WASHINGTON (10/31/14)--Next week, the U.S. Supreme Court is set to hear arguments about how and when borrowers can request to rescind their mortgages.
Jesinoski v. Countrywide addresses how consumers can request a rescission--whether a borrower can simply send a notice or if they have to file a lawsuit, according to an Oct. 30 report in American Banker.
The Truth in Lending Act allows consumers to rescind the transaction three business days after the closing of a refinancing or home equity line of credit. The right of rescission is extended for up to three years if the mortgage disclosures are found to be inaccurate, the finance charge was understated or the lender failed to provide the borrower with the proper disclosures.
"Most lenders only have at the top of their minds the three-business-day timeline from when the initial disclosures are provided to the borrower when it comes to rescission," said Jared Ihrig, associate general counsel for the Credit Union National Association. "But in instances where there are inaccurate disclosures, opening the rescission period to a period of three years can take lenders by surprise and be costly, if exercised by a borrower or their counsel relating to a foreclosure."
Several U.S. appeals courts have ruled the borrower must file a lawsuit to exercise the extended right of rescission, American Banker noted, but other circuit courts have stuck to the literal language of only needing to file a written notice with the lender, resulting in a split among the courts.
"This is a very important case," Robert Lotstein, managing attorney, LotsteinLegal, told American Banker. "The plaintiffs' bar uses the right of rescission as a weapon to slow down or stop foreclosures. It can be an incredibly lengthy process. People have been able to stay in their homes for long periods of time while not paying their mortgage."