TILA (NON-JUDICIAL AND JUDICIAL) Rescission Gets Clearer in Most Respects

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

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It is becoming crystal clear that with help from a competent attorney the options under the TILA rescission process are (a) different from common law rescission and (b) very effective against “lenders” who can no longer hide behind “presumptions”. LIKE THE PRESUMPTIONS THAT HAVE BEEN STRICTLY APPLIED AGAINST HOMEOWNERS, BUT WHICH ARE REBUTTABLE, TILA RESCISSION IS STRICTLY APPLIED AGAINST “LENDERS.” Just as presumptions force the borrower to take the burden of proof on basic facts in the pretender lender’s case, TILA rescission forces the “lender” to take the burden of proof in the borrower’s loan, establishing that there was no basis for rescission. This article covers the law regarding those legal presumptions AND the effects and mechanics of a TILA rescission.

Amongst the things that are clear now is the plain fact that rescission is a private statutory remedy requiring only a letter to give notice of exercising the TILA right of rescission. If a homeowner wants to file suit to enforce the rescission, there is a one year statute of limitations to collect damages or get any requiring the “lender” to comply. But the effective date of rescission remains the same even if the one year statute has passed. In plain language that means that by operation of law you don’t have a mortgage encumbrance on your property if more than 20 days has passed since the rescission was effective (the day you dropped it in a mailbox).

But if you are looking to recover the financial damages provided by TILA (disgorgement of payments etc.) then you need to file suit within one year of the rescission. If you want to clear title with a quiet title action my opinion is that the one year statute of limitations does not apply — because the act provides that the mortgage and note are void by operation of law. Thus the title issue is cleared as of the date of rescission. As argued by the ACLU and as stated by a unanimous Supreme Court the rescission is effective upon notice. There is no requirement of notice AND a lawsuit. So the suit to clear or quiet title is merely based on removing the mortgage from your chain of title because it is (and has been) void since the day of rescission.

I cannot emphasize enough the importance or reading the ACLU brief below. Too many judges and lawyers have become confused over the various provisions of TILA. A lawsuit based upon rescission to to enforce the rights due to the borrower because the rescission is already effective. The lawsuit is NOT the exercise of the right of TILA rescission. The letter declaring the rescission is the exercise of the right of TILA rescission. This is far different from common law rescission.

FOR REBUTTING PRESUMPTIONS See Franklin Decision

FOR ADMISSIONS REGARDING FABRICATION OF DOCUMENTS THUS REBUTTING PRESUMPTIONS See Wells Fargo Foreclosure_attorney_procedure_manual-1

FOR THOROUGH ANALYSIS AND HISTORY OF TILA RESCISSION SEE jesinoski_v._countrywide_home_loans_aclu_amicus_brief

And see this explanation which is almost entirely accurate —

Read this excerpt from the CFPB Amicus Brief (Rosenfeld v. HSBC):
” If the court finds the consumer was entitled to rescind, it will order the procedures specified by 1635 and Reg. Z, or modify them as the case requires…Accordingly, if the court finds the consumer rescinded the transaction because she properly exercised a valid right to rescind under 1635, the lender must be ordered [by the court] to honor the rescission, even if the underlying right to rescind has expired.”
 
I needn’t go further…this is the CFPB talking…and they are the sole authority to promulgate the rules of rescission by Congress. They (the lender) must act within 20 days, regardless of the consumer’s perception of whether or not the rescission is timely. It would be up to a court to determine the exercise of the right…but the lender must be ordered by the court to follow the rules of rescission under TILA and the attendant time frames contemplated therein.
The rescission process is private, leaving the consumer and lender to working out the logistics of a given rescission.” McKenna, 475 F.3d at 421; accord Belini, 412 F.3d at 25. Otherwise, to leave the creditors in charge of determining timing, the creditors would no doubt stonewall until the time ran after receipt of the notice of rescission. Thus, even valid rescissions would result in creditors claiming that the time to file suit had run out and the statute is then moot. Congress recognized that TILA rescission is necessarily effected by notice and any subsequent litigation must be accomplished within restrictions set against the creditors…not the consumers. This is non-judicial action at its finest. Just like the non-judicial act of foreclosure (in such forums). 
Consummation is a question of fact that would be determined after the creditor performed its required obligations under 1635 (b)…unless suit is brought within 20 days of the notice of rescission…as is required.
“Everyone is a genius, but if one passes judgment on a fish trying to climb a tree, and then continues to tell him that he is stupid, the fish, and everyone else, will believe that, even though his genius has never been discovered.” Albert Einstein.

