Supreme Court makes it easier for borrowers to walk away from underwater homes

by MPA14 Jan 2015
The U.S. Supreme Court gave struggling borrowers more ability to cancel their mortgages if lenders don’t provide the required disclosures -- a setback for the mortgage industry.

The dispute was centered around what process struggling borrowers need to follow if they want to cancel a mortgage under the Truth in Lending Act (TILA).  U.S. Justices voted unanimously that borrowers do not have to file a suit within three years, but instead can meet the deadline by sending a notice of intent to rescind to lenders in order to back out of mortgages, according to Bloomberg.

TILA allows homeowners to rescind a mortgage for up to three years after it was made if the lender does not comply with TILA, which includes disclosing information about the loan such as finance charges and interest rates. 

The mortgage industry argued that a notice is not enough to cancel a mortgage under TILA. They say by allowing borrowers to do this would strip creditors of their security interest in a loan “instantaneously and unilaterally” even if the creditor had been fully compliant with the law, according to a letter sent by leading financial groups.

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., according to Bloomberg.

TILA: It may take Houdini himself for lenders to escape with victory in rescission dispute

Lawyers of the Jesinoskis, the plaintiff in the case, said the bank refused to acknowledge the couple’s rescission and said their letter was not a valid form of a rescission request. The lawyers also contend mortgage companies repeatedly violated the law in the years prior to the housing bust .

Bank of America acquired the Jesinoskis' mortgage from its subsidiary, Countrywide Home Loans.

The Minnesota couple appealed a circuit court decision that ruled in favor of Countrywide. The Jesinoskis obtained the mortgage in 2007 from Countrywide and filed their notice right before the three-year period and filed the suit a year later.

The case is Jesinoski v. Countrywide, U.S. Supreme Court, No. 13-684.

Click here to read the entire oral argument.

Click here to read the questions presented to the Supreme Court.
 

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