TILA Rescission in a Nutshell

For more information please call 954-495-9867 or 520-405-1688

NOTE: There are strategic nuances here on when to do what. That is included in our rescission package. Some things are better left unsaid in a public forum. This is not an opinion of law upon which you should rely. You should find an attorney who has studied this issue carefully and then rely on their advice.

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On the one hand you have a bunch of lawyers and judges who have studied the remedy of TILA rescission and all of them have come up with a unanimous conclusion: the deal is canceled when a notice of rescission is put in the mail.
On the other hand you have a bunch of judges and lawyers who have not studied the situation and who have arrived at the mistaken conclusion that they may reinterpret the TILA rescission anyway they want and that the rules of common law rescission will be applied.
Who is right? Answer: group #1. How do I know? Because the Supreme Court in the Jesinoski decision has already ruled and there is no higher place to go. The ruling from the US Supreme Court was unanimous which in our highly polarized world is as unusual as the TILA rescission remedy which they affirmed. The Supreme Court is not always right, but it is always final — their ruling is the law of the land. People can differ on whether they were right or wrong in Jesinoski — but either way there is nothing anyone can do about it. Only Congress can change the law.

TILA Rescission is a strategy that should considered in virtually all consumer loan cases. This might involve an enforcement action in Federal Court or State Court. The sooner you send the rescission the sooner the 20 days will expire. It is ONLY after the 20 days that you can take the position that they are in violation of statute and that they have waived any objection to the rescission — unless they file a lawsuit against you seeking to vacate the rescission, which IS effective by operation of law, the moment you drop it in the mailbox.

There are three TILA RESCISSION duties that arise for every lender and one remedy to get out of it. The three duties are (a) return of canceled note (b) filing any papers necessary to remove the mortgage encumbrance from the homeowner’s chain of title and (c) return of all money ever paid by the borrower or to anyone in relation to the loan whether it be for fees, interest, principal or other compensation. If they want to stop these duties from being applied against any of the people in the chain that made allegations of ownership, balance, servicing or default, they must file suit, as a creditor, within 20 days from the date of the notice and get an order within that time that vacates the rescission.

The creditor has 20 days in which to comply. If they don’t comply ( or sue and get a court order) there are the following consequences: (a) they are in violation of statute, subject to an enforcement suit on their duties under rescission (b) they have waived any objection to the rescission that should have been brought as their own lawsuit within the 20 days and (c) if they continue to stonewall their obligations for one year, the creditor (if there is one) waives any right to demand any payment on the rescinded loan — the debt is extinguished along with the previously extinguished note and mortgage. Standing for the lawsuit can only be by way of allegations that they are the true creditor and cannot be based upon the void note and void mortgage because you can’t use a void instrument as the basis for any claim.

Note that the suit to enforce the rescission is NOT a suit to make the rescission effective by operation of law. The cancellation of the note and mortgage has already happened as the Jesinoski decision made abundantly clear. The note and mortgage are void as of the date of mailing of the notice of rescission.

This is a very unusual remedy for borrowers that both judges and lawyers have been misinterpreting for years. The idea that a borrower, on their own, could end a loan involving hundreds of thousands of dollars with a simple letter is NOT what the Judges or lawyers think is the right approach. It doesn’t matter what they think. Congress passed this law and it was signed into law by the President 50 years ago.

The Courts cannot reinterpret it to mean something else without violation of separation of powers between the judiciary and the legislative branches of government.What matters is that It was not until the Jesinoski decision that thousands of Judges and tens of thousands of lawyers were told that they were wrong for the last 15 years. The loan is cancelled by the mailing of the notice of rescission.

TILA Rescission is a specific statutory scheme that is different from common law rescission. What the Judges and lawyers failed to perceive when they started messing around with the interpretation of a perfectly clear statute is that if their approach was upheld, the entire system of nonjudicial foreclosure would be subject to the same reinterpretation. And for those of you who recall in nonjudicial states, the challenges to nonjudicial foreclosures were met by the banks arguing that the courts have no business interpreting a specific statutory scheme that is very clear on its face and can only be overturned if it is deemed unconstitutional on its face or in its application. The banks won, which means borrowers win on the issue of rescission.

The January ruling from a unanimous Supreme Court was unusual unto itself. The opinion written by Justice Scalia was terse and caustic — showing the court’s irritation at having to remind judges and lawyers that there is a basic rule of law that says that the court may not “interpret” a statute that is unambiguous. This statute is clear as it could be. So even if a Judge doesn’t like it or doesn’t believe it should be the law, or doesn’t like the result, the Judge has no choice but to follow the rule of law set forth in TILA, in Reg Z and in the Supreme Court decision issued in January. The only way this can change is if Congress passes a new law.

