Banks Facing Unravelling of Their “Securitization” Scheme

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THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

The article below was written about 2 weeks ago. It discusses the real issues in rescission, which are ALL procedural. My first warning is that I have come to the conclusion that in a judicial state no rescission is likely to get traction after judgement is entered. My second and bigger warning is that both pro se litigants and attorneys seem to be pumping their pleadings full of “reasons” why the rescission was sent, as though they need to justify it in order for it to be “effective.” They are missing the point, to wit: that if the rescission was sent, it is already effective, and if it was received, then the 20 days in which the “lender” can file for a declaratory judgment vacating the rescission has started to run.

In many cases I have reviewed, the judge seizes on the issue of whether the rescission should have been sent and then decides that the rescission was ineffective because there was no good reason to send it. That is not what the TILA rescission statute says nor what the unanimous Supreme Court decision stated when it looked at the TILA rescission statute (Jesinoski). If there was no good reason to send it then it is up to a creditor with legal standing to file for declaratory relief. They are not doing that because there is no such creditor. The Wall Street banks intentionally commingled funds from all investors such that it is impossible to name a single or even a group of creditors.

Lastly, I think that there is NOTHING for the borrower to do once the rescission is sent and that a Petition for declaratory judgment seeking to have the court declare that the rescission was effective, is just plain wrong. Once sent, the loan contract is canceled (if the loan contract exists) and the note and mortgage are instantly void by operation of law, same as if a judge said it. In fact, nine Judges already have said it and they were all sitting on the US Supreme Court, which is the highest court in the land with FINAL authority. Lawyers should concentrate on this fact so they don’t get confused and thus confuse the court as to the issues at hand.

If it ever happens that someone files a petition for declaratory relief asserting standing and that they are indeed the creditor (without relying on the void note and mortgage) then we will get more information on whether the banks can do anything about rescission. In my opinion, over the last ten years, with hundreds of thousands of rescission notices having been sent, the fact that Wall Street has not attempted to engineer some “creditor” means that they can’t. So in the absence of a creditor to taking the matter to court and seeking to vacate the rescission, the rescission strategy for homeowners appears to present a solid opportunity to use the same strategy as the banks to defeat them — legal procedure.

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By: Adam B. Brandon

The Truth in Lending Act (“TILA”) requires lenders to make certain disclosures to borrowers before the parties close on a residential mortgage.  TILA also affords borrowers the right to rescind a mortgage for any reason for three day after the transaction.  Furthermore, if a lender fails to make the disclosures that TILA requires, then the borrower may rescind the transaction within three years or until the sale of the secured property, whichever comes first.

On January 23, 2015, the U.S. Supreme Court issued a significant opinion that clarifies how a borrower may exercise the right to rescind.  Previously, many federal courts required a borrower seeking rescission to file a declaratory judgment action.  If the borrower failed to file suit within three years, the borrower lost the right to rescind forever.  However, in Jesinoski v. Countrywide Home Loans, the Supreme Court ruled that the plain text of TILA only requires a borrower to provide timely written notice of rescission to the lender.

In this case, Larry and Cheryl Jesinoski refinanced the mortgage on their Minnesota home by borrowing $611,000.00 from Countrywide Home Loans, Inc. (now part of Bank of America).  The couple then used the funds to pay off multiple consumer debts.  Exactly three years later, the Jesinoskis sent “all interested parties” a letter stating that they never received the required TILA notices and were rescinding the mortgage.  Denying that it failed to comply with TILA, Countrywide refused to recognize the validity of the Jesinoskis’ rescission notice.  One year later, the couple sued Countrywide seeking a court-ordered declaration of rescission as well as monetary damages.

Since the Jesinoskis filed their lawsuit four years after the original transaction, Countrywide claimed the borrowers were outside of the three-year window to rescind the mortgage.  Countrywide further argued that rescission was a judicial remedy that could only be obtained through a court order.  In other words, the Jesinoskis could not unilaterally void their mortgage with a mere letter.  Relying upon prior precedent, both the district court and the Eighth Circuit Court of Appeals sided with Countryside.

