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Rescission Returns in 3rd Circuit Opinion

Posted on September 29, 2013 by Neil Garfield

Forbes has taken notice. There is a shift toward borrowers in mortgage litigation. The decision points back to the origination of the loan. This decision follows a similar decision in the 4th circuit. It all comes down to what actually happened at closing? And we don’t actually know if the decision to allow rescission indefinitely on second mortgages will extend to the first mortgage if it is all part of the same transaction. The result of rescission is that all payments of every kind must be returned to the borrower plus interest and attorney fees and potentially treble damages. All payments mean closing costs, fees, costs, expenses, principal interest, escrow and anything else. If the “lender” doesn’t do that the mortgage lien is expressly invalidated by operation of law, which is the same as being subject to a recorded satisfaction of mortgage. TILA is back!! — at least until the Supreme Court gets to weigh in on this ongoing dispute.

TILA requires only a clear statement and communication that the borrower wishes to rescind the transaction. The statute is clear that the burden shifts to the “lender” to either agree to rescission or sue to disqualify the rescission that must be supported by allegations and proof that the lender violated disclosure requirements at the time of origination of the loan. To be sure, there is a loophole created by the courts — that the rescinding borrower have the money to give back to the lender. But that is exactly what is going to cause the problem for Foreclosers. If the borrower can show some credible source of funds, the “lender” is screwed — because the lender is not the party who was named on the note and mortgage.

So the offer of the money will immediately cause an inquiry and discovery into the question who actually was the lender? We certainly don’t want to give the rescission money to the named party on the note and mortgage when the source of funds was a party with no legal relationship to the named “lender.” The facts will show that the mortgage lien was never perfected —and that therefore rescission under TILA is potentially unnecessary.

Either way, the debt turns up unsecured and can be discharged in bankruptcy. The problem for Wall Street is how they will explain to investors why the investors were not identified as the lenders in each closing. The answer is that Wall Street Banks wanted to use those loans as “assets” they could trade, insure, hedge and even sell contrary to the prospectus and PSA shown to pension Funds and other investors who advanced funds to investment banks as “payment” for mortgage bonds underwritten by those banks.

When the limelight is focused on the original closing, Pandora’s box will open for the bankers. It will show that they never used the money from investors to buy bonds issued by a REMIC trust. It will show the trusts to be unfunded. It will show the unfunded trusts never bought or funded the loans. It will show that the disclosure requirements and the reason for TILA (borrowers’ choices in the marketplace) were regularly violated.

That in turn will lead to the inquiry as to the balance of the loan that is now due. Rescission means giving back what you received. But what if, by operation of law, you have already given back some or all of the money? The investment banker will be hard pressed to describe itself as anything but the agent of the lender investors. As agent, it received payments from insurance, hedges and sales to the Federal Reserve. How will the Wall Street Banks explain why those payments should not be applied to reduce the account receivable of the investor lenders? How many times should the lender be paid on the same debt?

Remember that there is no issue of subrogation, contribution or other claims against the borrower here. They were expressly waived in the contracts for insurance and credit default swaps. Hence the payments should equitably be applied to the benefit of the investors whose money was used to start the false securitization scheme under false pretenses. Once the investors are paid or considered paid because their agents received the money from third party co-obligors, what is left for the borrowers to pay? Will the court order the borrower to pay “back” a lender who never made the loan?

Dreamli Zs 6:22pm Sep 28
http://www.forbes.com/sites/danielfisher/2013/02/07/court-decision-gives-borrowers-an-ace-in-the-hole-lenders-a-headache/
Court Decision Gives Lenders A Headache, Borrowers An Ace In The Hole
http://www.forbes.com
A court ruling gives borrowers an unlimited deadline for rescinding second mortgages

Filed under: AMGAR, CASES, CORRUPTION, evidence, expert witness, foreclosure, foreclosure mill, GARFIELD GWALTNEY KELLEY AND WHITE, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer | Tagged: banking, foreclosure defense, rescission, TILA, truth in lending | 15 Comments »

The Truth About TILA

Posted on November 13, 2012 by Neil Garfield

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

“Victims can receive up to $125,000 in cash or, in some cases, get their homes back. But the review has already been marred by evidence that the banks themselves play a major role in identifying the victims of their own abuses, raising the question of whether the review is compromised by a central conflict of interest.”

Editor’s Comment and Analysis: There have been so many questions and misconceptions about TILA that I thought it would be a good thing to summarize some aspects of it, how it is used in forensic examination and the limitations of TILA. Note that the absence of a prohibition in TILA or the apparent expiration of TILA does not block common law actions based upon the same facts and some states have more liberal statutes of limitations. TILA is a federal law called the Truth in Lending Act. It’s principal purpose according to all accounts and seminars given on the subject is to provide the borrower with a clear choice of lenders with whom he/she wants to do business and clear terms for comparison of terms offered by each lender. It is also designed to smoke out undisclosed parties who are receiving compensation and it has real teeth in clawing back such undisclosed compensation.

Undisclosed compensation is very broadly defined in TILA so it is fairly easy to apply to anyone who made money resulting from the purported loan transaction, and the clawback might include treble damages, attorneys fees and other relief. Note that rescission does NOT mean you must offer up the house (“give it back”) to the lender. The lender, if there was one, gave you money not a house. rescission is a reversal of that transaction which means you must tender (according to the 9th Circuit) money in exchange for cancellation of the transaction. If you follow the rules, a TILA rescission eliminates the note and mortgage by operation of law, so while you have the right to demand and sue for return of the note as paid and satisfaction of the mortgage (release and reconveyance in some states). Unless the “lender” files a Declaratory action (lawsuit) within 20 days of your demand for rescission, the security is gone and can be eliminated in bankruptcy.

Use of the rescission remedy can be employed in bankruptcy actions as well where the Judge has wide discretion as to what constitutes “tender” (including a payment plan). Some Judges have interpreted the statute as it si written which does not require tender. The 9th Circuit disagrees.

As to the statute of limitations, it simply does not apply if the “lender” has intentionally mislead the borrower, committed fraud or otherwise withheld information that is deemed fundamental to the disclosures required by TILA. This is the most common error committed by borrowers and their attorneys. In most cases the table funded loan is “predatory per se” and gives you a leg up on the allegation of fraud or misrepresentation at closing.

Fraud may be fraud in the inducement (they told you that even though your payments would reset to an amount higher than your household income has ever been, you would be refinanced, get even more money and be able to fund the payments through additional equity in the house).

Fraud may be in the execution where you signed papers that you didn’t realize was not the deal you were offered or which contained provisions that were just plain wrong. If you thought that you were getting a loan from BNC and the loan was in fact funded by another entity unrelated and undisclosed, then your legal obligation to repay the money naturally goes back to the the third party. But the presence of the third party indicates a table funded loan, which is predatory per se; and the terms of repayment are different from what was offered or what was agreed to by the lender acting through the investment banker that was creating (but not necessarily using) REMICs or trusts. In plain words the mortgage bond and the prospectus, PSA and other securitization are at substantial variance from what was put on the note, including the name of the payee on the note and the name put on the security instrument (Mortgage or deed of trust).

The office of the controller has published a series of papers describing the meaning and intent of TILA and to whom it applies, even pre Dodd-Frank.

For example, it describes “Conditions Under Which Loan Originators Are Regulated as Loan Underwriters.” Thus the use of a strawman is expressly referred to in the OCC papers (see below) and there are specific indicia of whether an entity is in fact a loan underwriter, which is the basis for my continual statement that a loan originator is not a lender (pretender lender) and the very presence of a loan originator on the paperwork is a violation of TILA tolling any state of limitations.

If the loan originator is not a bank or savings and loan or credit union, then the highest probability is that the name on the note and the name on the mortgage is wrong. They didn’t loan the money. Your signature was procured by both fraud in the inducement and fraud in the execution, because it was predicated upon that payee giving a loan of money. “Arranging” the loan from a third party doesn’t count as being a lender. It counts as being a licensed broker or the more vague term of loan “originator.” The arguments of the banks and servicers to the contrary are completely wrong and bogus.If they were right, for purposes of collection and foreclosure that the origination documents were enforceable then that would mean that there would be a window immediately following closing where you could not actually rescind or even pay off the obligation because the originator has no right, justification,, power or excuse to execute a release and reconveyance. The loan already belonged to someone else and the paperwork was defective, which is why investors are suing the investment bankers alleging principally that they were victims of fraud: they were lied to about what was in the REMIC, lied to about what was going into the REMIC, and then even the claimed paperwork on defaulted and other loans were not properly assigned because they never started with the actual owner of the obligation.

Thus the theory put forward by banks and servicers and other parties in the foreclosure scheme that the origination documents are enforceable falls flat on its face. Those documents, taken on their face were never supported by actual consideration from the named parties. If the investment banks weren’t playing around with investment money deposited with them by managed investment funds, the name of the REMIC or group of investors would be on the origination documents.

In the case where the originator is a bank, one must look more closely at the transaction to see if they ever booked the loan as a loan receivable or if they booked the transaction as a fee for services to the investment bank. This is true even where mega banks appear to be the originators but were not the underwriters of the loan.

If you are looking for the characteristics of a loan underwriter, versus a loan originator the OCC paper provides a list. In the case of banks the presence of some of these characteristics may be irrelevant in the subject transaction if they treated the “securitized” loan differently through different departments than their normal underwriting process. There such a bank would appear to be a loan underwriter, but when you scratch the surface, you can easily see how the bank was merely posing as the lender and was no better than the small-cap originators that sprung up across the country who were used to provide the mega banks with cover and claims to plausible deniability as to the existence of malfeasance at the so-called closing:

Risk Management Officers in Senior Management: In the case of small cap originators it would be rare to find anyone that even had the title much less acted like a risk management officer. In the case of banks, the presence in the bank of such an officer does not mean that he or she was involved in the transaction. They probably were not.

Verification of employment: There are resources on the internet that enable the bank to check the likelihood of employment, as well as the usual checking for pay stubs and calling the employer. In a matter of moments they can tell you if a person who cleans homes for a living is likely to have an income of $15,000 per month. Common sense plays a part in this as well. This was entirely omitted in most loans as shown by operation “hustle” and other similar named projects emphasized that to retain employment and get out-sized bonuses far above previous salaries the originator employee must close the loan, no matter what — which led to changing the applications to say whatever they needed to say, often without the borrower even knowing about the changes or told “not to worry about it” even though the information was wrong.

Employment conforms to income stated. See above. I have seen cases where a massage therapist making $500 per month was given a seven figure loan based upon projected income from speculative investment that turned out to be a scam. She lost two fully paid for homes in that scam. If normal underwriting standards had been employed she would not have been approved for the loan, the scam would never have damaged her and she would still be a wealthy woman.

Verification of value of collateral. Note that this is a responsibility of the lender, not the borrower. Quite the reverse, the borrower is relying reasonably that the appraisal was right because the bank verified it. In fact, the appraiser was paid extra and given explicit instructions to arrive at an appraised value above the amount required, usually by $20,000. By enlarging the apparent value of the collateral, the originators were able to satisfy the insatiable demand from Wall Street for either more loans or more money loaned on property. In 1996 when they ran out of borrowers, they simply took the existing population of borrowers and over-appraised their homes in refinancing that took place sometimes within 3 months of the last loan at 20% or more increase in the appraisal. That was plainly against industry standards for appraisals and obvious to anyone with common sense that the value could never have been verified. If you look at companies like Quicken Loans you will see on some settlements that they were not content to get overpaid for originating bad loans, they even took a piece of the appraisal fee.

Verification of LTV ratios. Once the appraisals were falsified it was easy to make the loan look good. LTV often showed as 20% equity when in fact the value, as could be seen in some cases weeks after the closing was 20% or more lower than the the amount loaned. Many buyers immediately lost their down payment as soon as they thought the deal was complete (it wasn’t really complete as explained above). Because of the false appraisal, at the moment of closing their down payment was devalued to zero and they owed more money than the home was actually worth in real fair market value terms. Normal industry practice is to have a committee that goes through each loan verifying LTV because it is the only real protection in the event of default. In most cases involving loans later subject to claims of securitization, the committee did not exist or did not review the loan, the verification never happened and the only thing the originator was interested in was closing the loan because the compensation of the originator and their own salary and bonuses were based purely on the number or amount of “closed” loans.

Verification of credit-worthiness of buyers. This is an area where many games were played. Besides the verification process described above, the originator was able to receive a yield spread premium that was not disclosed to the borrower and the investment bank that “sold” the loan was able to obtain an even larger yield spread premium that was not disclosed to the borrower. It is these fees that I believe are subject to clawback under TILA and RESPA. In the Deny and Discover strategy that I have been pushing, once the order is entered requiring the forecloser to produce the entire accounting from all parties associated with the loan, the foreclosure collapses and a settlement is reached. This can often be accomplished in a less adversarial action in Chapter 11.

Verification of income and/or viability of loan for the life of the loan. This has a huge impact on the GFE (Good faith estimate) especially in adjustable rate mortgages (ARMs) and negative amortization mortgage loans (teaser rates). Plainly stated the question is whether the borrower would qualify for the loan based upon current income for when the loan resets. If the answer is no, which it usually is, then the life of the loan is a fabricated figure. Instead of it being a 30 year loan, the loan becomes much shorter reduced to the moment of reset of the payments, and all the costs and points charged for the loan must be amortized over the REAL LIFE of the loan. In such cases the “lender” is required to return all the interest, principal and other payments and other compensation received from all parties, possibly with treble damages and attorney fees. It’s pretty easy to prove as well. Most people think they can’t use this provision because of misstatements on the application. The obligation to verify the statements on the application is on the underwriter not the customer. And the law was written that way to cover just such a situation as this. If you paid 3 points to close and it was added to your loan or you paid in cash those points would substantially raise your effective APR or even stated interest rate if the loan life was reduced to two years. In many cases it would rise the level of usury, where state law provides for that.

Vendor management: This is where even before Dodd-Frank you could catch them in the basket of allegations. The true management of the vendors lay not with the originator but with the investment banker who was selling mortgage bonds. This alone verified that the party on the note and named on the mortgage was an originator (strawman) and not an underwriter. And the accounting that everyone asks for should include a demand for an accounting from the investment banker and its affiliates who acted as Master Servicer, Trustee of a “pool,” etc.

Compliance programs and audits: Nonexistent in originators and the presence of such procedures and employees is not proof that they were part of the process. Discovery will reveal that they were taken out of the loop on loans that were later claimed to be subject to claims of securitization.

Effective Communication Systems and Controls: The only communication used was email or uploading of flat files to a server operated or controlled by the investment banker, containing bare bones facts about he loan, absent copies of any of the loan closing documents. This is how the investment bankers were able to claim ownership of the loans for purposes of foreclosure, bailouts, insurance, and credit default swaps when the real loss was incurred by the investors and the homeowners.

Document Management: I need not elaborate, after the robo-signing, surrogate-signing, fabrication and forgeries that are well documented and even institutionalized as custom and practice in the industry. The documents were lost, destroyed, altered, fabricated and re-fabricated, forged in vain attempts to make them conform to the transaction that is alleged in foreclosures, but which never occurred. The borrowers and their lawyers are often fooled by this trick. They know the money was received, so their assumption was that the originator gave them the loan. This was not the case, In nearly all cases the loan was table funded — i.e., funded by an undisclosed principal access to whom was prohibited and withheld by the servicer, the originator and everyone else. AND remember that under Dodd-Frank the time limits for response to a RESPA 6 (QWR) inquiry have been reduced to 5 days and 30 days from 20 days and 60 days respectively.

