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Rescission Update: The Notice and the Response

livinglies.wordpress.com | July 15, 2015

By Neil Garfield

The challenge is getting people to accept the simplicity of the specific statutory procedures contained in the statutes governing TILA Rescission. The most common mistake I see is that the borrower justifies the rescission with all sorts of factual allegations in their notice of rescission. In so doing they may have set the stage for their undoing.

Where the notice of rescission contains too much information it raises issues on its face that might cause a problem. There is confusion raised between whether they are invoking common law rescission — where they must file a suit, allege and prove fraud — and TILA rescission, which does not require a lawsuit and where the borrower has no obligation to give reasons. The rescission letter as framed often raises certain issues regarding the statute of limitations and implies that the rescission is to be effective when a judge agrees with the reasoning in the letter. TILA rescission does not require anyone to agree or any Judge to enter an order. Such letters as I read them seem to invoke TILA rescission but then raise issues about common law rescission.

The reason why the Jesinoski decision was so short and the decision was unanimous is that Congress set forth an unambiguous specific statutory scheme just like state legislatures set forth a specific statutory scheme in non-judicial foreclosures. First the notice on day 1. Then the duty to comply with rescission on the date of receipt and continuing for 20 days. After the 20 days from receipt has expired the recipient is in violation of the statute and having failed to challenge the rescission by operation of law (i.e., a lawsuit) they have waived their defenses — same as the borrower in non judicial foreclosure when they fail to file suit within the prescribed window of time. And finally when they fail to comply with statutes for over one year, they lose any right to collect on the debt.

So the TILA rescission is effective upon mailing. That works by operation of law and can only be undone by some other operation of law. And the window for challenging the rescission is limited to the 20 day period in which the “lender” must comply with the the three duties provided by statute — return of the cancelled note, filing a release and satisfaction of the mortgage or deed of trust, and payment of all money received or paid as set forth in the TILA statute.

Keep in mind that the statute has a provision for the borrower to invoke a legally binding effect in a non-judicial procedure (mailing a letter) but that the TILA statutes does NOT provide for any lender, creditor or servicer to contest the rescission by non-judicial means (i.e., a letter stating that the rescission is rejected or denying the reasons for the rescission or stating that the the statute of limitations has run).

NOTE: Some may argue that I am interpreting the statute, which is equally impermissible. The argument is that the 20 days relates only to compliance with the three duties under TILA rescission. Those arguing this point would say that the statute provides the ONLY remedy available during the rescission process, to wit: compliance with the three duties and then getting repaid for the principal amount that was loaned. Under this theory no action could stop the rescission, judicial or otherwise. The “lender” could probably be allowed to file an action for damages for “wrongful rescission.” But they would faced with the problem of standing — i.e., disclosing and proving the money trail to show they were injured by the rescission. So the argument is that since the statute provides no process for challenging the rescission, which is the intent of Congress in the statute, that there can be no judicial or non-judicial procedure to stop it. They may be right. As I read the statute, not even the borrower could make the rescission non-effective without a separate and new agreement creating a new loan contract.

People ask me where does it say that they only have 20 days? (The more relevant question is whether the “lender” has ANY opportunity to challenge the rescission, which is NOT provided by TILA statutes but I think is implied in order to satisfy due process). The answer is that the statute, the Supreme Court and the Regulation Z all say that the loan contract is cancelled, the note is void and the mortgage is void as of the date that the notice of TILA rescission is mailed. So the answer to the question is that the 20 day period is the only period of time in which the duty to comply is ticking away. Justice Scalia said in no uncertain terms that the statute is not ambiguous and therefore may not be “interpreted.”

Since the rescission is effective by operation of law then that can only mean that there are no contingencies about the rescission which could interfere with its effectiveness. And that is exactly what Justice Scalia said. Any attempt to raise “defenses” to rescission after 20 days would, if allowed, render the rescission NOT effective by operation of law until a judge reviewed it. Any Judge so ruling would be over-ruling the US Supreme Court.

PRACTICE NOTE: Lawyers for the banks and servicers are picking up steam on their attempt to use fear and intimidation about rescission. They are calling borrowers and opposing counsel and essentially saying “Great! When do we get paid?” This is intended to undermine confidence of the borrower and the lawyer for the borrower. The fact is that the statute is very clear and it is unambiguous as stated by a unanimous US Supreme Court — the “lender” must be in compliance with all three duties BEFORE they can demand payment and they cannot demand payment of finance charges.