Rescission: Equitable Tolling Extends Statute of Limitations

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Important Message: This blog should NEVER be used as a substitute for competent legal advice from an attorney licensed in the jurisdiction in which your property is located.

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see http://openjurist.org/784/f2d/910/king-v-state-of-california-d-m

The most popular question I get here on the blog and on my radio show is what happens when the three year statute has run? The answers are many. First is the question of whether it ever started running. If the transaction was not actually consummated with anyone in the chain of parties claiming rights to collect or enforce the loan it would be my opinion that the three day right of rescission has not begun to run. That would be a remedy to an event in which the note and mortgage (or deed of trust) has been signed and delivered but the loan was never funded by the originator any creditor in the chain of “ownership.” The benefit of the three day rescission is that you don’t need a reason to do it. But in order to do that you need to be careful that you are not stating that there was a closing because that would be consummation and therefore the right to rescind unconditionally ran three days after that “Closing.”

Second is the three year statute of limitations. The same reasoning applies.  But it also raises the question of non-disclosure and withholding information. The rather obvious delays in prosecuting foreclosures on alleged “defaults” are clearly a Bank strategy for letting the 3 year statute run out and then claim the homeowner cannot rescind because the closing was more than 3 years ago. That is where the doctrine of equitable tolling comes into play. A party who violates TILA and fails to disclose material facts and continues to hide them from the borrower should not be permitted to benefit from continuing the violation beyond the apparent statute of limitations. People keep asking why the banks wait so long to prosecute foreclosures. The answer is that it is because they have no right to do so and they are running out the apparent statute of limitations on rescission and TILA disclosure actions.

Third is a procedural issue. According to TILA the “lender” who receives such a notice of rescission is (1) obligated to send it to the “real” lender and (2) must file a declaratory action against the borrower within 20 days in order to avoid the rescission. If they don’t file the 20 day action, they waive the objections they could have raised. So far I have not heard of one case in which such an action has been filed. I think the reason for that is that nobody can file an action in which they establish standing. Such a party would be obliged to allege that they are the “lender” or “creditor” as defined by TILA. That means they either loaned the money or bought the loan for “valuable consideration” just like it says in Article 9 of the UCC. Then they would have to prove that allegation before any burden shifted to the borrower to answer or file affirmative defenses against the action filed by this putative “lender.”

CAVEAT: The doctrine of equitable tolling is remedial as is the statute, but it is fairly strictly construed. I’m am quite confident that the best we will get from the courts is that the 3 day and 3 year rules and other limitations in TILA starts running the moment you knew or should have known the facts that had been withheld from you at “closing.” The fact that you are not a lawyer and did not realize the significance of this will not allow you to delay the start of the statute running after the date of discovery of the facts, whether you understood them or not.  But this is a two-edged sword. The current practice of objecting to any QWR, DVL or discovery question without answering the truth about the claimed chain of ownership or servicers on the loan corroborates the borrowers allegation that the parties are continuing to withhold this information. So a well-framed TILA defense might serve as the basis for enforcing your rights of discovery and rights to answers on your Qualified Written Request or Debt Validation Letter.

Additional Caveat: The doctrine of equitable tolling has been applied with respect to the one year statute of limitations on TILA disclosures but it remains open as to whether it would be otherwise applied. From the 9th Circuit —

