Creating Thriving Communities Through Land Use And Real Estate Law

SCOTUS: Truth in Lending Act Only Requires Written Notice of Intent to Rescind Within 3-Year Period

In a unanimous, short, decision by Justice Scalia, the Supreme Court of the United States held in Jesinoski et ux. v. Countrywide Home Loans, Inc., et al. that a borrower exercising his right to rescind a mortgage under the Truth in Lending Act, 15 U.S.C. § 1635(a), (f), need only provide written notice of an intent to rescind, not file suit to determine the validity of the rescission, within the statutory three-year period.

The Truth in Lending Act gives borrowers an unconditional right rescind a loan within three days of the loan transaction, and a conditional right to rescind if the lender failed to satisfy the Act’s disclosure requirements.  The petitioners, Larry and Cheryle Jesinoski, sent respondents Countrywide and Bank of America Home Loans, which had acquired Countrywide, a letter three years to the day after borrowing money to refinance their home mortgage, purporting to rescind the transaction.  Bank of America refused to acknowledge the validity of the rescission.  One year and a day later (four years and a day after the loan transaction), the Jesinoskis filed suit in federal court, seeking a declaration of rescission and damages.

The District Court entered judgment on the pleadings for respondents after concluding that the Truth in Lending Act, 15 U.S.C. § 1635(a), (f), required the borrower to file suit within the three-year period to rescind the loan.  The Eighth Circuit affirmed.

The Supreme Court reversed the Eighth Circuit, holding that only written notice of the borrower’s intent to rescind the loan must be given within the three-year period.  As the Court stated:

“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.”

The respondents argued that written notice of intent to rescind is insufficient where the parties dispute the adequacy of the disclosures; in such a situation suit must be filed within three years.  However, the Court pointed out that the Act does not recognize a distinction between a disputed and undisputed right to rescission.  Nor, as respondents argued, is the Court required to construe the Act as implementing the analogous common law principle – the Act modifies the common law, and is controlling.