California Seminar Recommended — July 18

Our Senior Forensic Analyst, Dan Edstrom and Jim Macklin are the presenters of a seminar along with Charles Marshall, Esq. who has been very active in foreclosure defense. I know them for years, trust them with all outsource work and analysis and I have prior experience with them as presenters. It is worth the trip and 6 hours of your time and the price is in keeping with the livinglies philosophy — just enough to pay for itself.

I strongly endorse the presenters and this seminar. Click on the link below and sign up now as I am quite sure that their small venue will fill up quickly.

https://www.eventbrite.com/e/7182015-anaheim-ca-6-hour-cle-seminar-relief-for-distressed-homeowners-tickets-8647834907?ref=estw

NON-JUDICIAL CANCELATION OF LOAN DOCS: Rescission Litigation Coming on Many Fronts

For further information please email us at neilfgarfield@hotmail.com or call 954-495-9867 or 520-405-1688.

This is not a legal opinion on any one case, even if the transaction is a Florida transaction where I am licensed as an attorney. Consult with licensed legal counsel before taking any action or deciding not to take any action. I advise people to obtain our Rescission Analysis Package (RAP) before taking any action in or out of court.

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see Beach v Ocwen Federal bank 692 so2d 146 (US Supreme Court).

Opposing counsel will rely on Beach v. Ocwen Federal Bank, 692 So. 2d 146, on certiorari to the Supreme Court of Florida and then to the Supreme Court of the United States, decided on April 21, 1998. My suggestion to attorneys is that they should use the same case (in addition to Jesinoski). In Beach, the “lender” did file an action or affirmative pleading contesting the rescission. Nobody argued that it was outside the 20 day window so that was not an issue. Nobody denied or contested the date of consummation so no hearing was required to determine the moment of consummation which is usually hours, days, weeks, or even months or years after the date the borrower executed loan documents. Nobody denied the 3 years had expired. This is all procedural, so heads up, this is not for pro se litigants to argue.

The loan was originated by Great Western. Ocwen was later substituted for Great Western. The Beaches acknowledge their default by raised affirmative defenses alleging among other things that the bank’s failure to make disclosures under the Truth in Lending Act gave them the right under 15 USC § 1635 to rescind the mortgage agreement. The Florida Trial Court rejected that defense and that was affirmed by the District Court of Appeal which was then affirmed by the Florida Supreme Court. The point raised by the Florida Supreme Court was that Section 1635(f) in plain language evidenced an unconditional congressional intent to limit the right of rescission to three years and distinguished its prior cases permitting a recoupment defense by ostensibly barred claims as involving statutes of limitations, not statutes extinguishing rights defensively asserted. The lessen is that rescission should not be in your pleading as a defense. It is an event and no pleading is necessary. it is effective by operation of law.

The holding of the court in the US. Supreme Court was that a borrower may not assert the Section 1635 right to rescind as an affirmative defense in a collection action brought by the lender after the three-year period has run. The Supreme Court said that the three-year period is not a statute of limitation that governs only the institution of suit; instead it operates, with the lapse of time, to extinguish the right of rescission. The language in the statute that the borrower’s right “shall expire” with the running of time manifests a congressional intent to extinguish completely the right of rescission at the end of the three-year period. The matching provision is that if after one year neither the borrower nor the “lender” has taken legal action on the rescission, the borrower loses all rights to enforce the rescission and the lender loses all rights to make a claim on the debt which is no longer represented by a note or mortgage (they were rendered void by operation of law immediately upon mailing the rescission notice).

The court stated “the absence of a provision authorizing rescission as a defense stands in stark contrast to Section 1640(e) which provides that the one‑year limitation on actions for recovery of damages does not bar assertion of a violation in an action brought more than one year from the date of the violation as a matter of defense by recoupment.” The court went further to state that “this quite different treatment of recoupment of damages and rescission and the nature of recoupment must be understood to reflect a deliberate intent on the part of congress. Since a statutory rescission right could cloud a bank’s title on foreclosure, congress may well have chosen to circumscribe that risk, while permitting recoupment of damages regardless of the date a collection action may be brought.”

