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Right to rescind under the Truth in Lending Act

by Stan Burman

The right to rescind under the Truth in Lending Act is the topic of this blog post.

In January, 2015 the United States Supreme Court ruled unanimously in the case of Jesinoski v. Countrywide Home Loans that a borrower exercising their right to rescind under the Truth in Lending Act (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.  Note that in many cases the homeowner may have to repay the lender or their assignee the unpaid balance on the loan minus a credit for any payments towards the loan balance that they have already made.

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 there are circumstances where the homeowner may have to tender money 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 can use the link shown below.

Sample Notice of Rescission Under Truth in Lending Act by Stan Burman on Scribd

 

The author of this blog post, Stan Burman, is a freelance paralegal who has worked in California and Federal litigation since 1995 and has created over 300 sample legal documents for sale.

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DISCLAIMER:

Please note that the author of this blog post, Stan Burman is NOT an attorney and as such is unable to provide any specific legal advice. The author is NOT engaged in providing any legal, financial, or other professional services, and any information contained in this blog post is NOT intended to constitute legal advice.

The materials and information contained in this blog post have been prepared by Stan Burman for informational purposes only and are not legal advice. Transmission of the information contained in this blog post is not intended to create, and receipt does not constitute, any business relationship between the author and any readers. Readers should not act upon this information without seeking professional counsel.

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