Editor: David Reiss
Brooklyn Law School

April 29, 2014

Reiss on Supreme Court Mortgage Case

By David Reiss

Law360 quoted me in Supreme Court Takes Up Mortgage Rescission Timing Case (behind a paywall). It reads in part,

The U.S. Supreme Court agreed Monday to weigh in on whether federal law requires borrowers to notify creditors in writing of their intention to rescind their mortgages or file a lawsuit making a similar claim within three years.

The petitioners in the case, Larry and Cheryle Jesinoski of Eagan, Minn., are seeking to overturn a September ruling in the Eighth Circuit that they were required to sue Countrywide Home Loans Inc. to have their mortgage financing rescinded within three years of the transaction closing. The Jesinoskis argue that the Truth In Lending Act only requires that they provide notice of rescission in writing within those three years.

But the case goes beyond a ruling in the Eighth Circuit. A Supreme Court ruling would resolve a circuit split that has seen the Third, Fourth and Eleventh circuits rule that borrowers have three years from closing to notify lenders in writing within three years of their intention to cancel their mortgages, while the First, Sixth, Eighth, Ninth and Tenth circuits have found that a lawsuit must be filed within that three-year period, according to the Jesinoskis’ December petition for certiorari.

“The resulting rule does violence to the statutory text, manufactures legal obstacle for homeowners seeking to vindicate their rights under a law that was enacted to protect them, and risks flooding the federal courts with thousands of needless lawsuits to accomplish rescissions that Congress intended to be completed privately and without litigation,” the petition said.

TILA provides two different rescission rights to borrowers who apply for and receive a mortgage refinancing. The more common process allows such borrowers to rescind their mortgage within three days of closing and before any money is disbursed.

The law also provides a more expanded rescission right in situations where borrowers do not receive mandated disclosures. There, the law provides three years from the closing date to provide such notice, but with proof that the documents were not provided.

Prior to the 2007 financial crisis, such expanded rescission claims were rare, said Reed Smith LLP partner Robert Jaworski.

“A lot more people were in trouble on their mortgages and couldn’t make payments and were subject to foreclosure. That caused a lot of these claims to be made, much more than previously,” he said.

And that has made the need for resolving the circuit split that much more important.

“It’s kind of ambiguous. It’s not stated as a statute of limitations,” said Brooklyn Law School professor David Reiss.

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