Will the Supreme Court's Rescission Decision Lead to More Litigation?

by Jeff Sovern

Two weeks ago, as Scott posted, the Supreme Court decided Jesinoski v. Countrywide Home Loans, Inc., holding that consumers may rescind under the Truth in Lending Act by so notifying the lender, and that the statute does not require the consumer to file a lawsuit to rescind. So you might think that the decision will cut down on the amount of litigation.  But no, suggest some lawyers quoted in an American Banker article, Legal Battles Only Beginning After Key Rescission Ruling. They argue that by making it easier for consumers to rescind, the Court's decision will lead to more consumers rescinding, producing an increase in frivolous rescissions.  The result will be that more lenders sue to declare the rescission invalid.  Maybe.  But will consumers who are not advised by counsel even know of the right to rescind?  Some evidence suggests that consumers are often not aware of that right. Yes, some consumers do have lawyers, but how likely is it that those lawyers will advise their clients to rescind when rescission is not justified?  The article notes that the CFPB has rule-making power in the area, but I hope that the Bureau will hold off on promulgating rules until it is demonstrated that a problem actually exists.

Comments

[Social Apocalypse]

The recent ruling by the Supreme Court is refreshingly simple and clear: The law means what it says. They didn't change anything or add anything. They simply clarified what was already there, and has been there for a long time. It is devastating that other courts have been so neglectful and vulnerable to the rantings of fraudulent lenders and didn't do the same. The effect it will (and should) have is that banks will have to stop IGNORING rescission notices from borrowers. This what most of them do. The fact that there were way too many courts ruling that a borrower must not only rescind, but SUE the lender for not completing their LEGAL obligations attached to it to "Validate" the rescission only served to enforce what happened next: THEY IGNORED THEM. Since the law does NOT SAY THIS, most borrowers do NOT file enforcement lawsuits. It comes as a complete surprise that any court required it! There was no penalty to the banks for ignoring rescissions, and many borrowers were not able to understand how they could seek remedy until it was too late. The lenders were, in effect, REWARDED for ignoring the rescission! This is all over now, and they will soon begin to feel it.

While it's true that there are many borrowers who end up rescinding in response to a foreclosure, it is important to remember that it is THE FRAUDULENT MATERIAL DEFECTS in many of the mortgages that caused them to default in the first place! Punishing them for this serves no remedy to fair lending and harmed borrowers. If the rescission notice is frivolous or invalid, the lender need only file a simple declaratory action to disclaim it. This is not a major "lawsuit".

Major kudos to the Supreme Court. This ruling is a game changer against unfair lenders. It will do NO HARM to honest lenders who obey the law.

Now we can start addressing all of the LEGAL and VALID rescissions that were wrongfully dismissed... This will be fun to watch.