Yesterday, the Supreme Court granted certiorari in one case of interest to the business community:
Truth in Lending Act—Home Loans—Manner of Exercising Right of Rescission
The Truth in Lending Act (TILA) provides certain borrowers an unconditional right to rescind a home loan "until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms" required by the TILA. 15 U.S.C. § 1635(a). The borrower exercises this right by "notifying the creditor ... of his intention to do so." Id. After the three-day period expires, the borrower may rescind the loan only if the creditor has not delivered "the information and rescission forms required under this section." Id. And in all events, the borrower's right to rescission "shall expire three years after the date of consummation of the transaction" even if the "disclosures required under [TILA] have not been delivered" to the borrower. 15 U.S.C. § 1635(f). Today, the Supreme Court granted certiorari in Jesinoski v. Countrywide Home Loans, Inc., No. 13-684, to consider whether, in order to rescind a transaction after the three-day rescission period has passed based on the lender's failure to provide the required loan documents, a borrower may simply notify the creditor in writing, or whether the borrower must instead sue the creditor for rescission within three years after consummation of the transaction.
The Jesinoskis, the plaintiffs in this action, refinanced their home loan with defendant Countrywide in 2007. The Jesinoskis allege that Countrywide failed to furnish the disclosures required by the TILA; they sent a written notice of rescission to Countrywide three years to the day after consummating the loan transaction. Countrywide, however, disputed that it had violated the TILA and refused to honor the Jesinoskis' attempt at rescission. One year after they sent their written notice to Countrywide, but four years after the loan was consummated, the Jesinoskis brought suit against Countrywide to rescind the loan. The district court granted judgment on the pleadings in favor of Countrywide and the Eighth Circuit, bound by circuit precedent, affirmed on the ground that the Jesinoskis had not filed suit against Countrywide before three years had elapsed from the date of their loan transaction. See Jesinoski v. Countrywide Home Loans, Inc., 729 F.3d 1092 (8th Cir. 2013) (per curiam).
Central to resolution of this issue is the Supreme Court's holding in Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), which addressed whether borrowers in default could rely on the rescission provisions of § 1635(a) as an affirmative defense to a lender's collection action. Because the defaulting buyers in that case asserted the rescission defense more than three years after the loan was consummated, the Supreme Court held that the three-year period contained in § 1635(f) "completely extinguishes" the right of rescission. Beach, 523 U.S. at 412.
The Eighth Circuit, along with the First, Sixth, Ninth, and Tenth Circuits, have relied on Beach to hold that the TILA creates a right of action for rescission that must be invoked by filing suit within the three-year repose period in § 1625(f). See Keiran v. Home Capital, Inc., 720 F.3d 721 (8th Cir. 2013); Rosenfield v. HSBC Bank, USA, 681 F.3d 1172 (10th Cir. 2012); McOmie-Gray v. Bank of Am. Home Loans, 667 F.3d 1325 (9th Cir. 2012); Lumpkin v. Deutsche Bank Nat'l Trust Co., 534 F. App'x 335 (6th Cir. 2012) (unpublished). The Third, Fourth, and Eleventh Circuits have rejected that reading of Beach, however, holding that "the three-year limitation in 15 U.S.C. § 1635 concerns the extinguishment of the right of rescission and does not require borrowers to file a claim for the invocation of that right." Gilbert v. Residential Funding LLC, 678 F.3d. 271, 278 (4th Cir. 2012); accord Sherzer v. Homestar Mortg. Servs., 707 F.3d 255 (3d Cir. 2013); cf. Williams v. Homestake Mortg. Co., 968 F.2d 1137 (11th Cir. 1992). In these courts, borrowers who seek to rescind their loan on the ground that proper documentation was not provided may do so simply by notifying the lender. In the case granted today, respondent Countrywide agreed that the circuits were divided on this issue and urged the Supreme Court to grant review to resolve the conflict.
The method of notifying lenders of rescission will be of substantial interest to any business engaged in providing residential loans to consumers.
Absent extensions, which are likely, amicus briefs in support of the Jesinoskis will be due on June 19, 2014, and amicus briefs in support of Countrywide will be due on July 21, 2014.
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