Use of the Truth in Lending Act as a Defense to Foreclosure Limited by the Three Year Notice Provisions of the Act

The Truth in Lending Act, 15 U.S.C. §1601 et seq (TILA) was intended to protect consumers in consumer credit transactions and requires that lenders provide consumer borrowers with full disclosure of the terms and conditions of the loans they make, including home mortgages.  Accordingly, home mortgage lenders must provide borrowers with complete information about the cost of a loan, including all finance charges, interest paid before or during the loan, private mortgage insurance fees, points associated with the loan, as well as the more common “loan origination fees” and private mortgage insurance.

If a mortgage lender fails to strictly comply with the provisions of TILA, a home owner has the right to rescind – cancel – the loan.  The right of recession is a powerful remedy but is subject to limitations, including the requirement that it be exercised within three years of the date on which the loan was made.

In the matter of Jesinoski v. Countrywide Home Loans, Inc., 2015 U.S. LEXIS 607 (U.S. Jan. 13, 2015), the United States Supreme Court considered the question of whether a homeowner’s written notice to a mortgage lender demanding recession within the three year period has satisfied the notice of rescission requirement of TILA.  See full opinion here.

Based on the Supreme Court’s prior decision in Beach v. Ocwen Fed. Bank, 523 U.S. 410 (1998), the Eighth Circuit Court of Appeals dismissed Jesinoski’s claim for rescission as untimely as it was brought more than three years after the loan transaction.  The Court sided with the mortgage lender in finding a consumer’s “written notice” to be insufficient unless the homeowner brought suit asserting its claim for rescission within the the three year period.

In Beach, the Supreme Court considered a homeowner who sought to claim that the lender’s TILA violations, while brought more than three years after the loan closing, could still be claimed as an affirmative defense in a foreclosure action.  Justice Souter, writing for a unanimous court, found that the TILA statutory three-year limitation on rescission applied to any TILA claims – whether brought via affirmative suit or, as here, as a defense to foreclosure.

“The question here is whether a borrower may assert this right to rescind as an affirmative defense in a collection action brought by the lender more than three years after the consummation of the transaction. We answer no and hold that § 1635(f) completely extinguishes the right of rescission at the end of the 3-year period.”  Beach at 411-412.

However, Jesinoski presented different facts and, based on these facts, the Supreme Court distinguished it from Beach.  In Beach, the borrowers had not notified the mortgage lender of their demand for rescission prior to asserting it as a affirmative defense to foreclosure.  In Jesinoski, a Notice of Rescission was sent to the mortgage lender within the three-year period as required by TILA.  The Supreme Court held that TILA did not require a homeowner to file suit within three years and that Jesinoski’s Notice satisfied the statutory requirements.

“Section 1635(a) explains in unequivocal terms how the right to rescind is to be exercised: It provides that a borrower “shall have the right to rescind . . . by notifying the creditor, in accordance with regulations of the Board, of his intention to do so” (emphasis added). The language leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely. The statute does not also require him to sue within three years.”  Jesinoski v. Countrywide Home Loans, Inc., 2015 U.S. LEXIS 607 (U.S. Jan. 13, 2015).

The time limit on the TILA’s Right of Rescission is another example of the rule of “use it or lose it” which applies to many of the rights and remedies available to debtors.


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