SUMMARY OF MY ANALYSIS

  1. The admission by Beach that there was a default causes a number of logical consequences. It is an implicit admission that the loan is owed to the party bringing the foreclosure and an implicit admission that the documents signed at closing were correct as well as an implicit admission that the loan was consummated (see below) at the time that the documents were executed.
  1. While the decision states in unequivocal terms that the right of rescission expires at the end of three years it does not address the starting point in time that the three years begins to run. This is answered in other cases where the general term that is used, as per the statute, is that the time limit on both the three-day and the three-year rescission starts to run from the date of “consummation.” The question is when did consummation occur? This is a question of fact that must be brought up by any party seeking to defend or vacate a notice of rescission that has been received.
  1. Consummation has not been defined as the time when the documents were signed. Obviously if the loan was not funded, the documents do not represent consummation of the loan contract. Rather, consummation occurs when the liability of the borrower arises by virtue of the fact that they have received consideration. In the case of these mortgage closings, the practice is to have the borrower sign the closing papers, which are then forwarded to some undisclosed third party for underwriting after closing, at which point they either “approve” the closing papers or not. At that point if the funds are sent to the closing agent and if the funds were provided by the party disclosed as the lender, the three years ( and the three days) would obviously commence running.
  1. The difference between the Beach case and the Jesinoski case is that the Jesinoski case makes a distinction between the effective date of the rescission which cancels the loan contract and renders the note and mortgage void, and the timeliness, which is an issue of fact that must be brought up by the alleged “lender” who clearly has the option to accept the rescission or to contest it. If they contest it they need to bring a lawsuit in order to have a court order which would vacate the rescission, which is effective by operation of law.

DISCUSSION

It is my conclusion that in the absence of a lawsuit from an alleged “lender” seeking to vacate a notice of rescission which has become effective by operation of law, according to the U.S. Supreme Court, the Truth in Lending Act, and the Federal Reserve (Regulation Z), they must bring a lawsuit within 20 days from their receipt of the notice of rescission or they have automatically and perhaps involuntarily accepted the rescission.

As stated in the Jesinoski decision the rescission is effective with the mailing of a letter from the borrower. This is an unusual procedure, which is very distinct in the statute and which is referenced by Justice Scalia in the Jesinoski decision. No such provision exists in favor of the lender to contest the rescission; and this is simply because congress had a very clear intent to

provide the lender with an opportunity to accept the rescission but no opportunity to stonewall the effectiveness of the rescission, which is affected by operation of law on the day that it is mailed. The time periods that run for the lawsuit from the alleged “lender” to contest the rescission and the time periods for the borrower to enforce the rescission start running from the date of receipt by the parties asserting either an ownership or representative (servicing) interest in the loan. It is during that period that the lender has the option of simply accepting the rescission and disbursing back all monies paid along with returning the cancelled note and if necessary filing a satisfaction of mortgage (if indeed the mortgage has even been submitted for recording). In the real world none of these actions tend to occur at the time of the execution of the documents by the borrower. They occur some unknown period of time after the borrower executes the loan documents based upon the borrower’s understanding of who the lender is and the terms of the transaction.

In the usual case we don’t know if the originating bank actually funded the loan and all indications or that they did not. Thus the disclosures are automatically wrong and predatory per se according to Regulation Z because if the originating bank did not fund the loan then it was a table-funded loan and presumably followed a pattern of conduct which makes it predatory per se and thus against public policy. See Regulation Z)

The fundamental defect in relying upon the Beach case, is that the Beach case is all about whether the borrower can raise the right of rescission as an affirmative defense to the foreclosure action. It does not address whether the borrower’s right of rescission ever became effective by operation of law. Only the Jesinoski decision does that.

