The U.S. Supreme Court gave homeowners more ability to cancel their mortgages if lenders don’t provide the required disclosures, in a setback for the banking industry.
The dispute centered on the three-year deadline for borrowers seeking to rescind their mortgages. The justices today said unanimously that borrowers don’t have to file suit within three years and instead can meet the deadline by sending a letter to lenders.
The issue is one that the banking industry says has arisen frequently in recent years with borrowers who are in default on their mortgages and are facing foreclosure.
The Supreme Court ruling is a victory for Larry and Cheryle Jesinoski, who in 2007 refinanced their Eagan, Minnesota, home for $611,000 with Countrywide Home Loans Inc., now part of Bank of America Corp.
Exactly three years later, the Jesinoskis sent the lender a written notice that they wanted to rescind the accord, saying they hadn’t received copies of two disclosure forms required under federal law. Bank of America refused to cancel the mortgage, and the Jesinoskis sued.
The ruling doesn’t necessarily mean homeowners will be able to escape paying their mortgages. The Jesinoski case now returns to a lower court, where Bank of America will have a chance to argue that the couple received the required forms. Bank of America says the Jesinoskis signed an acknowledgment that they were provided with the disclosures.
Under the U.S. Truth in Lending Act, borrowers have three days to rescind a mortgage after they receive the disclosures. That right expires after three years, even if the forms are never provided.
In his opinion for the court today, Justice Antonin Scalia wrote that the lending statute says “in unequivocal terms” that the borrower can rescind the mortgage simply by notifying the lender.
“So long as the borrower notifies within three years after the transaction is consummated, his rescission is timely,” Scalia wrote. “The statute does not also require him to sue within three years.”
The case is Jesinoski v. Countrywide Home Loans, 13-684.