COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

The most persistent problem facing homeowners today is that in any challenge to the apparent “lender” there are presumptions that arise in the mind of the court in favor of the supposed creditor and against the homeowner. Using rescission as a procedural tool, along with the current news cycle, is changing that to force pretender lenders to establish their credentials and the validity of the original loan, as well as the non-existent transfer documents upon which the pretender lender relies upon to pursue ownership of the home.

In the old days before the market was flooded with money, before the lending risk was removed from the originating lender, before the creation of privatized recording systems and before the use of robo-signing on robo-approved mortgages, if a creditor came into court with the word “Bank” in its name, it was presumed that it was the lender, that the mortgage was valid and that any “technical problems” could be easily fixed.

The homeowner was invariably seen as someone in distress who was merely seeking to delay the inevitable. While the fact that they had fallen on hard times was regrettable, they had nonetheless taken a loan of money that had to be repaid to the lender who was now in court seeking repayment or the right to sell the collateral — i.e., the home. In many cases the homeowner was viewed as an annoying deadbeat who was trying to skip out on a perfectly legal obligation. The outcome was not in doubt. It was only about time.

In nearly all judicial foreclosure cases, the borrower did not bother to answer or defend, and so a default was entered by the clerk of the court. Based upon that default, the lender would then apply to the Judge for a Default Judgment to be entered, including reasonable costs and fees, and that a sale date be be set for the home. The number of homeowners contesting the mortgages or the foreclosures was infinitesimal. Foreclosure in judicial forums had become a clerical function except in rare cases.

So many states, at the request of the banks, enacted non-judicial sale statutes in which the the presumption was that if there was a judicial foreclosure it would be a waste of time and money. They gave a window of opportunity to borrowers to contest the sale but it was not clear how it worked. In any case, if the borrower did object to the sale, the burden was suddenly on the borrower to go to court instead of the bank. And being the party who brought the case to court, the Judge naturally looked to the borrower to plead and prove a case.

In truth, nobody ever thought it through because it wasn’t necessary to think it through. The non-judicial states all have statutes for judicial foreclosures of residential property but they are rarely used. The non-judicial states should simply have said that if a borrower objects tot he sale, then the bank must bring the action judicially and prove its case. The requirements of due process would be met, and the burden of proof would be on the party seeking affirmative relief (the party seeking to sell the homeowner’s home).

Instead, the practice evolved that the borrower had to bring a lawsuit which brought the question to what to plead? The homeowner wasn’t seeking affirmative relief and had no case other than the FACT that the borrower objected to the sale. In practice, the homeowner was required to file a lawsuit essentially alleging that that the pretender lender had no case — which amongst lawyers is known as a motion to dismiss. The borrower couldn’t file it as a motion to dismiss because there was no lawsuit by the pretender lender.

The ensuing confusion in the Federal and State civil courts and the bankruptcy courts led to a multiplicity of decisions each conflicting with each other. Invoking “rescission” under TILA might be the answer to correcting the errors in procedure that are pandemic in the system now.

Under TILA and Reg Z, (unless changed and effective retroactively) the mere statement of an intention to rescind requires the “lender” to either give up or file a lawsuit seeking declaratory relief. By aggressively using rescission as a procedural tool, the borrower/homeowner should be able to force any non-judicial sale into a judicial forum in which the “lender” must establish essential facts concerning jurisdiction, and a short plain statement of the facts upon which relief should be granted, including copies attached to the pleading and the original documents available for inspection.

In other words, rescission, besides having the obvious teeth of removing the encumbrance from the property by operation of law, is an obvious vehicle for clearing the procedural path for a Judge to sort out the orientation of the parties and the burden of proof. Orienting the parties is simple — figuring out who is seeking affirmative relief (selling the house) and thus who has the burden of pleading and proving a case.

The intense resistance to procedural due process in court and lobbying efforts of the banks to avoid the burden of proof leads one to at least question whether they could EVER successfully plead and prove a case against a homeowner. Their strategies of finessing the system with fabricated, forged and perjured evidence testifies to the presumption that the original mortgages might not be valid and they know it. It also testifies that their claim to have securitized the mortgages was a lie and they know that too.

In the final analysis, the money came from sales of securities to investors. The pretender lenders are doing everything they can to prevent those investors and the homeowners from getting together or even knowing the identity of each other. The identification of an actual creditor on the obligation and the finding that the obligation is actually secured by a mortgage might be impossible.

