Justices' Questioning in Jesinoski May Be Cause for Concern

Section 1635 of the Truth in Lending Act provides that a borrower may rescind certain mortgage loans within three days as a matter of right, and within three years if certain conditions are satisfied. The three-year extended rescission right applies only if a borrower does not receive certain material disclosures at loan closing.

But what if the creditor disagrees with the borrower regarding whether the borrower qualifies for the extended rescission period? For several years, the circuit courts have been split on whether in such cases a borrower who has provided notice of rescission within three years must also file a lawsuit within that three-year period, or whether such a borrower may file a lawsuit even after the three-year period lapses. 

To date, four other circuits agree with the Eighth Circuit’s position that rescission is only effective under TILA if the borrower files suit within three years of rescission. Three circuits, however, have held that a borrower need only provide notice to a creditor to rescind a loan transaction. On Nov. 4, 2014, the U.S. Supreme Court heard oral arguments in Jesinoski v. Countrywide to resolve this circuit split. In their questioning, the justices pressed counsel on whether the statutory text was clear and, if not, what steps a borrower must take to rescind.

Originally published in Law360; reprinted with permission.