The key to your rescission strategy is going to be the answer to this question: under what circumstances is the effective date of the rescission delayed or contingent? The answer is none. That answer follows from the fact that the rescission IS effective on the date of mailing BY OPERATION OF LAW. So the issue has already been decided by Congress, the Federal Reserve (reg Z) and the US Supreme Court. Like any order or act that is effective by operation of law, rescission may be vacated — but not ignored. And like other orders or actions that are effective by operation of law, there are limits on the ability to sue for temporary or permanent injunction.
And THE bank or alleged servicer writing a letter to YOU saying that you have no right to rescind means nothing except that they received the notice — just like when you write a letter to them asking them to please not foreclose because you have in fact made all your payments. The banks and servicers ignore those letters and get foreclosure judgments and sale of the property no matter how many letters you write. If you don’t challenge them IN COURT it means nothing.

Once the 20 days has expired you need to consider whether to hire counsel to prosecute the enforcement of the rescission. Those allegations consist of reference to the note and mortgage, the fact that you did rescind the transaction and that the loan contract is canceled and then the fact that the creditors are in default of their obligations under TILA. The upside is that it should result in cancelling the foreclosure case because the mortgage and note will then be void by operation of law. The Court lacks jurisdiction to enter a judgment of foreclosure on a mortgage that is void at the time the court hears the case. The downside is that if you win the enforcement action it is going to result, if they comply, in them sending the canceled note, filing the satisfaction of mortgage and giving you the money that was paid. But THEN the creditor may, for the first time, demand payment on the old loan. [see our rescission package on further details and strategies on this]

Beach v Ocwen: 1997 Decision that will be used by banks and servicers against rescission

For Further information and assistance please call 954-495-9867 and 520-405-1688.

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See Beach v Ocwen Fla. Supreme Court

I have no doubt that the Banks will attempt to use this decision — but it still is trumped by Jesinowski and other Federal decisions on equitable tolling. Having the right to cancel/rescind is described as extinguished by TILA regardless of the circumstances — including the absence of any enforceable loan contract.
This decision (1998) was rendered far before the idea of securitization was introduced into mortgage litigation. The interpretation of the extinguishment of the underlying right made sense in the context of loans from Bank A to Borrower B. In the era of securitization you have all kinds of questions — like when the transaction was “commenced”. The courts say it is when the “liability” arose. I agree — if we are saying that the consummation of the transaction begins when the lender loans money to the borrower. But in most cases we see that the lender did not loan money to the borrower and that is corroborated by the absence of anypurchase transaction, for value, when the alleged loan is “transferred.” There is no reasonable business explanation of why anyone would release an asset worth hundreds of thousands of dollars without receiving payment — unless it wasn’t an asset of the “seller” in the first place.The presumption is that TILA rescission rights run from the date the liability arose from the Borrower to the Lender. If the Lender was not properly disclosed, then one of two things are true: (1) there is no loan contract which means a nullification and quiet title action is appropriate or (2) until the real lender was disclosed, the transaction was not consummated. That might mean that both the three day rescission and the three year rescission are in play. If the position of the foreclosing party is that a REMIC Trust was finally disclosed to the borrower — and that the Trust was the lender, then disclosure is complete. But that isn’t what happened.

The ultimate decision here is going to be on the question of whether there is in fact a loan contract, and, if so, who were the parties to it? If there was no contract, it is the same as rescission by operation of law. No new rights arise on assignment or even sale of the loan from a pretender lender — unless the purchase was in good faith FOR VALUE and occurred without notice of borrower’s defenses and NOT when the loan was already in “default.” This narrow exception arises under the UCC for a Holder in Due Course to be Protected if they meet the narrow criteria stated in the UCC, article 3, and the narrow enforcement criteria for the mortgage expressed in Article 9.