“Section 1640(e) provides that “[a]ny action under this section may be brought within one year from the date of the occurrance of the violation.” We have not yet determined when a violation occurs so as to commence the one-year statutory period. See Katz v. Bank of California, 640 F.2d 1024, 1025 (9th Cir.), cert. denied, 454 U.S. 860, 102 S.Ct. 314, 70 L.Ed.2d 157 (1981). Three theories have been used by other circuits to determine when the statutory period commences: (1) when the credit contract is executed; (2) when the disclosures are actually made (a “continuing violation” theory); (3) when the contract is executed, subject to the doctrines of equitable tolling and fraudulent concealment (limitations period runs from the date on which the borrower discovers or should reasonably have discovered the violation). See Postow v. OBA Federal S & L Ass’n, 627 F.2d 1370, 1379 (D.C.Cir.1980) (adopting “continuing violation” theory in some situations); Wachtel v. West, 476 F.2d 1062, 1066-67 (6th Cir.), cert. denied, 414 U.S. 874, 94 S.Ct. 161, 38 L.Ed.2d 114 (1973) (rejecting “continuing violation” theory, statutory period commences upon execution of loan contract); Stevens v. Rock Springs National Bank, 497 F.2d 307, 310 (10th Cir.1974) (rejecting “continuing violation” theory); Jones v. TransOhio Savings Ass’n., 747 F.2d 1037, 1043 (6th Cir.1984) (applying equitable tolling and fraudulent concealment).”

Hats off to James Macklin who sent me this email:

Hang on to your hats fella’s…in Sargis’ ruling … back in 2012…he confirms the equitable tolling principles of TILA as I had argued…just saw this again while reviewing…to wit:
“The Ninth Circuit applies equitable tolling to TILA’s … statute of limitations (King v. California, 784 F.2d 910, 914 (9th Cir. 1986).
“Equitable Tolling is applied to effectuate the congressional intent of TILA.”, Id.
Courts have construed TILA as a remedial statute, interpreting it liberally for the consumer.” (Id. Citing Riggs v. Gov’t Emps. Fin. Corp., 623 F.2d 68, 70-71 (9th Cir. 1980).
 Specifically the 9th Circuit held: “[T]he limitations period in section 1640(e) runs from the date of consummation of the transaction but that the doctrine of equitable tolling may, in appropriate circumstances, suspend the limitations period until the borrower discovers or had the reasonable to discover the fraud or non-disclosures that form the basis of the TILA action.” 
Gentlemen…I give you proof positive that the statute tolls and the fact that the term “consummation” is also subject to broad interpretation as we know…the loan could not have consummated if what we allege is found to be true… However, the non-disclosures language used by the 9th Circuit gives rise to possible myriad rescissions upon discovery of those non-disclosures…
James L. Macklin, Managing Director
Secure Document Research(Paralegal Services/Legal Project Management)

Reverse Redlining: Targeting the Poor and the Unsophisticated for High Risk Mortgages

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see https://www.aclu.org/sites/default/files/assets/aclumfy_mortgage_report.pdf

At this point it is clear that the banks actually targeted people of color and other demographics where the likelihood of “default” on a loan was extraordinarily high. The ACLU in its latest report on the mortgage crisis proves this to any remaining doubters. This report also shows that these disadvantaged groups are the least likely to get a modification or other settlement or assistance of the various mortgage issues that we all know now were pandemic throughout the period of 1996-present.

But what they are missing is an answer to the REAL question: Why would anyone target a demographic where “defaults” could be claimed in much higher proportion to the history in the general population? Why did they want the loans to fail, because “failure” of the loan was a basic assumption to anyone who understands the various iterations of highly complex and sophisticated loan products — a number which climbed from 5 in the 1970’s to 450 in 2008. Imagine that 450 different loan options offered to the poor, the people who don’t speak or understand English very well and the people who are poor enough that eventually when payments reset they will not pay and they won’t be able to fight for their house. The tragedy here, let me remind everyone, is that most of these were refinancing of existing home ownership — that’s right, most of the homes were in the family for generations.

The Banks targeted homes where the home values were low. Then they drove the prices up to many items the actual value by filling the bathtub with money and selling “payments” instead of principal or interest rate. They offered teaser payments that the homeowner could afford — but which changed to a monthly payment that was higher (sometimes a multiple) than the entire household income. Somehow the Banks have convinced courts to think that the disclosures were sufficient. They were not. And in my opinion if the courts would scrutinize these so-called loans the way they did before securitization none of the loans would survive any fair interpretation of disclosures required under Federal laws (TILA) and state laws, including common law.

Banks do economic analysis every day employing thousands of analysts. Those analysts knew that the prices were being driven above the value of the property, knew that the endgame was the drop of prices to resume relationship with values, and thus knew — because they rigged the game — that if they bet the mortgages would fail, they would make a lot of money. The trick was to lose somebody else’s money not their own. and that is what they did.

