By opinion dated January 13, 2015, the United States Supreme Court held in Jesinoski v. Countrywide Home Loans, Inc. 2015 U.S. Lexis 607 (2015), that a borrower wanting to exercise a right of rescission on a loan under the Truth In Lending Act’s (“TILA’s”) extended right of rescission is not required to bring a court action to do so. Instead, the borrower is only required to submit a rescission notice to the lender within three years after consummation. TILA gives certain borrowers, mostly on refinance transactions, a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), the right to rescind can extend to three years if the lender, for example, does not make certain disclosures or makes them improperly. The borrowers in this case mailed a notice of rescission to the lender three years after the loan was made and Countrywide Home Loans responded by denying that borrowers had a right to rescind. A year after the rescission notice was filed and four years after the loan was made, the borrowers filed a law suit seeking the rescission. Rescission allows for a refund of all fees chargeable by the creditor, including interest charged during the term of the loan.
The Court’s opinion resolved a split among the Circuit Courts circuit over whether borrowers exercising their right to rescind during the extended rescission period must file a lawsuit or whether they can rescind by merely sending a notice of rescission to the lender. Justice Scalia, speaking for the Court in the unanimous decision, stated as follows:
Section 1635(a) 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.
Based on this opinion, a lender receiving a rescission notice during the extended rescission period may need to file suit against the borrower to determine the status of the loan. If a loan is properly rescinded, the lender must return all fees, including interest, and the borrower must return the principal amount of the loan.