The Looming Fight Over Rescission Strongly Favors Borrowers of all Types

Jul 24, 2015

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This is not legal advice on your case. Consult a lawyer who is licensed in the jurisdiction in which the transaction and /or property is located. while it is possible that the rescission laws might apply to all consumer loans, the author has researched other types of loans in any detail — student loans, auto loans, furniture loans, credit cards, and other cash advances etc. No opinion is offered on those —- yet.

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Rescission strategies are coming fast and furious and the banks are painting themselves into a corner. One issue was what happens if the rescission letter refers to the transaction as of a certain date? That is evidence of the consummation but not the total proof. In response to one person who used the date of the instruments in his letter of rescission, I wrote the following:

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The only problem I see is that the date of the transaction is listed but it is not clear that was the date of consummation. We also found an Orlando case where a Federal Judge did apply the TILA rescission rules as we have described it. The wrinkle is that the homeowner later entered into a modification agreement and then was deemed to have consented to judgment — she was proceeding pro se and seems to have literally snatched defeat from the jaws of victory. SO in her case we don’t hold out much help that we can do anything for her.

These cases are going to hinge on procedure and standing. If the Judge looks at the notice of rescission and decides as a matter of law that the transaction was (a) consummated and (b) on the date shown in the letter he might rule that the rescission was not effective. This would be contrary to law and contrary to what the Supreme Court said, as to procedure, but within the boundaries of what TILA rescission says is a loan qualifying for TILA rescission.

Our view, based upon a literal reading of the statute (the only possible reading according to the Supreme Court in Jesinoski) is that the the issue of consummation is a factual issue that may be raised by the creditor — or waived. They could simply comply without raising the defenses or waive the defenses by failure to to raise their challenge in a court proceeding (i.e., counteracting the rescission which is effective by operation of law with another action that is effective by operation of law).

Failing that, they must bring the claim. But the “they” is the crux of the issue. Who can bring a claim challenging the rescission? The answer can only be a party who has standing. Without standing there is no jurisdiction in the court to consider their claims regarding the rescission. Without standing it doesn’t matter whether they have any legitimate objections to the sending of the rescission or any basis for demanding that the rescission be vacated.

Standing means that the party presenting the claim has or will suffer injury as a result of the sending of the rescission, which became effective (same as a court order) the moment it was mailed. In foreclosure actions most of them have skipped over standing based upon “holding” the note. While we disagree with that interpretation because it treats the “holder” as a “Holder in due course” the procedure changes when a party seeks to vacate the notice of rescission, which as of the the date and time of the challenge is effective by operation of law.

Since the rescission is effective by operation of law as of the date of mailing, that means, according to 15 USC § 1635 et seq., Regulation Z, and the US Supreme Court (Jesinoski) that the note and mortgage were rendered void by the mailing of the notice of rescission. Once something has happened by operation of law, it is a fact whether we agree with it or not. Once it happens not even the party who invoked it can avoid it or seek to ignore it without filing some action which by operation of law would allow the Judge to vacate the rescission.

If the borrower can’t revoke it, then neither can the creditor. The only caveat here is if the borrower and creditor enter into a new agreement that uses the old note and mortgage as the documents that will be used in the new agreement. At that point a new loan arises, along with the rights of rescission, which must be delivered to the borrower as part of the rescission. The TILA disclosure requirements must be met for the “new loan.”

Which brings us to the issues of who can enter into this new agreement and who can ask the court to revoke the or vacate the rescission? The answer is the real creditor (see posts from prior two days). And the real creditor may NOT use the note or mortgage as evidence of their standing. Those instruments were rendered void by operation of law when the rescission was mailed. So the “creditor” must show that it is in fact the real party in interest having funded or paid for the loan — or that they have legal authority to represent a creditor who funded or paid for the loan. They no longer even have the opportunity to use presumptions that might attach to a holder or possessor with rights to enforce because that would mean they are seeking relief based upon claims arising from two instruments (note and mortgage) that are already void by operation of law.

This is why I have repeatedly said that homeowners MUST have an experienced trial lawyer who knows how to argue these points, understands them and can stay on message without getting lured into an argument about whether the rescission was effective. There can be no such discussion. THAT issue — the effectiveness of the rescission is already over and done.

The rescission IS effective upon mailing. That issue is 100% decided by the Supreme Court whose unanimous decision was (a) that the TILA rescission statutes are not ambiguous and that therefore (b) that the Judge has absolutely no right to read anything into the statute.

The Judge’s duty is to read the statute and follow it line by line as to procedure and substance. That means the rescission is effective even if the borrower was wrong in mailing it. It is up the the creditor to decide whether to accept the rescission under TILA or to contest it. If they contest it they must do it within 20 days of receipt. If they don’t do it within 20 days, they waive their potential objections or challenges.

How do we know that? Because the statute, Regulation Z and the Supreme Court have made it perfectly clear that the rescission is not contingent in any way — i.e., the rescission is effective without waiting for any Judge anywhere from interpreting the statute and the actions of the borrower to mean that the rescission was effective. It is effective without the borrower going to a lawyer, without the borrower filing a lawsuit and without any court order being entered. The rescission itself is equivalent to a court order.

As to the “Public Policy” arguments against this procedure and substance of TILA statutes there are several answers. The first and foremost one is that Congress, the President and the Supreme Court have all decided it is just fine and no court can change public policy set by the legislative branch nor is there any power on earth that can overrule the Supreme Court. The second reason is even easier — if the creditor shows up having proof that they funded the loan transaction or funded the purchase of the loan transaction with actual proof of payment, they lose nothing. They can either vacate the rescission or accept it — either way they get paid off — in fact with an easier claim if they accept the rescission. The only parties that will scream here are the ones who have been faking their interest int he loans — and that is exactly what the Truth in Lending Act was meant to prevent.

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