If the ACLU wants to do something that produces actual results, they should analyze the economics of the alleged securitization of these loans. What they will find is a note that cannot be enforced and a mortgage that was void from the start. They will find fraud with aggravating circumstances. the banks needed really “bad” loans in order to accomplish their goals. By using investor funds instead of their own, they could claim ownership of the loans when they reported their assets and liabilities to regulatory authorities; but they would assign the losses to investors, borrowers, insurers, guarantors, FDIC loss sharing, and credit default swap counterparties and take the proceeds for themselves — even though they had no losses.

The ACLU should bring actions on behalf of the demographics hit hardest by this Ponzi scheme. They should state the obvious — that the true source of funds had no idea how their money was being used, the banks that did know were intentionally creating bloated loan documents based upon fraudulent appraisals, and the real creditors were deprived of any protection for their investment while the borrowers were signing documents that recited fraudulent information as to the identity of the lender and the real cost of the loan.

The attack on enforceability of the mortgages is easiest simply because it is now fairly easy to show unclean hands. Where a loan is statutorily defined as “predatory per se” it is hard to argue for the banks that it isn’t subject to “unclean hands per se” and therefore cannot be enforced because it is against public policy.

In a court where rules of equity are applied, there is no enforcement of a deal that was, from the start, violation of Federal and State law, was “predatory per se” (Regulation Z) and was part of a fraudulent scheme. This scheme only works for the banks if the loan is secured by a mortgage on the property. That mortgage is mostly unenforceable and probably void, ab initio. True creditors can prove they lost money on the deal have an opportunity to sue and collect on money due them — (1)  from the borrower up to perhaps the amount that should have been the principal, and (2) from the banks for the rest of the money that was skimmed off the top. The amount skimmed in many cases especially in the disadvantaged demographics, was frequently more than the loan itself.

Do you know where your loan payments are going? Bet you Don’t!

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

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Submitted from a person who is an anonymous source but who works deep inside an organization where the raw data is available and just to be clear —- I told you so:

Bonding experience

Subject: Bonding experience

Sorry for the title line, low hanging fruit……Anyway, I thought you both will find this of interest.) From the Citibank Trustee website you both have access to per my prior e-mail (or anyone, it is public….) you will find below the listing of the original principal balance of the loans in the various traunches for the WAMU-HE-2 Trust. The balances below are from the PSA on page 8; they track almost identically to the balances as of the funds 1st reporting date on the Citibank website (I have attached below from May 2007); Directly above the May 2007 balances is the current January 2015 balances. Notice anything strange? All principal balances are lower or gone, and reduced by half in the largest traunch (1-A). How can this be you ask?  Did that many loans default and have the homes liquidated and proceeds applied to the loans? OR,  did insurance payments, credit default swaps, TARP money, or buy backs on the loans by Chase (as likely forced by the investors who have that right for non-conforming loans) pay off the loan balances that are now gone? The answer is likely a bit of all the above.

Not to bore you with the details, but if you look at the January 2015 certificate holder statement on Page 5 you will see detail on who lost what, other pages break out reasons for reductions (yes, some of this is due to repurchase, Chase? maybe, unknown). The M-Series traunches appear to have been wiped out completely, which tracks to PSA which shows 1-A-II A’s get distributions 4th (AFTER credit default swaps and derivative holders mind you, who may be from entirely different funds! Like that, your loan payment is not even going to the fund that claims to hold it 1st, 2nd, or 3rd time around), losses last, Hence if you are M-series you are screwed.

