Right of Rescission
A borrower facing foreclosure has a number of defenses to losing his or her home. One such defense is the right of rescission. One can think of rescission as the ending of a contract or agreement. Under the Truth in Lending Act (“TILA”), 15 U.S.C. § 1635, a borrower has the right of rescission as to certain transactions including mortgage refinancing, a home equity line of credit, a home improvement plan, or any other non-purchase credit transaction secured by the borrower’s principal dwelling . However, TILA’s right of rescission does not apply to the purchase of a home.
TILA “requires creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower’s rights[.]” Barrett v. JP Morgan Chase Bank, N.A., 445 F.3d 874, 877 (6th Cir. 2006). See also 12 C.F.R. § 226.1(b) (“The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost.”).
Normally, a borrower is allowed until midnight of the third business day after the consummation of the transaction or delivery of the required TILA disclosures to the borrower, whichever is later, to rescind the transaction. But if the lender does not provide the required TILA forms and disclosures to the borrower, the borrower’s right of rescission may extend up to three years. In other words, a borrower has an “unconditional right to rescind for three days,” after which the borrower has three years to rescind if the lender fails to satisfy TILA’s disclosure requirements. Jesinoski v. Countrywide Home Loans, Inc., 135 S. Ct. 790, 792 (2015).
If a lender does not meet its TILA disclosure obligations and the borrower wishes to rescind the transaction within the three year time period, the borrower may do so by giving notice to the lender in accordance certain Federal Reserve Board regulations. For a borrower, a rescission of a transaction means the borrower is refunded all payments, fees, and costs, essentially placing the borrower in a position as if the transaction never occurred.