Rescission: Putting the Pedal to the Medal — Window of Opportunity for Borrowers Might Close

Apr 9, 2015

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

The Pilot Program on rescission ends April 14.

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TILA rescission procedures appear to apply to all loans. Whether the facts support TILA rescission is another matter. If you send a notice of rescission and you are incorrect about your ability to cancel the loan, then the bank can file an action within 20 days of receipt of the notice to file an action saying that the rescission should be blocked. Otherwise the rescission is effective by operation of law from the moment it is dropped in the mailbox. Not all closings are as clear as the banks would have the court think. While there are restrictions on when a borrower is entitled to cancel the loan, those are questions of fact that must be raised before the 20 day window expires. That’s how we see it and we think the Scalia opinion says the same thing.

The act of rescission is simple — signing a notice and dropping it in the mail. The only further legal procedure by borrower would be enforcement of the rescission if the “lender” failed to file a challenge within the 20 day window. It is the procedural complexity that makes it necessary to be ready with effective arguments and pleadings to enforce the rescission. But the rescission is effective the moment it is dropped in the mail; that is true by operation of law, which means it is the same thing as a Judge signing a court order canceling the loan. If the Bank wants to change that “order” the Bank must file a challenge in court within the 20 day window. If they don’t challenge the rescission in court the rescission is effective even if there were defects in the fact pattern behind the notice of rescission.

This is the same as the foreclosures. If there were defects in the foreclosure process and orders and judgments are entered anyway, the borrower must challenge those within the time limits provided by law. But if the rescission was sent prior to the entry of those orders and judgments, then everything that happened after the rescission was void because, by operation of law, there was no note or mortgage.

This is why we are offering a though TILA Rescission analysis, report and templates to be used as necessary. What we are providing in our pilot program (ending April 14) is not just the rescission letter which is relatively minor, but the report on which your attorney can rely in filing for quiet title and and other remedies under TILA and state law resulting from the cancellation of the note and mortgage (or deed of trust). While you definitely don’t need a lawyer to send a rescission letter, you DO need a lawyer to enforce it when the Bank stonewalls.

Strategically what is important is that you don’t get drawn into arguments about whether the rescission was within the statute of limitations or other “affirmative defenses” that are based in fact and which SHOULD have been raised within the 20 day window for the Bank’s challenge. The rescission is final as of the day the notice was mailed, same as a court order. As other courts have noted, if the Bank were allowed to bring up a challenge after the 20 day window, then the specific purpose intended by Congress in TILA rescission would be defeated. The borrower’s rescission would mean nothing until after the borrower sued to enforce. The intention is that the rescission is effective WITHOUT a Lawsuit.

Listen to the radio show tonight where I will answer more questions about this. I must say that I don’t expect these procedures to remain undisturbed. The banks are clearly moving to change things so that everyone doesn’t cancel their loan, their note and their mortgage. The time to act is NOW before they change the rules again.

Of course the easy answer would be that a real creditor steps forward within 20 days of the time of rescission and proves that the origination of the loan was completely compliant with TILA disclosures. Then they wouldn’t need to change the rules. The problem for the banks is that they don’t own the loans, they are not authorized to represent anyone who does own the loans, the note and mortgage was defective or void at inception, and the balance due on the loan is unknown because of the number of times the loan was sold and the number of co-obligors who paid down the obligation (borrower, insurer, servicer advances etc).

Tags: Pilot, TILA rescission
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