In a very rare occurrence, if not a first of its kind occurrence, the U.S. Supreme Court heard oral arguments on Tuesday November 4, 2014, in a case entitled Jesinoski v. Countrywide, U.S. Supreme Court No. 13-684. The Supreme Court is being asked to decide the proper way in which a debtor's right of rescission must be exercised under Section 1635 of Title 15 of the United States Code. This case does not involve the exercise of a debtor's right of rescission within the three day period following the consumation of the transaction, but involves the exercise of the right of rescission within three years after consumation of the transaction due to the lender's failure to comply with the provisions of the Truth In Lending Act.
In the case at hand, the debtors refinanced their existing mortgage with Countrywide Home Loans in the principal sum of $611,000, in February 2007. The debtors did not exercise their right of rescission within three days after the consumation of the closing, but the refinancing was in fact funded by Countrywide. The debtors were given TILA disclosures at the closing and were given a notice of their right of rescission.
You may recall that I wrote a previous blog on the case of Sumner v. MERS about the number of copies of the notice of right of rescission that must be given to the debtor. The statute in the Sumner case was in fact the Massachusetts version of the federal Truth In Lending Act. The current case involves the federal Truth In Lending Act ("TILA")
On the date to occur three years after the closing of their refinancing with Countrywide, the Jesinoskis gave written notice to Countrywide Home Loans that they were exercising their right of rescission with respect to the refinancing due to Countrywide's failure to strictly comply with the provisions of TILA. The Jesinoskis indicated that they were not given proper and adequate copies of the disclosures under TILA. Countrywide refused to honor the notice of rescission that they received from the Jesinoskis and did not rescind the loan, or accept the restitution that was offered to essentially repay the loan.
Based on the position of Countrywide and its refusal to accept the exercise of the right of rescission, the Jesinoskis filed suit against Countrywide more than a year after they served their written notice of rescission on Countrywide. This suit was filed in the Federal District Court for the District of Minnesota. That court, on the motion of Countrywide, dismissed the case as being barred by the three year limitation contained in Section 1635 of TILA. The Jesinoskis filed an appeal to the U.S. Court of Appeals for the Eighth Circuit. The Court of Appeals upheld the descision of the District Court. Consequently the Jesinoskis filed a Writ of Certiorari to the U.S. Supreme Court which granted the Writ and agreed to hear arguements in the case. It seems that their is a split of descisions among the Courts of Appeal of the United States in that the Courts in the Third, Fourth, and Eleventh Circuits hold that only notice of the exercise of a right of rescission must be given within the three year period as prescribed under Section 1635. The Courts in the First, Sixth, Eighth, Ninth, and Tenth Circuits hold that suit must be filed within the three year period set forth in Section 1635, TILA.
The statute is clear that if the right is exercised within three days after the closing of the transaction that the debtor need only give a written notice to the creditor and the creditor is required in fact to give the debtor two copies of the required form. If a debtor does not rescind the transaction within the three days after the closing, but does exercise, or attempt to exercise, the right of rescission as extended under Section 1635 of TILA due to the creditor's failure to comply with the provisions of TILA, within three years after the consumation of the transaction, Section 1635 of TILA is not so clear as to exactly how the debtor must exercise the right of rescission. The statute is not so clear as to whether it is a statute of limitations that requires that suit actually be filed within the three year period or if the debtor need only notify the creditor of the debtor's intent to exercise the right of rescission within the three year period.
It was Countrywide's position that the debtor must file suit as the creditor should not be required to act based upon the debtor's determination of a violation of TILA. The debtors on the other hand argue that the creditor should be the one to bear the expense of litigation if they dispute their failure to comply with TILA. The case is actually most interesting from a technical standpoint, and because the U.S. Supreme Court, to the best of my recollection, has not previously agreed to get involved in the myraid of technicalities that exist under the TILA. Clearly Section 1635 of TILA is a perfect example of the fact that TILA is actually not so clear and specific.
A very brief summary of the arguements before the U.S. Supreme Court were published by Reuters News, and a summary of the descisions of the lower courts and of the case in general can be found by Clicking Here.
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