Submission of periodic information to appropriate regulatory agencies that regulate Banks or lenders: If the originator did not report to a regulatory agency, then it wasn’t a lender. If it did report to regulatory agencies the question is whether they ever included in any of their reports information about your loan. In most cases, the information about your loan was either omitted or falsified.

Compliance with anti-fraud provisions on Federal and State levels: This characteristic would be laughable if wasn’t for the horrible toll taken upon millions of homeowners and tens of millions of people who suffered unemployment, reduced employment and loss of their retirement funds.

In house audits to assess exposure for financial loss through litigation, fraud, theft, loss business and wasted capital from failed strategic initiatives: The simple answer is that such audits were and remain virtually non-existent. Even the so-called foreclosure review process is breaking all the rules. But it wouldn’t hurt to ask, in discovery, for a copy of the plan of the audit and the results. The fact is that most banks involved in the PONZI scheme that was called “Securitization” are still not reporting accurately, still reporting non-existing or overvalued assets and still not reporting liabilities in litigation that are even close to reality.

See the rest of the OCC Paper:

TILA Summary Part 1 11-13-12

TILA Appendix Worksheets 11-13-12

TILA worksheets -2 — 11-13-12

Tenant Protection OCC 11-13-12

RESPA and Worksheets 11-13-12

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: Deny and Discover, GFE, good faith estimate, OCC White Paper, RESPA, Tenant Protection, TILA, TILA Summary, truth in lending | 18 Comments »

TILA ACTIONS MAKING A COME-BACK AS LAWYERS AND JUDGES GET MORE RECEPTIVE

Posted on December 20, 2011 by Neil Garfield

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CLICK HERE TO GET COMBO TITLE AND SECURITIZATION REPORT

EDITOR’S NOTE: FULL CIRCLE. When I started writing this blog I had researched the Truth in Lending law and concluded that it was one of the better pieces of legislation designed to protect consumers and maintain competition in the marketplace. That said, I advised many lawyers to concentrate on TILA violations because the rescission remedy was effective to remove the mortgage and the MONEY (not the house) due back tot he “lender” was subject to constraints (who was the creditor and how much is owed, especially after you offset TILA damages, which are significant.

Alas, Judges read things into the law that were not there. Although the “lender” in rescission was obligated to either return all money paid at closing and return the note cancelled and satisfy the mortgage FIRST (or file a Declaratory Action (lawsuit) within 20 days why the rescission does not apply, the theory emerged even at the appellate level (9th Circuit, Federal) that in order to “rescind” one had to tender the money back and that the amount tendered had to be the amount demanded regardless of the actual amount that was due.

But things are changing. They had to change, because the basic problem with every closing in which their was claim of securitization was that the closing was defective, it lacked the disclosure required by law, and it presented loans that were not within industry standard underwriting of loans, nor were things like borrowers income or the value of the property confirmed by an internal review as was done in all mortgage loans prior to the onset of the securitization cancer.

The proposed CFPB rule simply takes existing law and codifies it in a new way — referring tot hose loans that comply with TILA as “qualified” and those loans that do not comply with TILA as “unqualified.” My prediction is that this new rule will pass. And with it, the challenge to foreclosures for noncompliance with TILA will rise exponentially because TILA fives the lawyer two things that he ordinarily isn’t seeing these days if he is defending foreclosures — (1) attorney fees and (2) damages, a lot of them, on which he can take a contingency fee. Defeat of the foreclosure by invalidating the mortgage lien leaves the homeowner with a lien free house but an obligation outstanding that can be discharged in bankruptcy.

Such an obligation will also be offset by damages for identity theft because the credit record and personal history of each borrower was used to sell bogus mortgage bonds to investors. Many other causes of action like slander of title flow from the that TILA audit. That is why I suggest to everyone who will listen that they get the COMBO, because that is what gives the TILA analyst vital information about what actually happened after closing, but also to get the LIVINGLIES FORENSIC TILA ANALYSIS.

SEE NEW CFPB RULE COULD LEAD TO FLOOD OF FORECLOSURE CHALLENGES

CFPB LIKELY TO ADOPT RULES REGARDING “QUALIFIED” MORTGAGES

If the Consumer Financial Protection Bureau wishes, it could allow borrowers to challenge future foreclosure actions by questioning whether the loan was a “qualified mortgage” in court.

Banks have been lobbying policymakers since May when the Federal Reserve published several options for how lenders must determine a borrower’s ability to repay a mortgage under the Truth in Lending Act. The new rules were proposed under the Dodd-Frank Act to outlaw risky and misleading home loans.

One of the options, known as the QM rule, would allow lenders to originate “qualified mortgages” under a legal safe harbor, provided the loans do not have certain features such as negative amortization, balloon payments, interest-only payments, or terms exceeding 30 years. As long as the bank stays within these guidelines, it will be in compliance.

Another option for QM, though, provides a “rebuttable presumption of compliance” clause, meaning the lender is presumed compliant as long as it follows guidelines in the first option and also verify the borrower’s employment, debt-to-income ratio and credit history.

The industry is very concerned that the CFPB, which assumed the rulemaking duty from the Fed this summer, will choose option two. According to some, the “rebuttable presumption” would mean any future foreclosure would be thrown into court. Foreclosure defense attorneys will able to challenge whether or not the loan being foreclosed upon was QM compliant or not, and if it wasn’t, judges could award TILA damages to the borrower.

“It would be much more expensive if everyone did this,” said Richard Andreano, a partner at the financial law firm Ballard Spahr. “It would get to a point to where it would almost be malpractice for a foreclosure defense attorney not to pursue the claim.”

Roy Oppenheim at Oppenheim Law Firm, a defense attorney in Florida, said there would only be challenges brought when the homeowner and the defense attorney have evidence of noncompliance.

“Not every foreclosure defense attorney will do this,” he said. “If they make good loans there should never be a problem.”

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: bankruptcy, borrower, countrywide, disclosure, FCPB, foreclosure, foreclosure defense, foreclosure offense, foreclosures, fraud, LOAN MODIFICATION, modification, QUALIFIED LOAN, quiet title, rescission, RESPA, securitization, TILA, TILA audit, trustee, truth in lending, UNQUALIFIED LOAN, WEISBAND | 13 Comments »

ILLLINOIS: RESCISSION REVIVED WITH DAMAGES!!!!

Posted on March 17, 2011 by Neil Garfield

COMBO TITLE AND SECURITIZATION SEARCH, REPORT, ANALYSIS ON LUMINAQ

3.16.2011 Illinois Recission Stewart-v-BAC-w

EDITOR’S NOTE: THIS CASE STANDS FOR THE PROPOSITION THAT YOU CAN’T TELL THE BORROWER LATER WHAT SHOULD HAVE BEEN DISCLOSED AT CLOSING: Federal Law has governed these fake securitized loan transactions from their beginning. That is why they are fatally defective and the law provides a remedy. The most important remedy is rescission which operates as a matter of law and is NOT subject to a letter of rejection by the creditor. This case shows the efforts made by Bank of America to hide the creditor and then take the position that the rescission notice was not sent to the creditor. This Judge recognizes that ploy and rejects it.

PRACTICE NOTE: TWO STATUTE OF LIMITATIONS ARE AT WORK HERE. THE FIRST BEING THE TIME IN WHICH YOU CAN SEND NOTICE OF THE RESCISSION AND THE SECOND BEING THE TIME IN WHICH YOU CAN BRING AN ACTION TO ENFORCE THE RESCISSION. MANY PEOPLE SENT RESCISSION LETTERS ONLY TO HAVE THEM “REJECTED”. THOSE PEOPLE MIGHT OWN THEIR HOUSE FREE AND CLEAR BY OPERATION OF LAW AS PER TILA AND REG Z, WHICH MEANS THAT ANYTHING THAT HAPPENED AFTERWARD, IS A NULLITY (INCLUDING FORECLOSURE). THIS IS ONE OF THE HIDDEN FATAL DEFECTS IN THE CHAIN OF TITLE IN SECURITIZED LOANS. BOTH DISTRESSED AND NON-DISTRESSED LOANS HAVE BEEN RESCINDED. LAWYERS: THERE IS A WHOLE MARKETPLACE OF HUNDREDS OF THOUSANDS OF PEOPLE WHO CAN ENFORCE THEIR RIGHT TO OWN THEIR HOME EVEN IF THEY WERE KICKED OUT YEARS AGO.

You must remember that it is only after the creditor complies with the rescission that the borrower has any obligation to tender anything back. The goal, as stated in this decision, is to put the borrower back in the position they were in before the lenders violated the law and violated the borrower’s rights to disclosure. Since disclosure was not complete until years after the closing, the three year extension on the right to rescind was tolled, allowing the three years to START running AFTER the disclosure was made. In this case the details of the actual transaction were withheld, thus entitling the borrower to rescind 6 years after closing.

BORROWER DOES NOT LOSE THE HOUSE IN RESCISSION UNLESS THEY WANT TO LOSE IT: You must also remember that it is only after the mortgage is taken off the record (after the loan security is extinguished) and after the lender returns all payments made by the borrower in connection with the closing whether those payments were made to the lender or third parties, that the borrower must tender something back — and according to at least some case law, the tender it is ONLY money and that amount and timing of payments are subject to the claims of the borrower for damages, and a reasonable payout period, the payment being unsecured and therefore dischargeable in bankruptcy.

NOTABLE QUOTES:

“Stewart asserts that Home 123 committed two disclosure violations during the refinance closing: (1) it failed to provide two copies of the NORTC and (2) it failed to provide a complete TILDS. Although this claim alleges violations by Home 123, the claim is currently against Deutsche Bank based on its status as the assignee of Home 123.”

“BAC received notice, did not respond within 20 days, and then refused to rescind the transaction. Deutsche Bank’s involvement is less clear, but Stewart alleged sufficient facts to proceed with her case under the theory that BAC either forwarded the notice to Deutsche Bank or acted as its agent in the transaction. This is a reasonable inference given that BAC, the loan servicer, actually responded to the rescission notice and refused it without referring to whether the assignee, Deutsche Bank, assented to the decision. BAC, Deutsche Bank, or both refused to rescind the transaction and discovery is necessary to sort out who is responsible for the decision to deny the rescission.”

“The complaint has three core claims. First, Stewart claims that Home 123 violated TILA by failing to provide her with the NORTC and a complete TILDS. For this “failure to disclose” claim, Stewart seeks statutory damages of $4,000 from Deutsche Bank as Home 123’s assignee. (Doc. 1, Prayer for Relief.) Second, Stewart seeks recession of the loan based on this disclosure violation. For this “loan rescission” claim, Stewart seeks a judgment forcing Defendants to void the loan and return her to the position she occupied before entering into the mortgage. (Id.) Third, Stewart alleges that Defendants failed to honor her election to rescind, which is itself a violation of TILA. For this “failure to honor rescission” claim, Stewart seeks actual damages and statutory damages of $4,000 from Defendants. As an additional remedy for all three claims, Stewart seeks an order requiring Defendants to delete all adverse credit information relating to the loan. (Id.)”

“Only creditors and assignees are subject to liability under TILA. See 15 U.S.C. §§ 1640, 1641(a). Stewart acknowledges that MERS is not a creditor or assignee. (See Doc. 15 at 4).^[1] Therefore, MERS is not subject to damages under TILA and Stewarts’ failure to disclose and failure to honor rescission damages claims against MERS are dismissed. See 15 U.S.C. §§ 1640, 1641(a); see also Horton v. Country Mortg. Servs., Inc., No. 07 C 6530, 2010 U.S. Dist. LEXIS 67, at *3 (N.D. Ill. Jan 4, 2010) (granting summary judgment to MERS because the plaintiff provided no evidence that MERS was a creditor or assignee)”

“Because Stewart alleges, albeit generally, that MERS may be necessary to get her back to that status quo if her rescission is enforced by the Court, MERS cannot be dismissed entirely at this time. Rather, Stewart’s rescission claim stands as to MERS.”

“As to defendant BAC, TILA expressly disclaims liability for servicers “unless the servicer is or was the owner of the obligation.” 15 U.S.C. § 1641(f)(1). Stewart alleges that BAC “has an interest” in the loan and, as a result, is subject to liability. (Compl. ¶ 7.) While Stewart does not provide any specifics on how a loan servicer gained an interest in the loan, on a motion to dismiss, the Court must accept this allegation as true. See Tamayo, 526 F.3d at 1081. Even if the Court could ignore this allegation, BAC must remain a defendant in any event. The pleadings reveal that the January 26 letter refusing Stewart’s rescission was sent by BAC, not Deutsche Bank. BAC is a necessary defendant on the failure to honor rescission claim because it is not clear whether BAC independently refused rescission, refused as an agent of Deutsche Bank, or merely communicated Deutsche Bank’s refusal. As such, BAC cannot be dismissed outright as it may be liable on this claim.”

“The next issue in this case is whether Stewart is time-barred from seeking rescission in court. “Under the Truth in Lending Act, [] 15 U.S.C. § 1601 et seq., when a loan made in a consumer credit transaction is secured by the borrower’s principal dwelling, the borrower may rescind the loan agreement” under certain conditions. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 411 (1998). A borrower typically has three days to rescind following execution of the transaction or delivery of the required disclosures. See 15 U.S.C. § 1635(a). However, under § 1635(f) of TILA, the right of rescission is extended to “three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first,” if any of the required disclosures are not delivered to the borrower. See 15 U.S.C. § 1635(f). Stewart alleges that she did not receive the required disclosures, so this case involves the extended three year period. Here, the loan transaction occurred on October 24, 2006; Stewart sent a letter electing to rescind the transaction on October 14, 2009, and then filed her complaint in court on April 1, 2010. This time line presents the legal question of whether a claim for rescission filed after the three-year time period is timely if a rescission letter is sent within the three-year time period.”

“Stewart acknowledges that she did not send a notice of rescission to defendant Deutsche Bank. (See Doc. 23-1.) She alleges that she, like many borrowers, was unaware who owned her mortgage note. She did not know that Deutsche Bank was the assignee of her loan, and so she requested notice of the “identity of the owner of this note” from Home 123 and BAC in her rescission letter. (Id.) Stewart argues that she complied with TILA and Regulation Z by mailing notice to the original creditor, Home 123, and the loan servicer, BAC. Stewart distinguishes Harris from the current case because “there is no mention of whether the consumer in Harris mailed a notice to the loan servicer or another party who may be the agent of the holder of the note.” (Doc. 23 at 4). Deutsche Bank concurs that mortgage ownership changes make communication difficult, but suggests that this actually supports the approach of the Harris court. Harris noted that “adopting Stewart’s interpretation of the notice requirement . . . would have the absurd effect of subjecting to rescission and damages assignees that, in some case, have absolutely no means of discovering that a rescission demand has been made.” (Doc. 22 at 2 (quoting Harris).)”

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ILLINOIS Judge Not Clear, “Discovery IS Necessary On Rescission Claims” STEWART v. BAC, DEUTSCHE BANK, MERS

ELLIE STEWART, Plaintiff,
v.
BAC HOME LOANS SERVICING, LP, DEUTSCHE BANK NATIONAL TRUST CO., and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants.

Case No. 10 C 2033.

United States District Court, N.D. Illinois, Eastern Division.

March 10, 2011.

MEMORANDUM OPINION AND ORDER

VIRGINIA M. KENDALL, District Judge.

On April 1, 2010, plaintiff Ellie Stewart (“Stewart”) filed the current complaint against Defendants BAC Home Loans Servicing (“BAC”), Deutsche Bank National Trust Company (“Deutsche Bank”) and Mortgage Electronic Registration Systems (“MERS”) (together, “Defendants”) alleging violations of the Truth In Lending Act (“TILA”) (15 U.S.C. §§ 1601-1667f) and its implementing regulation, 12 C.F.R. § 226 (“Regulation Z”), and demanded rescission of the mortgage on her residence.

