Rescission Devil in the Details Tonight on the Neil Garfield Show

Jun 18, 2015

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Most lawyers are concluding after much study that what I am saying on the blog is correct, albeit with disgust from the bench that basically regards borrowers as deadbeats trying to get out of a debt.

The purpose of our rescission package is to get lawyers clear on the strategies for people with an old mortgage who (a) sent a notice of rescission (b) were foreclosed after the rescission notice or (c) who want to send a rescission now. Each lawyer needs to study this a bit and stop skimming. And they need to understand what happens when the rescission is being sent now and whether to file an enforcement action or wait the one year statute at which point the entire debt is waived. Of course at that point — one year after notice of rescission) the borrower is barred from suing to enforce the rescission and is only able to sue for Quiet title because at that point the mortgage and note have been void for over one year.

I want to make sure everyone thought through the process of TILA rescission and specifically that all three duties of the “lender” must be fulfilled before they can even allege a claim for repayment, which claim is obviously not secured by any encumbrance upon real property (because the mortgage (or DOT) is void the moment the notice is mailed).

The three duties are (a) return of canceled note (b) filing a release of the encumbrance in the county records and (c) return of all money ever charged or paid in connection with the loans. It is the last point that makes it unlikely that any entity is going to actually comply. The burden is reversed — it is the “creditor” who must actually pay (not just tender) the money to the borrower before the creditor may claim mo the borrower. No exceptions.

The banks are experimenting with a bluff — saying here is the the note and we filed the satisfaction of mortgage. But without payment to the borrower of all money the borrower or anyone else paid or received in connection with the loan, they are barred from making a claim for repayment. That last issue is going to make everyone previously claiming they were in the position of “lender” back off — because they would be paying out perhaps hundreds of thousands of dollars to the borrowers in exchange for a dubious UNSECURED claim for repayment (not based on the note or mortgage).

Patricia Rodriguez in L.A. had it right when she said that rescission changes the burden of proof. But more importantly there likely won’t be any proof or evidentiary hearing. A rescission IS EFFECTIVE by operation of law when it is mailed, regardless of whether the borrower is right or wrong about his reasons for rescission, the statute of limitations or any other argument against it. Any argument against rescission is meaningless because TILA RESCISSION is effective by operation of law and is not contingent upon anything, as the Jesinoski decision tersely stated. The creditor who feels that it is aggrieved by the legally binding rescission from the borrower may sue to vacate the rescission and reinstate the mortgage and note which were rendered void at the moment the rescission was dropped in a mailbox. That lawsuit needs to be filed within 20 days from the date the notice was mailed. (Note there is a presumption that the date on the notice is correct as to mailing).

The creditor COULD sue within the 20 days allowed for compliance with TILA Rescission or not. If the “creditor” wishes to do so, they must establish standing. Here is the rub: they can’t establish standing through the note or mortgage which by operation of law (see Reg Z) are VOID as per the cancellation of the loan contract by the notice of rescission.

The creditor would need to allege that it is either the lender who loaned money to the borrower and still possesses the loan in its portfolio (4% of all loans) or that they had purchased the debt for value — otherwise they are not a creditor because there is no debt in their chain. They can’t use the void note or mortgage as a prop or anything else because you cannot seek legal relief or remedy based on claims whose origins lay in a void instrument — the note and mortgage. There is no standing without real risk of actual monetary loss on the debt.

The reason this is so important is that it puts a stake through the heart of the claims by banks and servicers who are playing the part of creditors and authorized agents for loans that were never purchased by REMIC Trusts (securitization fail, as per Adam Levitin). The cases we have won have been exactly on that point.

None of the current players are creditors. The only party with a legitimate claim is the group of investors whose money was used to directly fund the loans. Their claim is in quantum meruit or unjust enrichment because they have signed documentation that says they can’t bring any direct claim for constructive trust for the loan documentation (i.e., allowing them to bring the foreclosure action themselves). But it has always been THEIR money and nobody else. None of the assignments are supported by actual purchases (with rare exceptions). We know that because if they paid for the debt, they would be very quick to allege that they have status as holder in due course and that would put an end to the borrower’s defenses.

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