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At least one case in bankruptcy has been reopened because of the new Supreme Court ruling on TILA Rescission. Like many cases in and out of bankruptcy court, tens of thousands of homeowners sent notices of rescission to the apparent lender, servicer, trustee on deed of trust or others involved in the scheme of securitization. And many of them did it years ago during the three year statute of limitations starting with the date of “consummation.”
There appears to be some confusion arising out of what appears to be a splitting of legal hairs but in fact is just the reverse. TILA rescission is “effective” upon sending the notice — i.e., when it was dropped in the mailbox using the US Postal service. Lawyers and Judges appear to be dumbstruck by the US Supreme Court decision where Justice Scalia simply said that the statute is clear and no further interpretation is required. He said, for a unanimous court, that rescission was effective the date of the notice.
This is very challenging for lawyers who are used to arguments about due process which means an action in court. TILA rescission is an action out of court. NOTHING is required from the borrower other than a notice that he or she or they are cancelling the loan papers. There is no cause of action for TILA rescission because it is already done privately. That isn’t me talking that is the U.S. Congress in TILA and Justice Scalia for the US Supreme Court.
And the rest is simple: Within 20 days the “lender” must effectuate the return of the canceled note and the release of the borrower’s collateral (home) from the mortgage or deed of trust. Within that 20 days the “lender” or “Creditor” must also disgorge all money paid by borrower or to otherwise paid out at the time of the loan closing and any payments made thereafter, which would include monthly payments right up through the date of the last payment. This is not common law rescission.
By definition, any lawsuit filed by the borrower to ENFORCE the rescission — i.e., to get the note, satisfaction of mortgage and disgorgement of money — is NOT an action to EFFECTUATE rescission. The intent of the statute is crystal clear — that the borrower doesn’t need to be a lawyer or financier to cancel the deal. It is canceled by mailbox. No particular form is required.
If the lender MUST comply with the rescission (return canceled note, satisfy the mortgage and return the money) within 20 days, they cannot win by stonewalling and then recasting the Borrower’s lawsuit to ENFORCE the rescission that is already effective. The Banks don’t have the option of raising defenses when the Borrower files a lawsuit for enforcement. The Banks can ONLY file an action opposing the rescission within the 20 days from the date of rescission which is the date of the notice which is the date of mailing.
So what does all this mean? If you had a mortgage that had a loan “closing” date of June 1, 2006 and you sent a notice of rescission on October 2, 2008, there is absolutely no doubt now that the note and mortgage were voided by operation of law (meaning it is automatic without a lawsuit) as of October 2, 2008.
Everything else after rescission is VOID other than return of the canceled note, filing a satisfaction or release of the mortgage or deed of trust and disgorgement of the funds received paid to the borrower. The only possible way of stopping this is by the lender filing a lawsuit within the 20 days to contest the rescission. Any other interpretation would go against the simple instructions in TILA and Scalia’s opinion — that the rescission is effective upon notice. Such an interpretation would mean that rescission is not really effective until a Judge rules on it. That is the opposite of what TILA says and the opposite of what the Supreme Court says TILA says.
If there was a judgment entered on the note or mortgage or there was a sale they are all VOID. The court lacked subject matter jurisdiction because there was no mortgage or note on the date the court entered its order or judgment.
The interesting thing is in bankruptcy. The discharge order was based upon the trustee’s abandonment of the property. The abandonment was based upon a misinterpretation of the courts in that jurisdiction.
Hence the schedules are wrong in hundreds of thousand of bankruptcies across this great land of ours. The borrower had an unencumbered asset (his home) thus changing the equation of assets and liabilities completely.
But everyone thought the home was encumbered despite the prior rescission because the rescission was considered not effective until a Judge ruled that it was effective — and until the Borrower tendered property or money to the lender. The US Supreme Court said that interpretation is wrong for two reasons, to wit: (a) that isn’t what the statute says and (b) the misinterpretation stems from using common law rescission theories which are not applicable.
The problem here is that orders entered during bankruptcy are considered adjudications in some cases and therefore it is necessary to reopen cases to set aside orders for which the court lacked jurisdiction over the subject matter.
This could get interesting.
Filed under: foreclosure