A home-loan borrower has three years to seek to rescind the loan because Truth In Lending Act(TILA) disclosures were not made, but this does not mean that the borrower must file a lawsuit within that time.  The U.S. Supreme Court reached this conclusion last week in its decision in Jesinoski v. Countrywide Home Loans, Inc., U.S.S.Ct. No. 13-684 (Jan. 13, 2015).  The decision has implications for how mortgage lenders respond to attempted TILA rescissions.  Click here to read the decision.

For a typical home refinance loan, the borrower has three days after closing to rescind the loan for any reason, assuming that all disclosures required by TILA were made.  After three days without a written rescission notice from the borrower, the loan is funded and the borrower begins making payments.  A borrower has three years, however, to seek rescission by asserting that TILA-required disclosures were not made.

Before last week, the question remained whether within three years a borrower must assert a lack of TILA disclosures by filing a lawsuit or by merely sending notice to the lender.  The U.S. Supreme Court concluded that a borrower is required only to seek rescission from the lender within three years.  The plain language of TILA does not require a borrower to file a lawsuit within three years.  The Jesinoski decision leaves open the question of how much longer a borrower has to file a lawsuit if the rescission notice is provided to the lender within three years.

Now, once a mortgage lender receives a borrower’s notice seeking rescission because TILA disclosures allegedly were not made, the lender likely will want to file a lawsuit itself.  The lender would need a judicial declaration that the loan is, in fact, valid in order to protect its security interest.  Consumer advocates suggest that the Jesinoski decision, by making it easier for borrowers to seek rescission, will lead mortgage lenders to more readily modify loans.