The so called default is another hidden issue. If someone “acquires” the note and mortgage where the Borrower has already not paid or stopped paying on the alleged loan, then (1) it isn’t negotiable paper and (2) it provides notice that the borrower might not be paying because they don’t owe the party or successor on the note and mortgage (and never did).
When the mortgage crisis began, the banks and servicers were claiming that there were no Trusts and that they could file suit or initiate non-judicial foreclosure without any reference to trusts. That was why forensic audits were initially required — when we thought that REMIC Trusts were the true players. Banks and servicers argued convincingly in court that the Trust was irrelevant. Now in most cases (with some notable CitiMortgage, Chase and BOA exceptions) the Plaintiff or beneficiary is identified as a Trustee, bank or servicer (US Bank usually is the Trustee these days) on behalf of a REMIC Trust. They are now saying that they have the right to be in court or initiate foreclosure because (1) the Trust received an assignment and endorsement of the note and mortgage (2) the servicer has a right to represent and even testify for the the Trustee on the basis of the rights set forth in the Pooling and Servicing Agreement or by virtue of Powers of Attorney that magically appear at trial.
So the banks, servicers and their attorneys are side-stepping the issue of consummation of the transaction. They are withholding the information where the right of rescission would first become apparent to the borrower. When they withhold the information longer than 3 years from the date of the purported “loan closing”, they claim the right of rescission has expired. That is cynical and circular reasoning. That “closing” may be the point in time that the borrower’s “liability” arose, but the liability did NOT arise with the creditor being the party named on the note, mortgage and required disclosure documents.
Instead, the Payee was a naked nominee regardless of whether the “lender” was a thinly capitalized mortgage broker or a 150 year old bank.
Neither one loaned the money. In both cases there were using money essentially stolen from clueless investors on Wall Street who advanced money for the purchase of shares (mortgage backed securities) issued by an unregistered Trust that existed only on paper, had no bank account, and never received the proceeds of the shares that were supposedly sold to pension funds and other “investors” (actually victims of a fraudulent scheme).
The real answer is, as I have repeatedly said, that there was no loan contract and therefore the note and mortgage were induced to sign by both fraud in the inducement and fraud in the execution.  But the courts may turn to a foggier notion that the disclosures were intentionally withheld and that this entitles the borrower to equitable tolling of the 3 day or three year statute of limitations. It seems highly doubtful that the US Supreme Court will reverse itself.
If they deny equitable tolling by allowing stonewalling from the Banks then no new Bank would be able to enter the picture which is the whole purpose of the TILA rescission. While courts might find the argument from the banks and servicers as appealing, history shows that the US Supreme Court is just as likely to effectively reverse thousands of decisions based upon the wrong premise that rules and doctrines for common law rescission can be applied to TILA rescission.
Yet my point goes further. The express wording of the TILA rescission as affirmed by a unanimous Supreme court in Jesinowski is that the rescission is effective by operation of law when it is dropped in the mailbox — and that there is nothing else required by the borrower. If the “lender” wants to challenge that rescission it must do so before the 20 day deadline for compliance — return of canceled note, satisfaction of mortgage and disgorgement of all money paid. This makes it very clear that stonewalling or bringing up defenses later when the borrower seeks to enforce the rescission is not permissible. The idea behind TILA rescission has been to allow a borrower to cancel one transaction and replace it with another — which means that title is clear for a new lender to offer a first or second mortgage free from claims of the prior pretender lender.
Thus the expected defense from the banks and servicersis going to be that the rescission was void ab initio because of the statute of limitations or some other reason. But these are affirmative defenseswhich is to say they are pleas for affirmative relief in a formal pleading with a court of competent jurisdiction. That court does not have any jurisdiction or discretion to find that the rescission was void ab initio if more than 20 days has expired after the notice of cancellation or rescission was made.Thus procedurally, the express wording of TILA and Jesinowski totally bars the banks and servicers from raising any defenses to the effectiveness of the rescission after 20 days from the date of notice of rescission. To interpret it any other way is to overrule Justice Scalia in Jesinowski. It would mean that the banks and servicers and Trustees could later bring up defenses to the rescission which would completely bar the ability of the borrower to apply for a substitute loan. No lender is going to offer a mortgage loan where they are taking on the risk that they are not getting the lien priority that is required to assure payment and collateral protection.

And the reason why there is no qualifying creditor to bring the action within 20 days will be taken up in an upcoming article “What if a Broker Sold an IPO and Kept the Proceeds? — The True Explanation of Securitization Fail.” Also see Adam Levitin on that.

Rescission: Window of Opportunity for Borrowers

For further information please call 954-495-9867 or 520-405-1688

We have a pilot program for assistance with rescission — past, present or future. Just call one of the numbers shown above.

NOTE THAT THIS IS FOR GENERAL INFORMATION AND EXPRESSES THE OPINION OF THE WRITER. THIS SHOULD NOT BE USED A SUBSTITUTE FOR ADVICE FROM AN ATTORNEY LICENSED IN THE JURISDICTION IN WHICH YOUR PROPERTY IS LOCATED.

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The basic premise, legally, is that a rescission letter is defined as effective when it is dropped in the mail. Of course if the defense is that there is no loan contract to rescind, then the rescission is ineffective but you get to the same result because they note and mortgage arose out of a nonexistent contract.

The key issue is that under TILA there is a very specific procedure and a small window of opportunity in which a “lender” can challenge the rescission. The Banks and their lawyers are having trouble with this and I expect that there will be changes in the law. But right now, the statute and Scalia’s opinion makes it very clear that TILA rescission is subject to an entirely different set of rules than common law rescission — the key component of which is that the “Borrower has nothing else to do” to make the rescission effective. It is effective the moment it is dropped in the mail.