The essential question here is not so much whether the statute operates as a statute of limitations or simply an expired right as set forth in the Florida Supreme Court and U.S. Supreme Court decision. The issue is procedural. If the lender believes that the rescission is invalid, then the lender must file some pleading in a court of competent jurisdiction in which it contests the rescission and seeks to vacate it, since the rescission is already effective by operation of law when it is mailed.

The point is that Congress wanted to make it possible for a borrower to cancel a deal without being required to hire an attorney, file a lawsuit, file affirmative defenses or anything else. The Congressional intent as stated by Justice Scalia in Jesinoski was clearly to put the burden on the lender to either decide to accept the rescission or to raise the issues of whether or not the right to rescind should be considered to have expired or was beyond the statute of limitations all of which hinge on questions of fact about whether consummation ever occurred or if it did when the consummation did occur and when the three-year period expired. There is also the question of equitable tolling given the fact that it is both public policy and common law policy not to allow a party who commits a criminal or civil act to benefit from their fraudulent behavior withholding the true information from the borrower until after the three years has run. This would defeat the entire purpose of the right of rescission which is all about complete and accurate disclosure, failing which the alleged “lender” would face criminal and civil liability.

The Beach decision, in 1997, obviously precedes Jesinoski by 18 years, at which time it was generally assumed that in order to have a rescission the borrower would be required to file some legal action for the rescission to be effective. The Beach court does not address that issue because it was not raised. But in the courts below in Florida it was a general assumption that some pleading by the borrower would be required in order to raise rescission.

Instead, it is quite obvious that rescission raises a jurisdictional issue. If the rescission is effective upon mailing, and it renders the loan contract void and it renders the note and mortgage void then the loan contract, then it follows that the note and mortgage cannot be used in any way at any subsequent time without the lender legally raising the issue and demanding affirmative relief from a court of law. This probably did not come up in the Beach case because that is exactly what the lender did. The borrower asserted the effectiveness of the rescission and the lender contested it by virtue of the expiration of three years. Both sides filed their claims in court, which is exactly what I have been saying since 2007. Where the lender has asserted that attack to vacate the rescission, the court is free to decide whether or not that lender was correct based upon the facts that are admitted or which are proven by one side or the other.

In the usual case that is not the case. In the usual case the borrowers have sent a notice of rescission and the only thing that has been received by borrower or borrower’s counsel is a letter or an email directing his attention to the Beach case. In addition counsel might receive a call from opposing counsel who states in quite definite terms that in order to have a rescission tender of money or property was required, a position which is clearly incorrect under the Jesinoski decision, the Truth in Lending Act, and Regulation Z.

BOTTOM LINE: TILA Rescission is an extreme remedy but it also extremely simple and it was meant to be both. Congressional intent was to hurt the banks if they failed to adequately disclose who was involved in the closing, how much money they were making and why. Like other specific statutory schemes a very small window is allowed to lenders just as a very small window is allowed to borrowers in non-judicial states. The same arguments the banks use against borrowers complaining about non-judicial foreclosure may be used to support non-judicial cancellation of the loan contract, the note, the mortgage and ultimately the debt itself.

Rescission Litigation: 3 days from when? 3 years from when?

For further information please email neilfgarfield@hotmail.com or call 954-495-9867 or 520-405-1688.

This is not a legal opinion on any person’s case. Consult with licensed legal counsel in the jurisdiction in which your property is located.

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This wraps things up for the week, and a reminder that there is no show tonight.

I think the following rules should be applied to the letter of rescission. Remember that Congress explicitly stated that borrowers have the right to effectuate rescission with a mere letter. Congress did not state that the lenders could reject the rescission with a letter. They MUST file a legal action alleging whatever defects they wish to assert. Since the rescission is effective by operation of law it is ONLY through operation of law that the rescission could be vacated.