Defendants moved to dismiss the Complaint, asserting BAC and MERS are improper defendants under TILA, the Complaint is time-barred and the Complaint fails to state a claim. For the reasons stated below, Defendants’ motion is granted in part and denied in part. The Court dismisses Stewart’s failure to disclose claim because it is untimely, but denies dismissal of Stewart’s rescission claim. The motion to dismiss is denied with regard to the failure to honor rescission claim against defendants Deutsche Bank and BAC.

I. BACKGROUND

A. Complaint Allegations.

Stewart owns her residence in Chicago, Illinois. (Compl., Doc. 1, ¶ 4.) On October 24, 2006, Stewart refinanced her mortgage on this residence through Home 123 Corporation (“Home 123″). (Compl. ¶¶ 5-8, 10.) Home 123 filed for Chapter 11 bankruptcy in April 2007 and Deutsche Bank is the current assignee of this loan. (Compl. ¶¶ 5, 8, 21.) BAC services this loan and MERS is the nominee. (Compl. ¶¶ 7-9; Ex. C.)

This case stems from a dispute concerning the documentation provided at the closing of Stewart’s refinance back in 2006. Stewart alleges that Home 123 violated TILA twice in regards to these documents. First, she claims that Home 123 did not provide her with a copy of the Notice of Right to Cancel (“NORTC”). (Compl. ¶¶ 19-20.) Second, she claims that Home 123 provided a Truth in Lending Disclosure Statement (“TILDS”) that was incomplete because it did not include the timing of the required loan payments. (Compl. ¶¶ 17-18.)

Due to these deficiencies, on October 14, 2009, Stewart’s attorneys sent a letter entitled “Notice of Rescission and Lien” to Home 123 and BAC. (Compl. ¶ 23.) The letter stated that “Ms. Stewart hereby elects to cancel the loan of October 24, 2006 for failure to comply with the Truth In Lending Act,” and specified that Home 123 failed to provide the NORTC and a complete TILDS. (See Doc. 23-1.) The letter also demanded the identity of the owner of the mortgage. (Id.) On January 26, 2010, BAC sent a letter to Stewart which denied her rescission claim. (See Doc. 23-2.) BAC asserted that Stewart’s right to rescind had expired and attached copies of the NORTC and TILDS purportedly signed by Stewart and dated October 24, 2006. (Id.)

B. Procedural History.

On April 1, 2010, Stewart filed this suit and it was assigned to Judge Harry Leinenweber. Defendants filed the present motion to dismiss on August 11 and briefing was completed on October 5. On October 28, Judge Leinenweber requested that the parties provide a copy of Stewart’s rescission letter and submit a supplemental brief addressing whether Stewart’s election to rescind constituted proper notice to Deutsche Bank as assignee of Home 123. Supplemental briefing was completed on November 8. The case was transferred to this Court on December 8.

II. LEGAL STANDARD

A motion to dismiss should be granted if the complaint fails to satisfy Rule 8’s pleading requirement of “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8. “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Tamayo v. Blagojevich, 536 F.3d 1074, 1081 (7th Cir. 2008) (holding well-leaded allegation of the complaint must be accepted as true).

Although a complaint does not need detailed factual allegations, it must provide the grounds of the claimant’s entitlement to relief, contain more than labels, conclusions, or formulaic recitations of the elements of a cause of action, and allege enough to raise a right to relief above the speculative level. Twombly, 550 U.S. at 555. Legal conclusions can provide a complaint’s framework, but unless well-pleaded factual allegations move the claims from conceivable to plausible, they are insufficient to state a claim. Iqbal, 129 S. Ct. at 1950-51.

III. DISCUSSION

The complaint has three core claims. First, Stewart claims that Home 123 violated TILA by failing to provide her with the NORTC and a complete TILDS. For this “failure to disclose” claim, Stewart seeks statutory damages of $4,000 from Deutsche Bank as Home 123’s assignee. (Doc. 1, Prayer for Relief.) Second, Stewart seeks recession of the loan based on this disclosure violation. For this “loan rescission” claim, Stewart seeks a judgment forcing Defendants to void the loan and return her to the position she occupied before entering into the mortgage. (Id.) Third, Stewart alleges that Defendants failed to honor her election to rescind, which is itself a violation of TILA. For this “failure to honor rescission” claim, Stewart seeks actual damages and statutory damages of $4,000 from Defendants. As an additional remedy for all three claims, Stewart seeks an order requiring Defendants to delete all adverse credit information relating to the loan. (Id.)

The present motion presents four legal issues that need to be resolved to determine which, if any, of these three claims may stand. First, Defendants seek to dismiss BAC and MERS, asserting that servicers and nominees are improper defendants in a TILA action. Turning to Stewart’s individual claims, Defendants argue that the failure to disclose claim is barred by a one year statute of limitations because the alleged violation occurred over three years ago. Next, Defendants assert that the rescission claim is barred by a three-year statute of repose because the loan closed on October 24, 2006 but this suit was not filed until April 1, 2010. Finally, Defendants argue that the failure to honor rescission claim fails because assignees are not liable for TILA violations which are not apparent on the face of the loan disclosures.

A. Liability of MERS and BAC Under TILA.

Only creditors and assignees are subject to liability under TILA. See 15 U.S.C. §§ 1640, 1641(a). Stewart acknowledges that MERS is not a creditor or assignee. (See Doc. 15 at 4).^[1] Therefore, MERS is not subject to damages under TILA and Stewarts’ failure to disclose and failure to honor rescission damages claims against MERS are dismissed. See 15 U.S.C. §§ 1640, 1641(a); see also Horton v. Country Mortg. Servs., Inc., No. 07 C 6530, 2010 U.S. Dist. LEXIS 67, at *3 (N.D. Ill. Jan 4, 2010) (granting summary judgment to MERS because the plaintiff provided no evidence that MERS was a creditor or assignee). Stewart claims MERS is still a proper party based on the non-monetary relief requested in connection with the rescission. Stewart seeks an order “voiding” her mortgage, (see Doc. 1 at Prayer) and, according to her, “this Court may directly order MERS to record a release or take other actions in connection with the mortgage document that was recorded.” (Doc. 15 at 4.)

The Court notes that courts in this District are split on whether such a party, usually a servicer, may be kept in a case based on such contingent, or future, relief. Compare Miranda v. Universal Fin. Grp., Inc., 459 F. Supp. 2d 760, 765-66 (N.D. Ill. 2006) (denying dismissal of loan servicer as an indispensable party under Rule 19 because a rescission would require return of payments made on the loan and “could impair the borrower’s ability to fully protect his or her interest in rescinding the loan because the servicer could improperly report to credit bureaus”) with Bills v. BNC Mort., Inc., 502 F. Supp. 2d 773, 776 (N.D. Ill. 2007) (finding “a concern that [the servicer] might thereafter engage in improper reporting to the credit agencies or attempt to foreclose on a rescinded loan is purely speculative and does not warrant retaining [the servicer] as a defendant”). The Court agrees with Miranda and the cases it cites because they appear more consistent with the Seventh Circuit’s holding in Handy v. Anchor Mortgage Corporation, 464 F.3d 760, 765-66 (7th Cir. 2006). There, the Seventh Circuit held “more generally . . . the right to rescission `encompasses a right to return to the status quo that existed before the loan.’” Id. (internal citation omitted). Handy makes clear that rescission under TILA entirely unwinds the transaction. Because Stewart alleges, albeit generally, that MERS may be necessary to get her back to that status quo if her rescission is enforced by the Court, MERS cannot be dismissed entirely at this time. Rather, Stewart’s rescission claim stands as to MERS.

As to defendant BAC, TILA expressly disclaims liability for servicers “unless the servicer is or was the owner of the obligation.” 15 U.S.C. § 1641(f)(1). Stewart alleges that BAC “has an interest” in the loan and, as a result, is subject to liability. (Compl. ¶ 7.) While Stewart does not provide any specifics on how a loan servicer gained an interest in the loan, on a motion to dismiss, the Court must accept this allegation as true. See Tamayo, 526 F.3d at 1081. Even if the Court could ignore this allegation, BAC must remain a defendant in any event. The pleadings reveal that the January 26 letter refusing Stewart’s rescission was sent by BAC, not Deutsche Bank. BAC is a necessary defendant on the failure to honor rescission claim because it is not clear whether BAC independently refused rescission, refused as an agent of Deutsche Bank, or merely communicated Deutsche Bank’s refusal. As such, BAC cannot be dismissed outright as it may be liable on this claim.

B. Failure to Disclose Claims.

Stewart asserts that Home 123 committed two disclosure violations during the refinance closing: (1) it failed to provide two copies of the NORTC and (2) it failed to provide a complete TILDS. Although this claim alleges violations by Home 123, the claim is currently against Deutsche Bank based on its status as the assignee of Home 123. TILA permits an individual to assert a claim against a creditor for disclosure violations so long as such action is brought within one year from the occurrence of the violation. See 15 U.S.C. §§ 1640(a), 1640(e); see also Garcia v. HSBC Bank USA, N.A., No. 09 C 1369, 2009 U.S. Dist. LEXIS 114299, at *9-10 (N.D. Ill. Dec. 7, 2009) (finding the § 1635’s three year period for rescission does not extend the one-year period available under § 1640(e) to assert damages claims for disclosure violations and noting that the majority of courts in this District have found “affirmative damage claims for disclosure violations must be brought within one year of the closing of any credit transaction”). Stewart filed this claim on April 1, 2010, over three years after the October 24, 2006 loan closing and well past the one year statute of limitations. Stewart’s failure to disclose claim is time-barred and dismissed with prejudice against all defendants.

C. Loan Rescission Claim.

The next issue in this case is whether Stewart is time-barred from seeking rescission in court. “Under the Truth in Lending Act, [] 15 U.S.C. § 1601 et seq., when a loan made in a consumer credit transaction is secured by the borrower’s principal dwelling, the borrower may rescind the loan agreement” under certain conditions. Beach v. Ocwen Fed. Bank, 523 U.S. 410, 411 (1998). A borrower typically has three days to rescind following execution of the transaction or delivery of the required disclosures. See 15 U.S.C. § 1635(a). However, under § 1635(f) of TILA, the right of rescission is extended to “three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first,” if any of the required disclosures are not delivered to the borrower. See 15 U.S.C. § 1635(f). Stewart alleges that she did not receive the required disclosures, so this case involves the extended three year period. Here, the loan transaction occurred on October 24, 2006; Stewart sent a letter electing to rescind the transaction on October 14, 2009, and then filed her complaint in court on April 1, 2010. This time line presents the legal question of whether a claim for rescission filed after the three-year time period is timely if a rescission letter is sent within the three-year time period.

Stewart argues that she exercised her right to rescind within the three years, as required by § 1635(f), because her letter actually rescinded the loan. According to Stewart, this suit is just the legal remedy to force Defendants to accept her rescission. Stewart argues that she is entitled to an additional year after Defendants’ failure to accept the rescission to file suit under § 1640(e). Defendants argue that the language of § 1635(f) creates a statute of repose that completely extinguishes the right to rescind after the three year-time period. As Stewart filed suit over three years after the closing, Defendants assert that Stewart’s recession claim under TILA is barred.

Both parties cite authority for their respective positions from many different jurisdictions. E.g., compare Falcocchia v. Saxon Mortg., Inc., 709 F. Supp. 2d 860, 868 (E.D. Cal. 2010), with Sherzer v. Homestar Mortg. Servs., No. 07-5040, 2010 WL 1947042, at *11 (E.D. Pa. July 1, 2010); see also Obi v. Chase Home Fin., LLC, No. 10-C-5747, 2011 WL 529481, *4 (N.D. Ill. Feb. 8, 2011) (Kendall, J.) (noting “[t]here is a split of authority as to whether § 1635(f) requires a borrower to file a rescission claim within three years after the consummation of a transaction or whether the borrower need only assert his right to rescind to a creditor within that three year period” and collecting cases.) Stewart’s authority concludes that a borrower exercises her right of rescission when she mails a notice of rescission to the creditor, so rescission occurs at the time of the letter. See 12 C.F.R. § 226.23(a)(2). Defendants’ authority, on the other hand, holds that a borrower cannot unilaterally rescind a loan, and therefore can only preserve her rights by filing a suit for rescission within the three-year time period. The Seventh Circuit has not yet addressed this issue so this Court has no binding guidance.

As the Court indicated in Obi (albeit in dicta), the Court is persuaded by the authority finding that a borrower may assert his rescission rights under § 1635(f) through notice to the creditor. See Obi, 2011 WL 529481 at *4; see also In re Hunter, 400 B.R. 651, 661-62 (N.D. Ill. 2009) (finding “[t]he three-year period limits only the consumer’s right to rescind, not the consumer’s right to seek judicial enforcement of the rescission” (internal citation omitted)). The approach in Hunter is more consistent with the language of § 1635 and Regulation Z than the approach advocated by Defendants. Section (a)(2) of Regulation Z provides explicit instructions to the consumer as to how to exercise her right to rescind: “[t]o exercise the right to rescind, the consumer shall notify the creditor of rescission by mail, telegram, or other means of written communication.” See 12 C.F.R. § 226.23(a)(2). The next provision of Regulation Z, § (a)(3), describes when a consumer may exercise that right: either within the three-day “cool off” period, if all proper disclosures are made, or within the three-year period, if they are not. See 12 C.F.R. § 226.23(a)(3). The more reasonable interpretation of Regulation Z is that § (2)(a)’s method of exercising the right to rescission applies to both scenarios under § (3)(a). Indeed, this approach is consistent with the wording of the statute. Even if a consumer received all necessary disclosures, § 1635(a) allows a consumer to rescind within the three-day “cool off” period after closing “by notifying the creditor, in accordance with regulations of the [Federal Reserve Board (“FSB”)], of his intention to do so.” 15 U.S.C. § 1635(a). Though § 1635(f) has no comparable reference to the FSB regulations, it seems incongruous for the FSB to allow rescission via letter during the “cool off” period—in accordance with Regulation Z—but require a consumer to bring a suit to exercise that same right to rescind under § 1635(f).

The Court’s approach is not inconsistent with Beach. In that case, the Supreme Court found a defendant could not assert rescission as an affirmative defense under TILA beyond the three-year period. See Beach, 523 U.S. at 418. The Court noted that § 1635(f) “says nothing in terms of bringing an action but instead provides that the `right of rescission [under TILA] shall expire’ at the end of the time period . . . it talks not of a suit’s commencement but of a right’s duration . . . .” Id. at 417. Beach addresses when the right to rescind expires and whether it can be tolled. It leaves unresolved the question of how a consumer must exercise that right to rescind — suit, or notice via letter.