And the importance of THAT is there is NO permissible “interpretation” nor “discretion” to find or even consider anything else. And THAT means that even if the “lender” or “creditor” has perfectly legitimate defenses to the rescission, the rescission is still nonetheless effective BY OPERATION OF LAW.

That language “by operation of law” is very important because it means the act of the borrower in signing and sending the notice of rescission is the same as a court order canceling the loan.

And therefore the ONLY thing that could set the rescission aside is a court order from a court of competent jurisdiction. But no court has any jurisdiction to consider the question of whether the rescission is effective, UNLESS they file a lawsuit within 20 days of the notice. This is similar to the deadlines for motions for rehearing, deadline for notice of appeal, or deadline for borrowers to challenge Notice of Sale in non judicial sale. If you miss the deadline, you are done — no exceptions.

The reason why Congress wrote the statute that way is to prevent the Banks from using stonewalling as a technique to hold up the effectiveness of the rescission. They do not have that option, they file or they lose the loan. AND after the 20 day period has expired, the ONLY thing that a Judge can consider is the borrower’s petition to ENFORCE THE RESCISSION.

Hence the “Bank” cannot bring up a defense about whether the rescission was effective when the borrower’s enforcement action is filed. Their only defense would be that they are (a) not the lender and never received any money from the borrower or the borrower’s “closing” or (b) that they performed already as required by statute — return of canceled note,filing of satisfaction of mortgage and return of all money paid by borrower and disgorgement of of all fees and costs at closing (including undisclosed compensation).

I therefore conclude that in the current statutory scheme if the Bank does not file the challenge to the rescission within the 20 day window, they can never bring it up again — no matter how patent the “defense” might appear on the documents or the notice of rescission. I am sure that the bank WILL defend by saying that the notice was not filed within the time limits prescribed by law (statute of limitations) or some that the made all required disclosures. But these are affirmative defenses and not jurisdictional issues that are obvious on the face of the applicable documents. Hence such Bank or Servicer defenses to the borrower’s enforcement action are barred  because they missed their window of opportunity to bring them up within the 20 day period in which they could challenge the rescission.

In addition, no claim can be made by anyone for money to pay the balance of the debt (which becomes unsecured the moment the notice of rescission is mailed) unless compliance is complete — return of note, filing satisfaction mortgage and return of money to the borrower.

I therefore conclude that there is nothing illegal about sending a notice of rescission on any existing loan (i.e., existing legally, having not been previously canceled by a notice of rescission). And since both the statute and the US Supreme Court both say that the sending of the notice of rescission or cancellation is effective by operation of law upon dropping a letter into a mailbox, then any loan could be subject to a notice of rescission (although I expect that some changes are being sought by banks to prevent the “abuse” of the TILA rescission).

Accordingly in my opinion, anyone who has an arguable problem with their loan origination should be able to send a notice of rescission and simply wait for 20 days, or perhaps a few more for mailing, to see if anyone sues them challenging the rescission. If they don’t sue, then there is nothing to prevent the borrower from seeking to enforce the rescission which was effective when they dropped it in the mail.

And I think that anyone who has a copy of such a rescission notice but doesn’t have either a return receipt or a response from the “lender” showing that it was received can nonetheless seek enforcement of that rescission, which was effective whenever they say it was mailed, whether dated or not. Testimony from the borrower that it was sent on, for example, October 1, 2009 is sufficient.

If the defense is that the notice of rescission or notice cancellation (SAME THING) was never received, the Bank is going to be required to prove that it was not received because of the presumption of notice upon mailing. Given the horrible record-keeping and fabrication of records that the Banks have established, the credibility of the Banks is not likely to carry the day.

In summary I think that any claim that any rescission notice is invalid can ONLY be brought in the 20 window. Any other interpretation would violate the expressed opinion by the US Supreme Court and TILA and Reg Z that “nothing further is required” from the borrower. The notice is simply effective when sent. If anyone wants to contest that, they have a short window in which to do it. I have no doubt that the Banks will defend TILA rescission enforcement actions with defenses that essentially say that the notice of void on its face for one reason or another. My point is that whatever is their point of defense is barred if they did not file the required challenge during heir window of opportunity.

Remember that issue as to the date of consummation, the statutes of limitations, the disclosures that were made are all issues predicated upon real facts and legal interpretation. TILA rescission was written so that a borrower could cancel a loan without a lawyer. That much is true. But it is obvious that the banks are not going to comply with TILA rescission requirements and that enforcement actions will be required on behalf of borrowers. Judges tend to hate TILA and they hate TILA rescission even more. But there really is no discretion and no jurisdiction here unless some Judge thinks he or she can overrule the US Supreme Court. Based upon the US Constitution, that could only work in some other country with a different law of the land.

My best guess is that the right to rescind is going to get more narrow as time goes by rather than broadening. I don’t think we will see the door open this wide ever again.

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