TILA RESCISSION: Who Pays the Money?

Posted on January 30, 2017 by Neil Garfield

The menu of items that are due to the borrower as a condition precedent to making a claim for repayment is expansive and frankly in many cases is equivalent or nearly equivalent to the total amount of the principal claimed as loan repayment. 

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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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While everyone is resisting the idea of enforcing rescission, some are asking the right questions. Here is the answer.

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The rescission is effective on the date of mailing. The lender must comply within 20 days from date of notification. Compliance means (1) return of cancelled note (2) release of the encumbrance on record in tech county records and (3) return of all money paid by the borrower, directly or indirectly with certain minor exceptions.

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The answer to the question of how much is due is that there needs to be an accounting because the statute 15 USC §1635 requires the return of all money paid by the “borrower”, directly or indirectly.

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The fact that the fee or compensation or “profit” was not disclosed to the borrower does not remove it from the list of the charges paid by or on behalf of the borrower nor the liability to pay it to the borrower once rescission is effective (i.e., upon notice — mailing).

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This leads to some interesting issues that will need to be dragged out of the “lender”, including all the other “lenders” going back to the original transaction. Most of the money received as compensation by third parties was not disclosed to the borrower, hence the need for an accounting. Many of the charges were slipped in to the loan without the borrower’s knowledge or consent. This brings in possible violations of the FDCPA, the FTCA and the “little FTC” acts passed by individual states.

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The menu of items that are due to the borrower as a condition precedent to making a claim for repayment is expansive and frankly in many cases is equivalent or nearly equivalent to the total amount of the principal claimed as loan repayment. 

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And that in turn brings up the most interesting question of all: who is liable to return those fees, compensation and finance charges? You can be sure that once the accounting is ordered by a court there will be scrambling amongst the players in the “Securitization” market. The whole point of masking their scheme was to avoid liability for this sort of thing. Hence the obfuscation of the actual creditor or lender. And this is one of many break points where the securitization players will start sniping at each other rather than the borrower.

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Nobody wants to hand all that money that was “earned” through the hard work of chicanery. And nobody wants to assert that they are the actual creditor since that would be an admission against interest that they had been misrepresenting the true creditor all along. And it would be waiving the 5th Amendment right against self incrimination for criminal charges.

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In any event, here are the REG Z rules on what constitutes a finance charge, which by the way, means that they should ALL have been been disclosed without exception.

§226.4   Finance charge.

(a) Definition. The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.

(1) Charges by third parties. The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor:

(i) Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or

(ii) Retains a portion of the third-party charge, to the extent of the portion retained.

(2) Special rule; closing agent charges. Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor—

(i) Requires the particular services for which the consumer is charged;

(ii) Requires the imposition of the charge; or

(iii) Retains a portion of the third-party charge, to the extent of the portion retained.

(3) Special rule; mortgage broker fees. Fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge.

(b) Examples of finance charges. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:

(1) Interest, time price differential, and any amount payable under an add-on or discount system of additional charges.

(2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.

(3) Points, loan fees, assumption fees, finder’s fees, and similar charges.

(4) Appraisal, investigation, and credit report fees.

(5) Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer’s default or other credit loss.

(6) Charges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.

(7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.

(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.

(9) Discounts for the purpose of inducing payment by a means other than the use of credit.

(10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law.

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