A Borrower's Ability to Rescind a Mortgage Loan Just Got Easier

The Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq. gives consumers the right to rescind mortgage loans upon their principal dwelling, until midnight of the third business day following the consummation of the transaction, or following the delivery by the creditor of the information and rescission forms, by notifying the creditor of his intention to do so.¹ Even if the creditor fails to deliver the forms, the consumer only has three years from the date of the consummation of the transaction to rescind the mortgage.²

The question presented to the United States Supreme Court is whether a consumer may exercise this right by providing a simple written notice to his lender, or whether the consumer must also file a lawsuit before the three-year period elapses. The Court's January 13, 2015 decision can be viewed here.³

On February 23, 2007, The Jesinoskis obtained a mortgage loan. At the closing of their loan, the creditor provided the Jesinoskis with its TILA rescission forms.  At closing, the Jesinoskis signed an acknowledgment of their receipt of the TILA forms, but they failed to rescind their loan within the three-day period.

Exactly three years after the date of their loan closing, the Jesinoskis delivered a letter to the creditor alleging that the creditor had failed to provide them with the required TILA rescission forms and indicating their intention to rescind their mortgage. The creditor refused to permit the rescission of the loan after receipt of the letter. 

The Jesinoskis filed a lawsuit on February 24, 2011 in the United States District Court for the District of Minnesota seeking to rescind the mortgage.  The lawsuit was not filed within three years of the consummation of the loan, and as a result, the trial court dismissed the case. On appeal, the court of appeals confirmed that a party seeking to rescind a loan transaction must file suit within three years of consummating the loan.  Because the Jesinoskis had failed to file suit within three years of the consummation of the mortgage loan, they were not entitled to rescind the mortgage.

Subsequently, the Jesinoskis appealed to the United States Supreme Court, and the Court accepted the case on April 28, 2014.

At the Supreme Court, the Jesinoskis argued that TILA provides an absolute right for the consumer to rescind their mortgage. Therefore, their written notice made within the three-year period should be sufficient to rescind their mortgage, and a lawsuit would not be required.  Conversely, the creditor argued that a written notice would not suffice, and a lawsuit would be required because the Jesinoskis were disputing the adequacy of the notice presented at the consummation of the loan.  The Court noted in its decision that the creditor conceded that written notice would suffice under TILA if it were made within the required three-day period, or within three years, but only if the creditor had failed to make the required disclosures.  However, the creditor maintained that despite the absence of such a requirement in TILA's simple language, the consumer should still be required to file a lawsuit within the three-year period in order to establish a right of rescission on the basis that the original disclosures were insufficient.  The Jesinoski's failure to file a lawsuit within three years, they argued, would therefore preclude them from rescinding their mortgage.

The Supreme Court reversed the dismissal of the Jesinoski's lawsuit and concluded that the written notice mailed to the creditor within three years of their loan's consummation was indeed sufficient to rescind the mortgage under TILA.  The Supreme Court however, did not determine whether the Jesinoskis were entitled to rescission, and remanded the case to the trial court, where it will remain in litigation to determine whether the disclosures provided by the creditor at the consummation of the loan complied with TILA, or whether the Jesinoskis could still invoke the right of rescission three years after the consummation of their mortgage loan.

Following the Supreme Court's decision it is now clear that if a creditor fails to strictly comply with TILA's terms, then a borrower only needs to provide written notice in order to rescind a loan any time within the three-year period. 

This decision is significant for mortgage lenders because the burden and expense of litigation will now shift to the lender to prove that its rescission disclosures complied with TILA, whereas previously, if the borrower chose to issue a letter of rescission within the three year period, the burden of litigation fell to the borrower to establish that it had not received the proper notices.