While that might be counter-intuitive, as Renaldo Reyes of Deutsch likes to say, it is nevertheless true, as he also like to say. And if it is true, it certainly is through no fault of the borrower or the investor both of whom were duped with false appraisals of what they were getting. And if it was false, then why have not the banks simply come forward with reams of evidence showing exactly that? A barrage of real evidence would return us to the good old days when we knew what constituted a note, mortgage and obligation and who could enforce it.

It is the growing opinion of judges, legislators, administrators of agencies, and homeowners that the unwillingness of the megabanks to comply with simple requests for real evidence stems from  an incapacity to present it because it does not exist. The fact that this is inconvenient to the banks who screwed up the title records in the first place is not a reason to avoid a solution.

The solution, as I have said before, is that the chips need to fall on the table and in some manner, a formal or informal mortgage guarantee and resolution authority must process the renegotiation of tens of millions of mortgage deeds converting them from wild deeds littering the title records to honest to goodness real mortgages, real notes and real obligations. Some foreclosures will still occur, but only a tiny fraction of what has been done and what is planned.

18 Responses

  1. With rescission I sorry about the fraud that gives rise to it. Fraud must be proove we know it is but that judge will cut no slack fraud has about 9 legs this is why the banks are trying this one on me I believe to see what we have ….. well. It’s a surprise our arguments must go in our direction not theirs these guys are good but not unbeatable

  2. […] This post was mentioned on Twitter by Free Plumbing Bid, kim thomas. kim thomas said: USING RESCISSION AS A PROCEDURAL TOOL: […]

  3. Anyone looking for caselaw on rescission particularly in California (both state and federal) this link has a large brief that has compiled much that could be helpful to many people, rescission arguments start at page 23

    Please read and download it, many of the arguments have not been argued at the district court level.

  4. Joyce said this:

    “1) The first payment was set up to collect far less than what was needed to pay out the taxes on a property and being that the account was not analyzed for at least 18 months, deficits, shortages and new estimated amount collected based on the real improved tax amounts, compounded the homeowners ability to pay. ”

    This exact scenario was played out in my case. The escrow account was set up to take out less than half of what they knew the previous year’s taxes were, then did an escrow analysis about 9 months later, said “Oh dear, you have an escrow deficiency–we’re going to have to increase your monthly payment for a year to make up the escrow deficiency and thereafter your monthly payment will be $200/month higher.”

    Well, if that $200 more per month had been part of the closing terms, I wouldn’t have agreed to sign the stupid note, because I couldn’t afford it. The loan was escrow-free up until the closing table, and by that time, after closings had been scheduled and re-scheduled, just wanted to go through with it.

    To me, this under-escrowing for taxes was purposeful and a way to make the monthly payment appear lower at closing than it would actually have to be down the road. It is also purposeful, in my opinion–they are supposed to perform an “aggregate analysis” which in my understanding is a projection of how much money will be needed for escrow at certain future dates. This should tell them how much should be put in escrow every month, and that should be disclosed at closing.

    There’s no excuse for them to not do this aggregate analysis correctly–in my case, they knew damn well what the tax bill for the previous year was and should have used that figure but apparently didn’t.

  5. Here’s a good one I rescinded way back I rescind the note and deed of trust and tender to the real party in interest minus equitibke setoff
    to which the wrong party in interest indymac banks compliance officer elke poershke ( isn’t that rich!) replied sorry mate you can’t rescind because this was a first money purchase loan and under tila IRS not allowed ( well words to thst effect) so I said well it doesn’t nattter how I rescind and anyway I rescinded nit mentioning under what rule of law I simply expressed my desire to cancel ( under ucc ) I told her to visit Cornell law . Com to check on that and I sent numerous cease and desist notices. Thiscwas a long time ago. They since got ” wild deed” to my home but I have a lis pendens clouding title because I have meritous claims to hash out in court …. Next thing we have a ” trustee” suing me fit slander of title and they wsnt that lis pendens removing and attorney fees and quiet title. I almost dropped dead …. They really do have those huge atomic balls Matt tiabbi talks about … I digress…. So then they realise their mistake when I have don loeb attorney to represent me at the 11 Th hour i found him…so guess what burden of proof us on them si when don defended me there’s a quick two step side step to plead into the pending lawsuit so thus shifting burden of proof back to me. Hmmm
    we have another reply from
    the purported new owner of my home purported trustee for hsbc who purportedly paid cash ( infact a credit bid but how can that be if they are not the creditor??) well anyhow they have picked up on that old rescission argument thru denied me hmmm….This is clearly a procedural trick and strategy to get me off track that’s the only reason they do anything…, I invite comments and opinions

  6. In regard to converting the “wild deeds littering the title records to honest to goodness real mortgages, real notes and real obligations,” would that not be an admission of guilt by the banks, since imploring homeowners to recontract is the same as saying there was no contract.
    Why should any educated homeowner want to go along with that program unless they “feel” there is an obligation ?
    It seems to me to be worse than unsecured debt, when the debt virtually does not even exist !

    I agree that the incapacity of banks to produce paperwork when called upon points more and more to the fact they do not have it or it does not exist. Moreover, when they do produce something it does not comply with your request and/or is falsified information. Do they even realize they are incriminating themselves ?

    I keep hearing the excuses that banks are not equipped to handle such a load of inquiries, paperwork, loan mods, and so no, yet they ARE equipped to immediately foreclose on your property! They have no problem paying countless numbers of trustees and attorney’s fees. If there is something they want, they are geared up for it. If not, they simply tell you they are not, as if we are supposed to feel sorry for them that they are so overwhelmed.

    RE: BAC rescission…I sent them notice of rescission before the sale, perhaps even before the NOD, and I got a letter back stating I could only rescind on a refinance, not on a purchase money loan…which I assume to mean the original loan.

    I have also heard that one can rescind a loan more than three years old because it starts at the time you discover the fraud.

  7. Diane Barker, what state are you in?

    Joyce Louise, how can I reach you? I’d love to review any charge with the OCC and negligent loan servicing technique. Which senator is now involved? I hope to hear from you!

  8. Does anyone have any information on Renaldo Reyer of Deutsch Bank Please. Is there a Deposition out there, does this guy live and work in California?

  9. Can someone help me with the term default? I am aware that it means non-payment, but is there any specific amount of time that is required for non-payment to be termed default? Also, once you have gotten behind lets say, one payment, are you permanently in a default state? If you make the one payment that you were behind, are you restored to non-default status? I see so many bulletins/forums/etc. which I read endlessly trying to make some kind of sense of this crap, and I see so many saying that they were asked to become behind on their payments by the “lender” in order to be helped with a modification. Most say 3 months. We never asked for a mod, but got behind one time by 1 and 1/2 months. We were going to make the extra payment amount to catch up, but they told us that in order to fix the problem, they customarily took three months payments and tacked them to the back of the loan (like a deferment, except I have NEVER heard of one that was 3 months payments). It is our nature to trust our “lenders” and assume good intent. After all, their website is set up with all kinds of “help” options if you are having trouble. Just call, they say, and they will work out suitable arrangements. They explained that the books would not be able to account for our “late” payments any other way and assured us that this was a normal, common procedure that would give us a fresh start. So we agreed. This was a couple of years ago! I wondered, is there 3 months required of non payment in order for them to collect Insurance? If so, then instructing homeowners over the phone to skip payments (which I have heard over and over and over again) in order to be considered for modification would constitute insurance fraud, would it not? Why is the insurance company who has also been a victim speaking up? I may be having difficulty understanding how this really works. If this is not correct, please someone enlighten me on the subject.

  10. Joyce,
    Great analysis, I have always questioned why there is “unapplied funds” showing on statements.

  11. Where did the comments come from made by Renaldo (actually Ronaldo) Reyes of Deutsche Bank???

  12. Neil,
    I am an attorney in San Luis Obispo and I have a friend that I am trying to help who has already lost his home in the foreclosure process but we are trying to get a complaint filed in State or Federal Court to stop the eviction and hopefully save the home, although after reading most of your materials on the web, I am losing hope that it can be done. Should I file in State or Federal Court and what causes of action should be pled? I am a recovering attorney and doing this as a favor, since I have not practiced full time since 2002. I am still licensed, but could use some guidance. Thanks. Nancy (805) 234-5972



  14. how can you use TILA recession if the loan is more than three years old? most of us didn’t learn of all this B.S….until long after three years…has the statute of limitations been stopped in some way, due to all the fraud?????

  15. Can someone please answer this….Can the homeowner invoke a recission even if the loan was created many years ago? We are in a non judicial state and it would be great if we could use recission to get the “lender” into the court. What I have seen attorneys do in my state is wait until the Complaint for Eviction if finally filed and THEN they have a judicial action. But bringing it into the judicial realm ahead of the non judicial foreclosure would be far better for the homeowner.

  16. ZOE- from what i have learned.if your loan was bought by BAC then they are responsible. IF they are the mere servicer, then they are not responsible for the actions of the orginal lender. However you can send RESPA QWR’s and FDCPA dispute letters to BAC if they are the servicer, and build a case that way…also the FCRA.