So why does this matter in a typical homeowner foreclosure? As XXX and I pointed out to judges too lazy to want to dive into this, if your loan is in Traunch 1-IIA, which report no principal loss (any losses?) the fund has a hard time claiming standing if the certificate holders of your loan suffered no loss. Due to commingling of funds, and cross defaults, when peoples loan payments are distributed to the Servicer (Chase), it puts your payment in the loan pool, and it is likely used to pay someone else’s loan payment (ditto with foreclosure proceeds, if your loan was in M Traunch, a 100% loss was realized years ago, your proceeds go to make someone else’s loan payment). This was never disclosed to the homeowner at loan signing, your payment goes to another, your home is cross collateralized, your home may be covered by a pool level insurance policy, credit default swaps, your payment does not go to whom you bargained it would (TILA, RESPA, REG Z violations anyone?). If your loan was repurchased, the fund is not even the correct foreclosing party anymore, and if servicer advances and credit default swaps cover your loan payments (from swap holders in other funds!!) you are not even in default nor has the fund suffered a claimed loss. You can see what a mess this is, and why Chase and other “Servicers” don’t want to open the books on what happens to the Trust funds money to anyone. Investors in current lawsuits have to sue their own Trustee’s (like Citigroup) to try to get to the “real” books, sound crazy, it’s happening….  since Chase and the fund never legally held my loan due to multiple forgeries and botched assignments, they in essence committed theft through conversion of my loan payments when I made them, because they never held the legal right to accept payments from me.Like I said, this happens thousands of times daily to thousands of homeowners, and no one, not the government, regulators, judiciary, and especially the banks, want to discuss this mess. LOL, if this all gives you a headache, it should! Same process is now happening on credit cards and auto loans, anything they can securitize…..

see http://www.bloomberg.com/news/articles/2015-02-24/justice-department-probing-auto-loan-securitization-yates-says
 

REMIC 3
As provided  herein, the Trustee shall  make an election  to treat the segregated  pool of assets consisting of the REMIC 2 Regular Interests as a REMIC for federal income tax purposes, and such segregated pool of assets shall be designated as “REMIC 3.”  The Class R-3 Interest represents  the  sole  class  of  “residual  interests”  in  REMIC  3  for  purposes   of  the  REMIC Provisions.The following  table sets forth (or describes)  the Class  designation,  Pass-Through  Rate and Original Class Certificate Principal Balance for each Class of Certificates that represents one or more of the “regular interests” in REMIC 3 and each class of uncertificated  “regular  interests” inREMIC 3:

Class designation Original Class Certificate Principal Balance Pass-Through

Rate

Assumed Final

Maturity Date1

1-A $             491,550,000.00 Variable May25, 2047
II-AI $              357,425,000.00 Variable2 May25, 2047
II-A2 $              125,322,000.00 Variable2 May25, 2047
II-A3 $              199,414,000.00 Variable2 May25, 2047
II-A4 $              117,955,000.00 Variable2 May 25,2047
M-1 $                50,997,000.00 Variable2 May25, 2047
M-2 $                44,623,000.00 Variable2 May25,  2047
M-3 $                27,092,000.00 Variable2 May25, 2047
M-4

M-5

M-6

$                23,905,000.00

$                23, I 08,000.00

$                21,514,000.00

Variable2

Variable2

Variable2

May25, 2047

May25, 2047

May25,  2047

M-7 $                20,718,000.00 Variable2 May25,  2047
M-8 $                12,749,000.00 Variable2 May25, 2047
M-9 $                17,531,000.00 Variable2 May25,  2047
Swap 10 N/A Variables May25, 2047
FM Reserve 10

Class C lnterese

N/A

$                59,762,058.04

Variables

Variable2

May25, 2047

May25, 2047

Class P Interest $                            100.00 N/A4 May25,  2047

Two Different Worlds — Note and Mortgage

Further information please call 954-495-9867 or 520-405-1688

No radio show tonight because of birthday celebration — I’m 68 and still doing this

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The enforcement of promissory notes lies within the context of the marketplace for currency and currency equivalents. The enforcement of mortgages on real property lies within the the context of the marketplace for real estate transactions. While certainty is the aim of public policy in those two markets, the rules are different and should not be ignored.

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see http://www.uniformlaws.org/Shared/Committees_Materials/PEBUCC/PEB_Report_111411.pdf

This article is not a substitute for getting advice from an attorney licensed to practice in the jurisdiction in which your property is or was located.

Back in 2008 I had some correspondence and telephone conversations with an attorney in Chicago, Robert Wutscher when I was writing about the reality of the way in which banks were doing  what they called “securitization of mortgages.” Of course then they were denying that there were any trusts, denying that any transfers occurred and were suing in the name of the originator or MERS or anyone but the party who actually had their money used in loan transactions.  It wasn’t done the right way because the obvious intent was to play a shell game in which the banks would emerge as the apparent principal party in interest under the illusion created by certain presumptions attendant to being the “holder” of a note. For each question I asked him he replied that Aurora in that case was the “holder.” No matter what the question was, he replied “we’re the holder.” I still have the letter he sent which also ignored the rescission from the homeowner whose case I was inquiring about for this blog.

