USING RESCISSION AS A PROCEDURAL TOOL

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

The most persistent problem facing homeowners today is that in any challenge to the apparent “lender” there are presumptions that arise in the mind of the court in favor of the supposed creditor and against the homeowner. Using rescission as a procedural tool, along with the current news cycle, is changing that to force pretender lenders to establish their credentials and the validity of the original loan, as well as the non-existent transfer documents upon which the pretender lender relies upon to pursue ownership of the home.

In the old days before the market was flooded with money, before the lending risk was removed from the originating lender, before the creation of privatized recording systems and before the use of robo-signing on robo-approved mortgages, if a creditor came into court with the word “Bank” in its name, it was presumed that it was the lender, that the mortgage was valid and that any “technical problems” could be easily fixed.

The homeowner was invariably seen as someone in distress who was merely seeking to delay the inevitable. While the fact that they had fallen on hard times was regrettable, they had nonetheless taken a loan of money that had to be repaid to the lender who was now in court seeking repayment or the right to sell the collateral — i.e., the home. In many cases the homeowner was viewed as an annoying deadbeat who was trying to skip out on a perfectly legal obligation. The outcome was not in doubt. It was only about time.

In nearly all judicial foreclosure cases, the borrower did not bother to answer or defend, and so a default was entered by the clerk of the court. Based upon that default, the lender would then apply to the Judge for a Default Judgment to be entered, including reasonable costs and fees, and that a sale date be be set for the home. The number of homeowners contesting the mortgages or the foreclosures was infinitesimal. Foreclosure in judicial forums had become a clerical function except in rare cases.

So many states, at the request of the banks, enacted non-judicial sale statutes in which the the presumption was that if there was a judicial foreclosure it would be a waste of time and money. They gave a window of opportunity to borrowers to contest the sale but it was not clear how it worked. In any case, if the borrower did object to the sale, the burden was suddenly on the borrower to go to court instead of the bank. And being the party who brought the case to court, the Judge naturally looked to the borrower to plead and prove a case.

In truth, nobody ever thought it through because it wasn’t necessary to think it through. The non-judicial states all have statutes for judicial foreclosures of residential property but they are rarely used. The non-judicial states should simply have said that if a borrower objects tot he sale, then the bank must bring the action judicially and prove its case. The requirements of due process would be met, and the burden of proof would be on the party seeking affirmative relief (the party seeking to sell the homeowner’s home).

Instead, the practice evolved that the borrower had to bring a lawsuit which brought the question to what to plead? The homeowner wasn’t seeking affirmative relief and had no case other than the FACT that the borrower objected to the sale. In practice, the homeowner was required to file a lawsuit essentially alleging that that the pretender lender had no case — which amongst lawyers is known as a motion to dismiss. The borrower couldn’t file it as a motion to dismiss because there was no lawsuit by the pretender lender.

The ensuing confusion in the Federal and State civil courts and the bankruptcy courts led to a multiplicity of decisions each conflicting with each other. Invoking “rescission” under TILA might be the answer to correcting the errors in procedure that are pandemic in the system now.

Under TILA and Reg Z, (unless changed and effective retroactively) the mere statement of an intention to rescind requires the “lender” to either give up or file a lawsuit seeking declaratory relief. By aggressively using rescission as a procedural tool, the borrower/homeowner should be able to force any non-judicial sale into a judicial forum in which the “lender” must establish essential facts concerning jurisdiction, and a short plain statement of the facts upon which relief should be granted, including copies attached to the pleading and the original documents available for inspection.

In other words, rescission, besides having the obvious teeth of removing the encumbrance from the property by operation of law, is an obvious vehicle for clearing the procedural path for a Judge to sort out the orientation of the parties and the burden of proof. Orienting the parties is simple — figuring out who is seeking affirmative relief (selling the house) and thus who has the burden of pleading and proving a case.

The intense resistance to procedural due process in court and lobbying efforts of the banks to avoid the burden of proof leads one to at least question whether they could EVER successfully plead and prove a case against a homeowner. Their strategies of finessing the system with fabricated, forged and perjured evidence testifies to the presumption that the original mortgages might not be valid and they know it. It also testifies that their claim to have securitized the mortgages was a lie and they know that too.

In the final analysis, the money came from sales of securities to investors. The pretender lenders are doing everything they can to prevent those investors and the homeowners from getting together or even knowing the identity of each other. The identification of an actual creditor on the obligation and the finding that the obligation is actually secured by a mortgage might be impossible.

While that might be counter-intuitive, as Renaldo Reyes of Deutsch likes to say, it is nevertheless true, as he also like to say. And if it is true, it certainly is through no fault of the borrower or the investor both of whom were duped with false appraisals of what they were getting. And if it was false, then why have not the banks simply come forward with reams of evidence showing exactly that? A barrage of real evidence would return us to the good old days when we knew what constituted a note, mortgage and obligation and who could enforce it.

It is the growing opinion of judges, legislators, administrators of agencies, and homeowners that the unwillingness of the megabanks to comply with simple requests for real evidence stems from  an incapacity to present it because it does not exist. The fact that this is inconvenient to the banks who screwed up the title records in the first place is not a reason to avoid a solution.

The solution, as I have said before, is that the chips need to fall on the table and in some manner, a formal or informal mortgage guarantee and resolution authority must process the renegotiation of tens of millions of mortgage deeds converting them from wild deeds littering the title records to honest to goodness real mortgages, real notes and real obligations. Some foreclosures will still occur, but only a tiny fraction of what has been done and what is planned.

Tags: BURDEN OF PROOF, NONJUDICIAL, rescission
Posted in bubble, Corruption, Eviction, securities fraud |