The Truth in Lending Act (TILA) gives borrowers a 3 day rescission period to cancel the loan transaction for any reason. After that, the borrower has the right to rescind only if the lender has failed to satisfy TILA’s disclosure requirements; and the right expires after 3 years.
On January 13, 2015, the U.S. Supreme Court ruled that a borrower’s written notice to the lender within 3 years was enough to satisfy the rescission requirement; the borrower did not have to file a lawsuit within 3 years. In 2007, the Jesinoskis borrowed money from Countrywide Home Loans to refinance their home. Three years later they mailed a correspondence to Countrywide requesting rescission of the loan. This rescission was disregarded by Countrywide’s successor, Bank of America.
A year later they filed a federal lawsuit asserting their right to rescission. Both the federal trial court and the federal appellate court sided with the bank and dismissed the lawsuit because the Jesinoskis did not sue within 3 years of the original loan transaction. The courts seemingly overlooked the fact that TILA states that a borrower “shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so.”
The U.S. Supreme Court found differently, and this provision to mean that all a borrower needs to do is to provide written notice of rescission within 3 years, not necessarily file a lawsuit to rescind.
This means that all homeowners that are granted new loans or refinance going forward, who feel that the lender has not satisfied TILA’s disclosure requirements, can rescind the loan transaction up to 3 years after the loan transaction. The Court did not provide guidance as to whether a borrower in default has the right to rescind the loan, and whether that borrower would owe the missed payments.