8th Circuit Comes Down Heavy for Homeowners on TILA Rescission

Many thanks to Alan Baron who has been staying on top of the research.

Rand Corporation v Yer Song Moua: Manisy Moua, John Doe, Mary Roe, United States Court of Appeals Filed March 20, 2009. 8th-cir-tila-rand-march-20-2009

Phoenix, Az March 25, 2009. by Neil Garfield. Despite nearly heroic efforts by the banking industry to avoid an appellate decision, they are nonetheless starting to emerge, with darkening clouds around all securitized mortgages and potentially any mortgage. Here are some of the highlights of this decision:

  1. “We reject Rand’s attempt to avoid responsibility for Excel Title’s actions. Even assuming its assertion were true, the obligation to make TILA and HOEPA disclosures rests with the creditor. See 15 U.S.C. Sec 1631(b). Footnote 4 {Editor’s Note: Hence the core assumption of the Garfield Continuum has been ratified. The disclosures must be complete, honest, forthright and not confusing. And the main responsibility for compliance rests with the “lender.” In the table funded securitized loans the “lender” is not even identified, much less the necessary disclosures on hidden fees, profits and default or risk insurance and credit default swaps. This does not let the title company off the hook if they knew the disclosures were not being made. It creates joint and several liability for BOTH the “lender” and the closing or title agent. The “real” undisclosed lender is probably as responsible for compliance as the named “lender” at closing, since it was directing the standards for underwriting and closing, adding a third party responsible for compliance. Any Trustee on a Deed of Trust, a pool, or a special purpose vehicle issuing mortgage backed securities alleging that it has the status of holder in due course does so at its peril: the Uniform Commercial Code makes it crystal clear that anyone making the holder in due course claim, does so subject to the claims, defenses, affirmative defenses and counterclaims of the alleged borrower.  Any mortgage servicer, administrator (like MERS) would be subject to the same rules.}
  2. “Rand argues it also provided disclosures on January 5, 2005. It concedes, however, the terms of the loan changed after those disclosures were made. The record indicates between January 5, 2005 and April 22, 2005, the amount of the loan and monthly payments increased significantly.’After providing the disclosures required by [15 U.S.C. Sec 1939(a), a creditor may not change the terms of the extension of credit if such changes make the disclosures inaccurate, unless new disclosures are provided that meet the requirements of this section’ 15 U.S.C. 1639(b)(2)(A). Thus we consider only the disclosures made April 22, 2005.” Footnote 1. {Editor’s Note: This appears to completely negate prior attempts at disclosure or “stacking” disclosures because of the confusion it creates. The reason is that the disclosures are meant to inform and not to “confuse” the consumer. }
  3. Requiring borrowers to sign [documents] which are contradictory and demonstrably false is a paradigm for confusion.” The Mouas signed a statement on April 22, 2005, certifying it was April 26, 2005. The average borrower would be confused when instructed to certify a falsehood, and as to the effect of the falsehood. Page 10. {Editor’s Note: The enormity of this finding in the opinion cannot be overstated. Our opinion is that it is the responsibility of the “lender” (see above for other parties too) for so-called liar’s loans or other errors in the application process or other documents signed by the borrowers. This Federal Appeals Court Opinion entered a few days ago agrees.}
  4. “The Wiggins Court found the form ‘both objectively false and internally inconsistent’ because it purported to notify the borrower of her three-day right to rescind, while simultaneously requiring her to certify the rescission period had expired.” Page 10 {Editor’s Note: This is the path of argument for virtually all securitized loans in which the fact that the loans were part of a “pattern of conduct” in which the loans were table-funded, the real parties were never disclosed, the real party in interest (Investor) was never disclosed and even withheld upon specific request by the borrower) and the fees and profits earned by all the undisclosed parties to the transaction were also undisclosed and withheld even upon direct questions in a debt validation request or Qualified Written Request