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48 Legal Industry Update National Focus residence). 7 TILA provides for two different types of rescission: A. First Rescission Prong—within three days for any reason. e borrower's first rescission remedy can be invoked "for any reason or for no reason," 8 but it expires at "midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms . . .whichever is later." 9 Unwinding a mortgage transaction within the first three days, which is normally prior to fund distribution and prior to any loan transfer, may be inconvenient for lenders, but doesn't typically pose any substantial problems. B. Second Rescission Prong—within three years if lender failed to meet TILA requirements. e borrower's second rescission remedy has a broader timeframe, but a narrower scope. Borrowers "only have a right to rescind after the three day period has passed if the right to rescind was not disclosed or if other material disclosures were not made as required." 10 Initially, this second rescission remedy was open-ended, but due to the resulting problematic clouds on title, Congress limited the right to three years after the consummation of the loan transaction. 11 In fact, Congress very clearly stated that once those three years pass, the rescission right "shall expire". 12 However, Congress failed to state exactly what a borrower must do to effectuate a rescission. NOTICES OF RIGHT TO CANCEL One of TILA's required disclosures is the Notice of Right to Cancel. is notice primarily informs borrowers of their three-day rights to rescind the mortgage transaction. TILA's implementing legislation requires that two copies of the Notice of Right to Cancel be provided to borrowers 13 —the likely rationale being that one copy could be used for rescission within the three-day period, and the other copy could be used for the borrower's own records. Typically, lenders (or, more pervasively, their closing agents) provide the Notices of Right to Cancel and ask borrowers to sign an acknowledgement of receipt. TILA states that this written acknowledgement provides "a rebuttable presumption of delivery". 14 RECENT LITIGATION Recently, a flurry of litigation has arisen from the same common facts, which are the same facts presented in the Jesinoski case: defaulting borrowers, years into their mortgage and now facing foreclosure, inform their lenders that they intend to rescind their entire mortgage transaction because they weren't provided the proper number of copies of the Notice of Right to Cancel. Note, in these situations, they aren't arguing that they failed to receive the Notice of Right to Cancel or that their notice was somehow defective. ey are instead arguing that they didn't receive the proper number of copies of the notice—i.e., 2. But, what must borrowers do to effect rescission within the three-year mandated timeframe? Must the borrowers simply notify their creditor within that timeframe or must they instead initiate legal action? e answer to this question has resulted in a Federal Court split. e 3rd, 4th, 11th Circuit courts have held that a borrower must simply notify their creditor in writing within the three year timeframe to effect rescission, whereas the 1st, 6th, 8th, 9th and 10th Circuits have held that the borrower must file a lawsuit within the three year timeframe to properly effectuate rescission. e U.S. Supreme Court will make a final determination in Jesinoski v. Countrywide Home Loans, Inc. 15 If the Supreme Court determines that borrowers must only send notice of their right to rescind within the three-year mark to exercise rescission, in effect, borrowers will have an indefinite number of additional years to actually bring suit, or oddly enough, in order to clear title, lenders will be required to file suit themselves for a decision on the borrowers' rights. As the 10th Circuit recently stated: [A]ccepting a consumer's unilateral notice of an intent to rescind as a legally effective exercise of rescission, where the creditor has not in any sense actually acted on the consumer's wishes, would indirectly enlarge the congressionally established three-year time period under TILA, and it could work to cloud the title of the property for an indefinite period of time. 16 Allowing rescission to be effectuated via notice alone would allow defaulting mortgagors, in exchange for the cost of a mere postage stamp, to unilaterally and instantaneously turn a lender into an unsecured creditor via the resulting clouded title—even if the lender was holding a borrower-signed acknowledgement of receipt of the disclosures (with only the rebuttable presumption of delivery such acknowledgement carries). TWO COPY PROVISION IN NEED OF AMENDMENT Although Jesinoski should ultimately determine what is required to effect rescission, what the case will likely not address is that TILA's Notice of Right to Cancel two-copy requirement is clearly outdated and in need of amendment. Amending would prevent the type of frivolous litigation exampled by Jesinoski without undermining TILA's borrower protections, as today's borrowers, should they fail to receive a second copy of the notice, are not in any way disadvantaged. Modern borrowers, unlike the general population in 1968 when TILA was enacted, have unlimited options should they wish to make a copy of their Notice of Right to Cancel. And Regulation Z already partially acknowledges this technological shift: only one copy of the notice is required if it is delivered in electronic form. 17 Scanners, phones with scanning technology, fax machines, and copy machines are all prevalent in today's society. In fact, the cost of a copy is even less than the cost of a postage stamp. As Congressional amendments typically do not occur quickly, the authors of this article can only hope that the U.S. Supreme Court's decision in Jesinoski will avoid the absurd outcome where a postage stamp is given the power to strip a creditor's secured status, and that an amendment to TILA follows in the near future which eliminates the two-copy provision requirement entirely. 1 Br. for Appellee at 14-15, Jesinoski v. Countrywide Home Loans, Inc., 729 F.3d 1092 (8th Cir. 2013), cert. granted, 82 U.S.L.W. 3629 (U.S. April 28, 2014) (No. 13-684).2 Id. at 14.3 15 U.S.C. § 1601(a). 4 Mourning v. Family Publ'ns Serv., Inc., 411 U.S. 356, 364 (1973).5 141 Cong. Rec. S14,566, S14,567 (Sept. 28, 1995) (statement of Sen. D'Amato).6 Id.7 15 U.S.C. §1635(a),(e) and §1602(x).8 McKenna v. First Ho- rizon Home Loan Corp., 475 F.3d 418, 421 (1st Cir. 2007).9 15 U.S.C. §1635(a).10 Rudisell v. Fifth ird Bank, 622 F.2d 243, 251 (6th Cir. 1980).11 Br. for Appellee at 12, Jesinoski v. Countrywide Home Loans, Inc., 729 F.3d 1092 (8th Cir. 2013), cert. granted, 82 U.S.L.W. 3629 (U.S. April 28, 2014) (No. 13-684) and 12 C.F.R. § 1026.23(a)(3).12 15 U.S.C. §1635(f). 13 12 C.F.R. §1026.23(b)(1). 14 15 U.S.C. §1635(c). 15 Jesinoski v. Countrywide Home Loans, Inc., 729 F.3d 1092 (8th Cir. 2013), cert. granted, 82 U.S.L.W. 3629 (U.S. April 28, 2014) (No. 13-684). 16 Rosenfield v. HSBC Bank, USA, 681 F.3d 1172 (10th Circ. 2012).17 12 C.F.R. § 1026.23(b)(1).

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