In order to make demand for payment they must fulfill four requirements: (1) less than one year as elapsed since the notice of rescission (2) they have already returned the cancelled original note (3) they have already filed a release adn satisfaction of the mortgage or deed of trust int eh county records and (4) they have already paid the borrower all money ever paid on the loan, including interest, principal, fees, and compensation paid to anyone in the origination of the loan. Note that the last issue is subject to a Qualified Written Request (RESPA 6) or lawsuit in which enforcement of the rescission is sought. In that sense rescission is the ultimate discovery tool — allowing the borrower to prove behind the snowstorm of paperwork that is used by the banks and service to process illegal foreclosures.

THE LAWSUIT FOR ENFORCEMENT MUST NOT BE A LAWSUIT THAT SEEKS TO MAKE THE RESCISSION EFFECTIVE. THE RESCISSION IS ALREADY EFFECTIVE BY OPERATION OF LAW. DON’T RAISE THE ISSUE THAT ONLY THE BANKS AND SERVICERS SHOULD BE RAISING. THE LAWSUIT SHOULD SIMPLY STATE THAT THE RESCISSION WAS SENT AND RECEIVED AND THAT THE BORROWER IS SEEKING AN ORDER COMMANDING THE “LENDER(S)” TO COMPLY WITH THE THREE MAIN DUTIES DESCRIBED IN THE TILA STATUTES.

BUT STRATEGY PLAYS A PART HERE: REMEMBER THAT WHEN THE RESCISSION IS MAILED THERE IS NO LOAN CONTRACT, THERE IS NO NOTE AND THERE IS NO MORTGAGE — BUT AFTER ONE YEAR THERE IS NO DEBT EITHER. FILING AN ENFORCEMENT ACTION INVITES THE OPPOSITION TO SET FORTH THE CHALLENGES AND DEMAND THAT THE RESCISSION SHOULD BE VACATED. THAT FIGHT WILL CENTER AROUND WHETHER (A) THE 20 WINDOW IS TO BE STRICTLY CONSTRUED AND (B) PROBABLY PREVENTS THE BORROWER FROM ESCAPING THE DEBT UNLESS THE “LENDER(S)” ARE STILL IN NON COMPLIANCE AFTER ONE YEAR FROM DATE OF THE RESCISSION.MANY RESCISSION NOTICES WERE SENT YEARS AGO. BY OPERATION OF LAW THERE WAS NO MORTGAGE OR DEED OF TRUST. BY OPERATION OF LAW, AS I READ IT, THERE IS NO LOAN CONTRACT, THERE IS NO NOTE, THERE IS NO MORTGAGE AND THERE IS NO DEBT; BUT IT MIGHT ALSO BE TRUE THAT THE FORECLOSURE SALE WAS VOID AND THAT THE HOMEOWNER LEGALLY STILL OWNS THE PROPERTY. ANY ACTION TAKEN UPON THE USE OF A VOID INSTRUMENT IS ALSO VOID.

In litigation, the main battle is going to be on the issue of standing. The Banks and servicers will a tempt to use the (now void) note and mortgage for standing just as they do in foreclosures. But here is the rub: with the loan contract cancelled by operation of law, and the note and mortgage being void by operation of law, they can’t prove standing the same way they do in foreclosure actions (which I would argue they shouldn’t be allowed to do anyway). They can’t use the VOID note and mortgage or loan contract as the basis for allegations and proof of standing. They can ONLY prove standing by showing the money trail. They must come out from behind the curtain and show the court that they have an economic interest in the transaction in order to complain about three rescission of the loan contract, the note and mortgage. In order to plead they must state that the rescission was sent and received. The Supreme Court and the statues and Regulation Z take care of the rest rendering the loan contract, note and mortgage void.

Note also that the arguments about why they should not have to show the actual money trail underscores the reasons for the rescission and potentially raise the specter of equitable tolling because they are still trying to hide the facts from the borrower.. They are essentially arguing a position that states that they can use void instruments as the basis for a claim for relief and that they should not be forced to show the money trail — something they cannot do because is there no money trail in their chain.

 

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Nancy Duffy McCarron, CBN 164780
Attorney, Real Estate Broker, BBB Arbitrator, CA Notary Public
Certified Forensic Loan Auditor, Property Manager

 

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