Rescission Redo: 9th Circuit AGAIN Rules that Tender is Not Necessary

Judicial Arrogance and Intolerance Keeps leading back to the same point — that TILA Rescission is not common law rescission. Yet Judges continue to rule on TILA rescission as though it were common law rescission. Here again the 9th Circuit confirms what the Supreme Court of the United States has already said — neither tender nor lawsuit is required for rescission to be effective. Any other holding is directly contrary tot eh wording of the statute, which as a matter of law is clear and NOT subject to interpretation.

The second important part of this decision is that the Court may not lay down conditions or advice concerning the filing of an amended complaint. The corollary is that the fact that an amended complaint was filed without the rescission count does not prevent the homeowner from preserving the issue on appeal — if the lower court said don’t file it unless you plead and prove tender of money.

And the third implied issue is what Congress intended when they passed TILA and the rescission statute, to wit: The whole notion of “tender” is ridiculous in the face of the legal conclusion that the note and mortgage no longer exist (void) and the factual basis that the whole issue of identification fo the creditor may not subverted. Hence the question “Tender to whom?”

Lastly the issue of whether a Trustee is a debt collector appears to be answered in the affirmative. Yes they are and not just because of the reasons set forth in the decision (see concurring opinion). Creditors are not normally regarded as debt collectors. But there is a growing awareness that the REMIC trusts are empty; hence the trustee of the REMIC Trust cannot be anything but a debt a collector unless they can prove that they are indeed the creditor — i.e., the party to whom the debt is owed. Likewise the Trustee on a Deed of Trust MUST be a debt collector because by definition it is an intermediary seeking to collect money.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Hat tip to stopforeclosurefraud.com, whose article is republished in part.

The ruling upholds the ability to rescind despite ability to repay- Split court ruling of FDCPA applying to Trustee- dissenting judge vigorously argues that the FDCPA should apply to Trustee’s for all the right reasons. See below……

http://stopforeclosurefraud.com/2016/11/03/vien-phuong-ho-v-recontrust-company-n-a-et-a-9th-cir-holds-foreclosure-trustee-not-fdcpa-debt-collector/ 

Vien-Phuong Ho v. ReconTrust Company, N.A., et a | 9th Cir. Holds Foreclosure Trustee Not FDCPA ‘Debt Collector’

stopforeclosurefraud.com

Seeking damages under the FDCPA, the plaintiff alleged that the trustee of the deed of trust on her property sent her a notice of default and a notice of sale

I

The district court twice dismissed Ho’s TILA rescission claim without prejudice, and Ho didn’t replead it in her third complaint. We have held that claims dismissed without prejudice and not repleaded are not preserved for appeal; they are instead considered “voluntarily dismissed.” See Lacey v. Maricopa Cty., 693 F.3d 896, 928 (9th Cir. 2012). Here, however, the district court didn’t give Ho a free choice in whether to keep repleading the TILA rescission claim.

Rather, the court said that if Ho wished to replead the claim she “would be required to allege that she is prepared and able to pay back the amount of her purchase price less any downpayment

she contributed and any payments made since the time of her purchase.” The judge concluded that if Ho “is not able to make that allegation in good faith, she should not continue to maintain a TILA rescission claim.” It’s unclear whether the judge meant this as benevolent advice or a stern

command. But a reasonable litigant, particularly one proceeding pro se, could have construed this as a strict condition, one that might have precipitated the judge’s ire or even invited a sanction if disobeyed. Ho could not or would not commit to pay back the loan, and dropped the claim in her third complaint.

The district court based its condition on Yamamoto v. Bank of N.Y., which gave courts equitable discretion to “impose conditions on rescission that assure that the borrower meets her obligations once the creditor has performed its obligations.” 329 F.3d 1167, 1173 (9th Cir. 2003). But, after

the district court dismissed Ho’s claims, we held that a mortgagor need not allege the ability to repay the loan in order to state a rescission claim under TILA that can survive a motion to dismiss. Merritt v. Countrywide Fin. Corp., 759 F.3d 1023, 1032–33 (9th Cir. 2014). Ho argues that her rescission claims were properly preserved for appeal and should be reinstated.

Where, as here, the district court dismisses a claim and instructs the plaintiff not to refile the claim unless he includes certain additional allegations that the plaintiff is unable or unwilling to make, the dismissed claim is preserved for appeal even if not repleaded. A plaintiff is the master of his claim and shouldn’t have to choose between defying the district court and making allegations that he is unable or unwilling to bring into court.

This rule is a natural extension of our holding in Lacey. The Lacey rule—which displaced our circuit’s longstanding and notably harsh rule that all claims not repleaded in an amended complaint were considered waived—was motivated by two principal concerns: judicial economy and fairness to the parties. 693 F.3d at 925–28. Those concerns apply here. We see no point in forcing a plaintiff into a drawn-out contest of wills with the district court when, for whatever reason, the plaintiff chooses not to comply with a court-imposed condition for repleading. We remand to the district court for consideration of Ho’s TILA rescission claim in light of Merritt v. Countrywide Fin. Corp., 759 F.3d at 1032–33.

AFFIRMED in part, VACATED and REMANDED in

part. No costs.