under RESPA. In point of fact this entire transaction wherein the borrower executed documents was a sham in which the borrower’s signature was pre-sold to the highest bidder, meaning the terms of the loan would have been far better from the point of view of the funding source, had they met directly. Further, had they met directly they would have both known they were “on their own” in assessing the value of the property, the loan risk and likelihood of repayment. This is why the right to rescind exists for all borrowers and why it probably exists for all investors. The borrowers were turned into unwitting issuers of unregulated securities under circumstnaces where everyone except the borrower knew that the borrower would eventually suffer fianncial injury either through foreclosure or failure of the appraised value of the house to withstand the test of time.}
  5. “Profferring of the election not to Cancel during the transaction would confuse any borrower…” Page 9 Rodash v AIB Mortgage Co., 16 F 3d 1142 (11th Cir. 1994) at page 1146. {Editor’s Note: Once again, another Court another case all finding that any contradictory behavior or forms or disclosures is not in compliance with TILA.
  6. “TILA Sec 1601-1667f, was passed by Congress as a consumer protection act, Mourning V family Publications Service, Inc., 411 U.S. 356, 363 (1973), and its provisions, as well as Regulation Z (FRB), are remedial legislation [and rules], to be construed broadly in favor of consumers, Griffith v Superior Ford, 577 F. 2d 455, 457 (8th Cir. 1978). ‘Alleged violations of TILA are subject to an objective standard of review. Courts have applied such an objective standard regardless of whether the borrower is a trained attorney pr simply an individual with a sudden need for additional funds.” Wiggins v AVCO Fin serv, 62 F. Supp. 2d 90, 94 (D.D.C 1999). Page 6.  {Editor’s Comment: This is the nail in the coffin of the “blame the borrower” theory. It never was true that borrower’s were responsible for compliance. It was ALWAYS true that the lender’s were the fiduciary for the borrower and were completely responsible for compliance regardless of subjective factors involving the training or experience of the alleged borrower.}
  7. “Under TILA, if a loan is secured by a debtor’s primary residence, “the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms …. whichever is later.” 15 U.S.C. 1635(a) {Editor’s Note: While explicit only under the facts of these disclosures, this Court opinion is clewarly expressing the overwhelming majority view that the right to rescind does NOT start running until the transaction is complete or the delivery of information and forms. Delivery of forms is not enough. The transaction must have been consummated and the information must be delivered. Thus withholding the real name of the lending source, refusal to provide it later under guise of confidentiality or other lame excuse, keeps the transaction in a state of limbo because the full transaction has either not been completed (see single transaction theory which would incorporate all of the insurance, credit default swaps, collateralization and third party transactions which completed the entire transaction) or has not been disclosed through the delivery of information about the transaction (not telling the borrower that his signature and identity were being launched from the closing table into the hands of unknown investors putting up much more money than the amount required to fund loan transactions), with huge fees and profits generated by all the intermediaries, with the condition that if the borrower or one of the insurors did not pay, the Federal government would step in and pay 100 cents on the dollar to satisfy all counterparty risks. Two things apply here: (1) the addition of conditions and parties, co-obligors and insurors had the effect of changing the instrument (note) from a negotiable instrument to a non-negotiable instrument, (meaning the original obligation was paid in full and a new obligation was thus created under UCC Article 8) and (2) since the information about all the undisclosed players and their fees and profits was never delivered to borrower, the transaction is either not completely consummated or rescindable under the three-day right of rescission. Any argument to the contrary under the great weight of all opinion of the courts would be contrary to the rule of construing consumer remedial legislation liberally in favor of the consumer “borrower.”

