RESCISSION IS NOT A GIMMICK. IT IS PUBLIC POLICY! TILA is designed to punish banks who play outside the rules. It is designed to put all the power into the hands of the borrower. AND it has worked up until it stopped working with hundreds of erroneous decisions by trial and appellate courts that only got corrected by a unanimous Supreme Court opinion written by Justice Scalia. The playing field is level again. Let the chips fall where they may. See Jesinoski v. Countrywide Home Loans, Inc.
I received an email from one of my most knowledgeable anonymous contributors. It raises an interesting question. If the lender was not disclosed at closing, then is a TILA rescission effective? My first answer is that if the rescission notice is sent, then the mortgage and note are nullified by operation of law unless the “lender” files a lawsuit within 20 days contesting the notice of rescission. So whether you were right or wrong, it would be my opinion that if the “lender” does not respond, the matter is closed and that is the end of the note and mortgage. And if there is no note and mortgage then anything that happens afterwards is void because you can’t get a foreclosure on a mortgage that legally does not exist even if a copy of the mortgage is sitting in county records. And a sale would also be void. That is the way I see it.
But the interesting direct answer already found in the court system is that if the lender is not disclosed there can be no consummation because there is no loan contract unless you have at least two identified parties. If there is no loan contract there is nothing to rescind. But an admission from the “lender” or a finding by the court that TILA rescission is not available because the loan contract was never consummated or did not exist leads inexorably to one conclusion: the borrower still wins. The borrower can then sue to nullify the note, mortgage, debt, foreclosure and even auction on the basis that they are void by operation of law because there was no deal. And the borrower could then, in my opinion, sue to have the banks and servicers return the monthly payments and other payments they collected on the nonexistent contract for all the money they collected. This too is supported by some case decisions where Bank of America and others have been required to disgorge money they received when they had no right to collect it in the first place.
So while there is a specific legal theory on how to deal with this issue there is also a hidden issue that probably puts the pretender lenders in the corner. In order to challenge the rescission they must file a lawsuit within 20 days asking for declaratory relief that the rescission is not effective. If their grounds are that TILA rescission is not available because there was no contract, then they are essentially arguing that the borrower can’t rescind because there was no contract. Either way they lose the deal, the mortgage, the note etc.
But that is not the only problem for pretender lenders. In order to establish standing to challenge the rescission they must allege that they or their predecessors were the real lenders and were the actual source of funding. Those allegations puts the burden of proof on the pretender lenders. They must prove the original loan and the acquisition of the loan not just by paperwork that says it happened by by showing that money exchanged hands both at origination and acquisition of the loan.
Here are the thoughts of anonymous:
“Just of interest in regards to getting into TILA rescission attempts past the 3 year mark of when loan was supposedly “consummated”, and trying to use lack of such as an argument. I came across the following case of Weintraub in 4th circuit saying, “No consummation, No TILA rescission.” http://www.bankersonline.com/infovault/weintraub.pdf
Then you have the following theory, no consummation, TILA never tolled, good for a past 3 year-er:
(1) Ramsey v. Vista Mortgage Corp, 176 BR 183 (TILA RESCISSION IN BANKRUPTCY CHAPTER 13 CASE). In this case, the court laid down the test of when the three year right to rescind begins to run and specifically tackles the concept of when a loan is “consummated.” Several internal citations also help clarify this point. Here is what the Ramsey Court said:
“When Ramsey signed the loan documents on September 13, 1989, he knew who was going to provide the financing. Courts recognize the date of signing a binding loan contract as the date of consummation when the lender is identifiable.” The Court also cited to the Jackson v. Grant, 890 F.2d case (9th Circuit 1989), a NON-BANKRUPTCY CASE, and said: “the Ninth Circuit held that under California law a loan contract was not consummated when the borrower signed the promissory note and deed of trust because the actual lender was not known at that time. Under these circumstances, the loan is not “consummated” until the actual lender is identified, because until that point there is no legally enforceable contract.”
Now, I have to say I am more in the camp of the 4th saying that if you have no contract, there is nothing to rescind, but I guess you could say that it’s merely a discovery point and the rescission is conditionally effective until discovery is complete as to what actually occurred and can be put together by the court from the evidence (Then maybe a TILA rescission will be effective, maybe not; if not because there is no contract, what does the homeowner care? Nearly same result, plus he gets to sue for fraud and other damages suffered I guess….?), but what’s a past 3 year-er to do when arguing TILA?
……. if it turns out that consummation did not occur because the bank willingly withheld the table funded partners identity, or alternatively was acting as straw-man for undisclosed investors, and was using their money directly instead of funneling through the REMIC to purchase the home loan (therefore it really was not a buy-sell transaction, it was a disguised buy using duped investors money who expected a legitimate buy-sell to occur, but REMIC was not properly funded), then what angle do you think is best for TILA- Leave consummation out of the initial argument, and hang your hat on equitable tolling if past 3 year mark, or keep it in and argue both points”
And here is an article I found that describes the process of rescission. I think some of the issues presented might not be entirely correct, but it is definitely one point of view that deserves consideration.
The procedural question of whether a notice of rescission can be challenged outside the 20 day period provided in the Federal Truth in Lending Act is something that lawyers need to consider before they tell a client they cannot rescind. If there is an arguable basis for sending the notice on the belief that it is proper, then the defenses to the rescission can only be raised by operation of a legal proceeding — in a court room.
Hence, it is my opinion, that while there are risks in doing so, the sending of a notice of rescission that is based upon incorrect assumptions does not mean the rescission is void. Quite the contrary, in my opinion.
The receipt of that rescission means there is no more mortgage and there is no more note until a court says otherwise. And the court can’t say otherwise unless the “lender” brings a lawsuit to challenge the rescission within 20 days of receipt. Since there have been no such lawsuits filed to my knowledge it therefore appears to me that all notices of rescission that were ignored or “rejected by letter” had the effect of making the mortgage and note permanently void by operation of law without any lawsuit needed to enforce that presumption (see US Supreme Court decision written by Justice Scalia).
Some people or perhaps most people regards this strategy as a gimmick. But Congress passed it to avoid a super size regulation system with thousands of agents. It was designed to punish banks who screwed with the system so they would essentially police themselves. Obviously that premise didn’t work until now. It is national public policy not a gimmick. They gave the “lenders” a very short window to undo the damage if they thought the borrower was wrong but if we read the plain words of the statute and the plain words of the Supreme Court, if they don’t do it within the 20 day window, they have lost the loan. They might still theoretically be able to collect on the loan but only if they can prove they loaned the money or paid for the debt. Their action would essentially be for unjust enrichment. And it would be unsecured.