High Court: Owners Can Rescind Their Loans

Supreme Court

If lenders don’t provide proper disclosures, home owners have the right to cancel their mortgages, the U.S. Supreme Court ruled this week.

The judges unanimously sided with home owners who were seeking to back out of their mortgages because the lenders, the home owners say, failed to follow a federal “truth in lending” law requiring them to provide proper disclosure documents.

The case stems from a couple in Eagan, Minn., who had refinanced their home in 2007 with Countrywide Home Loans Inc., which is now part of Bank of America. Larry and Cheryle Jesinoskis wrote a letter to the lender three years later stating they wanted to rescind the mortgage because they had not received copies of two disclosure forms that were required under federal law.

Bank of America refused to cancel the mortgage, arguing the couple had signed an acknowledgment that they were provided with the disclosures. The Jesinoskis sued.

The Truth in Lending Act contains a provision that permits home owners to rescind a mortgage for up to three years after it was issued if the lender does not notify them of various details about the loan, including finance charges and interest rates. Such a provision is more often being cited by home owners who are struggling to make their mortgage payments.

The Supreme Court ruled last week that home owners don’t need to file a lawsuit: a written letter within the law’s three-year deadline will suffice in trying to rescind a mortgage. However, last week’s ruling doesn’t mean that home owners will necessarily be able to escape having to pay their mortgage.

An appeals court had been split over what home owners are required to do in order to implement the rescission process under the law. A lower court had ruled in favor of Countrywide, but the Supreme Court’s decision reverses that ruling, saying that a letter will suffice within the three-year deadline

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