He was right that the banks would be able to bend the law on rescission at the level of the trial courts because Judges just didn’t like TILA rescission. I knew that in the end he would lose on that proposition eventually and he did when Justice Scalia, in a terse opinion, simply told us that Judges and Justices were wrong in all those trial court decisions and even appellate court decisions that applied common law theories to modify the language of the Federal Law (TILA) on rescission. And now bank lawyers are facing the potential consequences of receiving notices of TILA rescission where the bank simply ignored them instead of preserving the rights of the “lender” by filing a declaratory action within 20 days of the rescission. By operation of law, the note and mortgage were nullified, ab initio. Which means that any further activity based upon the note and mortgage was void. And THAT means that the foreclosures were void.

Is discussing the issue of the “holder” with lawyers and even doing a tour of seminars I found that the confusion that was apparent for lay people was also apparent in lawyers. They looked at the transaction and the rights to enforce as one single instrument that everyone called “the mortgage.” They looked at me like I had three heads when I said, no, there are three parts to every one of these illusory transactions and the banks fail outright on two of them.

The three parts are the debt, the note and the mortgage. The debt arises when the borrower receives money. The presumption is that it is a loan and that the borrower owes the money back. it isn’t a gift. There should be no “free house” discussion here because we are talking about money, not what was done with the money. Only a purchase money mortgage loan involves the house and TILA recognizes that. Some of the rules are different for those loans. But most of the loans were not purchase money mortgages in that they were either refinancing, or combined loans of 1st mortgage plus HELOC. In fact it appears that ultimately nearly all the outstanding loans fall into the category of refinancing or the combined loan and HELOC (Home Equity Line of Credit that exactly matches the total loan requirements of the transaction (including the purchase of the home).

The debt arises by operation of law in favor of the party who loaned the money. The banks diverged from the obvious and well-established practice of the lender being the same party as the party named on the note as payee and on the mortgage as mortgagee (or beneficiary under a Deed of Trust). The banks did this through a process known as “Table Funded Loans” in which the real lender is concealed from the borrower. And they did this through agreements frequently called “Assignment and Assumption” Agreements, which by contract called for both parties (the originator and the aggregator to violate the laws governing disclosure (TILA and frequently state law) which means by definition that the contract called for an illegal act that is by definition a contract in contravention of public policy.

A loan contract is created by operation of law in which the borrower is obligated to pay back the loan to the source of the funds with or without a written instrument. If the loan contract (comprised of offer, acceptance and consideration) does not exist, then there is nothing to enforce at law although it is possible to still force the borrower to repay the money to the actual source of funds through a suit in equity — mainly unjust enrichment. The banks, through their lawyers, argue that the Federal disclosure requirements should be ignored. I think it is pretty clear that Justice Scalia and a unanimous United States Supreme Court think that argument stinks. It is the bank’s argument that should be ignored, not the law.

Congress passed TILA specifically to protect consumers of financial products (loans) from the overly burdensome and overly complex nature of loan documents. This argument about what is important and what isn’t has already been addressed in Congress and signed into law against the banks’ position that it doesn’t matter whether they really follow the law and disclose all the parties involved in the transaction, the true identity of the lender, the compensation of all the parties that made money as a result of the origination of the loan transaction. Regulation Z states that a pattern of behavior (more than 5) in which loans are table funded (disclosure of real lender withheld from borrower) is PREDATORY PER SE.

If it is predatory per se then there are remedies available to the borrower which potentially include treble damages, attorneys fees etc. Equally important if not more so is that a transaction, whether illusory or real, that is predatory per se, is therefore against public policy and the party seeking to enforce an otherwise enforceable document cannot do so because of the doctrine of unclean hands. In fact, if the transaction is predatory per se, it is dirty hands per se. And this is where Judges get stuck and so do many lawyers. The outcome of that unavoidable analysis is, they say, a free house. And their remedy is to give the party with unclean hands a free house (because they paid nothing for the origination or acquisition of the loan). I think the Supreme Court will not look kindly upon this “legislating from the bench.” And I think the Court has already signaled its intent to hold everyone to the strict construction of TILA and Regulation Z.