The Court turns to the question of when a consumer, having exercised her right to rescind by sending a letter to her creditor, must bring suit to enforce that exercise. In Hunter, the debtor, like Stewart, sent notice to the creditor before the three-year period expired, but his trustee filed suit after expiration. Hunter, 400 B.R. at 659. As Stewart did here, the trustee brought suit within a year after the creditor allegedly failed to respond to the rescission notice. Id. Hunter,Id.; seeHunter approach. Under this approach, the last day a borrower may send notice to rescind is the three-year anniversary of the transaction. If the borrower has not sent notice by that time, her right to rescind expires under § 1636(f). If the borrower sends timely notice, the creditor then would have 20 days to respond after receipt of that notice. See 15 U.S.C. § 1635(b). The borrower then has one year from the end of that 20-day period to bring a suit to enforce the rescission under § 1640(e)’s limitations period. citing the one-year limitations period in § 1640(e), found that the trustee’s action for rescission was timely, as it was brought within a year of the alleged violation of TILA, namely the refusal to respond to the rescission request. 15 U.S.C. 1635(b) (requiring a creditor to “take any action necessary or appropriate to reflect the termination of any security interest created under the transaction”). The Court adopts the Hunter, 400 B.R. at 660-61, see also Johnson v. Long Beach Mort. Loan Trust 2001-4, 451 F. Supp. 2d 16, 39-41 (D.D.C. 2006) (applying § 1640(e)’s one year period to enforce rescission claim after notice); Sherzer, 2010 WL 1947042, at *11 (following Hunter). This approach balances the creditor’s need for certainty (the borrower cannot indefinitely fail to bring suit to enforce the right to rescind she exercised) with the express language of Regulation Z (which states that a borrower may exercise the right to rescind through notice by mail). Because Stewart brought suit within five months of her recession notice, Stewart’s claim for recession is timely.

D. Failure to Honor Rescission Claim.

A claim for damages for failure to honor rescission is based on § 1635(b) of TILA, which requires a creditor to respond to a notice of rescission within twenty days of receipt. If a creditor does not respond within the statutorily-mandated period, TILA permits an individual to bring a claim for damages against the creditor. 15 U.S.C. § 1640(a). An action for damages must be brought “within one year from the date of the occurrence of the violation.” 15 U.S.C. § 1640(e). An assignee’s failure to honor a valid rescission notice made pursuant to § 1635 may subject the assignee to actual and statutory damages. 15 U.S.C. § 1640(a).

Stewart asserts that she did not receive a NORTC or a complete TILDS as required by TILA, so she had a right to rescind her loan. Specifically, the TILDS does not state the timing of payments, as Regulation Z requires. See 12 C.F.R. § 226.18. Defendants respond that they were not the original creditor, and as assignees (at best), they are only required to rescind if the violations were apparent on the face of the documentation and that they were not in this case. See 15 U.S.C. § 1641(a) (assignee is only liable if the violation “is apparent on the face of the disclosure statement”).

The Seventh Circuit has specifically addressed the requirements for the payment schedule in the TILDS. In Hamm, the TILDS listed the payment schedule as 359 payments of $541.92 beginning on March 1, 2002 and one payment of $536.01 on February 1, 2032. Hamm v. Ameriquest Mortg. Co., 506 F.3d 525, 527 (7th Cir. 2007). The court found that this violated TILA because it did not list all payment dates or state that payments were to be made monthly, and TILA requires such specificity in the TILDS even though “many (or most) borrowers would understand that a mortgage with 360 payments due over approximately 30 years contemplates a payment by the borrower each month during those 30 years.” Id. This case is no different. Stewart alleges that her TILDS listed 359 payments at $3,103.53 but failed to mention that these payments would be made monthly. Exhibit A of Stewart’s complaint, her TILDS, shows the incomplete payment schedule on the face of the document. That schedule is almost exactly the same as the one the Seventh Circuit found insufficient in Hamm. Id. at 527. Consequently, Stewart alleges a disclosure violation apparent on the face of the documents which would grant Stewart the right to rescind against Defendants as assignees. Stewart’s NORTC claim does not need to be evaluated at this time because her failure to honor rescission claim could be based on either a NORTC or TILDS violation, and the TILDS allegations stand.

The final issue is whether Defendants are responsible for refusing to respond and for rejecting rescission. This turns on whether Stewart’s notice of rescission was properly sent to Defendants. In response to a request from Judge Leinenweber prior to reassignment of this case to this Court, the parties addressed whether Stewart properly noticed defendant Deutsche Bank of her election to rescind when she sent letters to only BAC and Home 123, which filed for Chapter 11 bankruptcy in 2007. Courts within the District have reached different conclusions under similar factual scenarios. Compare Harris v. OSI Fin. Servs. Inc., 595 F. Supp. 2d 885, 897-98 (N.D. Ill. 2009) (finding that notice of election to rescind sent to the original creditor did not suffice as notice to the assignee), with Hubbard v. Ameriquest Mortg. Co., 624 F. Supp. 2d 913, 921-22 (N.D. Ill. 2008) (concluding that an election to rescind sent to the original creditor is sufficient to seek rescission against an assignee) and Schmit v. Bank United FSB et al., No. 08 C 4575, 2009 WL 320490, at *3 (N.D. Ill. Feb. 6, 2009) (acknowledging disagreement between Harris and Hubbard and following Hubbard).

Stewart acknowledges that she did not send a notice of rescission to defendant Deutsche Bank. (See Doc. 23-1.) She alleges that she, like many borrowers, was unaware who owned her mortgage note. She did not know that Deutsche Bank was the assignee of her loan, and so she requested notice of the “identity of the owner of this note” from Home 123 and BAC in her rescission letter. (Id.) Stewart argues that she complied with TILA and Regulation Z by mailing notice to the original creditor, Home 123, and the loan servicer, BAC. Stewart distinguishes Harris from the current case because “there is no mention of whether the consumer in Harris mailed a notice to the loan servicer or another party who may be the agent of the holder of the note.” (Doc. 23 at 4). Deutsche Bank concurs that mortgage ownership changes make communication difficult, but suggests that this actually supports the approach of the Harris court. Harris noted that “adopting Stewart’s interpretation of the notice requirement . . . would have the absurd effect of subjecting to rescission and damages assignees that, in some case, have absolutely no means of discovering that a rescission demand has been made.” (Doc. 22 at 2 (quoting Harris).)

The split between Harris and Hubbard does not need to be resolved at this stage of litigation due to the particular facts of this case. Stewart alleges that she sent BAC the rescission notice on October 14, 2009, ten days before the three-year deadline. BAC denied the rescission in a letter sent to Stewart on January 26, 2010. While Harris was concerned that an innocent party with no notice could be subject to damages, this case involves clear notice to at least one party that Stewart seeks to hold responsible. BAC received notice, did not respond within 20 days, and then refused to rescind the transaction. Deutsche Bank’s involvement is less clear, but Stewart alleged sufficient facts to proceed with her case under the theory that BAC either forwarded the notice to Deutsche Bank or acted as its agent in the transaction. This is a reasonable inference given that BAC, the loan servicer, actually responded to the rescission notice and refused it without referring to whether the assignee, Deutsche Bank, assented to the decision. BAC, Deutsche Bank, or both refused to rescind the transaction and discovery is necessary to sort out who is responsible for the decision to deny the rescission.

IV. CONCLUSION

For the reasons stated herein, Defendants’ motion to dismiss (Doc. 10) is:

1. Granted as to Stewart’s failure to disclose claim against all Defendants;

2. Denied as to Stewart’s rescission claim against all Defendants; and

3. Denied as to Stewart’s failure to honor rescission claim against defendants Deutsche Bank and BAC, but granted as to defendant MERS.

SO ORDERED.

[1] The Court also notes that the mortgage instrument attached to the complaint identifies MERS as “a separate corporation that is acting solely as a nominee for Lender and Lender’s assigns.” (See Doc. 1, Ex. C at 1.) Though Stewart alleges MERS has an interest in the loan (see Compl. ¶ 7), the exhibits contradict that pleading and the exhibits control. See N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 454 (7th Cir. 1998).

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: DEUTSCHE BANK, Deutsche Bank National Trust, Ellie Stewart, foreclosure fraud, Illinois, MERS, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., Regulation Z, rescission, righ to cancel, TILA, truth in lending, VIRGINIA M. KENDALL | 17 Comments »

PRIORITY OF LIENS: TWISTED TAIL OF TITLE FRAUD

Posted on September 7, 2010 by Neil Garfield

THE BOTTOM LINE IS THAT CASE LAW IN VARIOUS CASES REPORTED IN THIS BLOG SHOWS THAT WHEN ONE INSTITUTION CONFRONTS ANOTHER, THE APPARENTLY INFERIOR LIEN BECOMES EITHER SUPERIOR, OR THE ONLY LIEN. CONDOMINIUM ASSOCIATIONS, HOMEOWNER ASSOCIATIONS TAKE NOTE: YOUR LIEN MIGHT BE WORTH THE ENTIRE HOUSE IF YOU FILE FOR A DECLARATORY ACTION RAISING THE PRIORITY OF YOUR LIEN. HELOC AND SECOND MORTGAGE HOLDERS TAKE NOTE AS WELL. AND OF COURSE HOMEOWNERS OR THOSE WHO THINK THEY ARE EX-HOMEOWNERS TAKE NOTE: YOU MIGHT STILL HAVE THE RIGHT TO BRING A QUIET TITLE ACTION AND RECLAIM YOUR PROPERTY — ALLOWING ANY ACTUAL “LOSER” IN THE DEAL TO MAKE THEIR CLAIM BUT BARRING NOMINAL PARTIES FROM WINDFALL PROFITS IN THE ABSENCE OF ANY RISK OR INVESTMENT.

There is practically nobody left who doesn’t see that the “ownership” of the loan is a big red question mark. The question that is unresolved is whether that is relevant to questions of title and foreclosure sales. Here is the issue: In most cases the title record (the official title records books located in the property clerk’s office) show only one “party” to the note (a company identified as a lender) and one “party” to the security instrument — the mortgage or Deed of Trust — (a company identified as the mortgagee or beneficiary most frequently MERS or some other straw man or nominee).

So the first problem is that from the start, the ownership of the note and the ownership of the mortgage are split intentionally by the parties who engineered the “loan” closing. With the exception of a few states where the big banks lobbied for corrective legislation that probably is unenforceable or unconstitutional, it is not possible to enforce a mortgage that is not incident to a note. Each state has adopted the Uniform Commercial Code and its own property laws that make it impossible for one person to get the house and another to get a monetary judgment for the note —- both based upon the same obligation.

They must be the same person or there is no enforcement of the security instrument (i.e., no foreclosure). And in those states, the mortgage or deed of trust is not incident to the note unless they have a common “owner.” So even before we get to the issue of securitization of the receivable, we have a problem. There is basically no law that would allow foreclosure of a so-called mortgage or deed of trust in which the holder of the mortgage or deed of trust is different than the holder of the note.

Before we get to the securitization issue, there is one more factor that is covered by Reg Z and the Truth in Lending Act. It is whether the “loan” was table funded. A table funded loan is one in which the party identified as a lender was not the source of the money in the transaction. The prohibition and restriction against these transactions is meant to keep the consumer informed about the identity of the party with whom he/she is doing business and therefore able to decide whether in fact they want to do business with the party who is really funding the loan.

The title problem with a table-funded loan is obvious: the note is supposedly a description of the obligation that arises when the borrower accepts the benefits of the monetary advance from the source of funds. In a table funded loan, the note does NOT describe the real parties and therefore is not proper evidence of the obligation and thus cannot be used as a substitute for proof of the obligation.

Federal law and rules state that anyone who as a matter of practice is doing table-funded loans, is defined as a predatory lender.

This means that if someone wants to enforce the obligation, they must have more than the note to prove their case. This is precisely where the pretender lenders are finessing the courts — because before the antics of the last decade, there was no difference between the obligation and the note and everyone on both sides of even an adversary proceeding usually agreed that the original note was proper evidence of the obligation.

This also means that if someone wants to foreclose, they need something more than the note, because the note, as we have seen, is NOT the complete evidence of the obligation — there is another party involved who was undisclosed and who was the source of the funds. So the obligation was between the borrower and the source of the funds. But the borrower was not told or informed that the money being advanced was from another entity.

Ordinarily this would not present a major problem, but it still would require corrective action in order to clear title for purposes of a satisfaction or release of the mortgage or deed of trust, refinance, sale, second mortgage, condominium association lien, homeowner association lien, HELOC, non-judicial sale or judicial sale. Without this corrective action ON RECORD at the county recorder’s office, the documents releasing or transferring title to the property would be fatally defective in that the real party who advanced the funds did not execute a release or satisfaction, leaving the borrower or the borrower’s successor with the exposure of yet another foreclosure or another claim on the original obligation. This defect is either suspect or apparent on its face when you see MERS involved or an “originating Lender” that is not a bank (and usually out of business now).

All of this mind-numbing analysis morphs from nitpicking to highly relevant when securitization enters the picture. Securitization as it was used in actual practice, i.e., real world reality, was simply a process by which the payments were split from the obligation, not the note and reframed as the basis for a third party obligation under the terms of a mortgage bond sold to third party investors. So the source of funding never receives the note or any of the borrower’s closing documents. He receives a mortgage bond in which there are multiple payors, obligors, and contingent liabilities only one of which is the borrower’s obligation to repay the obligation.

There are two primary defects in this process that are of high significance:

In practice, the intermediaries used the documentation for securitization to multiply rather than split the obligation to pay amongst the various payors and co-obligors.

This means that for every dollar that was advanced for the benefit of the borrower, an obligation was ADDED to the receivable stream for each payor or co-obligor that was ADDED to the obligation to make payments under the mortgage bond. This is where the intermediaries began to make multiples of the money being funded rather than small basis points as was customary in the industry.

Through the use of highly sophisticated cloaked transactions, each dollar funded was multiplied as a nominal receivable which in turn was sold multiple times and insured multiple times in multiple ways.

Hence the the total evidence of the borrower’s obligation consists of the closing borrower documents PLUS the closing investor documents. The total accounting consists of the the servicing record of the borrower’s payments PLUS the distribution and tape record of reports and payments to the bond holders.

This totality of the evidence reveals that the borrower’s obligation resulted in multiple payments by multiple payors and co-obligors, some of whom made money participating in the sham scheme, and some of whom lost money in the scheme.

In most cases, one of the groups that lost money were the original investors who advanced money for their share of the flow of receivables described in the mortgage bond, which included, at all times, the receivables due from third party payors and co-obligors. Other losers were traders and institutions that were creating the appearance of an unregulated but phantom securities market in which profits and losses were apparently made on a daily basis, but which in fact were all accounting entries much like the Madoff scheme.

The current foreclosure scheme ignores these factors enabling intermediaries dubbed “pretender lenders” to profit from the confusion by pretending to be lenders when in fact they were never lenders of record and never lenders in the sense that they ever advanced any money. The intermediaries are filing false, fabricated and even forged or back-dated affidavits in the name of “Trustees” for trusts that do not exist or which have been dissolved or paid in whole or in part. The lender having been paid or settled as to the obligation under the mortgage bond thus releases any further claim. The intermediaries profit by pocketing the multiples of payments received, and the borrower suffers from the loss of a home or enforcement of a note that was never the evidence of the obligation.

In practice, the actual source of funding — the party who advanced funds and who received a mortgage bond instead of the evidence of the borrower’s obligation —- NEVER held the note and was never intended to hold the note — and NEVER was the mortgagee or beneficiary and never was intended to be the mortgagee or beneficiary. Thus a declaratory action against the mortgagee or beneficiary of record should succeed in raising the priority of the interest of the plaintiff above that of the record holder of the security instrument, since the record holder has no obligation owed to it, and never was intended to be the recipient of funds nor to have the right or capacity to foreclose on the loan.

