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At the end of the day, most everyone knows most everything. Here in a patent insurance kickback scheme that was obviously not disclosed to the borrower, the Judge ordered the lender to pay $6.4 million. On appeal Director Cordray (former Ohio Attorney General) said the administrative trial judge got it wrong. Cordray raised the stakes by ordering the lender to disgorge $109 million.
As our administrative and judicial systems come to grips with the massive fraud, fabrication, and manipulation of their systems they are revealing a callous disregard not only for rules and laws, but for society at large. And while it might be hard to make the connection, this is why Congress passed the Truth in Lending Act — to level the playing field with rescission and other remedies.
The question being asked “in defense” of rescission and other remedies is why should the borrower get a free house. And the answer, obvious to everyone except those in the judicial system, is that even if the debt is erased, the house was far from free for most borrowers. But in most cases, the remedy of rescission COULD result in payment of the original loan where there was misbehavior in origination and transfer of the loan; in fact that is exactly what WOULD happen if the proper party complied with the rescission (giving back the canceled note, satisfying the mortgage on record, and giving the borrower all the money he paid or which was paid on his behalf at origination and up through all the monthly payments).
The real problem for the banks is not that they will get screwed by rescission despite all PR to the contrary. They have no skin in the game: they have neither funded nor purchased any loans. And THAT is their problem. They are not filing lawsuits to vacate the rescission (which is effective by operation of law on the day it was mailed); and the reason is that they have no party that actually has standing. They can’t come in and assert standing based upon the the allegation that they “hold” the note and mortgage because both of those instruments are void since the moment the notice of rescission was dropped in the mail. They can’t assert standing on the basis of an instrument that is void on its face and by operation of law.
So they would need a party to step up and assert that they are the creditor by virtue of having funded or purchased the loan and then that party would need to prove it. They would need to plead that without the note and mortgage they will suffer some sort of damage. And THEN they would need to allege that the rescission should be VACATED because of the statute of limitations or that the loan does not fit the description in the statute — all questions of fact that must be raised during the 20 day window before they are in violation of TILA rescission statutes. They can’t do that because the money that went into the loan came from investors in direct breach of the securitization agreements. So nobody in the chain alleged by the banks and servicers actually has any economic risk or injury from the rescission. No injury=no standing.
The investors are the real “creditors.” But they only have claims in equity that are unsecured because by contract they are barred from raising direct claims against borrowers and they were never in privity with the borrower nor were they ever in privity with the sham nominee entities in the chain. Even huge entities like Countrywide were used as sham conduits to obscure the path of the money and obscure the ownership of the loan. In fact, even the big banks were acting not as lenders but as sham nominees in an elaborate scheme in which false claims of securitization were asserted and litigated as though they were real. The end result was that the “Lenders” never showed at closing and never showed up in court. The banks and servicers used the vacuum created by “securitization fail” (See Adam Levitin) to step in as though they had the right to grab property and money in violation of various contracts, laws and rules governing their behavior.
One of the reasons the banks and servicers performed these acts was the fee income (through illegal kickbacks) they could generate in violation of law, but which were never taken seriously by most people in government. Cordray takes in very seriously. You will see more from him soon.
Filed under: foreclosure