1. Don’t refer to the date of origination. You don’t know when your liability, if any, arose. You only know when you signed papers. Consummation of the loan commences the moment your liability arises and that is a question of fact for the alleged “lender” to allege and prove IF THEY WANT TO. The alleged lender has the option of accepting the rescission and all the reasons they could have attacked the rescission are voluntarily waived. If they don’t get an order vacating the rescission within 20 days of receipt, they have involuntarily accepted the terms of rescission in the TILA statute. Congress explicitly cut off any right of a lender to stonewall the rescission.

2. Don’t offer any reasons for the rescission. You might be putting those reasons in dispute yourself thus raising the question about whether the rescission was  proper or warranted.

3. Send it to everyone who was ever claiming a right to collect, own or service the loan.

4. To make sure that they know you are traveling under TILA, you can add that they have 20 days in which to comply with Federal statutes.

5. The Beach v Ocwen decision (1997, Supreme Court) can be used for the borrower since the “lender” was not challenged as to standing to contest the rescission, the 3 years was admitted to have run and the alleged “lender” DID file papers in court to get relief from the rescission, which the court gave them. No allegation appears to have been made as to the running of 20 days and perhaps Great Western actually filed their contest of the rescission within 20 days. Both the State and Federal Court have jurisdiction over TILA federal Questions. But it is important to note that Beach says that the 3 years is not a statute of limitations, it is statute of expiration. So the question becomes whether the lender wishes to use that defense, whether the time has run from “Consummation” and whether consummation has actually occurred between the parties who who arguing about it and if so when that point in time was that consummation occurred between the parties identified as borrower and lender.

6. The question of whether the alleged lender has standing, or has good grounds to vacate the rescission are all factual questions that must be alleged in a pleading or complaint and proven at trial or final hearing, with the burden squarely on the party attacking the rescission.

7. The basic thrust is that the rescission is effective by operation of law by mailing a letter from the borrower(s). The ability to counter that by letter from the lender is not in the statute and therefore not available. They must file something in court.

8. During the 20 days running from the date of receipt of the notice the “lender” has the option of accepting the rescission. If they wish to get relief from the rescission, they must file a lawsuit or raise their objections in a pleading in a court of competent jurisdiction — and possibly ask for immediate relief within the 20 days in order not to be in violation of TILA statutes.

Quicken Loans and FHA Fight it Out on Illegal Loan Practices

For further information please email us at neilfgarfield@hotmail.com. You can also call 954-495-9867 or 520-405-1688

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see http://www.nationalmortgagenews.com/news/compliance/fhas-new-loan-defect-taxonomy-is-no-panacea-for-enforcement-woes-1054864-1.html

Not much time today for discussion but this fight between Quicken Loans, who pretended to be making loans even though they were just a naked nominee at loan closings, is instructive about what really happened.

REAL enforcement cannot begin until everyone starts with the right premise, to wit: that investment banks sold an IPO for thousands of inactive, empty entities and called them REMIC Trusts. No money went to the Trusts or the Trustees; and the investment banks, who are the only people who have proof of what happened with the same of mortgage backed securities, kept the money. No loan ever entered the trusts.

The money that appeared in loans to borrowers was received by the closing agent hours, days, weeks, months and maybe years after the borrower thought the closing was complete. And that money came from a pool of money extracted from investors under false pretenses. Since the investors had apparently contracted away their right to have any direct relationship with the borrowers, there was effectively no legal lender at closing.

Hence, the note and mortgage were executed in favor of an originator who posed as the lender, like Quicken loans. The only “creditor” for these loans were the defrauded investors (pension funds etc.). But they only had actions for fraud against the banks or potentially unjust enrichment against the borrowers, but no claim to foreclose on a defective mortgage. My solution is to send the rescission letter which is effective upon mailing. Whether it was timely or the loan did not possess the attributes of a loan that could be rescinded is a question of fact that needs to be raised by the lender, if there is one.

The question is whether there was factually a consummation of the loan and when — or if no consummation then the action by borrower should be to get back the note, get the mortgage satisfied and get back all money that was fraudulently taken from them or paid to others as compensation for the origination of the loan. Those are the exact same remedies as rescission. If the other side brings an action to declare the rescission vacated they must prove the loan, which they cannot do. They cannot rely upon instruments that are void (note and mortgage) to raise affirmative defenses or bring a lawsuit. They lack legal standing unless they can show that the transactions (origination and purchases of the loan) were real.

