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From Banking and Finance Law Daily, April 28, 2014

Supreme Court agrees to decide time limit on TILA mortgage rescission rights

By Richard A. Roth, J.D.

The U.S. Supreme Court has granted a petition for review by consumers who were attempting to rescind a mortgage loan refinancing transaction based on a claim that the lender failed properly to make disclosures required by the Truth in Lending Act. According to the U.S. Court of Appeals for the Eighth Circuit, the consumers’ right to rescind expired when they failed to file suit to enforce their rescission demand within three years of the loan closing (Jesinoski v. Countrywide Home Loans). The petition for review in Jesinoski v. Countrywide Home Loans, Inc., Dkt.13-684, was granted on April 28, 2014.

TILA provides consumers who give an interest in their home as security for a non-purchase money loan a unilateral, unconditional three-day right to rescind the transaction (15 U.S.C. §1635). If the lender does not make all of the disclosures required by TILA and Reg. Z—Truth in Lending (12 CFR Part 1026), the rescission period is extended to three years after the closing. However, neither the statute nor the regulation make clear what the consumer must do to exercise the right. Reg. Z says “To exercise the right to rescind, the consumer shall notify the creditor by mail . . . Notice is considered given when mailed . . .” (12 CFR 226.23 at the relevant time, now 12 CFR §1026.23). The statute says that the right “shall expire three years after the date of consummation of the transaction.”

The question to be decided is whether consumers can exercise their rescission right simply by notifying the lender within the three-year time limit, or whether they must file suit to enforce the rescission within the three-year term if the lender refuses to cooperate.

Decision on appeal. The Supreme Court currently has pending before it two petitions asking for review of the same TILA interpretation by the Eight Circuit. In addition to Jesinoski, the decision in Keiran v. Home Capital, Inc., is on appeal. The Eighth Circuit’s analysis of the issue is set out in Keiran (see Banking and Finance Law Daily, July 12, 2013); a different three-judge panel subsequently considered Jesinoski and decided, without analysis, that they were bound by the earlier Keiran opinion. However, two of the three judges made clear they believed that Keiran had been decided incorrectly.

The Supreme Court has not yet decided whether to accept the petition for review filed in Keiran v. Home Capital, Inc., Dkt. 13-705.

Conflicting interpretations. The conflict in how the statute of limitations provision should be interpreted is not confined to the Eighth Circuit. According to the petition in the Jesinoski appeal, three circuits—the Third, Fourth, and Eleventh—have determined that notice to the lender is sufficient to invoke a consumer’s right to rescind a mortgage loan transaction. Opinions were published in:

These courts note that nothing in TILA or Reg. Z mentions a need to file a suit. They also say that a duty to sue should not be imposed on consumers given that TILA was intended to be a consumer protection law.

However, five circuits—the First, Sixth, Eighth, Ninth, and Tenth—have determined that consumers must sue to enforce their rescission rights within the three-year term. Opinions were published in:

These courts generally express concern over the practical difficulties that would face creditors if a consumer could preserve a right to rescind indefinitely simply by sending a letter. Moreover, the justification for rescission is “remedial economy,” which would not be furthered by allowing a rescission claim to live on after unwinding a transaction becomes difficult, they say.

The circuits requiring consumers to sue also point to a U.S. Supreme Court decision as support for their interpretation of the three-year limit. In Beach v. Ocwen Federal Bank, consumers who had made no previous effort to rescind their loan attempted to use the right of rescission as a defense in a collection suit filed outside of the three-year term. The Supreme Court said that the right to rescind ended after three years.

Companies: America’s Wholesale Lender; BAC Home Loans Servicing, LP; Bank of America, N.A.; Countrywide Home Loans, Inc.; Countrywide Home Loans Servicing, L.P.; Mortgage Electronic Registration Systems, Inc.

MainStory: TopStory ConsumerCredit Loans Mortgages TruthInLending

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