THE BOTTOM LINE IS THAT CASE LAW IN VARIOUS CASES REPORTED IN THIS BLOG SHOWS THAT WHEN ONE INSTITUTION CONFRONTS ANOTHER, THE APPARENTLY INFERIOR LIEN BECOMES EITHER SUPERIOR, OR THE ONLY LIEN. CONDOMINIUM ASSOCIATIONS, HOMEOWNER ASSOCIATIONS TAKE NOTE: YOUR LIEN MIGHT BE WORTH THE ENTIRE HOUSE IF YOU FILE FOR A DECLARATORY ACTION RAISING THE PRIORITY OF YOUR LIEN. HELOC AND SECOND MORTGAGE HOLDERS TAKE NOTE AS WELL. AND OF COURSE HOMEOWNERS OR THOSE WHO THINK THEY ARE EX-HOMEOWNERS TAKE NOTE: YOU MIGHT STILL HAVE THE RIGHT TO BRING A QUIET TITLE ACTION AND RECLAIM YOUR PROPERTY — ALLOWING ANY ACTUAL “LOSER” IN THE DEAL TO MAKE THEIR CLAIM BUT BARRING NOMINAL PARTIES FROM WINDFALL PROFITS IN THE ABSENCE OF ANY RISK OR INVESTMENT.

Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, evidence, expert witness, foreclosure, foreclosure mill, GTC | Honor, investment banking, Investor, MODIFICATION, Mortgage, Motions, Pleading, securities fraud, Servicer, STATUTES, trustee | Tagged: ASSOCIATION LIEN, HELOC, PRIORITY OF LIENS, Reg Z, SECOND MORTGAGE, table funded loans, truth in lending, UCC | 32 Comments »

TILA Statute of Limitations — No Limit

Posted on April 20, 2010 by Neil Garfield

Editor’s Note: Judges are quick to jump on the TILA Statute of Limitations by imposing the one year rule for rescission and damages. But there is more to it than that.

First the statute does NOT cut off at one year except for items that are apparent on the face of the closing documentation; so for MOST claims arising under securitization where almost every real detail of the transaction was hidden and intentionally withheld, the one year rule does not apply.

Second, the statute of limitations does not BEGIN to run until the date that the violation is revealed. In most cases this will be when the homeowner knows or should have known that the loan was securitized. Since the pretender lenders are so strong on the point that securitization does not affect enforcement, the best point in time for the statute to run is when a forensic analyst or expert tells the homeowner that TILA violations exist.

And THEN, in those cases where the information was hidden, the statute of limitations is three years from the date the information was revealed.

So when you go after undisclosed fees, profits and other compensation of any kind, you are not cut off by one year because — by definition they were not disclosed. The only way the other side can get out of that is by admitting the existence of the fee, and then showing that it WAS disclosed — presumably through yet another fabricated document, signed by a non-existent person with non existent authroity with non- existent witnesses and notarized by someone three thousand miles away (whose notary stamp and forged signature was applied to hundreds of pages of blank documents for later use). [Brad Keiser was the one who discovered this tactic by doing what most forensic analysts don’t do — actually reading every piece of paper sent by the pretender lender and every piece of paper provided by the homeowner. Case law shows that where the notary was improperly applied — and there are many ways for it to be improperly applied, the notary is void. If the statute requires recording the document in the public records, then the document so notarized shall be considered as NOT being in the public records and is ordered expunged from those records].

This comment from Rob elaborates:

Regarding the TILA Statute of Limitations:

STATUTE OF LIMITATIONS
When a violation of TILA occurs, the one-year limitations period applicable to actions for statutory and actual damages begins to run. U.S.C. § 1641(e).
A TILA violation may occur at the consummation of the transaction between a creditor and its consumer if the transaction is made without the required disclosures.
A creditor may also violate TILA by engaging in fraudulent, misleading, and deceptive practices that conceal the TILA violation occurring at the time of closing. Often consumers do not discover any violation until after they have paid excessive charges imposed by their creditors. Consumers who later learn of the creditor’s TILA violations can allege an equitable tolling of the statute of limitations. When the consumer has an extended right to rescind or
pursue other statutory remedies because a violation occurs, the statute of limitations for all the damages the consumers seek extends to three years from the date the violation is revealed.
McIntosh v. Irwin Union Bank & Trust Co., 215 F.R.D. 26, 30 (D. Mass. 2003).

Filed under: bubble, CDO, CORRUPTION, Eviction, expert witness, foreclosure, Forensic Analysis Workshop, GTC | Honor, HERS, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, workshop | Tagged: 215 F.R.D. 26, 30 (D. Mass. 2003)., brad keiser, damages, enforcement, expert, forensic analyst, McIntosh v. Irwin Union Bank & Trust Co., notary was improperly applied, one year, pretender lenders, Public records, rescission, securitization, statute of limitiations, three years, TILA, truth in lending, U.S.C. § 1641(e), violation is revealed | 13 Comments »

Foreclosure Defense and Offense: Class Actions in Play

Posted on July 2, 2008 by Neil Garfield

Mortgage ruling could shock U.S. banking industry
Mon Jun 30, 2008 8:14pm BST
By Gina Keating – Analysis

LOS ANGELES (Reuters) – A lawsuit filed by a Wisconsin couple against their mortgage lender could have major implications for banks should a U.S. appeals court agree that borrowers can cancel their loans en masse when their lenders violate a federal lending disclosure law.

The case began like hundreds of others filed since the U.S. housing boom spawned a rise in sales of adjustable rate loans. Susan and Bryan Andrews of Cedarburg, Wisconsin, claimed that lender Chevy Chase Bank FSB had hidden the true terms of what they believed was a good deal on a low-interest loan.

In their 2005 lawsuit, the couple said the loan’s interest rate had more than doubled by their second monthly payment from the 1.95 percent rate they thought was locked in for five years. The interest rate rose well above the 5.75 percent fixed-rate loan they had refinanced to pay their children’s college tuition.

The Andrews filed the case seeking class action status; and in early 2007, U.S. District Judge Lynn Adelman ruled that the bank had violated the Truth in Lending Act, or TILA, and that thousands of other Chevy Chase borrowers could join them as plaintiffs.

The judge transformed the case from a run-of-the-mill class action to a potential nightmare for the U.S. banking industry by also finding that the borrowers could force the bank to cancel, or rescind, their loans. That decision was stayed pending an appeal to the 7th U.S. Circuit Court of Appeals, which is expected to rule any day.

The idea of canceling tainted loans to stem a tide of foreclosures has caught hold in other quarters; a lawsuit filed last week by the Illinois attorney general asks a court to rescind or reform Countrywide Financial Corp (CFC.N: Quote, Profile, Research) mortgages originated under “unfair or deceptive practices.”

‘MASSIVE CLASS SUITS’

The mortgage banking industry already faces pressure from state and federal regulators, who have accused banks of lowering underwriting standards and forcing some borrowers, through fraud, into costly adjustable loans that the banks later bundled and sold as high-interest investment vehicles.

The loans have caused serious instability in the financial sector, as mortgage interest rates adjusted upward and borrowers began defaulting at a significant rate starting in 2007, drawing lawsuits from investors and homeowners.

Federal appeals courts disagree over whether class-wide rescission under the Truth in Lending Act is available, said attorney Christine Scheuneman, whose firm represented Chevy Chase at the district court.

“If class treatment is found to be available for rescission …, given the current crisis not predicted in 2005, the result all over the country could be massive class suits,” said Scheuneman, a partner at Pillsbury Winthrop Shaw Pittman LLP.

The Truth in Lending Act, a 1968 federal law designed to protect consumers against lending fraud by requiring clear disclosure of loan terms and costs, lets consumers seek rescission, or termination, of a loan and the return of all interest and fees when a lender is found in violation.

Should the 7th U.S. Circuit Court of Appeals agree with Judge Adelman, banking industry associations predict “confusion and market disruption” as banks curtail lending further.

“Class certification of rescission claims would saddle the mortgage lending industry and secondary market with billions of dollars of class action exposure for supposed violations of TILA that do not give rise to any actual damages,” the financial services associations wrote in an amicus brief.

But the Andrews’ attorney, Kevin Demet, said lenders want to scare the judiciary into banning class action rescissions because they were unable to convince Congress to do so in the 1990s.

“If (banks) get relief (from the appeals court), it’s activist judges trying to give them what they could not get legislatively,” said Demet, of Demet & Demet of Milwaukee, Wisconsin.

Consumer advocates said the banks would have “no more or no less” liability for the tainted mortgages if the court found in favor of the Andrews plaintiffs.

But an adverse ruling for borrowers would cut off an important remedy. Borrowers would “lose the opportunity to use rescission to save their homes from foreclosure or to rescind their mortgages and refinance into affordable ones,” the Center for Responsible Lending, the National Consumer Law Center, Public Citizen and AARP Foundation Litigation wrote in an amicus brief filed in the case.

Both sides said the case will likely be decided by the U.S. Supreme Court.

(Reporting by Gina Keating; Editing by Mary Milliken and Gerald E. McCormick)

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Investor, Mortgage | Tagged: Adelman, bundled, Chevy Chase Bank, countrywide, Demet, foreclosure defense, fraud, investment vehicles, lending fraud, mortgage lender, rescission, truth in lending, Wisconsin | 1 Comment »

The Federal Truth in Lending Act: What You Don’t Know Can Hurt You

Posted on May 23, 2008 by Neil Garfield

The Federal Truth in Lending Act: What You Don’t Know Can Hurt You

Pamela D. Simmons

Introduction

Ten years ago, I represented the borrower in a case that stemmed from a title company’s failure to secure a loan on all of the borrower’s land. (The title company had listed only one of several parcels of land and the lender was unable to non-judicially foreclose on the property as a result.) The complaint had already been filed, and listed among the many causes of action was one entitled “Violation of Reg Z.” One day an attorney for one of the defendants asked me: “What is this Reg Z? I’ve never even heard of it.” So began my love affair with the Federal Truth in Lending Act.

Most attorneys know the Federal Truth in Lending Act (TILA) as the group of laws requiring certain disclosures about the cost of borrowing money. You have seen the disclosures every time you have received a new credit card. Many readers may also be aware that consumers who are borrowing against their homes have a three-day right to cancel the transaction—another feature of TILA. However, few real estate attorneys know that TILA’s right to cancel can last for as long as three years after the loan is made. Moreover, under certain circumstances, TILA can govern individual lenders making a first loan secured by residential property. And even fewer practitio ners know that the cost of rescission to the lender is all of the interest, fees, costs, and any other charges not directly for the benefit of the borrower. I have personally seen the loss to the lender exceed $280,000. In this article I will discuss the history of TILA, describe rescission (its most important provision), and offer some tips on avoiding its pitfalls and attorney malpractice.

I. TILA’s History and Predatory Lending

In 1968, Congress enacted TILA (15 USC §§1601–1693r). Section 105 of TILA requires the Federal Reserve Board to promulgate implementing regulations, which are collectively known as Regulation Z (12 CFR pt 226). Regulation Z provides for Official Staff Interpretations (known as the Commentary), which give guidance to the attorney, effectively putting meat on the bones that is TILA; reliance on the Commentary protects the creditor from any civil or criminal liability under TILA.

Initially, TILA was only a disclosure statute; by requiring that consumers be informed of the true cost of their borrowing, it was hoped that consumers could not only make informed decisions, but also make comparisons between similar lending products. In 1980, however, TILA was substantially changed to provide greater simplicity and new consumer protections.

In 1994, TILA was again amended to add the Homeowner’s Equity Protection Act (HOEPA), which was implemented through Reg Z §32 and is known as “HOEPA” to those who work with borrowers and “Section 32” to those who work with lenders. HOEPA was an attempt to control predatory lending practices that were perceived to be a problem in the “sub-prime” lending arena. Sub-prime loans are those made to borrowers who do not meet conventional loan criteria—i.e., who have depressed credit scores, high income-to-debt ratios, unconfirmable income sources, and so forth. Sub-prime lenders charge higher interest rates and fees to borrowers because the loans are considered higher risk.

Since interest rates, over time, can vary significantly, HOEPA establishes triggers indexed to the Treasury Bill rate. If the Annual Percentage Rate (APR) of a home loan exceeds 8 percent plus the comparable T-Bill rate on a first deed of trust (10 percent on a second deed of trust), it is a HOEPA loan. Alternatively, if the costs and fees of the loan exceed eight points, it is a HOEPA loan. It was through HOEPA that federal law began to prohibit certain loan terms and lender behavior.

II. How to Find the Law

As mentioned above, the law regarding TILA is comprised of three parts:

TILA, found at 15 USC §§1601–1693r;

Reg Z (the implementing regulations), found at 12 CFR pt 226; and

Official Staff Commentary, found at Supp I of Reg Z.

In many areas, Reg Z fleshes out the meaning of TILA, and the Commentary fleshes out the meaning of Reg Z. If you are doing research in this area of law, you must look to all three components. An example of the interrelation ship is as follows:

Title 15 USC §1602(h) defines “consumer”:

The adjective “consumer,” used with reference to a credit transaction, characterizes the transaction as one in which the party to whom the credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes. Regulation Z §226.2(a)(11) defines “consumers”:[A] cardholder or a natural person to whom consumer credit is offered or extended. However, for purposes of rescission under §§226.15 and 226.23, the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest.

Official Staff Commentary §226.2(a)(11) states:

1. Scope. Guarantors, endorsers, and sureties are not generally consumers for purposes of the regulation, but they may be entitled to rescind under certain circumstances and they may have certain rights if they are obligated on credit card plans.

2. Rescission Rules. For purposes of rescission under §§226.15 and 226.23, a “consumer” includes any natural person whose ownership interest in his or her principal dwelling is subject to risk of loss. Thus, if a security interest is taken in A’s ownership interest in a house which is A’s principal dwelling, A is a consumer for purposes of rescission, even if A is not liable, either primarily or secondarily, on the underlying consumer credit transaction. An ownership interest does not include, for example, leaseholds or inchoate rights, such as dower.

3. Land Trusts. Credit extended to land trusts, as described in the commentary to §226.3(a), is considered to be credit extended to a natural person for purposes of the definition of consumer.

As always, case law adds additional clarification, or sometimes more confusion.

III. What Every Real Estate Attorney Should Know About TILA

A. Who Is a Lender Under TILA?

Jim came into my office quite concerned. He had lent money to someone he knew and the balloon payment was due, but had not been paid. He showed me the loan documents, which consisted of a promissory note and short-form deed of trust, which had been recorded by the escrow company. Jim explained that the borrower was someone he was familiar with who had approached Jim for a loan on a house, and had come up with the loan amount, interest rate, and payment terms. Jim had lent $50,000, secured by a third deed of trust, at 12-percent interest; interest-only payments were to be made monthly, with a balloon payment due at the end of a year. Jim arranged the loan through a real estate broker friend of his and the borrower was charged an additional $4000 in “points” paid to the broker. Jim knew that the borrower was behind on his other mortgages and was borrowing the money to “catch up.” The borrower had fallen behind on the loan due to illness, but he was going to list the house for sale—and it had plenty of equity. The deal had origi nally sounded great to Jim, but now the balloon was due and the money was not forthcoming. Jim was a plumber and had never made a loan secured by property to anyone before.

Poor Jim. The bad news was that Jim was a lender, as defined by TILA, and had failed to make the disclosures required under TILA and had used prohibited terms. The loan was therefore rescindable by the borrower. If that happened, Jim would lose not only all interest due on the note, but also the broker fee and all other closing costs. Moreover, he would be liable for statutory penalties and the borrower’s reasonable attorney fees. The good news was that so few real estate attorneys know anything about this law that the issue would be missed by virtually any attorney whom the borrower might consult.

How is it possible that plumber Jim, a first time lender, ran afoul of federal law? TILA governs loans made by a lender to consumers for primarily household purposes. A lender is a lender for TILA purposes if the lender has made more than five loans secured by residential property last year or more than five loans this year. However, under HOEPA, a lender is defined as a lender who makes two HOEPA loans, in any 12-month period, secured by the borrower’s residence; and if a lender uses a mortgage broker to make a HOEPA loan, that lender is a lender for all TILA purposes on the first HOEPA loan made. 15 USC §1602(f); Reg Z §226.2 n3.

