A copy of the decision is available here. The rescission language in TILA, 15 U.S.C. § 1635, provides borrowers with an unconditional right to rescind certain non-purchase money mortgage loan transactions within three days of the date the borrower is provided: (a) a notice detailing the right of rescission (and how to exercise it); and (b) certain “material” TILA disclosures. Under Section 1635(f), if a lender has failed to provide to the borrower either the notice of rescission or accurate material disclosures, an extended right of rescission is provided that expires three years after the transaction consummation date or upon the sale of the property, whichever occurs first.

IntroductionA little over one year ago, the U.S. Supreme Court issued its ruling in Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790 (2015), which resolved a circuit court spit regarding how a mortgage borrower may exercise the right of rescission under the Truth-in-Lending-Act (“TILA”).The right of rescission provided by TILA (15 U.S.C. § 1635) gives borrowers an extended right to rescind within three years if the lender has failed to provide to the borrower either the notice of rescission or accurate material disclosures.Prior to Jesinoski, there was a circuit court split regarding whether, in order to exercise the extended right of rescission, borrowers only had to provide written notice of rescission or file a lawsuit within the three-year deadline.

The answer, of course, is as clear as mud. In relevant part, TILA, codified at 15 U.S.C. §1635, allows obligors a “no questions asked” right to rescind certain consumer credit transactions within a proscribed time period. Where a lender has provided an obligor with proper disclosure of credit terms, the obligor “shall have the right to rescind the transaction until midnight of the third business day.”

In a July 15 published decision, the Fourth Circuit reversed a West Virginia District Court’s ruling against a mortgage servicer in a purported class action, holding that merely sending a notice of rescission under the Truth in Lending Act (TILA), 15 U.S.C. 1635, et seq., does not immediately rescind the loan and relieve the borrower of any obligation to tender the loan proceeds. The case is Lavis v. Reverse Mortgage Solutions, Inc., Record No. 18-2180.

After the close of the debtors’ bankruptcy case, the secured creditor initiated a foreclosure proceeding, which the debtors vigorously defended. The debtors also initiated other, separate lawsuits in state and federal court in an attempt to invalidate the note and mortgage, and they attempted to rescind the note and mortgage under the Truth in Lending Act, 15 U.S.C. § 1635. The bankruptcy court entered an order reopening the bankruptcy case and compelling surrender of the real property, specifically prohibiting the debtors from taking “any action to impede, contest, or dispute the validity or enforceability of the note and mortgage . . . including, but not limited to, any action to rescind the note and mortgage pursuant to the Truth in Lending Act, 15 U.S.C. 1635 . . . .”

The extended right of rescission expires three years after the closing or upon sale of the property, whichever comes first, regardless of whether the lender did or did not make the proper TILA disclosures at origination. 15 U.S.C. § 1635(f). In Jesinoski, the borrowers sent a letter to Bank of America (successor to Countrywide) exactly three years after the closing, giving notice of rescission of their loan transaction.

Specifically, TILA grants borrowers the right to rescind a loan transaction, “until midnight of the third business day following the consummation of the transaction or the delivery of the [disclosures required by the Act], whichever is later, by notifying the creditor, in accordance with regulations of the [Federal Reserve] Board, of his intention to do so.” 15 U.S.C. 1635(a). However, if the creditor fails to provide requisite TILA disclosures, a borrower may rescind the transaction for up to three years from the date the loan closes.

The TILA provision at issue grants borrowers an unconditional right to rescind for three days, after which they may rescind up to three years after the transaction in the event the lender does not comply with TILA disclosure requirements. 15 U.S.C. §1635(a). In the opinion, Justice Scalia relied upon the plain language §1635(a), stating that a borrower may rescind “by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.”

TILA gives certain borrowers 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), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind.

Id. at *3; 15 U.S.C. § 1635(b). [View source.]