Rescission Litigation: What to do With that Motion to Dismiss

We know that the bank lawyers are panicked about rescission. They have put on seminars for each other basically concluding that every point I have been making about rescission is correct and that they are ultimately going to lose unless someone comes up with a credible strategy. The essential problem is that they will not and can not come up with a party who has standing to challenge the the rescission and seek to vacate it through a judicial action (i.e., a lawsuit). And while they have been somewhat successful in the trial courts on some of their efforts to raise issues on motion by raising statute of limitations or other issues, they understand that on appeal, they will lose.

By the way, to the extent their motion to dismiss attacks the rescission, the answer is that the rescission was effective when mailed, by operation of law and that therefore at this moment the note and mortgage are void. And, since they did not file to change anything within the 20 days for compliance, they can’t attack the rescission, so it is permanent. And more importantly they no longer have standing to challenge the rescission because their standing WAS based upon the note and mortgage which are now void instruments. They would need to file an action (lawsuit) seeking to vacate the rescission BEFORE the expiration of 20 days from receipt of rescission (not a motion to dismiss that takes the four corners of the complaint as true). And the party upon whose behalf the action is filed MUST be a CREDITOR in the true sense of the word — not some party holding void instruments, like the note and mortgage.

In my opinion, the proper course of action is to attack the motion to dismiss as an improper use of court procedure to avoid the requirements of pleading. A motion to strike the motion to dismiss would be appropriate. If you accompany that with a memo of law, you will have perfected the record. They want to try to skate by the standing requirement and the small window of opportunity to challenge the rescission and still have the old party who was merely holding paper that is now void file a motion and get rid of the rescission that way.

Judges would like to grant their motion because most of them still believe this is a gimmick by borrowers instead of seeing it for what it is — fraud by intermediaries who have no privity with either borrowers or the investors whose money was used improperly for origination and acquisition of loans (i.e., the REMIC Trust was ignored). The Judges don’t like the result either — the borrower gets a “free house” in their perception and the bank loses out on the loan. Neither assumption is true.

Blaming the borrower is completely wrong. The borrower was an unwitting pawn in a game of fraudulent conversion by the banks. And “the bank” loses only some of their investment if they actually paid for the loan or they represent a party who has actually paid for the loan. If they are not creditors and they don’t represent the creditors, where is the harm? If the loan contract actually exists and has been consummated in the legal sense (offer, acceptance and consideration) and if the rescission is valid — they get paid back all the principal they loaned less the fees paid to third parties for origination of an illegal table-funded loan. Where is the harm in that?