8th Circuit Comes Down Heavy for Homeowners on TILA Rescission

Many thanks to Alan Baron who has been staying on top of the research.

Rand Corporation v Yer Song Moua: Manisy Moua, John Doe, Mary Roe, United States Court of Appeals Filed March 20, 2009. 8th-cir-tila-rand-march-20-2009

Phoenix, Az March 25, 2009. by Neil Garfield. Despite nearly heroic efforts by the banking industry to avoid an appellate decision, they are nonetheless starting to emerge, with darkening clouds around all securitized mortgages and potentially any mortgage. Here are some of the highlights of this decision:

1. “We reject Rand’s attempt to avoid responsibility for Excel Title’s actions. Even assuming its assertion were true, the obligation to make TILA and HOEPA disclosures rests with the creditor. See 15 U.S.C. Sec 1631(b). Footnote 4 {Editor’s Note: Hence the core assumption of the Garfield Continuum has been ratified. The disclosures must be complete, honest, forthright and not confusing. And the main responsibility for compliance rests with the “lender.” In the table funded securitized loans the “lender” is not even identified, much less the necessary disclosures on hidden fees, profits and default or risk insurance and credit default swaps. This does not let the title company off the hook if they knew the disclosures were not being made. It creates joint and several liability for BOTH the “lender” and the closing or title agent. The “real” undisclosed lender is probably as responsible for compliance as the named “lender” at closing, since it was directing the standards for underwriting and closing, adding a third party responsible for compliance. Any Trustee on a Deed of Trust, a pool, or a special purpose vehicle issuing mortgage backed securities alleging that it has the status of holder in due course does so at its peril: the Uniform Commercial Code makes it crystal clear that anyone making the holder in due course claim, does so subject to the claims, defenses, affirmative defenses and counterclaims of the alleged borrower.  Any mortgage servicer, administrator (like MERS) would be subject to the same rules.}
2. “Rand argues it also provided disclosures on January 5, 2005. It concedes, however, the terms of the loan changed after those disclosures were made. The record indicates between January 5, 2005 and April 22, 2005, the amount of the loan and monthly payments increased significantly.’After providing the disclosures required by [15 U.S.C. Sec 1939(a), a creditor may not change the terms of the extension of credit if such changes make the disclosures inaccurate, unless new disclosures are provided that meet the requirements of this section’ 15 U.S.C. 1639(b)(2)(A). Thus we consider only the disclosures made April 22, 2005.” Footnote 1. {Editor’s Note: This appears to completely negate prior attempts at disclosure or “stacking” disclosures because of the confusion it creates. The reason is that the disclosures are meant to inform and not to “confuse” the consumer. }
3. “Requiring borrowers to sign [documents] which are contradictory and demonstrably false is a paradigm for confusion.” The Mouas signed a statement on April 22, 2005, certifying it was April 26, 2005. The average borrower would be confused when instructed to certify a falsehood, and as to the effect of the falsehood. Page 10. {Editor’s Note: The enormity of this finding in the opinion cannot be overstated. Our opinion is that it is the responsibility of the “lender” (see above for other parties too) for so-called liar’s loans or other errors in the application process or other documents signed by the borrowers. This Federal Appeals Court Opinion entered a few days ago agrees.}
4. “The Wiggins Court found the form ‘both objectively false and internally inconsistent’ because it purported to notify the borrower of her three-day right to rescind, while simultaneously requiring her to certify the rescission period had expired.” Page 10 {Editor’s Note: This is the path of argument for virtually all securitized loans in which the fact that the loans were part of a “pattern of conduct” in which the loans were table-funded, the real parties were never disclosed, the real party in interest (Investor) was never disclosed and even withheld upon specific request by the borrower) and the fees and profits earned by all the undisclosed parties to the transaction were also undisclosed and withheld even upon direct questions in a debt validation request or Qualified Written Request under RESPA. In point of fact this entire transaction wherein the borrower executed documents was a sham in which the borrower’s signature was pre-sold to the highest bidder, meaning the terms of the loan would have been far better from the point of view of the funding source, had they met directly. Further, had they met directly they would have both known they were “on their own” in assessing the value of the property, the loan risk and likelihood of repayment. This is why the right to rescind exists for all borrowers and why it probably exists for all investors. The borrowers were turned into unwitting issuers of unregulated securities under circumstnaces where everyone except the borrower knew that the borrower would eventually suffer fianncial injury either through foreclosure or failure of the appraised value of the house to withstand the test of time.}
5. “Profferring of the election not to Cancel during the transaction would confuse any borrower…” Page 9 Rodash v AIB Mortgage Co., 16 F 3d 1142 (11th Cir. 1994) at page 1146. {Editor’s Note: Once again, another Court another case all finding that any contradictory behavior or forms or disclosures is not in compliance with TILA.
6. “TILA Sec 1601-1667f, was passed by Congress as a consumer protection act, Mourning V family Publications Service, Inc., 411 U.S. 356, 363 (1973), and its provisions, as well as Regulation Z (FRB), are remedial legislation [and rules], to be construed broadly in favor of consumers, Griffith v Superior Ford, 577 F. 2d 455, 457 (8th Cir. 1978). ‘Alleged violations of TILA are subject to an objective standard of review. Courts have applied such an objective standard regardless of whether the borrower is a trained attorney pr simply an individual with a sudden need for additional funds.” Wiggins v AVCO Fin serv, 62 F. Supp. 2d 90, 94 (D.D.C 1999). Page 6.  {Editor’s Comment: This is the nail in the coffin of the “blame the borrower” theory. It never was true that borrower’s were responsible for compliance. It was ALWAYS true that the lender’s were the fiduciary for the borrower and were completely responsible for compliance regardless of subjective factors involving the training or experience of the alleged borrower.}
7. “Under TILA, if a loan is secured by a debtor’s primary residence, “the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms …. whichever is later.” 15 U.S.C. 1635(a) {Editor’s Note: While explicit only under the facts of these disclosures, this Court opinion is clewarly expressing the overwhelming majority view that the right to rescind does NOT start running until the transaction is complete or the delivery of information and forms. Delivery of forms is not enough. The transaction must have been consummated and the information must be delivered. Thus withholding the real name of the lending source, refusal to provide it later under guise of confidentiality or other lame excuse, keeps the transaction in a state of limbo because the full transaction has either not been completed (see single transaction theory which would incorporate all of the insurance, credit default swaps, collateralization and third party transactions which completed the entire transaction) or has not been disclosed through the delivery of information about the transaction (not telling the borrower that his signature and identity were being launched from the closing table into the hands of unknown investors putting up much more money than the amount required to fund loan transactions), with huge fees and profits generated by all the intermediaries, with the condition that if the borrower or one of the insurors did not pay, the Federal government would step in and pay 100 cents on the dollar to satisfy all counterparty risks. Two things apply here: (1) the addition of conditions and parties, co-obligors and insurors had the effect of changing the instrument (note) from a negotiable instrument to a non-negotiable instrument, (meaning the original obligation was paid in full and a new obligation was thus created under UCC Article 8) and (2) since the information about all the undisclosed players and their fees and profits was never delivered to borrower, the transaction is either not completely consummated or rescindable under the three-day right of rescission. Any argument to the contrary under the great weight of all opinion of the courts would be contrary to the rule of construing consumer remedial legislation liberally in favor of the consumer “borrower.”

Tags: bailout, borrower, disclosure, Federal reserve, foreclosure defense, foreclosure offense, fraud, Lender Liability, mortgage meltdown, predatory lending, rescission, RESPA, securitization, TILA audit, trustee
Posted in Eviction, Modification, securities fraud |