RESCISSION: It's time for another slap on the wrist for state and federal judges.

50 years ago Congress decided to slap punitive measures on lenders who ignore or attempt to go around (table-funded loans) existing laws on required disclosures — instead of creating a super agency that would review every loan closing before it could be consummated. So it made the punishment so severe that only the stupidest lenders would attempt to violate Federal law. That worked for a while — until the era of securitization fail. (Adam Levitin’s term for illusion under the cloak of false securitization).

Draconian consequences happen when the “lender” violates these laws. They lose the loan, the debt (or part of it), their paper is worthless and the disgorgement of all money ever paid by borrower or received by anyone arising out of the origination of the loan.

But Judges have resisted following the law, leaving the “lenders” with the bounty of ill-gotten gains and no punishment because judges refuse to do it —even after they received a slap on their wrists by the unanimous SCOTUS decision in Jesinoski. Now they will be getting another slap — and it might not be just on the wrists, considering the sarcasm with which Scalia penned the Jesinoski opinion.

TILA rescission is mainly a procedural statute under 15 USC §1635. Like Scalia said in the Jesinoski case it specifically states WHEN things happen. It also makes clear, just as the unanimous court in Jesinoski made clear that no further action was required — especially the incorrect decisions in thousands of cases where the judge said that the rescission under TILA is NOT effective until the borrower files a lawsuit. What is clear from the statute and the regulations and the SCOTUS decision is that rescission is effective on the date of notice, which is the date of mailing if the borrower uses US Mail.

There are several defenses that might seem likely to succeed but those defenses (1) must be filed by a creditor (the note and mortgage are void instruments the moment that rescission notice is sent) (2) hence the grounds for objection are not “defenses” but rather potential grounds to vacate a lawful instrument that has already taken effect. Whether the right to have sent the notice had expired, or whether the right to rescind the putative loan is not well-grounded because of other restrictions (e.g. purchase money mortgage) are all POTENTIAL grounds to vacate the rescission — as long as the suit to vacate the rescission is brought by a party with legal standing.

A party does not have legal standing if their only claim to standing is that they once held a note and mortgage that are now void. {NOTE: No party has ever filed an action to vacate the rescission because (1) they have chosen to ignore the rescission for more than 20 days and thus subject to the defense of statute of limitations to their petition to vacate and (2) they would be required to state the rescission was effective in order to get relief and (3) there is a very high probability that there is no formal creditor that was secured by the mortgage encumbrance of record. The latter point about no formal creditor would also mean that the apparent challenge to the rescission based upon the “purchase money mortgage” “exception” would fail.}

The premise to this discussion is that the so-called originator was not the source of funds. This in my opinion means that there never was consummation — despite all appearances to the contrary.

The borrower was induced to sign a note and mortgage settlement statements and acknowledgement of disclosures and right to rescind under the false premise that the originator was the lender, as stated on the note and mortgage.

The resulting execution of documents thus produced the following results: (1) the putative borrower has signed the “closing documents” and (2) the originator neither signs those documents nor lends any money. This results in an executory contract without consideration which means an unenforceable partially completed documentary trail that creates the illusion of a normal residential loan closing.

TILA Rescission is effective at the time that the borrowers notify any one of the players who represent themselves as being servicer, lender, assignee or holder. The effect of rescission is to cancel the loan contract and that in turn makes the note and mortgage void, not voidable. That the note and mortgage become void is expressly set forth in the authorized regulations (Reg Z) promulgated by the Federal Reserve and now the Consumer Financial Protection Board (CFPB). There is no lawsuit that is required or even possible for the putative borrower to file — i.e., there is no present controversy because the loan “contract” to the extent it exists has already been canceled and the note and mortgage have already been rendered void.

Tags: 15 USC §1635, CFPB, Federal reserve, jesinoski, Reg Z, rescission, Scalia, TILA
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