B. Assignee Liability

Inherent in the business of making loans secured by residential property is a continuing need for capital to lend. As such, many home loans are sold to raise additional capital. Liability for violating TILA runs to the lender. Once the loan is sold, the liability, as related to rescission, extends to the assignee as well. 15 USC §1641(c).

When Does a Borrower Have a Right to Rescind?

The general rule is that a borrower whose loan is secured by his or her principal dwelling has the right to rescind, unless the loan is not intended primarily for personal family purposes or the loan is a purchase money loan. 15 USC §1635(f). There are, effectively, two separate rights to rescind. The first is the three-day right to cancel, which can be exercised by the borrower during the three business days after the loan documents are signed. During this three-day period, the lender should not release loan proceeds or record the security interest. This three-day right to cancel ends at midnight on the third business day after the loan documents were signed. A business day is Monday through Saturday, with certain holidays excluded.

The second right to rescind is the extended right to cancel. The statute of limitations on this extended right is three years; however, it can be tolled for certain reasons, and more importantly, a borrower can always rescind, if the loan is rescindable, if the lender starts foreclosure proceedings.

Under TILA, the extended right to rescind is created when the borrower is not properly notified of the three-day right to cancel or the TILA disclosures are not accurate within certain statutorily defined tolerances. Additional rights to rescind are also afforded under HOEPA, more fully discussed later in this article.

1. The Right to Cancel

Borrowers must be clearly informed when the right to cancel expires and where to cancel. Additionally, each borrower must be given two copies of the form that explains the right to cancel. One is for the borrower to give to the lender if he or she wishes to cancel the loan; the other is for the borrower to keep. Thus, if the person filling out the form miscounts the days, or leaves the form blank, or fails to give each borrower two copies of the right to cancel form, the borrower effectively has never received notice of the right to cancel and the right to cancel continues until either the borrower is given a properly filled out form (with a new current three-day cancellation period) or the statute of limitations expires.

2. The TILA Disclosure Form

Further, borrowers must be given an accurate disclosure of the terms of the loan (the TILA Disclosure). If no disclosure is made or if certain terms are not accurately disclosed within certain tolerances, the borrowers have an extended right to cancel. The TILA Disclosure is a form that has four boxes at the top of the page (undoubtedly you have seen them before) that disclose the APR, Finance Charge, Amount Financed, and the Total Pay ments. Some of the other necessary disclosures in the body of the form include the number of payments to be made over the term of the loan and the regular payment amount.

The Total Payments amount is equal to the monthly payment multiplied by the number of payments to be made during the term of the loan. When the loan is a fully amortized fixed-rate mortgage, this calculation is easy. The same holds when it is an interest-only loan with a balloon at the end. However, when the loan is a variable-rate mortgage, the calculation is more complicated. As an example, we will use the loan Jim made, an interest-only mortgage, with a balloon:

Our borrower has borrowed $50,000 with a fixed rate of 10-percent interest, interest-only payments payable in equal amounts over a one-year term. The first 11 monthly payments are $416.67, with a balloon payment due on the twelfth month of $50,416.63. Accordingly, the amount listed in the Total Payments box should be $55,000. Since the loan principal amount is $50,000, we can easily de termine that $5000 is interest being paid on the $50,000 loan. However, our borrower also paid $4000 in broker fees, which were determined to be finance charges. Thus, the total finance charges that must be disclosed are $9000.

The APR is considered the true interest rate that will be paid by the borrower over the life of the loan. The Finance Charge is broadly defined as any charge, payable directly or indirectly by the borrower, that is imposed directly or indirectly by the lender as an incident to or a condition of the extension of credit. 15 USC §1605(a); Reg Z §226.4(a). Even for those familiar with the myriad charges incurred by borrowers for a loan secured by their home, the determination of which charges are or are not finance charges can be daunting. It is beyond the scope of this article to address those issues; however, it is important to know that many charges are included in the definition of finance charge and, for purposes of determining the APR, these fees are lumped together with the interest charges.

The Amount Financed is generally the amount of credit provided to the borrower. Essentially, it is the remainder after the Finance Charge has been subtracted from the Total Payments. So, by subtracting the Finance Charge from the Total Payments, the Amount Financed by our borrower is $41,000. TILA allows several methods of de termining the APR. For this article, I used the APR calcu lator program offered by the Office of the Comptroller of the Currency, located at http://www.occ.treas.gov/aprwin.htm. Using that system, the APR on our loan is 31.18 percent, which is considerably higher than the stated interest rate, due to the high fees charged.

3. TILA Disclosure Accuracy Tolerances

The amount disclosed as Finance Charge in the TILA Disclosure must be accurate, up to certain tolerances. The tolerance depends on what action or right the borrower is enforcing. If the borrower is seeking to rescind the loan transaction and the lender has not started foreclosure proceedings, the tolerance is one-half of one percent (.005). If the lender overstates the Finance Charge, there is no extended right to rescind. However, if the lender has started foreclosure proceedings, either judicial or nonjudicial, the tolerance is $35. Again, if the APR is overstated, there is no extended right to cancel.

The APR must be accurate as well. The tolerance for the APR rate disclosed in the TILA Disclosure is one-eighth of one percent (.00125). TILA states that the APR is inaccurate if it exceeds or is lower than the accurate APR by .00125; however, there is some disagreement about this. See Official Staff Commentary §226.22(a)(2)–1; 15 USC §1602(z); Ramsey v Vista Mortgage Corp. (In re Ramsey) (BAP 9th Cir 1994) 176 BR 183; Barber v Knox County School Employees Credit Union (In re Cox) (Bankr CD Ill 1990) 114 BR 165.

The accuracy tolerances listed above apply to “regular” transactions. An “irregular” transaction is one that has either multiple advances, irregular payment periods, or ir regular payment amounts (other than an irregular first or final payment). Reg Z §226.22(a)(2) n46; Official Staff Commentary §226.22(a)(2)–1. The tolerance for an irreg ular transaction is one-fourth of one percent (.0025).

4. HOEPA

As discussed earlier, HOEPA is a section of TILA enacted to protect consumers from predatory lending practices. Loans governed by HOEPA not only have additional disclosures required, HOEPA also governs certain loan terms and practices. Violation of the disclosure rules or use of a prohibited loan term gives the borrower an extended right to rescind the loan.

Most commercial lenders are no longer making HOEPA loans because, generally,HOEPA loans are no longer accepted in the resale marketplace. As a result, HOEPA loans are becoming rare, although some small “hard money” lenders are still making these loans. Additionally, unsophisticated individuals, such as our “Jim,” are also making these loans without ever realizing that they are governed by and have run afoul of HOEPA. I have encountered both very recently. My experience has been that, as interest rates drop to low levels, many retirees have looked for a safe place to make a higher rate of return (relative to, say, government bonds). Some of them have begun to lend money secured by residences, but they have no idea how regulated this area has become.

a. APR and Points and Fees Triggers. For loans in first position, made after October 1, 2002, HOEPA will be triggered if the APR exceeds by more than 8 percent the yield on Treasury securities having comparable maturities on the fifteenth day of the month immediately preceding the time the loan was made. For junior loans the spread must be more than 10 percent. 15 USC §1602(aa)(1)(A); Reg Z §226.32(a)(i).

The other trigger that activates HOEPA is the points and fees trigger. If the lender charges points and fees totaling more than 8 percent of the total loan amount, it is governed by HOEPA.15 USC §1602(aa)(1)(B); Reg Z §226.32(a)(1)(ii). In actual practice, a determination of the exact percentage rate of the points and fees, with respect to the total loan amount, is rather complicated and beyond the scope of this article.

b. HOEPA Disclosures. Borrowers obtaining a HOEPA loan are required to receive additional disclosures. These disclosures augment and do not replace the disclosures required underTILA generally. HOEPA disclosures must be given to the borrower three business days before the consummation of the loan. The disclosures require the following statements:

You are not required to complete this agreement merely because you received these disclosures or have signed a loan application.

If you obtain this loan, the lender will have a mortgage on your home. You could lose your home and any money you have put into it, if you do not meet your obligation under the loan.

Additionally, the lender must disclose the accurate APR and monthly payment amount, if the loan is a fixed-rate loan. If the loan is a variable interest rate loan, the disclosure must also inform the borrower that the monthly payment may increase and must state the amount of the maximum potential monthly payment. The monthly pay ment amount must also include disclosure of any balloon payment. The disclosure also must show the total face amount of the loan and state whether optional credit insur ance or debt cancellation coverage is being sold to the borrower. 15 USC §1639; Reg Z §§226.31–226.32.

c. Prohibited Contract Terms. As discussed earlier, HOEPA prohibits certain loan contract terms. Inclusion of a prohibited term constitutes a failure to deliver the proper disclosures and creates an extended right to rescind the loan. The prohibited contract terms are:

(1) Prepayment Penalties (15 USC §1639(c); Reg Z §226.32(d)(6), (7)). Allowed under the following conditions: Loan must not cause borrower to pay more than 50 percent of gross monthly income towards “monthly indebtedness payments”; income and expenses must be verified by a financial statement signed by borrower, a credit report, and payment records for any employment income; penalty must not apply when borrower refinances one of its or an affiliate’s loans; repayment penalty can only be imposed for the first five years of loan term; and, must be valid under state law.

(2) Default Interest Rate Increases (15 USC §1639(d); Reg Z §226.32(d)(4)).

(3) Balloon Payments (15 USC §1639(e); Reg Z §226.32(d)(1)). Allowed if loan has term of five years or longer.

(4) Negative Amortization (15 USC §1639(f); Reg Z §226.32(d)(2)).

(5) Prepaid Interest Payments (15 USC §1639(g); Reg Z §226.32(d)(3)). Allowed if up to two months of payments are escrowed.

(6) Due-On-Demand Clauses (Reg Z §226.32(d)(8); Official Staff Commentary §226.32(d)(8)(ii)–(iii)). Al lowed if there is fraud or material misrepresentation by the consumer in connection with obtaining the loan, the consumer fails to meet its financial obligations under the terms of the loan, or there is any action or inaction by the consumer that adversely affects the lender’s security interest in the home.

IV. The Rescission Process:
The Law and Reality

A. The Law

The rescission process was intended to be self-enforc ing and able to be completed without the necessity of going to court. If the homeowner does not sell the home, the extended right of rescission can last up to three years after the loan consummation—and longer if the lender initiates foreclosure proceedings. 15 USC §1635(f); Reg Z §§226.15(a)(3), 226.23(a)(3). The regulations set up a three-step process to rescind a loan.

First, the borrower must notify the lender, in writing, of the cancellation of the loan. While the notice must be in writing, it can be transmitted by mail, telegram, or other means. Reg Z §§226.15(a)(2), 226.23(a)(2). It should be sent to the lender’s designated place of business. A rescission notice sent by the borrower’s attorney is also effective. Official Staff Commentary §226.2(a)(22)–2. While signing the right to cancel and sending it to the lender is effective, my practice is to draft a letter notifying the lender of the rescission and the reasons for it. I usually send the letter to the address provided on the right to cancel form, if there is such a form, as well as any other address that the borrower may have for the lender.

A note on loan servicers: Currently, rescission letters sent to loan servicers are not effective notice to the lender. Many borrowers do not understand the difference between the owner of the loan and a loan servicer. Even savvy attorneys have trouble determining who owns the loan, because assignments are no longer routinely re corded. It is important to review the loan file to determine who was the lender at the time the loan was consum mated. Additionally, I always check the chain of title to see if the loan has been assigned. If so, I send a copy of the rescission letter to the new lender as well. A call to the servicer can reveal who the owner is, al though they generally do not like to give that informa tion. Additionally, a proper written request under RESPA should work, if you have the time. A new Commentary states that, when the creditor fails to provide an address for a designated agent to whom rescission notice may be sent, delivery to the entity that the borrower makes the pay ments to will be effective notice to the lender or the lender’s assignee. Official Staff Commentary §226.23(a)(2)–1.

Once the loan is rescinded, the security interest or lien becomes automatically void, by operation of law. 15 USC §1635(b); Reg Z §§226.15(d)(1), 226.23(d)(1). The note also is voided. The lender’s interest in the property is “automatically negated, regardless of its status and whether or not it was recorded or perfected.” Official Staff Commentary §§226.15(d)(1)–1, 226.23(d)(1)–1.

Within 20 days of receipt of the notice of cancellation, the lender must return to the borrower any money or property that has been given to anyone in connection with the loan. 15 USC §1635(b); Reg Z §§226.15(d)(2), 226.23(d)(2). The lender must also take steps to reflect that the security interest has terminated.

Once the lender has terminated the security interest and returned any money or property it received, the borrower is then required to tender any property or money received from the lender. 15 USC §1635(b); Reg Z §§226.15(d)(3), 226.23(d)(3); Official Staff Commentary §§226.15(d)(3)–1, 226.23(d)(3)–1. This step is the reverse of most states’ rescission law. The statute does not prescribe a time period in which tender must be accomplished.

As a result of the rescission, the lender retroactively loses the right to charge interest, fees, and costs on the loan, even costs paid to outside third parties such as the title insurer. The amount, therefore, of tender is calculated by first determining what funds the borrower actually received for his or her direct benefit. (Cash out to the borrower and funds released to pay the borrower’s debts are examples of uses for the borrower’s direct benefit.) Once that amount is determined, it is reduced by the total payments the borrower has made on the loan. Attorney fees are available against a violating lender, as well as actual and statutory damages. 15 USC §1640(a). The remaining balance is the amount due on tender. Once tender is delivered, the rescission process is complete.

B. How Rescissions Work in Practice

TILA grants the courts power to modify certain aspects of the statutory rescission scheme. In particular, Reg Z enables the courts to modify the second and third steps of the rescission process. Reg Z §§226.15(d), 226.23(d). However, some courts have been uncomfortable with enforcing the statutes’ first step as well—the voiding of the security interest. For that reason, I have never forced a lender to remove their security interest prior to tender. I generally require the lender to indicate an acceptance of the rescission within the required 20-day period. Once the rescission has been accepted, I work with the lender to determine the amount of tender. Generally, clients refinance or sell their property to fund the tender. Sometimes lenders agree to rewrite the loan at the new loan balance. Either way, the lender submits a payoff demand, equal to the tender amount, into escrow and title insurance is obtained.

A note on attorney fees: I always require the lenders to pay the reasonable attorney fees in rescission matters. Because it is the lender who is paying the attorney fees, I generally submit my own demand directly into escrow, indicating that the bill should be paid out of the lender’s proceeds. Of course, the lender must agree to this in advance.

V. Conclusion

TILA is an extremely powerful tool for borrowers and should be considered every time anyone makes or obtains a loan secured by residential property. At least one court has held that it may be malpractice for an attorney not to review a borrower’s rescission rights when representing them in a foreclosure proceeding. This article just scratches the surface of this area of law. Even though there are classes given to consumer law attorneys on this area of practice, it is my experience that most consumer attorneys do not have the background to understand the loan process when it comes to securing the loan against real property. To put it starkly, most of them look like deer caught in headlights when they leave such a class. Real property attorneys, however, already have the preliminary expertise. They understand the escrow pro cess, can read and understand a HUD-1 RESPA Settle ment Statement, and know and understand the relation ship between a note and deed of trust. While this article will not make you an expert on TILA, it hopefully will allow you to have an informed view of the issue the next time you are consulted on a loan or lender-related issue.

