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Supreme Court Issues Opinion on TILA Rescission Rights

We previously provided an update on developments concerning the right of rescission granted under the Truth in Lending Act (“TILA”). The United States Supreme Court recently issued a consumer-friendly decision regarding the rescission process.

As you are likely aware, a mortgage lender is required to provide the consumer with notice of this rescission right, and the consumer has three business days to rescind the transaction. If the mortgage lender does not provide the required TILA disclosures, the right to rescind is extended from three business days to three years. Many courts, including the First, Sixth, Eighth, Ninth, and Tenth Circuits, previously ruled that under the expanded right of rescission, the consumer must actually file suit within the three year period in order to exercise the right of rescission. Such courts viewed the three year period as a statute of limitations. Accordingly, suits filed by consumers beyond three years after the date of closing have been barred.

In the case of Jesinoski v. Countrywide Home Loans, Inc., the Supreme Court provided a more relaxed interpretation of the right of rescission by holding that a consumer must simply notify the lender in writing of his or her intent to exercise the write of rescission. The Supreme Court explicitly held that, where the written notice is given before the expiration of the three year period, no suit is required to preserve the right of rescission.

Lenders are generally aware of the risk of rescission during the three year period; however, lenders now must be aware that consumers have increased flexibility to preserve the right of rescission for a greatly extended period of time, simply by providing written notice. Commentators have noted that this decision may ultimately prompt many lenders to initiate court proceedings upon receipt of a written notice of rescission in order to clear land titles and collateral rights.