Revisiting Jesinoski v. Countrywide Home Loans, Inc.: A Poor Outcome for Lenders
In a December 2014 article, we reported that based on the oral arguments before the U.S. Supreme Court in Jesinoski v. Countrywide Home Loans, Inc., Supreme Court observers thought the final decision would favor borrowers over mortgage lenders. That prediction has proven prescient, but the outcome for mortgage lenders was worse than anticipated.
Justice Scalia, writing for a unanimous Supreme Court, held that a borrower may rescind a loan simply by providing notice to the lender within three years of the consummation of the loan. But Justice Scalia went on to hold that the right to rescind does not depend on either the ability of the borrower to return the loan proceeds or on whether the lender failed to make the required disclosures under the Truth in Lending Act.
To briefly summarize the facts of the case, the Jesinoskis borrowed $611,000 to refinance their home. Exactly three years later, they mailed their lender a letter purporting to rescind the loan. They did not sue to rescind the loan until four years after the consummation of the loan.
The legal issue was whether the Jesinoskis’ rescission was timely under the Truth in Lending Act (the “Act”), specifically whether the letter was sufficient or did the Jesinoskis need to sue within three years of the loan transaction. The Act grants borrowers an unconditional right to rescind for three days after consummation of the loan, after which they may rescind only if the lender failed to satisfy the Act’s disclosure requirements. The right to rescind expires three years after the date of the consummation of the loan or upon the sale of the property, whichever comes first.
In Jesinoski, the district court concluded that the Jesinoskis needed to file suit within three years of the consummation of the transaction. The Eighth Circuit Court of Appeals affirmed. The U.S. Supreme Court held that was error, relying on the language of the Act that a borrower “shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so.” In short, the letter was sufficient and timely; the timing of the lawsuit was irrelevant.
The Court went further, finding that nothing in the Act suggests a distinction between disputed and undisputed rescissions. In other words, borrowers have a right to rescind, even if the parties dispute the adequacy of the lender’s disclosures. Moreover, the Court found that the Act disclaims the common law requirement to rescission—that the borrower tender the loan proceeds. Accordingly, under the Act, a borrower need only provide written notice to a lender to rescind a loan.
You may find a copy of the opinion here.