Filed under: CDO, Eviction, foreclosure, GTC | Honor, Mortgage | Tagged: foreclosure defense, mortgage audit, rescission, right of rescission, TILA, TILA audit, truth in lending | 3 Comments »

FORECLOSURES: TILA RIGHT OF RESCISSION and CONSEQUENCES

Posted on May 7, 2008 by Neil Garfield

Seminars for Layman (Pro Se Litigants) and For Lawyers

TILA RIGHT OF RESCISSION and CONSEQUENCES

TRUTH IN LENDING

FEDERAL CIVIL COURT, FEDERAL BANKRUPTCY, STATE COURT INFORMATION

THIS POST RELATES ONLY TO RESCISSION UNDER TILA. IT SHOULD BE REMEMBERED THAT THERE ARE MULTIPLE GROUNDS FOR RESCISSION AND CANCELLATION OF THESE NOTES AND POSSIBLY TREBLE DAMAGES FOR USURY. SEE HOLDER IN DUE COURSE IN GLOSSARY.

I have been inundated with TILA questions. So I went out hunting to see if anyone had already written about it in terms that a lay person might be able to understand. What I found is shown below. I believe it to be generally correct and the citations are good citations of law. See this site for the entire write-up. It should give most lay people an idea on how to handle this and it will be valuable to your lawyer if he/she is not totally familiar with the TILA context. http://www.rcxloan.com/Civil_Action__BK__Motion_14.htm. As always, we are available to answer questions and direct you to the proper people to get expert help and advice.

MY ANSWER TO OUR READER’S QUESTIONS:

TILA Rescission is self enforcing. It automatically extinguishes the lien and the liability. The time for rescission does not run until you actually knew the full scope of the violation. That is tantamount to it never running out.
YOU CAN ASSERT AND SHOULD ASSERT TILA VIOLATIONS IF YOU CAN BEFORE YOU ARE IN FORECLOSURE OR EVEN IF YOU ARE CURRENT IN YOUR PAYMENTS.
Judge is required to look for authority himself if you are representing yourself without a lawyer (pro se). This provision in effect makes the Judge your lawyer and your Judge. Pretty good combination for you.
Judge has no discretion to deny damages, refunds etc to Borrower once a violation of TILA, no matter how small, is discovered.
TILA Rescission is NOT barred before during or after other proceedings unless those other proceedings specifically mention rescission as an issue to be tried.
Federal Action for injunction against the players to require them to file documents canceling the documents of record and providing judgment for damages and refunds is probably the best action since that is what is contemplated.
If in bankruptcy, it should be pled in an adversary proceeding. But if the bankruptcy is primarily related to the foreclosure the better practice would be to file in the same Federal Court, Civil Division, a complaint for violation of TILA rescission.
A Quiet TItle Action in State Court would probably also be a good idea before, during or after the Federal action. It clears up any doubt whatsoever about the status of title or the lender’s lien or encumbrances.
THIS IS INFORMATION YOU NEED BECAUSE THE LATEST LENDER STRATEGY SEEMS TO BE FOR THE LENDER TO IGNORE THE RESCISSION NOTICE. THE LENDER IS BETTING YOU WON’T KNOW WHAT TO DO.
Suggestion: If you are in Court and you have opted or are ordered to settlement, try to get a paragraph in the mediation order that requires all decision-makers to be present, whether they are parties or not. This would include the holders of securities who are the ultimate owners of the mortgage. (You may get a pleasant surprise. We have reports that the lenders sometimes can’t trace them down, in which case, the foreclosure action or sale is dismissed and you have no mortgage).

TILA & Res Judicata

(Analogous to Mr. Pierre R. Augustin, Pro Se’s situation since he had never litigated fully or raised any TILA claims affirmatively or defensively) –

A rescission action may not be barred by prior or subsequent TIL litigation which did not involve rescission (Smith v. Wells Fargo Credit Corp., 713 F. Supp. 354 (D. Ariz. 1989) (state court action involving, inter alia TIL disclosure violations did not bar a subsequent action based on rescission notice violations in conjunction with same transaction which were not alleged or litigated in prior action) (See also In re Laubach, 77 B.R. 483 (Bankr. E.D. Pa. 1987) (doctrine of merger bars raising state and federal law claims arising from a transaction on which a previous successful federal TILA action was based; merger does not bar, however, rescission-based on the same transaction)).

IX. Timely Notified Lenders/Attorneys of TILA Right of Rescission

Mr. Pierre R. Augustin, Pro Se filed a copy of the notice of rescission letter (See Exhibit 5) in the bankruptcy court notifying the attorneys representing DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance as well as having certified receipt return of proof of delivery to the Lawyers including are proof of notification according to the Official Staff Commentary, 226.2(a)(22)-2 as authorizing service on attorney.

The Truth-in-Lending law empower Mr. Pierre R. Augustin, Pro Se to exercise his right in writing by notifying creditors of his cancellation by mail to rescind the mortgage loan transactions per (Reg. Z §§ 226.15(a)(2), 226.23(a)(2), Official Staff Commentary § 226.23(a)(2)-1) and 15 U.S.C. § 1635(b).

Equitable Tolling
The filing of Bankruptcy tolls or extends the rescission time as Mr. Pierre R. Augustin, Pro Se had filed for bankruptcy on September 26, 2005 and obtained a discharge on September 26, 2006.

Also, the principle of equitable tolling does apply to TILA 3 years period of rescission since despite due diligence, Mr. Pierre R. Augustin, Pro Se could not have reasonably discovered the concealed fact of TILA violations in-depth and explicitly until September 17, 2006 at about 5 a.m. in reading the Truth-in-Lending book by the National Consumer Law Center.

The equitable tolling principles are to be read into every federal statute of limitations unless Congress expressly provides to the contrary in clear and ambiguous language, (See Rotella v. Wood, 528 U.S. 549, 560-61, 120 S. Ct. 1075, 145 L. Ed. 2d 1047 (2000)). Since TILA does not evidence a contrary Congressional intent, its statute of limitations must be read to be subject to equitable tolling, particularly since the act is to be construed liberally in favor of consumers.

Security Interest is Void
The statute and regulation specify that the security interest, promissory note or lien arising by operation of law on the property becomes automatically void. (15 U.S.C. § 1635(b); Reg. Z §§ 226.15(d)(1), 226.23(d)(1).

As noted by the Official Staff Commentary, the creditor’s interest in the property is “automatically negated regardless of its status and whether or not it was recorded or perfected.” (Official Staff Commentary §§ 226.15(d)(1)-1, 226.23(d)(1)-1.).

Also, the security interest is void and of no legal effect irrespective of whether the creditor makes any affirmative response to the notice. Also, strict construction of Regulation Z would dictate that the voiding be considered absolute and not subject to judicial modification.

This requires DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance to submit canceling documents creating the security interest and filing release or termination statements in the public record. (Official Staff Commentary §§ 226.15(d)(2)-3, 226.23(d)(2)-3.)

Extended Right of Rescission
The statute and Regulation Z make it clear that, if Mr. Pierre R. Augustin, Pro Se has the extended right and chooses to exercise it, the security interest and obligation to pay charges are automatically voided. (Cf. Semar v. Platte Valley Fed. Sav. & Loan Ass’n, 791 F.2d 699, 704-05 (9th Cir. 1986) (courts do not have equitable discretion to alter substantive provisions of TILA, so cases on equitable modification are irrelevant).

The statute, section 1635(b) states: “When an obligor exercises his right to cancel…, any security interest given by the obligor… becomes void upon such rescission”. Also, it is clear from the statutory language that the court’s modification authority extends only to the procedures specified by section 1625(b).

The voiding of the security interest is not a procedure, in the sense of a step to be followed or an action to be taken.

The statute makes no distinction between the right to rescind in three day or extended in three years for federal and four years under Mass. TILA, as neither cases nor statute give courts equitable discretion to alter TILA’s substantive provisions.

Since the rescission process was intended to be self-enforcing, failure to comply with the rescission obligations subjects DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance to potential liability.

XIII. Non-Compliance

Non-compliance is a violation of the act which gives rise to a claim for actual and statutory damages under 15 USC 1640. TIL rescission does not only cancel a security interest in the property but it also cancels any liability for the Mr. Pierre R. Augustin, Pro Se to pay finance and other charges, including accrued interest, points, broker fees, closing costs and that the lender must refund to Mr. Pierre R. Augustin, Pro Se all finance charges and fees paid.

In case DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance do not respond to this default letter, Mr. Pierre R. Augustin, Pro Se has the option of enforcing the rescission right in the federal, bankruptcy or state court (See S. Rep. No. 368, 96th Cong. 2 Sess. 28 at 32 reprinted in 1980 U.S.C.A.N. 236, 268 (“The bill also makes explicit that a consumer may institute suit under section 130 [15 U.S.C., 1640] to enforce the right of rescission and recover costs and attorney fees”).

TIL rescission does not only cancel a security interest in the property but it also cancels any liability for Mr. Pierre R. Augustin, Pro Se to pay finance and other charges, including accrued interest, points, broker fees, closing costs and the lender must refund to Mr. Pierre R. Augustin, Pro Se all finance charges and fees paid.

Thus, DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance are obligated to return those charges to Mr. Pierre R. Augustin, Pro Se (Pulphus v. Sullivan, 2003 WL 1964333, at *17 (N.D. Apr. 28, 2003) (citing lender’s duty to return consumer’s money as reason for allowing rescission of refinanced loan); McIntosh v. Irwing Union Bank & Trust Co., 215 F.R.D. 26 (D. Mass. 2003) (citing borrower’s right to be reimbursed for prepayment penalty as reason for allowing rescission of paid-off loan).

XIV. Sources of Law in Truth in Lending Cases

“These include TILA itself, the Federal Reserve Board’s Regulation Z which implements the Act, the Official Staff Commentary on Regulation Z, and case law. Except where Congress has explicitly relieved lenders of liability for noncompliance, it is a strict liability statute. (Truth-In-Lending, 5^th Edition, National Consumer Law Center, 1.4.2.3.2, page 11)

XV. Synopsis of How Rescission Works

The process starts with the consumer’s notice to the creditor that he or she is rescinding the transaction. As the bare bones nature of the FRB model notice demonstrates, it is not necessary to explain why the consumer is canceling. The FRB Model Notice simply says: “I WISH TO CANCEL,” followed by a signature and date line (Arnold v. W.D.L. Invs., Inc., 703 F.2d 848, 850 (5^th cir. 1983) (clear intention of TILA and Reg. Z is to make sure that the creditor gets notice of the consumer’s intention to rescind)).

The statute and Regulation Z states that if creditor disputes the consumer’s right to rescind, it should file a declaratory judgment action within the twenty days after receiving the rescission notice, before its deadline to return the consumer’s money or property and record the termination of its security interest (15 USC 1625(b)). Once the lender receives the notice, the statute and Regulation Z mandate 3 steps to be followed.

XVI. Step One of Rescission

First, by operation of law, the security interest and promissory note automatically becomes void and the consumer is relieved of any obligation to pay any finance or other charges (15 USC 1635(b); Reg. Z-226.15(d)(1),226.23(d)(1). . See Official Staff Commentary § 226.23(d)(2)-1. (See Willis v. Friedman, Clearinghouse No. 54,564 (Md. Ct. Spec. App. May 2, 2002) (Once the right to rescind is exercised, the security interest in the Mr. Pierre R. Augustin’s property becomes void ab initio).

Thus, the security interest is void and of no legal effect irrespective of whether the creditor makes any affirmative response to the notice. (See Family Financial Services v. Spencer, 677 A.2d 479 (Conn. App. 1996) (all that is required is notification of the intent to rescind, and the agreement is automatically rescinded).

It is clear from the statutory language that the court’s modification authority extends only to the procedures specified by section 1635(b). The voiding of the security interest is not a procedure, in the sense of a step to be followed or an action to be taken.

The statute makes no distinction between the right to rescind in 3-day or extended as neither cases nor statute give courts equitable discretion to alter TILA’s substantive provisions. Also, after the security interest is voided, secured creditor becomes unsecured. (See Exhibit #6)

XVII. Step Two of Rescission

Second, since Mr. Pierre R. Augustin has legally rescinded the loans transaction, the mortgage holders (DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance) must return any money, including that which may have been passed on to a third party, such as a broker or an appraiser and to take any action necessary to reflect the termination of the security interest within 20 calendar days of receiving the rescission notice which has expired.

The creditor’s other task is to take any necessary or appropriate action to reflect the fact that the security interest was automatically terminated by the rescission within 20 days of the creditor’s receipt of the rescission notice (15 USC 1635(b); Reg. Z-226.15(d)(2),226.23(d)(2).

XIII. Step Three of Rescission

Mr. Pierre R. Augustin is prepared to discuss a tender obligation, should it arise, and satisfactory ways in which to meet this obligation. The termination of the security interest is required before tendering and step 1 and 2 have to be respected by DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance

XIV. Conclusion

I am requesting an itemized statement of my payment record to DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance. When Mr. Pierre R. Augustin rescinds within the context of a bankruptcy, courts have held that the rescission effectively voids the security interest, rendering the debt, if any, unsecured (See Exhibit #6). (See in re Perkins, 106 B.R. 863, 874 (Bankr. E.D.Pa. 1989); In re Brown, 134 B.R. 134 (Bankr. E.D.Pa. 1991); In re Moore, 117 B.R. 135 (Bankr.E.D. Pa. 1990)).

Once the court finds a violation such as not responding to the TILA rescission letter, no matter how technical, it has no discretion with respect to liability (in re Wright, supra. At 708; In re Porter v. Mid-Penn Consumer Discount Co., 961 F,2d 1066, 1078 (3d. Cir. 1992); Smith v. Fidelity Consumer Discount Co., Supra. At 898. Any misgivings creditors may have about the technical nature of the requirements should be addressed to Congress or the Federal Reserve Board, not the courts.

Since DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance have not cancelled the security interest and return all monies paid by Mr. Pierre R. Augustin within the 20 days of receipt of the letter of rescission of September 21, 2006, the lenders named above are responsible for actual and statutory damages pursuant to 15 U.S.C. § 1640(a).

Once again, please send me a copy of my payment history and other document showing the loan disbursements, loan charges and payment made. Also, DanversBank, Ameriquest Mortgage, Commonwealth Land Title Insurance Company, New Century Mortgage and Chase Home Finance are to take any necessary or appropriate action to reflect the fact that the security interest was automatically terminated by the rescission (15 USC 1635(b); Reg. Z-226.15(d)(2),226.23(d)(2). This requires canceling documents creating the security interest and filing release or termination statements in the public record of FREE and CLEAR TITLE to Mr. Pierre R. Augustin. Thank you (TTTLMG).

May GOD Bless America,

Pierre Richard Augustin, Pro Se, MPA, MBA

28 Cedar Street, Lowell, MA 01852

Tel: 617-202-8069

TILA Pleading

Under the Federal Rules of Civil Procedures, it may be sufficient to plead that the TILA has been violated. (Fed.R. Civ. P. 8(a)).

Specific violations do not necessarily have to be alleged with particularity (Brown v. Mortgagestar, 194 F. Supp. 2d 473 (S.D. W. Va. 2002) (notice pleading is all that is required in TILA case);

Herrara v. North & Kimball Group, Inc., 2002 WL 253019 (N.D. Ill. Feb.. 20, 2002) (notice pleading sufficient; response to motion to dismiss can supplement complaint by alleging facts re specific documents assigned);

Staley v. Americorp. Credit Corp., 164 F. Supp. 2d 578 (D. Md. 2001) (Mr. Pierre R. Augustin,

Pro Se need not specify specific statute or regulations that entitle him to relief; court will examine complaint for relief on any possible legal theory);

Hill v. GFC Loan Co., 2000 U.S. Dist. Lexis 4345 (N.D. Ill. Feb. 15, 2000).

