February 6, 2015
by Jessica L. Blanner
and Brian H. Liebo
Usset, Weingarden & Liebo, PLLP – USFN Member (Minnesota)
For many years, it has been the practice within the Eighth Circuit (comprised of Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) that when a mortgage company was notified by a borrower that the borrower intended to rescind his mortgage, the borrower had to not only notice his intent within three years of the loan closing, but actually commence a lawsuit within the three-year time frame. Failure to do both actions within three years was tantamount to a waiver of the right to rescind, according to district court judges.
A recent decision by the U.S. Supreme Court has definitively established the law on this matter for all jurisdictions across the nation. The Supreme Court reversed the judgment of the Eighth Circuit Court of Appeals, and held that a borrower exercising his or her right to rescind a mortgage transaction under the Truth in Lending Act [hereinafter, TILA; see 15 U.S.C. § 1635(a), (f)] must only provide written notice to the lender within the three-year period, and need not commence an actual lawsuit within that three-year period. Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. __ (2015).
This action originated in Minnesota, after the borrowers refinanced their home by borrowing $611,000 from Countrywide Home Loans, Inc. on February 23, 2007. Exactly three years later, on February 23, 2010, the borrowers mailed a letter of rescission to the lender, alleging TILA violations. The lender denied the rescission request, and the borrowers filed suit on February 24, 2011. The borrowers argued that their TILA claims were timely because they sent a notice of rescission on February 23, 2010.
The U.S. District Court for the District of Minnesota rejected the borrowers’ arguments and granted the lenders’ motion for judgment on the pleadings, holding that a suit for rescission filed more than three years after the loan’s consummation is time-barred, even if the borrowers mailed a notice of rescission within the three years. Jesinoski v. Countrywide Home Loans, Inc., 2012 WL 1365751, *3 (D. Minn., Apr. 19, 2012). The Eighth Circuit Court of Appeals affirmed the district court’s judgment on the pleadings in favor of the lenders. Jesinoski v. Countrywide Home Loans, Inc., 729 F. 3d 1092 (8th Cir. 2013).
In a unanimous opinion in Jesinoski, written by Justice Scalia, the U.S. Supreme Court reasoned that while Section 1635(f) “tells us when the right to rescind must be exercised, it says nothing about how that right is exercised.” The Supreme Court also explained that Section 1635(a) does not explicitly provide that a lawsuit is required for a rescission. In conclusion, the Supreme Court held that a borrower only needs to provide written notice to a lender in order to exercise the right to rescind within the three-year time frame. The Supreme Court’s decision settles a circuit split on this issue.
While the final Jesinoski decision appears borrower-friendly, the ruling is narrow in that it solely addresses a timing issue. Mailing a notice of rescission within three years of consummating a loan is sufficient to exercise the right to rescind, and a party seeking to rescind is not required to actually file a lawsuit within that three-year time period in order to preserve a rescission claim.
As a practice pointer, mortgage servicers are advised to carefully monitor all borrower correspondence for timely rescission claims and properly attend to such notices, even if the borrowers have not yet filed lawsuits to enforce mortgage rescission rights.
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