DS News

» VISIT US ONLINE @ DSNEWS.COM 71 While the Supreme Court recently ruled TILA requires only a written notice for rescission—not the filing of a lawsuit—it may be time for further clarification and updates to TILA's Notice of Right to Cancel rules. e United States Supreme Court recently resolved a split among the circuit courts regarding mortgage rescission under the Truth in Lending Act (TILA). In Jesinoski v. Countrywide Home Loans, Inc. 1 , the question before the court was how rescission needs to be effectuated—specifically, whether sending a notice of rescission to a lender is sufficient to unwind a mortgage, or whether a lawsuit is required to enforce rescission. e United States Supreme Court unanimously determined that a borrower can exercise his or her right to rescind by mere written notice within the statutory timeframe. In other words, a lawsuit is not required to effect rescission if no action is taken by the lender. 2 BACKGROUND: TRUTH IN LENDING ACT, RESCISSION, AND THE FEDERAL SPLIT TILA was enacted by Congress in 1968 to make credit transactions more transparent to aid consumers who had difficulty understanding the nature of credit obligations and payment deferral costs. 3 In keeping with this purpose, TILA requires lenders to provide information regarding finance charges, annual percentage rates, and borrowers' rights. A lender's failure to comply with these provisions carries potentially heavy punishments, one of which is rescission of the entire mortgage transaction. NOTICES OF THE RIGHT TO CANCEL AND RESCISSION "When a loan is rescinded, the borrower is released from the obligation under the mortgage" and is "entitled to reimbursement of all finance charges, as well as other charges." 4 Rescission is "the most draconian remedy available" to certain borrowers under TILA. 5 e right does not extend to purchase-money mortgages or to those mortgages secured by property other than the borrower's principal residence. 6 TILA provides for two different types of rescission. e borrower's first rescission remedy can only be invoked within the first three days of the mortgage transaction. e federal split, however, arose from courts' grappling with how to properly effect rescission after the three-day cooling-off period. 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." 7 One of TILA's required disclosures is the Notice of Right to Cancel, which primarily informs borrowers of their three-day right to rescind the mortgage transaction. TILA's implementing legislation requires two copies of this notice be COVER STORY M ARKET PUL SE SUCCESS FORMUL AS INDUSTRY INSIGHT INDUSTRY INSIGHT

• Cover