The consumer’s complaint need not plead an error exceeded the applicable tolerance, since this is an affirmative defense (Inge v. Rock Fin. Corp., 281 F.3d 613 (6th cir. 2002)).

In page 2 (See Exhibit 1) of Mr. Pierre R. Augustin, Pro Se’s civil complaint, he stated that TILA was in of the Jurisdiction of all the claims against the creditors or defendants in that civil action.

At #6 of page 14 (See Exhibit 2) of civil complaint, Mr. Pierre R. Augustin, Pro Se explicitly stated that the New Century Mortgage Note which is now assigned to Chase is in violation of TILA and Regulation Z claims.

In page 17 of the civil complaint, Mr. Pierre R. Augustin, Pro Se did mention rescission and statutory damages (See Exhibit 3).

Filed under: bubble, CDO | Tagged: damages, finance charges, foreclosure, interest, lender, notice, points, quiet title, refunds, rescission, TILA, TILA audits, truth in lending | 82 Comments »

Mortgage Meltdown: RESPA, Truth in Lending Audits/ Foreclosure Defense

Posted on March 5, 2008 by Neil Garfield

Here is where you can make some headway and push back against the lender. Taken from Bankersonline.com. Show this to your attorney but make absolutely certain he/she knows about this or the mistakes mentioned in the article will be repeated.

respa-permitted-fees

We have names of attorneys and auditors who do this for a living.

ACTION AUDIT Regulation Z: Checking APRs

You cannot do a compliance audit of loans without checking the finance charge and the annual percentage rate calculations and disclosures. It is a basic part of any loan compliance audit. So the question is not whether but how.

Unfortunately, it is all too easy to review Truth in Lending disclosures without finding critical errors. That’s because of the old but very true adage: garbage in, garbage out.

In checking TIL compliance, there are often key steps that are skipped. And by skipping these steps, the TIL review can miss the fundamental mistakes that caused the disclosure to be wrong. And sometimes, by missing the basic step that was in error, the audit merely confirms the mistake, believing it to be accurate. This is why a TIL audit must start with – or go back to – the basics.

The first basic is always the loan agreement. Why? Because of our favorite section of Regulation Z: §226.17(c)(1). No TIL review is complete without it.What §226.17(c)(1) says is that the disclosures must reflect the terms of the legal agreement.

A key test of the accuracy of disclosures is whether they reflect the legal agreement – or stray off into another pasture. The closely related principle is that you cannot charge it if you didn’t disclose it. So even if a loan contract provides for certain fees or interest calculations, you cannot exercise them if they conflict with the TIL disclosure that you gave to the customer when you closed the loan.

Usually §226.17(c)(1) gets the most attention when we are trying to figure out whether a transaction is a refinance or a modification. We look to the underlying legal agreement and whether it is changed to make this determination. In this context, it is often a positive and helpful provision.

But §226.17(c)(1) has a dark side and nowhere is it more evident than in the recently popular “premium rate adjustable rate mortgage.” A premium rate ARM is a variable rate loan for which the first time period – anywhere from one to five years – is based on a premium rate which is actually higher than the index plus margin. After the premium period, the loan reverts to traditional variable rate adjustments.

Here’s the catch: many of these premium rate ARMs have floors – a rate below which the loan simply won’t go. Let’s say that the loan originates at a premium rate of 5.75%. Then assume that the index plus margin would be 4.5%. But the loan has a floor of 5%. In other words, the loan rate will never drop as low as the current index plus margin.

Now for the mistake. Many of the TIL disclosures prepared on these loans ignore the floor of 5% and instead calculate the interest, finance charge and APR using the index-plus-margin rate of 4.5%. The disclosure shows the first payment stream of one year at 5.75% and the remaining 29 years at 4.5%. The result is a seriously under disclosed finance charge and APR because according to the note (enter §226.17(c)(1)) that 4.5% rate is never going to happen.

When a compliance auditor simply checks the numbers on the TIL disclosures, the auditor won’t find the mistake. To make sure this doesn’t happen, the auditor should start with some additional steps.

• Audit mortgage loans by each product type. Audit premium rate-ARMs separately from more standard instruments.

• Review the note before you do anything else. Determine the key terms of the note that will affect the TIL calculations. This includes identifying any variable rate features, the timing and duration of those features, and any rate caps and floors. (Note: if the loan is dwelling-secured, it must have a rate cap.)

• Run a payment stream for each rate cycle of the loan. Remember to use all of the variable rate assumptions – rates will change based on the loan agreement using the rates we know about at closing.

• Amortize each payment stream for the appropriate time period and then calculate the next payment stream with the new amortization period.

• Plug your payment numbers and rates into your APR checker. Do not use the same tool that was used to generate the disclosures in the first place.

• Now compare the results. If necessary, calculate the restitution.

• Determine how any errors occurred and recommend solutions to prevent such errors in the future.

Filed under: bubble, CDO, community banks, credit unions, currency, Eviction, foreclosure, GTC | Honor, inflation, interest rates, Investor, Mortgage, Obama, politics, securities fraud | Tagged: audit, TIL, truth in lending | 9 Comments »

Mortgage Meltdown: Defending Your Property: Strategies

Posted on January 2, 2008 by Neil Garfield

Mortgage Meltdown: Defending Your Property — A Summary of Strategies

This post is for both homeowners and attorneys dealing with existing foreclosure, threatened foreclosure or distressed situations. There are many situations, particularly in government-backed loans, where the lender MUST negotiate to mitigate losses or they are subject to treble damages. This posting is not intended to be legal advice inasmuch as regulations are different and change from State to State. It is only intended to be a guide for those who wish to stop the threat of foreclosure and eviction and might be useful even in auto loans and other forms of consumer credit including credit cards.

There are specific remedies that you may wish to pursue including forbearance, modification, forgiveness, and others. Which one you choose, or whether you choose all of them as a shotgun method of deterring the lenders is a matter that you should seek and get competent legal counsel to advise you. Your goals should be the to stop the foreclosure and if possible stop the payments that are “due” because you were the victim of an organized system of fraud that was worldwide. Your exit strategy is a deal where you stay in your house, you get terms you can afford, you get damages where appropriate, and recover attorney fees and costs where appropriate.

The filing of a lis pendens along with a counterclaim, and various requests for discovery will probably be an effective tool in turning the tables on the lenders. However, state law must be carefully checked along with Federal law with Federal agencies are involved, before filing a lis pendens or a counterclaim.

A stay might be obtained where there is potential criminal liability in parallel investigations or pending prosecutions. Defendants have a right to invoke their fifth amendment privilege in criminal prosecutions without (theoretically) causing any prejudice to their case. In civil cases, a person or company may invoke the fifth amendment privilege against self incrimination, but the trier of fact is entitled to draw an inference of fact from the person’s refusal to answer — especially where the person or entity is the Plaintiff or Petitioner as in the case of most foreclosures.

It is therefore likely that immediately upon filing a claim or counterclaim that alleges violations of criminal statutes, a party will ask for a stay of the proceedings. And in most cases, the Judge will be inclined to grant it. In the meantime, the owner/borrower remains in the house, and possibly gets to avoid making any payments while the litigation is pending — particularly where the counterclaim alleges compensatory, exemplary, punitive, and/or treble damages.

In cases where bankruptcy or assignment for creditors occurs for the lender or one of the parties in the decision-making chain on the lender or investor side, it is entirely possible for the mortgage to “fall between the cracks.” Therefore a suit to quiet title should probably accompany the counterclaims for damages and other equitable relief.

The assumption behind this guide is that the lenders and all the other players — developers, appraisers, construction lenders, banks, mortgage brokers, underwriters, lenders, investment bankers, retail brokerages, rating agencies and financial advisers all have potential liability in the mortgage meltdown. The general fact pattern assumed is that the borrower was steered into a purchase and loan arrangement under high pressure sales tactics and deceptive claims and that the buyers of collateralized debt obligations (CDO’s) were deceived as well in like fashion.

The principal claims are active, intentional deception, failure to adequately disclose the terms of the transactions, failure to disclose rebates, and yield spread premiums that went to various parties (including the sellers, the mortgage brokers and the lender), and failure to disclose the risks of the transaction. It may be fairly said that if borrowers were told the truth about what was in store for them, they would not have entered into the transaction. If they know the values were inflated, neither the borrowers nor the CDO investors would have entered into the transactions.

The basic thrust of the strategy is to put the lenders and their co-conspirators on the defensive. The end goal is to save the property, keep it occupied, present a clear alternative (to the lender) to writing off huge losses, and mitigating the losses to ALL parties, whether they are culpable or not. If at all possible, these cases should be settled and not litigated through trial. We are now traveling at the rate of over 270 new class actions per year resulting from the credit crisis and the number is likely to get larger by far. This rate exceeds anything in American history.

Remember to consider the original people involved in obtaining the construction loan to the developer. It is quite likely that these were the same people or had the same knowledge about what they were doing to the borrowers and the unsuspecting investors that they knew would get the brunt of this mess.

In your pleadings, it should be stated that this scheme resulted in the largest currency devaluation in modern U.S. History, and affects every American, and every foreign person, government, agency, village or city that put money into pooled funds of the CDO’s. Check the news and you will see that local governments are cutting back on services, losing access to the money they had, and that both corporate and government pensions are at risk. This should be alleged as a perverse arrogant scheme with reckless disregard to the security of the country, as well as the criminal, civil and administrative laws applicable to these transactions.

Do NOT, if you can avoid it, accept any loan modification that has any provision that even mentions inflation or any index on inflation. If hyperinflation sets in, this will mean a geometric increase in payments to the lenders even after you thought you had settled the issue.

Additional forms for litigation, discovery, modifications, forbearance etc. are available by contacting ngarfield@msn.com and will be attached to Garfield’s HandBook for Attorneys in the Mortgage Meltdown due for publication in late March. Manuscripts and forms will be available in February for Download upon payment of $49.95 for digital download and $59.95 for hard copy including shipping and handling. Attorneys and borrowers and investors should give consideration to joining one of the many class action lawsuits that have already been filed. In addition, several investigations and prosecutions have begun in many states. In many cases state agencies and law enforcement are allowed to get more information than you can get in discovery in civil litigation. Cooperate closely with these agencies.

Items to consider in lender liability: Most of these items can result in an award of attorney fees for the borrower’s attorney or the investor’s attorney depending upon whether you are representing one or the other. An interesting permutation of all this is that it is highly likely that a substantial number of people were borrowers under this scheme on one end, and were investors (at least indirectly) on the other end. In essence they were lending money to themselves and getting charged exorbitant fees for the privilege of doing so. Investors might not realize that their mutual fund, IRA, pension fund or whatever includes substantial CDO investments. They might not realize that their purchase of individual stocks might well have included financial and non-financial institutions that also have undisclosed substantial CDO risk.

TIL (Truth in Lending) disclosures: Did anyone actually read the provisions of the mortgage? Who advised the borrower about the future loan payments going up? Were the risks minimized in order to get the signature? Were the computations correct ( a mistake of even one cent anywhere on the documents gives you substantial leverage).
ARM adjustment computations. There have already been several successful prosecutions and class actions against large lenders for computing and rounding numbers in their own favor when resetting the adjustable rate mortgages. A small mistake is grounds for stopping the foreclosure.
Aiding and abetting violation of securities laws: Don’t forget the investment houses that had the write-downs both here and abroad. The reason they stocked up on CDO portfolios is not that they thought it was such a good investment. The real reason was that they were having great success selling huge chunks of these securities to foreign governments, financial institutions, cities, state funds etc. They were accumulating inventory so that they could sell at a profit in addition to the fees.
RICO: Pattern of behavior that constitutes organized criminal behavior: Treble damages and fees usually awarded. The theory here is that the incredible sophistication required to create these derivative securities and the the business model to market them belies the fact that each player in the scheme had to know they were not at risk. The only way they could know that they were not at risk was that they had covered themselves with self-serving valuation statements, letters of opinion from attorneys, ratings they had paid for from the major rating companies, and a tacit understanding that everyone would do their part in the scheme. It gave them “plausible deniability” as to any accusation that they knew the loans and the securities based on the loans were trash.
Violation of state, federal and administrative laws and rules governing currency, banking and loans
Fiduciary duty: superior position to borrower, reasonable reliance of the borrower on approval for loan, reasonable reliance on borrower on appraised value of him which was inflated, leading to controlling the borrower.
Interference with contractual rights and obligations: Non-disclosed kickbacks contributed to inflating the prices and fees and steering the borrower into loans that were more expensive than lower priced loans for which the borrower qualified.
Equitable subordination
Duress
Implied covenant of good faith and fair dealing
Usury: Possible tie-in with credit card and other consumer debt
Tying arrangements
Deceptive Trade Practices
Recharacterization of Transactions — changing the loan to (a) meet the reasonable expectations of the deceived borrower and (b) applying any damages awarded, attorneys fees, costs against balance due.
Class Action Suits
Stockholder derivative actions by the owners or equity interests or even debt instruments of corporations that participated in the deceptive scheme — remember to include the rating agencies — Moody’s, S&P, etc.
Bankruptcy Actions: fraud actions and defenses can be initiated in bankruptcy court. When the lender attempts top get a relief from stay, they should be hit with the suit, asking for a stay of their right to relief from stay.
Preferential transfers and transfers in fraud of potential creditors: By moving the risk along a daisy chain to avoid liability, the parties knew they were creating multiple and confusing layers to avoid prosecution of criminal and civil claims.
Explore cram down options in bankruptcy. In the presence of fraud claims from the borrowers, cram down options might be more liberal than usual, depending upon the judge.
Discovery: Get access to emails, correspondence etc. dating back before the loan and relating to the creation of the loan product the borrower eventually was sold. Same for what they know of the other players — developer/seller, mortgage broker, appraiser, relations with investment bankers showing they knew they would not be carrying he risk of the loan ( shows they had not interest other than closing the deal without concern as to whether the deal went bad for borrower or lender). Get screen shots of websites and see if you have copies of web pages that were printed during the loan and sales process. Check for differences. If someone has been fired at the lender for the events leading up to the CDO and mortgage meltdown, get their deposition. Demand copies of drafts of documentation before it was presented to the borrower along with any emails or inter-office memos. Find out if anyone has consulted counsel for criminal exposure, employment litigation, or civil exposure. You can’t get the content of the conversation but you can get the answer to that question if you phrase it right.

Good Luck. More to Follow. GTC | Honor Website is in Construction. We are moving as fast as we can!

Filed under: CDO, currency, Eviction, foreclosure, GTC | Honor, inflation, Investor, Mortgage, politics, securities fraud | Tagged: forbearance, lis pendens, modification, Mortgage, RICO, securities violation, truth in lending | 8 Comments »

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CFPB LIKELY TO ADOPT RULES REGARDING “QUALIFIED” MORTGAGES

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ELLIE STEWART, Plaintiff, v. BAC HOME LOANS SERVICING, LP, DEUTSCHE BANK NATIONAL TRUST CO., and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants.

MEMORANDUM OPINION AND ORDER

I. BACKGROUND

A. Complaint Allegations.

B. Procedural History.

II. LEGAL STANDARD

III. DISCUSSION

A. Liability of MERS and BAC Under TILA.

B. Failure to Disclose Claims.

C. Loan Rescission Claim.

D. Failure to Honor Rescission Claim.

IV. CONCLUSION

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ELLIE STEWART, Plaintiff,
v.
BAC HOME LOANS SERVICING, LP, DEUTSCHE BANK NATIONAL TRUST CO., and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants.