TILA RESCISSION: Tolling the Statute of Limitations

ONE ON ONE WITH NEIL GARFIELD ONE ON ONE WITH NEIL GARFIELD

COMBO ANALYSIS TITLE AND SECURITIZATION

EDITOR’S NOTE: Equitable tolling IS effective for common law fraud like appraisal fraud which is easy, simple and credible. Piggy back your TILA rescission on top of the common law fraud cause of action. Judge can’t first decide if you have a right to rescission without hearing the whole case. Rescission is equitable remedy so even if the statute obviously implies that everything works automatically, you can argue statutory imperative giving the Judge no discretion, but they don’t like that.

I spoke to a new customer today — trader and broker from Wall Street. Pretty smart on law too. What he did is get a bona fide escrow agent to say they are holding “legal tender” to pay off the whole mortgage. In order to get it, they have to come up with the canceled note, proof of who cancelled it and an affidavit, satisfaction of mortgage etc. Then he sued them for failure to allow him to pay off his loan or fraudulently posing as the Lender. He ordered an estoppel letter as though he was selling the property. They ignored that too.

WHEN DOES THE 3 YEAR RIGHT TO BEGING START? WHEN IS A LOAN “CONSUMMATED”? IS THERE EQUITABLE TOLLING OF THE TILA RIGHT TO RESCIND?

The following is an overview of a few cases I was looking at in the area of Truth in Lending (“TILA”) law.  We get a lot of questions about when TILA three years begins to run.  THIS IS NOT LEGAL ADVICE AND IS NOT TO BE CONSTRUED AS LEGAL ADVICE.  RATHER THESE ARE A FEW CASES THAT DISCUSS TILA RESCISSION, AND GIVE YOU SOME IDEAS OF SOME OF THE CASES OUT THERE.  PLEASE CONSULT A LITIGATION ATTORNEY BEFORE FILING A CIVIL LAWSUIT FOR TRO OR INJUNCTION.

CAN TILA THREE YEAR RIGHT TO RESCIND BE EXERCISED BEYOND THREE  YEARS?


The general rule you will normally see in regard to TILA 3 year right of rescission is the following:

“Section 1635 of TILA allows consumers to rescind “any consumer credit transaction . . . in which a security interest . . .is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended,” so long as such rescission takes place within three days of the consummation of the transaction or the delivery of required disclosures under TILA, whichever occurs later. 15 U.S.C. § 1635. If the lender never submits the required disclosures, the borrower’s right to rescission expires three years after the consummation of the transaction. 15 U.S.C. § 1635(f).”  In the seminal case of Beach v., Ocwen, 523 U.S. 410, the United State Supreme Court held: “the right of rescission is completely extinguished after three years from the date of the loan’s consummation.”  See also 15 U.S.C. § 1635(f).  Equitable tolling does not apply to an action for rescission under TILA. See Mays v. U.S. Bank National Association, 2010 WL 318537 (E.D. Cal.2010).

This then begs the question, when is a loan “consummated” under TILA.  According to the FDIC on this website, consummation means when a consumer becomes obligated on a loan.”  See also 12 C.F.R. § 226.2(a)(13).

Under Regulation Z, which specifies a lender’s disclosure obligations, “consummation” of the loan occurs when the borrower is “contractually obligated.” 12 C.F.R, §226.2(a)(13). The point at which a “contractual obligation … is created” is a matter of state law. 12 C.F.R. pt. 226, Supp. 1 (Official Staff Interpretation), cmt. 2(a)(13). Under California law, a contract is formed when there are (1) parties capable of contracting, (2) mutual consent, (3) a lawful object, and (4) sufficient cause or consideration.  See California Civil Code Section 1550 and Grimes v. New Century Mortgage Corp., 340 F.3d 1007, 1009 (9th Cir. 2003).

Under TILA, the Courts must look to state law in determining when a borrower becomes contractually obligated on a loan.  At the very least, before you can have a contract, there must be specifically identified parties to the contract (meaning an identified lender and a identified borrower) – “parties capable of contracting” as set forth above and sufficient consideration.

Now, in the god old days a borrower and a bank would contract to lend money.  The borrower would borrow the money and offer a security interest in its property, and the bank would lend money off its balance sheet and hold both the note and mortgage (deed of trust) in the event you failed to pay.  Those days are gone for a lawrge number of “securitized loans” (loans that are bundled into pools and sold off on Wall Street).  Nowadays, you have a loan “originator” posing as a “lender” and the loan originator is not loaning you a dime (rather, someone else or some other entity is funding, lending, or table funding the loan).  In this scenario, the originating lender, purporting to contract to “lend” you money, is not actually lending you any money.  In reality, they are doing nothing more than earning a commission on the money SOMEONE ELSE IS LENDING YOU (i.e. some Wall Street investor in your loan pool who is funding the loan, who is NOT IDENTIFIED AT ANY STAGE OF THE LOAN PROCESS, and who expects a return on their investment).  These hidden investors are the true “lender” who is the source of funds for you loan.  Strange, but true.

So, when you contract with the “originator” of the loan (as opposed to the lender), has the true lender ever been identified?  No, they have not.  So shouldn’t the promissory note be between you and the real lender?  After all, the “lender” on the note and deed of trust never lent you any money, and this can be verified by looking at their balance sheet.  Do you have an enforceable contract to lend money under state law in this scenario?  That is an issue to litigate under TILA – in my opinion.  The originator is representing that they are lending you money,, when in fact they are not.  They are serving as an intermediary for someone else to lend you money.  Is there a meeting of the minds under this scenario?

There are a few other cases I have come across in my research that indicate, that under this scenario (usually involving MERS securitized loans, and other hard money loans where undisclosed entities are table funding the loan), the LENDER MUST BE IDENTIFIED BEFORE THE THREE YEARS BEGINS TO RUN, WHICH MEANS, IF YOU DO NOT KNOW WHO THE REAL “LENDER” IS, OR THE TRUE “SOURCE OF FUNDS” FOR YOUR LOAN, THE THREE YEAR CLOCK TO EXERCISE YOUR RESCISSION RIGHTS MAY NOT BEGIN TO RUN.

(1) Ramsey v. Vista Mortgage Corp, 176 BR 183 (TILA RESCISSION IN BANKRUPTCY CHAPTER 13 CASE).  In this case, the court laid down the test of when the three year right to rescind begins to run and specifically tackles the concept of when a loan is “consummated.”  Several internal citiations also help clarify this point.  Here is what the Ramsey Court said:

“When Ramsey signed the loan documents on September 13, 1989, he knew who was going to provide the financing. Courts recognize the date of signing a binding loan contract as the date of consummation when the lender is identifiable.”   The Court also cited to the Jackson v. Grant, 890 F.2d case (9th Circuit 1989), a NON-BANKRUPTCY CASE, and said: “the Ninth Circuit held that under California law a loan contract was not consummated when the borrower signed the promissory note and deed of trust because the actual lender was not known at that time. Under these circumstances, the loan is not “consummated” until the actual lender is identified, because until that point there is no legally enforceable contract.”

ANALYSIS: It seems fair to say that the Courts are not willing to find a contractual obligation exists under State Law until a true and actual lender is identified. “Pretender lenders” – as Neil Garfield calls them – and intermediary “originators” who make false representations to the effect that they are “lending money”and are your “lender” should not be sufficient to set the three year TILA rescission clock in motion.  Until the real Wall Street entity, or Wall Street Investor, or true source of the table funded loan is identified, the loan should not be deemed “consummated” under TILA and the three year right to rescind should remain open until such disclosure is made.  That is TRUTH IN LENDING WHICH IS THE WHOLE POINT OF TILA IN THE FIRST PLACE.

THIS MEANS, IF YOU STILL DO NOT KNOW WHO YOUR LENDER IS AFTER DUE DILIGENCE (AND BELIEVE ME WE TRY WITH DEBT VALIDATION LETTERS, CHAIN OF TITLE REVIEWS, FANNIE AND FREDDIE LOAN LOOKUPS, QUALIFIED WRITTEN REQUESTS, 15 US.C. 1641 LETTERS, UCC PRESENTMENT LETTERS, ETC.) AND IF THE ORIGINATING “LENDER” TRULY NEVER LENT YOU A SINGLE PENNY, PERHAPS THERE IS AN ARGUMENT TO BE MADE, USING THE LAW CITED ABOVE, THAT THE THREE YEARS HAS NOT YET BEGUN TO RUN.  NOW, THIS IS A NOVEL THEORY OF LAW THAT I HAVE NOT SEEN ANYONE PUT FORTH AS OF YET.  BUT REVIEWING THE CASE LAW, IT SEEMS TO OFFER SOME HOPE TO 4,5 OR EVEN 10 YEAR OLD LOANS.  OF COURSE, YOU SHOULD CONSULT WITH FORECLOSURE AND TILA LAWYER BEFORE PROCEEDING ON SUCH A THEORY, BUT WHERE THE BANKS ARE ACTIVELY ENGAGED IN THE “HIDE THE EIGHTBALL” GAME WHERE THEY DO NOT WANT YOU TO KNOW WHO OWNS YOUR LOAN, AND THEY NORMALLY CANNOT EVEN LEGALLY PROVE WHO OWNS YOUR LOAN, IF YOU HAVE NO OTHER OPTIONS THIS MAY BE A THEORY TO BRING TO THE ATTENTION OF YOUR FORECLOSURE, BANKRUPTCY OR LITIGATION COUNSEL.  THE FINANCIAL INSTITUTIONS USE EVERY LAW IN THE BOOKS TO TAKE YOUR HOME, THIS MAY BE A POTENTIAL ARGUMENT TO FIGHT BACK.

We have talked about the consequences of TILA rescission in many other posts.  Google “Vondran TILA lawyer” (or got http://www.RescindMyLoan.net or http://www.ForeclosureDefenseResourceCenter.com) and you will see more articles.  AS WITH EVERYTHING ELSE IN FORECLOSURE DEFENSE, DO NOT WAIT UNTIL THE LAST MINUTE BEFORE SEEKING A FORECLOSURE LAWYER.  IF YOU GET A NOTICE OF DEFAULT OR NOTICE OF SALE, DO NOT WAIT, CONTACT A FORECLOSURE AND BANKRUPTCY, TILA LAWYER TO PUT TOGETHER A SOUND LITIGATION PLAN.

PLEASE NOTE, EVEN IF YOU ARE CONSIDERING FILING BANKRUPTCY, YOU CAN RESCIND YOUR LOAN IN AN ADVERSARY PROCEEDING IN BANKRUPTCY COURT AND THIS CAN HAVE POTENTIALLY DRAMATIC IMPLICATIONS AS ONCE YOU RESCIND YOUR LOAN UNDER TILA, THE SECURITY INSTRUMENT IS VOID AS A MATTER OF LAW, AND THE LOAN IS ESSENTIALLY AN UNSECURED DEBT.  THESE ARE THINGS YOU WILL OFTEN FIND GO UNNOTICED AND UNCHALLENGED TO THE DEBTORS DETRIMENT.

10 Responses

  1. Reblogged this on Manifest Injustice.

  2. To Fighting MERS. The LENDER must be established before the loan is consummated. US Supreme court states that, when the LENDER……

  3. Some Circuit Court of Appeal and District Courts have determined that Rescission under TILA is a Statute of Repose — not limitations. Thus, discovery would not apply. But, correct me if I am wrong –do not believe the Supreme Court of the U.S. has fully addressed.

    Congressional intent is important — but did Congress ever anticipate all the fraud?? Well, maybe – benefit of doubt — they just did not understand what they were doing when they allowed Wall Street to run wild without regulation.

    If TILA rescission truly is a statute of repose — Congress needs to revisit.

  4. I don’t mean to rain on the parade, but I think this issue has been pretty much settled by the U.S. Supreme Court

    BEACH ET UX. v. OCWEN FEDERAL BANK
    No. 97–5310. Argued March 2, 1998— Decided April 21, 1998

    “HELD: A borrower may not assert the §1635 right to rescind as an affirmative defense in a collection action brought by the lender after §1635(f)’ 3-year period has run. ……… The 3-year period of §1635(f), however, is not a statute of limitation that governs only the institution of suit; . . .. “

  5. Hold on, not so fast, this is Steve Vondrans work…….http://www.foreclosuredefenseresourcecenter.com/

  6. A considerable amount of confusion re: TILA and extended tolling …..Specifically, I recall that Neil indicated in an earlier post that the extended tolling is allowed if the “discovery” of the violation is past the three year statute of limitations.

    My query to any and all; if one only learns of the actual terms of the “loan” five years on; specifically by reading blogs and new case law one learns that their loan is not a loan but a fragmented security and that their “originator” is not the actual creditor then does this stand as “discovery” and does this provide the extended tolling for recission?

    In requesting legal help regarding this I was told that I am mistaken and that after three years it’s simply moot. No possibility of using Reg. Z for extended tolling. Anyone know? Or is it, as with most things, a matter of whether or not the sitting judge acknowledges the discovery, after the three years, as the time from when the tolling begins?

  7. http://foreclosureblues.wordpress.com/2011/01/19/wells-fargo-sues-chase-over-loan-files/

    The Market Ticker – “Run The Clock” Runs Out
    Today, January 19, 2011, 2 hours ago | genesisGo to full article

    Well well well…. what do we have here?

    JPMorgan Chase & Co.s EMC Mortgage, facing homeowner lawsuits over foreclosures, was sued by the trustee of a mortgage portfolio for refusing to turn over documents detailing the quality of loans bought by the trust.

    Who sued them? Wells Fargo!

    The issue is that EMC is refusing to turn over loan files.

    Wait a second…. where’s EMC’s role in this?

    We’re gonna have problems here I think. Shouldn’t Wells have these documents already? Probably – unless they had a custodial agreement with EMC. And if they did, what’s EMC’s excuse? They don’t have one in that instance – they’re an agent of Wells, not a principal, which means that Wells is odds-on to have never received what was supposed to be transferred to them.

    What else didn’t they receive?

    Like, for instance, conveyance of the notes themselves?

    In the Aug. 31, 2010, letter to San Francisco-based Wells Fargo, Grais said he had investigated 1,317 of the loans held by the trust and determined that EMC appeared to have violated its representations with respect to 938 loans, according to the complaint.

    That’s a large percentage. Gee, you think that might have been standard practice to sell trash into these trusts? After all, we have Citi’s former chief underwriter who testified to this under oath – why would it be different with this case?

    As I have said since the beginning – the wheels of justice turn slowly, but they do turn.

    And this year, I suspect, is the year when the flood gates break – if for no other reason than Statutes of Limitations are going to be coming up and it’s either going to be “sue or shut up” time.

    I think we’re see lots of “sue”s, and once a few of these get cranking, and discovery gets going, the sharks are going to smell that first taste of blood…..

    In fact, they may have already.

  8. http://dailybail.com/home/gmac-agrees-to-dismiss-hundreds-of-maryland-foreclosures-clo.html

    Reported late Tuesday night from Bloomberg…

    (Bloomberg) – Ally Financial Inc.’s GMAC Mortgage unit agreed to drop about 250 foreclosure cases in Maryland that were tied to defective affidavits, the company said Tuesday. “We’re dismissing the cases but they will be re-filed,” Proia said. “The intention is to re-file the cases to go through the new foreclosure procedures in Maryland.”

    GMAC’s decision comes after a Maryland nonprofit, Civil Justice Inc., agreed to drop a class-action lawsuit on behalf of homeowners whose foreclosure documents were signed by GMAC employee Jeffrey Stephan, Anthony DePastina, an attorney for Civil Justice, said in a phone interview.

    Stephan said in sworn depositions last year and in 2009 that he signed as many as 10,000 affidavits a month without checking their accuracy in a practice that has come to be known as “robo-signing.”

    “Hopefully GMAC’s actions will set a precedent with other lenders where robo-signing has occurred,” DePastina said. “I think there will be a ripple effect throughout the country.”

    DePastina said as many as 1,000 foreclosures may be tied to defective affidavits. Proia said that number is “factually inaccurate.”

    Continue reading at Bloomberg…

    More on this story…

    GMAC foreclosure cases in Maryland dismissed due to defective affidavits

    A recent defense class action lawsuit in Maryland resulted in the dismissal of hundreds, if not thousands, foreclosure cases initiated by GMAC Mortgage. GMAC’s ability to re-file the foreclosure documents remains intact.

    Baltimore non-profit Civil Justice, Inc. and the University of Maryland School of Law Consumer Protection Clinic brought what they’re calling the first ever defense class action suit against the mortgage company in October, alleging wrongful foreclosure due to faulty foreclosure affidavits.

    “We filed a defense class action lawsuit, meaning instead of filing affirmatively, we used the case as a defense for all those individuals being sued or foreclosed upon by GMAC,” defense attorney Tony DePastina told HousingWire.

    DePastina, alongside partner Philip Robinson and head of the university Consumer Protection Clinic Peter Holland, defended the case on behalf of Kevin Matthews and “a class of similarly situated persons.” GMAC filed a foreclosure case against Matthews in March 2010.

    Maryland is a quasi-judicial state with regard to foreclosures, meaning that a foreclosure will only go through the court if a case is filed. Not all foreclosures have a case filed.

    http://www.housingwire.com/2011/01/18/gmac-foreclosure-cases-in-maryland-dismissed-due-to-defective-affidavits

    David Dayen at FDL got a little excited when he first read the ruling Sunday…as you see in his headline…

    10,000 GMAC Foreclosures Stopped in Maryland

  9. Thank u neil for all of your hard work. This is good and will keep this in mind. You rock! In these crazy fraudulent times its nice to know we have some brilliant minds on our side. God bless u and thank u from the heart. Debi

  10. Stay tuned, we are going to try that, we have 3 cases to test this out on.
    This could be what we need to win!
    I’ll be in touch.

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