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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.
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.