On Tuesday, the U.S. Supreme Court ruled that borrowers looking to rescind their mortgages simply need to notify creditors in writing of their intention to rescind within three years under a key fair lending law. This ruling could possibly make it much easier for borrowers to walk away from their underwater homes.
This ruling stems from the overturning of a September 2013 Eighth Circuit ruling that the petitioners, Larry and Cheryle Jesinoski of Eagan, Minn., were required to sue Countrywide Home Loans Inc. to have their mortgage financing rescinded within three years of the transaction closing under the Truth In Lending Act. The Jesinoskis argued that TILA only stipulated that they provide notice of rescission in writing within those three years, an argument a majority of justices supported.
"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," Justice Antonin Scalia wrote for the court in a unanimous opinion.
The high court’s decision in Jesinoski et al. v. Countrywide Home Loans Inc. ends a circuit split over whether TILA requires borrowers to file a lawsuit to rescind a mortgage within three years of the home loan's issuance, as was the case in five appellate circuits, or merely a notice that they intend to walk away from the loan, the rule in three circuits.
TILA provides two different rescission rights to borrowers who apply for and receive mortgages. The more common process allows borrowers to rescind mortgages within three days of closing and before any money is disbursed.
The law also provides a more expanded rescission right in situations where borrowers do not receive mandated disclosures. There, the law provides three years from the closing date to provide such notice but with proof that the documents were not provided.
Courts around the country have had a range of readings of the statute, resulting in confusion around just when and how borrowers are required to notify their lenders of their decision to move ahead with a rescission.
The First, Sixth, Ninth and Tenth circuits all have taken positions aligning themselves with the Eighth Circuit. Meanwhile, the Third, Fourth and Eleventh circuits have said that notification—and not filing a lawsuit—is sufficient.
The Supreme Court found Tuesday that the courts deeming only notification of a rescission within three years is enough to qualify under TILA interpreted the statute correctly.
"The Jesinoskis mailed respondents written notice of their intention to rescind within three years of their loan’s consummation. Because this is all that a borrower must do in order to exercise his right to rescind under the Act, the court below erred in dismissing the complaint," Justice Scalia wrote.