In order to give borrowers the opportunity to carefully consider the terms of a mortgage, TILA allows borrowers to rescind, or cancel, a mortgage contract for any reason within three days of signing it. It also gives them three years to rescind if the lender fails to provide any of the required disclosures at the closing table.
The statute is very clear about how a borrower exercises that right to rescind: “by notifying the creditor. . .of his intention to do so.” Nonetheless, in recent years, lenders have argued that the statute actually requires that a borrower file a court action in order to rescind the contract. And they’d had some success with that argument, including in the federal appellate court that held Larry and Cheryle Jesinoski’s letter to Countrywide within the three-year period to be insufficient to rescind their mortgage.
This week’s decision squarely rejected that argument. Justice Antonin Scalia wrote that the statutory language “leaves no doubt” that a borrower need merely notify the lender to effect a rescission. And that’s good news for homeowners, or anyone who might like to become a homeowner, because the threat of rescission is supposed to make lenders very, very careful about providing borrowers with all the information about their mortgages at the time of closing. Requiring a borrower to file suit in order to exercise rescission would have significantly reduced the weight of that threat.
The foreclosure crisis has made abundantly clear that brokers and lenders are not always upfront with borrowers during the mortgage process, as TILA requires. During the subprime boom, lenders unscrupulously targeted communities of color for predatory loans, many with teaser rates and other features that hid the ultimate cost of the mortgage from the borrower. As the ACLU and other civil rights and consumer groups argued in our amicus brief in this case, broad access to TILA’s rescission remedy can provide crucial protection for individuals and communities harmed by foreclosure.
And, in recent years, the effects of foreclosure have been truly devastating, particularly for communities of color. More than five million homes have been lost to foreclosure since the real estate bubble burst, and these foreclosures have spillover effects on neighbors and neighborhoods: As of 2012, homeowners living within a city block of a foreclosure lost about $2.2 trillion dollars in property value attributable to those foreclosures, and more than one-half of that amount was concentrated in communities of color. A single foreclosure has been estimated to cost a city government $20,000.
It’s gratifying to see the Supreme Court reject the banking industry’s attempts to weaken protections for mortgage borrowers that are clearly codified in law. And there could be more. Next week, the Supreme Court will hear Inclusive Communities Project v. Texas Department of Housing and Community Affairs, the culmination of the banking industry’s attempt to weaken the Fair Housing Act by eviscerating the disparate impact standard. That standard has been crucial (and effective) in holding lenders accountable for discriminatory lending during the subprime boom and so, as with TILA rescission rights, the industry wants to see it gone. But, as in the TILA case, there is straightforward statutory and regulatory language that makes clear that the current state of the law is correct. Let’s hope, for all the sake of our communities, that the Court reaches the same conclusion.
Rachel Goodman is a Staff Attorney at the Racial Justice Program of the American Civil Liberties Union.