RESCISSION: How Judges Are Still Getting it Wrong Because They Don't Like TILA RESCISSION

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It is no surprise that Judges are STILL trying to take the teeth out of TILA rescission. In one case in bankruptcy, the judge twists the court into knots avoiding the obvious —- the debtor was right and the bank blew its opportunity to either comply with the duties under TILA rescission or file suit to vacate the rescission, which is effective by operation of law.

In this case the Court ignored those duties despite the unanimous Supreme Court decision stating that the statute is clear on its face, no interpretation is allowed or required, and the parties are bound by the procedures set forth in the statute. Judges don’t like TILA rescission and they don’t like the Jesinoski v Countrywide decision. They also don’t like minimum mandatory sentencing for criminal defendants. But in both rescission and sentencing they MUST follow the law.

And the law says that first the homeowner sends the rescission, second the rescission is effective upon mailing, third, that makes the note and mortgage void, fourth, the creditor or lender must comply with three duties BEFORE the demand for payment. The statute says that the creditor may not demand payment until after it has fully complied with the three duties (return canceled note, release encumbrance of record, and pay money TO the “borrower.”)

The Judge in this case obviously thinks that leads to an absurd result. Even if one were to agree philosophically with the Judge’s opinion of the statute, the rescission is still effective, was effective and will now always be effective. Case over. Upon appeal to either the Federal District Court Judge or the Circuit Court of Appeals, the Judge will be overturned — or else the thousands of courts who got it wrong on the first go around will get yet another tongue lashing from the U.S. Supreme Court. If they don’t like the statute, then they should be trying to Change the statute, not ignore it.

I have been advising my clients to record the rescission in the County records where deeds and mortgages are recorded. They can then assert that not only has the mortgage been rendered void by operation of law, but it also has been recorded giving notice to the world that the mortgage encumbrance has been rescinded and is void. In Florida we do that using a Notice of Interest in Real Property under F.S. 712.05 with exhibit “A” (The legal description and street address) and “B”(the notice of rescission).

This Judge gets that wrong. The Bankruptcy Judge is still reading into the statute that tender of money or property is required in order to have an effective rescission, which is opposite of what is stated in the statute, and opposite to the unanimous Supreme Court decision.  In fact, if the lender/creditor fails to act for more than one year after receiving the rescission they lose the right to collect on the debt completely.

Note that in this case the rescission was apparently sent within the time limit allowed by the statute and the Judge still chose to ignore it. The Courts don’t have the right or power to ignore a TILA rescission, since it is effective by operation of law. If an adversary had been filed, the creditor would lose for lack of standing, lack of compliance and the statute of limitations in the TILA rescission provisions 15 U.S.C. §1635 et seq.—- but the point here is that a legal action must be brought by a party who can assert standing (without the void note and the void mortgage) to vacate the rescission. Without that the rescission stands.

So the Judges who are trying to angle away from the effective rescission and thus ruling on motions are entering orders that are void, in my opinion, because they rest on the premise that the rescission was not effective by operation of law. In effect they are over-ruling the U.S. Supreme Court and changing the wording of the statute. There is no jurisdiction to do anything other than to treat the mortgage and note as void. AND in this case the self-proclaimed creditor apparently did what all the banks and servicers did — NOTHING. The statute says if they continue to stonewall the rescission for more than one year, they lose the right to make demand for ANY payment FROM the “Borrower.”

The issue of what that does to the bankruptcy action is a separate issue. Obviously it changes the amount of liabilities and the the assets of the debtor and probably would lead to a dismissal of the bankruptcy petition unless there are other debts and assets that are still subject to being processed through the bankruptcy action.

Here is the quote from the Court, which is most likely going to be appealed laterally to the District Court Judge, who has superior jurisdiction to the Bankruptcy Judge.

Debtor’s counsel argues that the debtor and her husband rescinded the loan in March 2010. It is not entirely clear what counsel was arguing. If she was arguing that rescission ipso facto changed the secured loan to an unsecured loan, the debtor is significantly over the unsecured limit. If her argument is that rescission eliminates that loan, she overlooks the debtor’s rescission obligation to put the lender in the same position, less certain fees and costs, as the lender was in before the transaction. It appears that debtor’s counsel relies on Jesinoski v. Countrywide Home Loans, Inc., 574 U.S. ___, 135 S.Ct. 790 (2015). She appears to focus on that portion of the opinion discussing the elements of the common law right of rescission. Reliance is misplaced. The sole issue in that case was whether the borrowers timely rescinded the loan, not the effect of the rescission notice on the borrowers’ obligations when they rescinded the transaction. They gave their rescission notice within the three-year period but did not file suit until after the three-year period. The lender argued that they were time-barred and that the transaction was, therefore, not rescinded. The lender argued that the common law doctrine of rescission applied and required that the borrower tender the loan amount at the time of rescission for there to be a valid rescission. The borrowers gave notice of the rescission but did not tender the rescission payment. The Supreme Court acknowledged the elements of the common law rescission but held that Congress created a new right of rescission that superceded common law rescission and that notice of the rescission was all that the statute required. Debtor’s counsel appears to be arguing that because the common law element of rescission — making a tender of the rescission amount — is not required, the loan is rescinded on notice and the debtor has no further obligation. In fact, the debtor has a further obligation upon giving notice of rescission and that is to make the appropriate rescission payment. This obligation is a claim in bankruptcy. 11 U.S.C. §101(5). Nor does it matter in this case whether the claim is a secured claim or an unsecured claim. Either way, the amount of the claim exceeds the applicable limit.

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