In a unanimous opinion, the Supreme Court reversed the Eighth Circuit. Justice Antonin Scalia noted that 15 U.S.C. § 1635(a) specifically provides that a borrower “shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so.” Countrywide argued that § 1635(a) only applied to cases where both parties agreed that the lender failed to provide the truth-in-lending disclosures at closing.  However, Justice Scalia countered that TILA does not distinguish between disputed and undisputed rescissions.  The Court also noted that TILA eliminates the common-law rule that a borrower must tender the proceeds received in a transaction before rescission may occur.  In other words, a mortgage is canceled the moment the borrower notifies the lender in writing of the rescission!

Some fear that the Jesinoski opinion permits borrowers to frivolously rescind mortgages.  However, lenders may take some steps to protect their legal rights:

  • Lenders should document their compliance with TILA and request that borrowers acknowledge in writing that they received the lender’s truth-in-lender disclosures at closing.
  • Upon receipt of a written rescission notice, lenders must decide whether to contest the rescission. If the lender agrees that it failed to comply with TILA, then the borrower must return all payments and the lender must terminate its security interest.  The Jesinsoki ruling, however, does not indicate what will happen if the borrower cannot return the principal.  This is likely to be an area of future litigation.
  • If the lender objects to the validity of a rescission notice, then the lender should send a letter to the borrower that details its compliance with TILA’s disclosure requirements. At that point, either the lender or the borrower may file a declaratory judgment action to determine the validity of the rescission.  Alternatively, the lender may file a foreclosure action with the recognition that the borrower will likely raise rescission as an affirmative defense.

While many questions remain unanswered, Jesinoski makes clear that borrowers preserve their recession rights simply by providing writing notice to the lender.  Even if a borrower submits a baseless rescission notice, a lender must take prompt action to preserve its legal rights.

More:
http://mainerepublicemailalert.com/2016/02/15/u-s-supreme-court-rules-that-borrowers-may-rescind-residential-mortgage-loans-by-written-notice/

12 Responses

  1. Reblogged this on California Freelance Paralegal and commented:
    Blog post by Neil Garfield discussing how the securitization scheme cooked up by the banks is unraveling.

  2. Frostytheblowman
    Were you by any chance taking the piss out of my typos
    If so sorry n all that
    Need to clarify one thing only,
    Got to CORNELL Law and check the VERBAGE
    Thank you.

  3. Tuesday 1 March 2016

    Javagold:

    Everyone needs to make their own decision. I would send a rescission
    notice at any time after taking out a mortgage. 10 years? So what?!
    Why?

    It is highly unlikely the “lender” will respond within the 20 day window in
    which to contest the notice of rescission. I believe they do not apply to
    a regular mortgage, only refis. However, if “lender” does not respond
    within the 20 days, the right to contest is forfeited, and now lender must
    prove standing [in federal court, new lawsuit with borrower as plaintiff…
    standing has been accepted already in state court]. Remember, there
    is no distinction between effective or disputed rescissions, and if my
    rescission were defective in some way, I would force the “lender” to
    contest any defects in federal court, and only after “lender” could prove
    standing, prove being at risk financially.

    Would I ever admit to a defective rescission? Absolutely not! Your
    mortgage was table funded, refinanced from the unknown creditor to
    the table funder, would be my position. Who is to say otherwise?

    Rescissions apply in judicial and non-judicial states. Coming from a
    judicial state, it seems the best option is federal court, away from any
    state judge that would slam the rescission door shut, in a heartbeat.

    There is ample information in many of the excellent articles on rescission
    to enable one to craft whatever legitimate [read that as reasonable]
    argument one can make. What everyone should realize is that one can
    make whatever argument in court they want, as long as it is reasonably
    presented. I am not saying legally right or sound because every lawyer
    [especially judges] stretches the law to mean whatever they want.

    Be creative, as factual as possible without revealing potential defects,
    and go for it. Banks have been doing it for decades.

    Cheers…

  4. djabelanger, in the interest of consumer rights preservation, please contact me at bowen@equityintruth.org. I will explain my position and how you and I might help one another in our common goals. I am not an attorney; if I were I would be disbarred in a matter of weeks.

