morganlewis.com | January 27, 2015
A notice of rescission under the Federal Truth in Lending Act (TILA) is the topic of this issue of the newsletter. In the recent case of Jesinoski v. Countrywide Home Loans the United States Supreme Court ruled unanimously that a borrower exercising their right to rescind under TILA is only required to provide written notice to their lender within the 3-year period, they are not required to file any lawsuit within that period.
Notification that a homeowner is exercising their right to rescind may be given by the service of a notice of rescission which is sent under the provisions of TILA which are found in 15 U.S.C. section 1635 and also by the provisions of Regulation Z found in 12 C.F.R. 226.23(b)(5). 15 U.S.C. §1641(c) states that the right of rescission applies to any assignee of the obligation.
Careful consideration of both the unique circumstances and facts of any given situation should be given before any decision is made as to whether or not to serve a rescission notice under TILA to a lender or their assignee.
A homeowner should consider serving a notice of rescission if they are contending that the lender violated TILA for one or more reasons including that the disclosure statement was defective in some way such as a failure to disclose the Annual Percentage Rate (APR) or an under-disclosure of the APR and/or finance charges, existence of a variable rate feature, total amount financed, total of the payments, or a failure to provide copies of other required notices such as in a refinance transaction where each borrower or person with ownership interest in the property did not receive two copies each of the federally required notice of right to cancel, failure to properly disclose the date or dates that the rescission period expires, etc. If each borrower or person with ownership interest in a refinance transaction was not provided two adequate copies of this Notice, an extended three year right to rescind is permitted under TILA.
Valid service of a rescission notice by a homeowner on their lender or their assignee renders any security interest in the real property completely void pursuant to 15 U.S.C. § 1635; Regulation Z, § 226.23 and the lender has twenty days to return all of the payments made by the homeowner on the loan and to terminate their security interest in the real property. A homeowner may wish to turn over possession of the real property to the lender if the situation warrants it.
Note however that in some circumstances the homeowner may have to tender money in some circumstances if they wish to remain in possession of the real property although there are some published cases suggesting that a Court can exercise its “equitable discretion” under TILA and allow the borrower to make payments over time as part of meeting the borrower’s tender requirement such as reducing the monthly payment over a period of time. See In re Stuart, 367 B.R. 541, 552 (Bankr.E.D.Pa.2007); Shepeard v. Quality Sliding & Window Factory, Inc., 730 F.Supp. 1295 (D.Del.1990) (allowing borrower to satisfy tender obligation by making monthly payments), and Mayfield v. Vanguard Sav. & Loan Ass’n, 710 F.Supp. 143, 149 (E.D.Pa.1989) (allowing borrower to satisfy tender obligation by making monthly payment).
Attorneys or parties who would like to view or download a sample notice of rescission under TILA available in Word or PDF format created by the author click here.
Richard, Stan Burman sells over 250 sample legal documents for California and Federal litigation. To view portions of these documents, or to search for a particular document click here for more details.
Nancy Duffy McCarron, CBN 164780
Attorney, Real Estate Broker, BBB Arbitrator, CA Notary Public
Certified Forensic Loan Auditor, Property Manager
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