KORMAN, District Judge, dissenting in part and concurring

in part:

The majority opinion opens with the principal question presented by this case: “[W]hether the trustee of a California deed of trust is a ‘debt collector’ under the Fair Debt Collection Practices Act (FDCPA).” Maj. Op. at 6. After a discussion of the issue, the majority concludes by observing that the phrase “debt collector” is “notoriously ambiguous” and that, given this ambiguity, we should refuse to construe it in a manner that interferes with California’s arrangements for conducting nonjudicial foreclosures. Maj. Op. at 18–19. My reading of the Fair Debt Collection Practices Act (“FDCPA”), consistent with the manner in which it has been construed by every other circuit that has addressed whether foreclosure procedures are debt collection subject to the FDCPA, suggests that the only reasonable reading is that a trustee pursuing a nonjudicial foreclosure proceeding is a debt collector. See Kaymark v. Bank of Am., N.A., 783 F.3d 168, 179 (3d Cir. 2015), cert. denied, 136 S.Ct. 794 (2016); Glazer v. Chase Home Fin. LLC, 704 F.3 453, 461–63 (6th Cir. 2013); Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376–77 (4th Cir. 2006); see also Alaska Tr., LLC v. Ambridge, 372 P.3d 207, 213–216 (Alaska 2016); Shapiro & Meinhold v. Zartman, 823 P.2d 120, 123–24 (Colo. 1992) (en banc). The same is true of a judicial foreclosure proceeding—an alternative available in California. See Coker v. JPMorgan Chase Bank, N.A., 364 P.3d 176, 178 (Cal. 2016). Both are intended to obtain money by forcing the sale of the property being foreclosed upon.

“Unconscionable” Mortgage Can Lead to Equitable Rescission

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THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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Hat tip to Jim Macklin
As if things were not confused enough, A California court came on board with something I suggested in 2007 — that if the loan terms were unconscionable, then there was no right to foreclose. Spencer Scheer wrote the following notice that sums up the decision. I would add that if the loan was “predatory per se” as defined in Regulation Z, then the same logic applies. The parties seeking foreclosure are coming in with “unclean hands.” Whether they have some other remedy like an action at law for money damages remains to be seen. But in most states foreclosure is an equitable remedy which has always meant until the recent era of the mortgage meltdown, that the court ways all factors to achieve a fair result.
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But this court went further. It said that if the transaction is unconscionable then the “borrower” can equitably rescind. This may be different from both common law rescission and it is different from TILA rescission in which the notice of rescission alone (upon mailing) immediately cancels the loan contract, and voids the note and mortgage — even if the rescission is disputed on grounds of the 3 year limitations etc.
As Justice Scalia said, “the statute makes no distinction between disputed and undisputed rescission.” Thus the rescission is effective even if it APPEARS As though the right to rescind under TILA may not have existed on the date the notice of rescission was mailed.
NOTE TO LAWYERS: ANY OTHER INTERPRETATION WOULD REQUIRE THE “BORROWER” TO FILE SUIT TO MAKE THE RESCISSION EFFECTIVE WHICH IS THE OPPOSITE OF THE TILA RESCISSION STATUTE, REGULATION Z AND THE UNANIMOUS DECISION OF THE US SUPREME COURT IN JESINOSKI. THE STATUTE PUTS THE RESPONSIBILITY FOR PUTTING THE EFFECTIVENESS OF THE TILA RESCISSION IN ISSUE SQUARELY ON THE PARTIES PURPORTING TO BE THE LENDER AND THEY ONLY HAVE 20 DAYS FROM RECEIPT TO FILE A LAWSUIT SEEKING TO HAVE THE RESCISSION VACATED.

Here is the notice sent to me by several readers:

Date: March 1, 2016
To All SLG Clients and Affiliates.
From: Spencer Scheer
Subject:  Client Alert: From the Scheer Law Group:  Foreclosure Appellate Decisions Heating up. The Orcilla v. Big Sur, Inc., Case is of Extreme Concern.
In Orcilla v. Big Sur, Inc., No. H040021, 2016 WL 542922 (Cal. Ct. App. Feb. 11, 2016), The Court allowed the borrower/appellants to assert an action to equitably rescind a foreclosure sale and held that: If the facts and circumstances surrounding  the origination of the loan are unconscionable it can lead to a challenge to the enforcement of the loan including rescinding a foreclosure sale to a BFP.  The greater the degree of unconscionability the greater the scrutiny into the right to enforce the loan.  This case has far-ranging implications on the finality of foreclosure sales and BFP rights.
Consider what this means: The particular facts of this case drove the result (non-English speaking borrowers with little education, signing loan documents in English with relatively bad terms).  However, the rationale for the case “tramples” other areas of law and imposes quasi-fiduciary duties on a lender to ensure that the borrower is not misled or taken advantage of. In essence, under the ruling of this case,  If a judge finds your loan terms are not fair, he or she can allow a borrower to challenge any default/collection actions you take, including challenging a completed foreclosure sale.
To make sure that you really can’t’ sleep at night, the court went even further and found that the rights to challenge a loan that is unfair extends to “trump” a foreclosure sale where there is a BFP who purchases at the sale. While the Court  in this case allowed the BFP to evict the borrower because it had obtained a UD judgment, it found that the rights allowed to a BFP do not supersede the borrower’s rights to challenge the foreclosure. This will add further uncertainty to foreclosure sale and the willingness of title companies to insure, if the case is not overturned or ignored in jurisdictions outside of the one issuing the opinion.
This case has ramifications that are just as far-ranging and disruptive as the recent California Supreme Court holding in the Yvanova v. New Century Mortgage Corp, et al., Docket No. S218973 (CA Supreme Court February 18, 2016).
Please call me if you would like to discuss
Spencer Scheer

Rescission Update: The Notice and the Response

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This is not legal advice on your case. Consult a lawyer who is licensed in the jurisdiction in which the transaction and /or property is located.

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 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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