  5. NO NEED TO QUESTION THAT ONE.

  6. Java
    There are caveats to tila re your question only available to refinances
    I have posted in the past about the specifuc sections, go to the source look on conell law
    In my case i pulled money out of my then primary residence to fund the new build that is like a bridging loan and i believe it applies
    However as the statute dictates bu operation of law … If they dint get back to you within 20 days then by operation if law the contract nite deed of trust is cancelled ( within the 3 years remember)

  7. Rescission Has the Banks Running Scared!
    Posted in The Profit August 2015 by Bob Massey
    Last month I wrote about how you could use the right of rescission as a silver bullet to stop a foreclosure in its tracks. Once you drop a notice of rescission in the mail, your loan has been nullified as a matter of law and the bank must either comply with the rescission or prove within 20 days that they have the right to enforce the note. Well, over the last few weeks I have been seeing more and more from the banks that the right of rescission has them on their heels. The banks are sending their lawyers around their offices explaining exactly how rescission leaves them vulnerable.
    The main point that the lawyers are making to the banks is that mailing in a notice of rescission is all it takes to cancel a borrower’s loan, note, and mortgage. The notice is effective from the moment it is dropped in the mail as an act of law. This was written specifically into the Truth in Lending Act (TILA) so that homeowners wouldn’t have to use an attorney to act on their behalf, thus restricting the remedies provided by TILA to borrowers who can afford an attorney. While the note is canceled immediately as soon as the notice is dropped in the mail, the bank has 20 days from the date of receipt to respond. This is a good reason to send the notice with return receipt requested. This provides you with proof of the exact date the notice of rescission was received.
    The only way for a bank to combat a notice of rescission is to file a lawsuit immediately (within the 20-day window). In their lawsuit, the bank must prove that it has absolute proof of the validity of the loan and that it met all of the TILA requirements at the time of origination and consummation. The burden of proof of standing to enforce the note and to vacate the rescission rests firmly on the bank. Not only that, but the bank must file suit within 20 days to contest all factual matters, including the statute of limitations. Once those 20 days are up, the bank loses all ability to contest the rescission, even if the rescission is sent in years after the statute of limitations has expired.
    When a loan is rescinded, all parties must return all money paid or received. In the past the banks used this to bully borrowers into backing down from a rescission. The banks would try to force the borrower to return all of the money they received at closing up front. The law has now been clarified to say that only after the bank has canceled the note and returned all money received must the homeowner tender. This clarification allows homeowners without large amounts of cash sitting around to get the full protection of TILA.
    After a successful rescission, the borrower has one year to file an enforcement action against the bank to get the canceled note and have all funds returned. After one year, the borrower can no longer get their money back from the bank. They can still file a quiet title to free the property for sale, though.
    As you can imagine, the Supreme Court has given homeowners and real estate investors an incredibly powerful tool. No more begging the banks to accept our short sale and REO offers only to have them demand ridiculously high prices. We can now get the banks to the table and demand that they prove they have the right to enforce a loan.
    This is a massive opportunity for real estate investors. If you know of anyone with a defaulted or underwater note, you need to get in contact with my office immediately at (706)-485-0162. I have spent the last two years building up a team of experienced attorneys and fraud examiners/forensic auditors who specialize in exposing fraud committed in the mortgage process and using that fraud as leverage to negotiate the sale of notes. This opportunity is not going to be available forever; we need to strike while the iron is hot!
    We have a huge opportunity to help homeowners and do some great deals with multiple exit strategies. For more information, call me at 706-485-0162

  8. Javagold, send me a email , djabelanger@hotmail.com

  9. More litigation and cases to come on the TILA rescission subject–lots more.

  10. yes java gold, Scalia is gone, makes you wonder doesn’t it. I would not put anything past the dirty corporate private world especially the banksters

  11. I still haven’t got clear answer on recissions.

    1. Are they only for refinance mortgages

    2. Purchase mortgages

    3. Modifications

    4. Judicial states.

    And can you send them 10 years after closing. Or does 3 year window work with a modification. Finally if you are still in good standing is it wise to stop payments after recission has been sent.

    I know my TILA has been breached from the beginning. However it seems like such a long shot I can’t believe it’s worth the effort with so many outstanding questions. Plus what about the homeowners already foreclosed on in past 7 years. Where’s their recourse ??

  12. And now Justice Scalia is gone. Hmmmm.

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