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U.S. Supreme Court Makes Mortgage Rescission Easier
Lenders Face Risks If Disclosures Omitted
The U.S. Supreme Court recently gave home loan borrowers an easier method of voiding their mortgages if a lender does not give them the required disclosures.
All they need to do is to notify the lenders in writing of their desire to rescind.
The ruling overrides and toughens the disclosure obligations already due to borrowers under state laws nationwide.
The Supreme Court ruling was based on an interpretation of the Truth in Lending Act. The federal law allows borrowers to rescind home equity loans and refinancings within three days or until the lender delivers required disclosures about the loan agreement. The disclosures typically include the rate of monthly payments, the deadlines for paying and the procedures that will follow if borrowers default on their loans.
However, borrowers who do not receive the disclosures must rescind the mortgage within three years or lose their rescission right.
The ruling is an outgrowth of the recession that started in 2008, when the number of homeowners who tried to rescind mortgages grew along with the unemployment and loan default rates.
A Minnesota couple named Larry and Cheryle Jesinoski tried to rescind their 611,000 mortgage but the lender, Countrywide Home Loans, opposed their effort.
The Supreme Court ruled that borrowers only need to notify the lenders they plan to rescind a loan within three years if they do not receive the proper disclosures. Countrywide argued unsuccessfully the borrowers should have to sue to get out of a loan.
The only obligation of borrowers after a rescission is to return the amount of money they borrowed. They do not need to pay additional interest or other service on the loan.
The Supreme Court ruling reverses an appellate court decision that said the Minnesota couple waited too long to rescind. The ruling also clarifies a split of decisions among different states on the time limit for rescission.
Lawyers for the borrowers said the ruling would help homeowners to avoid abusive lending practices. Banking groups said it would compel more lenders to sue borrowers to force them to pay instead of working with them informally.
The case is Jesinoski v. Countrywide, U.S. Supreme Court, No. 13-684.