Return to rescinder, Court says

Posted by on Tuesday, January 27th, 2015 at 1:28pm

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By Holden Lewis ·
Thursday, January 15, 2015
Posted: 10 am ET

Did the bank goof at your mortgage closing? Instead of giving you two copies of the Notice of the Right to Rescind, did the bank give you just one? Did your spouse get the Truth-in-Lending Disclosure, but you didn't?

Then rescind!

In that case, you can rescind, or cancel, the mortgage any time within three years. All you have to do is send a letter to the lender -- even if you have fallen behind on the payments. Heck, especially if you've fallen behind on the payments.

That's according to the Supreme Court, which ruled this week in favor of borrowers who sued their bank for not letting them unilaterally rescind their mortgage three years after closing.

Court read the law literally

The Court's narrow ruling in Jesinoski v. Countrywide Home Loans relies on a strict reading of the Truth in Lending Act. There is a gap in the law, and the Court implies that it's Congress's responsibility -- not the Court's -- to fill it.

How the case got to the Court

Larry and Cheryle Jesinoski got a $611,000 refinance from Countrywide on Feb. 23, 2007. Exactly three years later, they were behind on their payments when they sent a letter to the bank, saying that they were canceling the loan because they didn't get enough copies of the required disclosures at closing. (They did sign a paper at closing that acknowledged that they received all the required documents.)

Bank of America, which had bought Countrywide, rejected the rescission because the bank disagreed with the assertion that the Jesinoskis hadn't received enough required copies of disclosures. The bank said that the Jesinoskis couldn't cancel the loan merely by sending a letter -- at least, not in this case, when the two sides disputed a fundamental fact. The bank argued that the Jesinoskis had to file a lawsuit to rescind their mortgage, because only a court could decide whether or not the Jesinoskis got the required disclosures. A district court and an appeals court sided with the bank.

How the Court ruled

The Supreme Court ruled unanimously against the bank. In a concise opinion, Justice Antonin Scalia wrote that the Truth-in-Lending Act:

explains in unequivocal terms how the right to rescind is to be exercised: It provides that a borrower "shall have the right to rescind … by notifying the creditor, in accordance with regulations of the Board, of his intention to do so" (emphasis added). 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."

The law has teeth

"I think it was a very narrow decision" that was short, to-the-point and based on strict statutory construction, says Greg DeMars, a partner at Honigman law firm in Detroit. For borrowers, the ruling means that "the Truth in Lending Act has some teeth if they want to exercise their rescission rights," DeMars adds.

It's unclear what's supposed to happen now. When a rescission is undisputed, the lender is supposed to return the down payment and the borrower is supposed to then return the borrowed money or give the house to the lender. It looks like the two sides will have to follow that course of action. Then, if the bank wants to recover damages, it can sue.

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