," Justice Antonin Scalia wrote for the court. "The statute does not also require him to sue within three years."

Scalia found the lenders' arguments unavailing.

"Section 1635(a) nowhere suggests a distinction between disputed and undisputed rescissions, much less that a lawsuit would be required for the latter," he wrote. "In an effort to sidestep this problem, respondents point to a neighboring provision, §1635(g), which they believe provides support for their interpretation of the act."

They erred on this point as well, according to the ruling.

"The fact that it can be a consequence of judicial action when §1635(g) is triggered in no way suggests that it can only follow from such action. The act contemplates various situations in which the question of a lender's compliance with the act's disclosure requirements may arise in a lawsuit - for example, a lender's foreclosure action in which the borrower raises inadequate disclosure as an affirmative defense. Section 1635(g) makes clear that a court may not only award rescission and thereby relieve the borrower of his financial obligation to the lender, but may also grant any of the remedies available under §1640 (including statutory damages). It has no bearing upon whether and how borrower-rescission under §1635(a) may occur."

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