So there are two reason the debt can’t be enforced the way the banks want. (1) There is no loan contract because the source of the money and the borrower never agreed to anything and neither one knew about the other. (2) the mortgage cannot be enforced because it is an action in equity and the shell game of parties tossing the paperwork around all have unclean hands. And there is a third reason as well — while the note might be enforceable based merely on an endorsement, the mortgage is not enforceable unless the enforcer paid for it (Article 9, UCC).

And THAT is where the confusion really starts — which bank lawyers depend on every time they go to court. Bank lawyers add to the confusion by using the tired phrase of “the note follows the mortgage and the mortgage follows the note.” At one time this was a completely true presumption backed up by real facts. But now the banks are asking the courts to apply the presumption even when the courts actually know that the facts presumed by the legal presumption are untrue.

Notes and mortgages exist in two different marketplaces or different worlds, if you like. Public policy insists that notes that are intended to be negotiable remain negotiable and raise certain presumptions. The holder of a note might very well be able to sue and win a judgment ON THE NOTE. And the judgment holder might be able to record a judgment lien and foreclose on it subject to homestead exemptions.

But it isn’t as simple as the banks make it out to be.

If someone pays for the note in good faith and without knowledge of the borrower’s defenses when the note is not in default, THAT holder can enforce the note against the signor or maker of the note regardless of lack of consideration or anything else unless there is a provable defense of fraud and perhaps conspiracy. But any other holder steps into the shoes of the original lender. And if there was no consummated loan contract between the payee on the note and the borrower because the payee never loaned any money to the borrower, then the holder might have standing to sue but they don’t have the evidence to win the suit. The borrower still owes the money to whoever was the source, but the “holder” of the note doesn’t get a judgment. There is a difference between standing to sue and a prima facie case needed to win. Otherwise everyone would get one of those mechanical forging machines and sign the name of someone with money and sue them on a note they never signed. Or they would promise to loan money, get the signed note and then not complete the loan contract by making the loan.

So public policy demands that there be reasonable certainty in the negotiation of unqualified promises to pay. BUT public policy expressed in the UCC Article 9 says that if you want to enforce a mortgage you must not only have some indication that it was transferred to you, you must also have paid valuable consideration for the mortgage.

Without proof of payment, there is no prima facie case for enforcement of the mortgage, but it does curiously remain on the chain of title of the property (public records) unless nullified by the fact that the mortgage was executed as collateral for the note which was NOT a true representation of the loan contract based upon the real debt that arose by operation of law. The public policy is preserve the integrity of public records in the real estate marketplace. That is the only way to have reasonable certainty of title and encumbrances.

Forfeiture, an equitable remedy, must be done with clean hands based upon a real interest in the alleged default — not just a pile of paper that grows each year as banks try to convert an assignment of mortgage into a substitute for consideration.

Hence being the “holder” might mean you have the right to sue on the note but without being a holder in due course or otherwise paying fro the mortgage, there is no automatic basis for enforcing the mortgage in favor of a party with no economic interest in the mortgage.

see also http://knowltonlaw.com/james-knowlton-blog/ucc-article-3-and-mortgage-backed-securities.html

RESCISSION HEATS UP AS BORROWERS HEAD BACK TO COURT TO USE SUPREME COURT REVERSAL

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

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For lawyers only: Many homeowners are going back and digging up their notices of rescission. There are cases in state court, federal court and bankruptcy court that could be and probably are effected by the US Supreme Court decision that made it clear that TILA rescission was a unique statutory remedy and that the common law right of rescission should not be used to interpret the explicit statutory remedy that is TILA Rescission.
Borrowers/debtors are filing motions to set aside previous rulings by courts who assumed that the rescission was only effective when a court says so (the common law rule rejected unanimously by the Supreme Court) and that tender of the money was required for the rescission to be effective (also rejected by the U.S. Supreme Court).  The Banks have reacted predictably — trying to enforce the previously incorrect rulings of the court by virtue of res judicata, collateral estoppel or even “law of the case.” Remember that state laws and rules of procedures will affect the ability of borrowers to go back into litigation that has been concluded even if it is on false premises.

