Ninth Circuit limits homeowners’ protections against predatory lenders.
The Issue: To protect homeowners against predatory lenders, a federal statute gives borrowers three days to review and rescind without penalty any home-secured consumer credit transaction. Lenders are required to inform eligible borrowers of this right; if they fail to do so, borrowers are given three years to rescind the transaction. The United States Court of Appeals for the Ninth Circuit upheld a district court decision that borrowers could not file suit under this provision after the end of the three-year rescission period, even if they had given timely notice of rescission.
Why It Matters: The decision, issued in the midst of a severe foreclosure crisis, deprives duped homeowners of a significant protection explicitly granted them by Congress. Meanwhile, the decision rewards the very kinds of sloppy and even deceptive conduct by many lenders that played a substantial part in creating the crisis.
Public Good’s Contribution: PGLC co-authored a brief in the Ninth Circuit on behalf of housing rights advocates in support of a petition for en banc review of the decision. Besides demonstrating that the decision was contrary to precedent and the plain language of the statute, Public Good’s brief explained the perverse incentives created by the decision: it encourages unscrupulous lenders to string borrowers along by pretending to negotiate until the three-year period has passed or, worse yet, to extinguish borrowers’ rights by expediting foreclosure instead of negotiating; it gives lenders incentive to delay until borrowers can no longer enforce even uncontested rescissions; and it may flood the dockets of already burdened courts by giving incentive to borrowers to file lawsuits before negotiating with lenders, in order to preserve their rights.
Amici Represented by Public Good: Public Good’s brief was co-authored with the National Housing Law Project and filed on behalf of Public Good, NHLP, and a number of leading national and California housing rights advocates and providers of legal services: Housing and Economic Rights Advocates, the Law Foundation of Silicon Valley, and Public Counsel.
Outcome: The petition for reconsideration en banc was denied, allowing the original panel decision to stand. However, in January 2015 the United States Supreme Court reversed a similar Eighth Circuit decision. In Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. ___, 135 S.Ct. 790 (2015) the Supreme Court unanimously held that borrowers need only give notice of rescission within three years to preserve their right to file suit. Public Good’s position was therefore ultimately vindicated.
667 F.3d 1325 (9th Cir. 2012), and rehearing en banc denied, Mar. 27, 2012.