The U.S. Supreme Court agreed to consider a case involving a provision of the Truth in Lending Act that allows borrowers to void their mortgage loans.
According to court documents, Larry and Cheryle Jesinoski sued Countrywide Home Loans, a subsidiary of Bank of America, after refinancing their mortgage on their primary residence in Eagan, Minnesota. The $611,000 loan was executed on February 23, 2007.
The Jesinoskis’ lawsuit, which can be read here, claims that when their loan was closed, Countrywide did not provide all of the disclosures required by the Truth in Lending Act. Their suit states that they were not provided with two copies of a “Notice of Right to Cancel” and two copies of a “Truth in Lending Disclosure Statement.”
Under the Truth in Lending Act, a borrower has the right to rescind the loan by midnight of the third business day following the closing of the loan, or until the lender has provided the borrower with all the legally required loan documents.
The Act also creates a three-year time limit to exercise the right to rescind the loan, even if the required disclosures have not been delivered to the borrower.
On February 23, 2010, the Jesinoskis sent a letter to Bank of America, which had since acquired Countrywide, expressing their desire to rescind the loan. Bank of America replied to the Jesinoskis and refused to acknowledge the rescission, saying that the letter is not a valid form of rescission request and that the Jesinoskis would instead need to file a lawsuit to ensure the rescission of their loan.
The Jesinoskis then sued Countrywide and Bank of America in U.S. District Court to enforce their rescission request, saying that their letter should have been sufficient.
The district court sided with the banks, saying that the Jesinoskis should have filed a lawsuit within the three-year window allowed by the Truth in Lending Act.
The Jesinoskis appealed that decision to the Eighth District Court of Appeals, which denied their appeal, saying their lawsuit was filed too late. But other District Courts have been split on whether a letter is an allowable form of notification in instances such as the Jesinoskis’ case.
The First, Sixth, Ninth, And Tenth Circuits also ruled that a borrower must file suit within three years to rescind the loan.
The Third, Fourth, and Eleventh Circuits previously ruled, on other cases, that a written notice to a creditor is sufficient.
In its response to the Jesinoskis’s suit, which can be read here, Bank of America said, “a borrower cannot unilaterally rescind his mortgage simply by notifying the lender of his intent to do so. Instead, the borrower must file suit within the three-year statute.”
Bank of America’s response also says in instances similar to the Jesinoskis, the borrowers seek to rescind the loan “usually after having failed to repay their mortgage loan for some time, and faced with an impending foreclosure.”
The Supreme Court will hear Jesinoski v. Countrywide Home Loans, Inc. during its next term, which begins in October.