22 Responses

  1. Simply wish to say your article is as astonishing. The clarity on your put up is simply cool and i can think you’re an expert in this subject. Fine along with your permission allow me to clutch your feed to keep up to date with coming near near post. Thank you one million and please carry on the rewarding work.

  2. Hi All,

    We just posted an article discussing when “consummation” occurs under TILA and when the three years begins to run. Just some general ideas and a few cases to examine, and we welcome feedback since so many people have questions on this important issue.

    The gist of this article, consistent with Garfield theory, is that if the true and actual lender is never identified at origination, the three years does not begin to run – see the cases cited. Any reader comments? I have a case I am going to be filing to test this theory.


    Steve Vondran, Esq.
    Arizona & Cal. Foreclosure Defense & Bankruptcy
    Phone (877) 276-5084

  3. […] Liability, mortgage meltdown, rescission, RESPA, securitization, trustee, Wells Fargo « 8th Circuit Comes Down Heavy for Homeowners on TILA Rescission How securitization nullifies the original note and mortgage. The Originating Lender is PAID […]

  4. Any advice, thoughts, or comments regarding rescinding after 3 years ? My loan is now 4 years old. I had not discoivered the fraud until now. 7-27-09

    Bryce Easton

  5. Hey there,
    I am new posting here, but a long time reader. I am in a situation with an unlicensed broker up here in Maine. He table-funded a loan and listed himself as the creditor, though he provided no funds… The worst part is, he also sold us a mobile home and it started to leak within two months of delivery. We were living on my property in a camper trailer when we signed the note & mortgage. I have lived on the property for over two years prior, and owned it for six+. The investors that funded the loan paid off the existing mortgage on it. Would this be considered a purchase money loan?
    Thanks for any guidance on this!

  6. Dear Mr. Garfield,

    I would like to exploit your brain a little further, there are several lawyers that have filed hundreds of cases nationwide and now that the cases have reached the discovery stage, and are going forward to trial in some cases, they are facing judges that are not necessarily informed as to all of these different laws and how they are tied together. will you cover these “limbo” cases and how to push the spear further to gain the result that most likely is being sought by the clients and their lawyers, JUSTICE?

    How many lawyers will be able to attend your Orlando seminar?, I have several lawyers in VA and MD that are interested in attending.

  7. will these undisclosed fees trigger HOEPA, een if the fees on the HUD 1 do not exceed the limits?

    If the three years is the limit, will that apply even if you never got the proper documents, in other words the transaction in my opinion has not been consummated?

    I appreciate your assistance.

  8. I happen to agree with the idea that my toxic loan should not be modified by any bank. That the true holder as per UCC be the only entity with permission to sue me and that if and since the asset has already been paid and or a certificate of non compliance has been issued as per the master servicer rules.

    If the true lender and the source of the funds at the origination of my closing were not disclosed to me my loan should be cancelled and I should be able to sue for damages which I have cited and that may be lawful.

    The cancellation of certain loans should be considered good for the balance of power, great for the country and is super for me. I want my home free and clear period no ifs, no ands, and no god darn butts.

    Now this condition may not be attainable by most people, as it does take certain talents and the case must be of a certain, particular kind of matter legal wise.

  9. Congrats! I spent quite some time with Alan when I was out in Malibu, I met with him, spoke with him and even made an appearance in court for him at the trial level, pro hoc vice. Although the court (commissioner, at that level) did not allow my appearance for the record, I spoke for him and he got what he needed that day, which was not to be evicted from his home.

  10. “Loans originated with fraud and predatory lending should never be “modified or refinanced”.

    They should be repudiated.

    Violations of the FannieMae guidelines, which is not only the vast majority of all mortgages, but is also used as an industry standard. Any violations (FRAUD), means the lender must buy back the loan.”

    – Robert Tapia

    An Attorney in Diamond Bar, California said otherwise:

    These statements are both legal opinions and, more importantly, they are absolutely wrong. Please do NOT tell anyone things like this. I found these statements at http://activerain.com/blogsview/836252/Forensic-Loan-Audit There is no such thing as a “violation” of Fannie Mae guidelines. The guidelines ONLY apply to loans sold to Fannie which MOST subprime loans were not. Also, telling people that their loans should “never” be modified or refinanced is going to result in two things – they will lose in court and they will lose their homes. California law now requires lenders to negotiate with homeowners as a condition for a non-judicial foreclosure. Telling borrowers they should never negotiate is telling them to refuse the protections the law provides for them and will, in all likelihood, guarantee they lose their homes. Further, “predatory lending” in California is defined by statute. Regardless of anyone else’s personal opinion VERY few loans fall into this category due to a ruling from the Fourth District Court of Appeals in a case known by Wolski.