  17. What a great great analysis and summary. I congratulate you on the effort that will mean so much to the participants on this site. Specifically the two most critical issues to be argued are: 1) does the bank have standing 2) Do they have the right to foreclose. It is my opinion that from some of the cases that I have worked on 1) the bank may be able to prove standing, but clearly their files reveal the negligent loan servicing technique that was utilized to conjure up the default status of the homeowner and in doing so, the issue of default was easily ruled upon in the lender’s favor and they did of course proceed to foreclose.

    I will speak to the issue of “do they have the right to foreclose in another light and will try to provide an issue that could be argued in Court on behalf of the homeowner:

    1) The first payment was set up to collect far less than what was needed to pay out the taxes on a property and being that the account was not analyzed for at least 18 months, deficits, shortages and new estimated amount collected based on the real improved tax amounts, compounded the homeowners ability to pay. Coupled with a rate payment change due to an adjustable mortage note, they were overwhelmed and thus, failed to meet the payments and then becoming subject to foreclosure. (negligent loan servicing technique, intentional or just maybe ………..

    2) Fannie would not purchase certain loans unless they had mortgage insurance. In this case, so the builder could qualify the loan, they estimated that cost and regular tax and insurance escrow for qualifying the loan. However, when the loan funded, the set the payment based on the true cost of the MI insurance which was (get ready) $638 per month and set the taxes at $29.00 per month as the total tax escrow for taxes that would be no less than $4,0000 per year. Deficits and shortages were racked up on this poor client for two years straight and all of a sudden she had a $15,000 charge added back to principal because the servicer had to pay the taxes with money they had not collected. Now that did help somewhat because the payment would have been far lower by amortizing the $15,000 over 30 years rather than the 12 months. At any rate, she was set up to fail when the servicer made that call. Here was a client that paid in $11,484 to the MI company rather than pay her taxes. A homeowner might argue that they intentionally kept the payment low so that it matched what they quoted her when she purchased their home, but in reality, they wanted the payment kept as low as possible before she fell delinquent so Fannie would not have audited the file. They didn’t generally audit that quickly unless the default was a first payment default or within the first 12 months. But can you imagine, this client had no idea that to purchase a home she would be paying for MI insurance at a cost of $638.00 per month. Now if they were trying to foreclose and they did several times, this was our argument and it never got into the Court room. It went all the way to Washington and finally we were able to get the client refinanced into another loan that did not require MI and a total escrow of about $400 per month. Even after we refinanced the loan, and had paid Fannie’s loan off, no one pulled it from the sale and the client was totally embarrassed in the neighborhood when the sheriff woke her upon a Saturday morning threatening to evict her. It took us over a month to get the Trustee’s Deed reassigning the property back to my client.

    3) One of the big three lenders now up on robo signing claims by the AG’s made a comment to me that we could have used to take them out. When he called me one day to tell me that he had been trying to request a modification and had asked what the terms might be if it was approved, they told him they would not provide him with anything unless he paid $20,000 as part of the request. I told him that I did not believe that could happen and so I called them. Well, that is what they said and because I thought it was some clerk who did not know better, I called three more times talking to three different people who all said the same thing. I don’t believe the AG’s are are aware of the extortion tactics which appear to be what this was had become part of the modification process the government was peddeling. I offered them $5000 to see what they would do and they said, no dice. He either pays it or no discussion about the modification terms. Well this is something that as a servicer I have always discussed with a mortgagor before we asked them for anything. So you see it started not with robo signing, but a lot of foreplay if you will during the servicing process.

    4) After certifying and doing everything humanly possible to prove the lender had misapplied two of the borrowers payments which made her become delinquent, she was threatened with foreclosure repeatedly. I intervened for the client and found that the servicer could not even interpret their own activity payment history but still continued to threaten foreclosure. Client and myself have charged the OCC with negligence in the performance of their jobs and a Senator is now involved in the whole mess. Now we know why so many foreclosures and when they weren’t contested, the homeowner lost his home.

    There are arguments that can be made based on negligent loan servicing technique which forced so many homeowners to default – I’m guess 20% foreclosures were not legal and homeowners had reason to file against them.

    So you see, when they start talking about the homeowner fraud, they had best put their own house in order. There is just so many more reasons which can prove – the note holder may have standing – but he doesn’t have the right when they force the homeowner to default.

    Sorry if this post is too long but I just wanted to give you a sampling of the “negligent loan servicing technique ” theory that just might work for the homeowner.

  18. I just got a letter from BAC declaring it is not responsible for any of the original lender’s acts. Is this a new approach or have the pretender lenders always done that?

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