November 4, 2014 / 8:06 PM / 5 years ago

U.S. justices wrestle over homeowners' bid to rescind mortgage

WASHINGTON, Nov 4 (Reuters) - The U.S. Supreme Court on Tuesday appeared conflicted on how to decide which process struggling homeowners need to follow if they want to back out of mortgages from lenders they accuse of failing to follow a federal “truth in lending” law.

The nine justices are weighing an appeal filed by an Eagan, Minnesota couple, Larry and Cheryle Jesinoski, over the $611,000 loan they obtained in 2007 from Countrywide Home Loans Inc., now part of Bank of America Corp.

In a one-hour oral argument, the court weighed whether homeowners need to write a letter to their lender or file a lawsuit in order to benefit from a provision of a federal law known as the Truth in Lending Act.

The law allows consumers to rescind a mortgage for up to three years after it was made if the lender does not notify them of various details about the loan including finance charges and interest rates. The Jesinoskis filed their notice right before the end of the three-year period and filed a lawsuit a year later after the bank said it was disputing their claim.

The provision is typically used by homeowners who are struggling to pay their mortgages. Lawyers for consumers say mortgage companies routinely violated the law in the years prior to the 2008 financial crisis. Lenders contend that notice is not enough if the bank in question disputes the homeowners’ claim.

Appeals courts are split over what homeowners have to do to trigger this rescission process in large part because the law is unclear.

Justice Elena Kagan summed up the court’s predicament when she noted that it was a “puzzling feature” of the law that it did not state what happens when a homeowner and lender disagree about whether a mortgage should be rescinded.

Justice Antonin Scalia sounded skeptical of the homeowners’ argument that only a letter is needed, saying he found it “difficult to believe” that Congress intended that outcome.

Chief Justice John Roberts indicated some sympathy for the homeowners when he said Countrywide attorney Seth Waxman was “putting an awful lot of weigh on a tiny, one-sentence provision” as part of his argument that a lawsuit is required.

The Jesinoskis are appealing a lower-court decision that favored Countrywide. A ruling is due by the end of June.

The case is Jesinoski v. Countrywide, U.S. Supreme Court, No. 13-684. (Reporting by Lawrence Hurley; Editing by Will Dunham)

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