    You MUST stop giving legal advice and opinions. I’ve repeatedly offered to instruct you on the distinctions between giving personal opinions and offering legal opinions and advice. Unfortunately I can’t continue to make this offer. I will ask you one last time to setup a date and time to come to my office and I will help you understand what you can and cannot say to people facing foreclosure or who MAY be victims of fraudulent practices. I am having far too many of my clients tell me they don’t want to negotiate they want to sue DESPITE my professional counsel that they first try to negotiate. This is becoming a very real problem for my practice and is going to result in many of my clients losing their homes and destroying their chances of prevailing in court. Juries do NOT look kindly on unreasonable people. A lender that can prove it tried to negotiate affordable loan terms with a plaintiff that REFUSED to negotiate has an exceptionally good chance of winning in court. The law favors those who try to correct their mistakes and does not favor those who refuse to be reasonable.


  11. I have a really good question the courts should be asking themselves when they state that even though you’ve sent your extended rescission form within three years from the loan closing your right for a claim expires three years from the loan closing. Does someone who rescinds a loan within three days of the loan closing have to file a claim (if the lender does not comply) within the three days?

  12. Fraud Investigator Says Bank Denied Qualified Written Request
    in News > Mortgage Servicing
    By MortgageOrb.com on Wednesday 01 April 2009

    MFI-New York LLC and its parent company, MFI-Miami LLC, say Hudson City Savings Bank is attempting to block a fraud investigation involving lending practices.

    The investigation stems from homeowner Jaclyn Kuss’ requesting a copy of her file from Hudson City. She was allegedly told that the bank was not obligated to give her said copy.

    MFI-Miami, a mortgage fraud investigation company, issued a Qualified Written Request for certain documents in Kuss’ file. This type of request is allowed under the Real Estate Settlement Procedures Act, MFI-Miami says.

    On March 6, MFI-Miami received a letter from Bernadette Zelop, first vice president of Hudson City Savings. According to MFI-Miami, Zelop’s letter rejecting the request said, “All disclosures prior to and at origination were provided to our mortgagors.”

    MFI-Miami President Steve Dibert claims that Zelop refused to comply with his request for documents relating to Kuss’ mortgage. “She said all relevant documents were provided at closing,” Dibert says.

    Damon H. Serota, a New York attorney with law firm Bonnie L. Canty PA, says lenders are required under Section 2605 (e) of Title 12 of the United States Code to respond to a Qualified Written Request.

    “[The Real Estate Settlement Procedures Act] provides for both substantial penalties and fines for non-compliance,” Serota says.

    SOURCE: MFI-Miami

  13. most non-profits and legal aid centers ignore this info, if they applied it, they would be actually helping people with my tax money.

  14. I understand that rescission does not apply to “purchase money” loans. Can any of this be applied to or “purchase money” mortgages? thanks, RPR

  15. The Mouas initially obtained a loan for the home
    from Mortgage Electronic Registration System,
    Inc. (MERS), but fell behind on loan payments
    and MERS commenced foreclosure.

    – they obtained a loan from MERS?!? Oh, really?

  16. Great news on the US Court of Appeals decision, though. Congrats on the court’s affirmation!

  17. YIKES! – from today’s Bloomberg.com:

    Obama Backs Banks, Seeks to Block State Fair-Lending Crackdown

    see at http://www.bloomberg.com/apps/news?pid=20601087&sid=aCdEKIwbiPzQ&refer=home

  18. my loan was suppsedly sold the same day i signed mortgage and note but not recordeduntil four years later, if your loan is sold on the same day your sign the note who do u send the right to csncel to?

  19. Heh, on the typos, guess I’m in the glass house too…

  20. Good Morning Mr. Garfield & Staff:

    Another GREAT READ, with increasing legal confirmation and another keystone of the “Garfield Continuum!” This is the metamorphasis of your fine kitchen cutlery into a sterile surgical scapel ready to operate.

    The fact that your gifted article comes packaged in an appelate decision is a true and timely blessing for anyone witth their mind open to believe.

    For accuracy’s sake, please correct the typos to assure that any new reader can clearly understand each essential word in the article.

    Regards to you and your,


  21. Neil,
    Thank you so much for this information!

    Dan Edstrom

  22. MR. Garfield- this article is great- is there away to write a new TILA rescind letter stating that the time never stopped running? meaning, if i am past my 3 years on my perosnal home, since the loan was sold and the owner was not disclosed via QWR requests, that we can rescind past the three years?

    P.S. im in a nonjudicial state, which makes my battle harder to stop this in a timely manner and keep my home.


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