Until regulators actually accept the truth as a starting point they will be arguing around the problem rather than solving it.

Bank of America: The End Is In Sight

see http://www.fool.com/investing/general/2015/06/28/a-brief-history-of-bank-of-america-in-crisis.aspx

It’s always hard to imagine that some giant corporation will crumble all at once. But that has happened repeatedly over our economic history and BofA has trended on the edge throughout its 111 year history. The article in the above link tracks those events and comes to the conclusion that BofA has finally learned its lesson and could be a gigantic opportunity for investors. I beg to differ. As anyone who is involved with foreclosures will tell you, BofA continues to operate as though it was above the law. Bank management is still so impressed with themselves that they fail to see the precipice they are on.

For too long the public policy has been to save the megabanks who are literally too big to regulate — especially across state boundaries and national boundaries. For too long the public policy has been to force homeowners to shoulder the price of the mortgage meltdown. The banks survived financially but the homeowners didn’t. If the banks had been allowed to fail, the homeowners would not have lost $13 trillion in household wealth and the great recession would never have happened. The spending power would have been hit but not nearly as hard as what resulted from a refusal to do the obvious — take the bad behavior of the banks and spread it over all players, not just the homeowners. Iceland did it and the banks and the homeowners did just fine without a major recession. (Not so much for the bankers, who were thrown in jail for defrauding investors, borrowers and everyone in between).

The amount of liability out there for BofA and other major banks remains staggering. And the rulings regarding rescission and proof of foreclosure are a tightening noose around the necks of the the banks, even if their managers have escaped prosecution for criminal activity. As the pace picks up it is obvious that BofA and other banks are facing huge losses from loans “that never were” and mega write-offs on their balance sheet that will put them, once again, in the official position of what everyone already knows to be the case: insolvent.

BOTTOM LINE: The banks knowingly took money from investors for the “purchase” of mortgage backed securities that were issued by empty, non-operating REMIC Trusts. It was the holy grail of criminal investment banking — do an IPO and keep the money because the issuing entity doesn’t need nor want the money. Then through a series of “remote” or “bankruptcy remote” vehicles they slid money onto the loan closing table, pretending that the originator was the lender. The paperwork at closing should have protected the investors because it was their money). Instead it created fake paperwork creating the illusion of rights under the UCC and other theories to enforce worthless paper without alleging or proving that they ever paid for the paper, the loan or anyone else. In legal speak, the banks have the courts treating them as holders in due course of negotiable instruments without BEING holders in due course, and the paper upon which they rely is neither real nor negotiable.

The investor’s money was the source of the loan and it was fraud and breach of contract that their money ended up on the closing table with borrowers. This was precisely why Congress labeled such behavior as predatory per se — for the protection of borrowers, investors and the marketplace. Government missed its cue and instead geared up to millions of foreclosures instead of taking control of the failed banks and renegotiating the loan terms with adequate protections for the investors and the borrowers — the only real parties in the transaction. The Courts missed their cue as well. Instead of actually learning the details of these transactions, knowing that they knew nothing about securitization judges nevertheless ruled repeatedly in favor of the banks and prevented the borrower from getting discovery and forcing the borrower to absorb the burden of proof of facts that were uniquely in the hands of the banks, hidden away from public and private view.

None of the transactions reported by the banks ever took place except as paper trades on their trading desks — with fictional sellers and buyers and fictional money. The reason the banks cling so desperately to the presumptions regarding negotiable paper is that they win no cases if the court allows the borrower to drill down in discovery or the court forces the burden of proof onto the the alleged “holder” to prove the loan or any transaction implied by the false paper they are using in court. They lose every time except in those instances where the originator actually loaned money to the borrower and still has the loan (about 4% of all loans over the last 15 years).

