On January 13, 2015, the US Supreme Court resolved a split among the Courts of Appeal on interpreting how a borrower may give notice to a lender of the borrower’s right to rescind a home mortgage. The Supreme Court ruled that a notification may be made in writing to the lender, without a need to file a lawsuit to invoke the right to rescind.
The Truth in Lending Act requires that lenders make certain disclosures (such as the terms of the loan) with respect to extending credit to consumers. With respect to home mortgages, there is a three day right of rescission upon the later of consummation of the loan transactions or the delivery of certain mandated disclosures. If certain material disclosures are never provided to the consumer, then the consumer has three years to notify the lender of the consumer’s intent to rescind the mortgage after consummation of the loan transaction, upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first.
Courts had split on whether the three year rescission notice could be made by sending written notification to the lender or only by filing a lawsuit seeking to rescind the mortgage. In the case before the Court, the borrowers sent a written notice to the lender within the three year required time period. A year later the borrowers sued to rescind the mortgage. The lender argued that the borrowers could rescind only by filing a lawsuit; the borrowers argued that all they needed to provide was written notification to the lender, which they had done within the required three year time limit.
The Supreme Court issued a unanimous opinion in favor of the borrowers, stating that the statutory language clearly did not require a borrower to file a lawsuit within the required notification period, and instead could notify the lender in a written notification. This will enable borrowers that wish to exercise their right to rescind a home mortgage to do so without having to expend the funds to first file a lawsuit.