Bank Lawyer’s Seminar: Rescission Changes Everything

QUOTE FROM SEMINAR: “The bottom Line: Until 3 years have elapsed, a mortgage is only as secure as the lender’s proof of compliance with TILA.”

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For more information please call 954-495-9867 or 520-405-1688

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see tila-right-of-recission-041415

From one of my readers, I received the Power Point Presentation given by a law firm representing the banks. It confirms everything I have been saying. It also offers a glimpse of some of the ways they will try to wiggle out of it. Suffice it to say that in addition to losing far more cases than what has been previously been reported, the banks are now stuck with a problem that they can’t fix, to wit: when they try to “securitize” a pool of new loans they cannot say that the deal is done because the borrower could assert a right to rescind triggering a nightmare of problems for all the parties starting with origination. The appetite for mortgage backed securities is almost certainly going to decline or vanish completely.

Key points from seminar: (You would think I was the presenter!)

  1. Mailing the notice is sufficient to cancel the loan, note and mortgage.
  2. No tender of money or property is required
  3. It is risky for lender to ignore notice of rescission
  4. Rescission is really a borrower’s remorse remedy
  5. Bringing suit immediately is the only way to end the issue — but only if you have absolute proof of the loan and the disclosures conforming to TILA. [Editor’s note: any failure to disclose compensation off the books of the “closing” would probably be evidence of non-disclosure on multiple levels]
  6. AFTER the lender has complied with 1635(b) (termination of security interest), after the lender has returned the canceled note and after the lender has complied with 12 CFR 1026.23(d)(2) (Return of any money or property that has been given to anyone) THEN the borrower must tender [Editor’s Note: This imposes a requirement that will put the trusts in immediate conflict with the investors and the facts. In order to “return” the money to borrower somebody has to pay it. The servicers, the banks sand the trusts don’t have any investment in these loans. They have been getting a free ride for years. They can’t go to the investors for the money and ask them so they can only advance the funds and hope they will get it back or just steal it from investors, which looks eerily like the start of mortgage securitizations]
  7. According to TILA the lien is void upon mailing of the notice.
  8. Banks better do their homework and identify all the loans that are not supported by TILA disclosures. [Editor’s note: My observation is that this is approximately 90%-96% of all alleged mortgage loans. As I said in 2007-2008: In my opinion the vast majority of all loans produced void notes and mortgages or were subject to rescission which results in the same thing — cancellation of the note, cancellation of the encumbrance, and disgorgement of all money paid.]

THE NEIL GARFIELD SHOW: HOW LATE CAN A BORROWER RESCIND OR CANCEL A LOAN? JESINOSKI REVISITED

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The parties were invited to attend a meeting at which the borrowers signed the papers. The originator is usually not in attendance. The closing agent, usually a title agent, takes the signed documents into escrow. At some later time the alleged loan is “funded” by a wire transfer from an unknown source. The borrower believes that the originator is loaning him the money. In truth it was a “table-funded” loan in which the name of the actual lender was actively concealed from the borrower and the actual “loan” was not funded until some time after the meeting. Later the mortgage is recorded and the note is released from escrow and sent to someone whom the closing agent assumes to be authorized to receive it. When was consummation?

Later the successors to the loan documents will allege that the loan closing was “consummated” at the time of signing, but that is not right. If there was a consummation of the loan at all it didn’t occur until hours, days, weeks or months or even years after the meeting. It is a question of fact as to when the alleged loan was consummated. And if there was a table-funded loan there might have been no consummation at all. Instead whoever the real lender is might have some claim for quantum meruit or unjust enrichment to get their money back but if they raise that claim they cannot do it using the note and mortgage. So when does the three day period commence for rescission? When does the three year period begin for rescission? Is there a time when the borrower is prohibited by statute from sending the notice of rescission? And what happens if some company steps up and complies and then asks for the money? They don’t have to object to rescission — they can agree. If rescission is effective when mailed, who can vacate it?

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