I would file a short reply saying something like “Defendants continue to argue a point not in issue in an blatant attempt to appeal to the Court’s personal views or inclinations. Plaintiff does not seek a free house and never did. Plaintiff’s goal is very simple: If the defendants were not the owner or representative of the owner of the debt, note and mortgage and lacked any authority to pursue collection or enforcement, then they should not be permitted to pursue a strategy in which the defendants get a “free house.”

The US Supreme Court made clear that the requirements of TILA are clear and must be strictly construed — apart from any common law notions of fraud or rescission. The Federal statute is clear in stating that the Plaintiff’s issuance of a notice of rescission produced two results: (a) the note and mortgage are nullified by operation of law (although the debt remains) and (b) if the “lender” seeks to contest the rescission, they must do so within 20 days by the Lender filing a lawsuit, which it is uncontested that the Defendants no such action was filed. If the note and mortgage were nullified by “operation of law” (quoted from statute) there is no logic or legal argument that can make it otherwise.

There is no authority that makes the notice of rescission void. “Lenders” may challenge it within 20 days and if they don’t they have waived their “defenses” or “Claims.” The point of the nullification of the note and mortgage by operation of law is to provide the borrower with the capacity to seek out alternative financing (to pay the existing debt to the “lender”) which could only be achieved if the Defendant’s mortgage and note were removed from the title chain. The 20 days in which the “lender” just sue to set aside the rescission has long expired. And the Defendants still have not filed such a suit. They have waived their defenses or claims regarding the rescission by operation of Federal law. These are not theories. They are explicit statements by the US Government aimed at leveling the playing field between borrowers and lenders, reinforced by the short opinion rendered by Justice Scalia for a unanimous Supreme Court. ”

It is not the borrower that must tender payments. It is the lender that must tender payment, disgorgement and reimbursement for every penny paid by the the borrower in connection with the loan including at closing and all monthly or other payments thereafter. Nothing could be more clear in the statute. And now the US Supreme Court has said exactly that — courts that apply common law rules to rescission are wrong when it comes to TILA rescission. The various “defenses” and “claims” of the “lenders” are waived unless they bring suit within 20 days from the notice of rescission. There are no exceptions in the Federal Statute.

The subject mortgage and note did not exist after the notice of rescission. That is the express terms of the law. Hence any action to enforce or collect under the terms of the note or mortgage or deed of trust were void, ab initio. No court would even have subject matter or personal jurisdiction to consider a controversy regarding a nonexistent note and a nonexistent mortgage or deed of trust. Further, the defendants were obligated to send a satisfaction of mortgage and canceled note to the borrower after rescission. Defendants are seeking to have the court ratify Defendant’s violation of the express provisions of the Federal Act. In essence they are arguing that even though the US Supreme Court says otherwise, that the notice of rescission should be ignored. There is no higher authority than the US Supreme Court. One is left to ask, upon what source of authority the Defendants rely that is higher than the US Supreme Court speaking unanimously.

Rescission: Shifting the Burden of Proof

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

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see http://www.foreclosuredefenseresourcecenter.com/top-f-foreclosure-defense-strategies-in-california/truth-in-lending-rescission/

I ran across an excellent article on rescission in mortgage cases that I think is a MUST READ for those who might be affected or entitled to use it. Check the link above. Make sure you check with a knowledgeable attorney licensed in the jurisdiction in which your property is located before you act, but I think there are very good reasons to send out the notice of rescission in virtually all cases.

From my reading of the Supreme Court’s decision and other cases the notice need only be a statement that the “borrower” hereby rescinds the transaction with appropriate reference to the loan number. It would be wise to attach the note and mortgage, in my opinion. It does not appear that you need to state your reasons and I would suggest you not do so. Basically the statute says you can rescind within three days of “consummation” of the transaction without a reason or within three years if the disclosures were wrong, inadequate or withheld. But the statute does not appear to require you set forth what disclosures were wrong or how they were wrong so I would suggest that no such statement be included.

In cases where the disclosures were intentionally withheld (table funded or third party sourced loans) the statute of limitations might not start to run until the date that you knew or should have known of the defective disclosure package. It also might not start to run unless you received two copies of your right to rescind with all the information filled in by the LENDER. Of course right there is a problem since the likely “lender” (the one who actually loaned you the money) was probably unknown to everyone at closing including the borrower. But that doesn’t stop the rescission. In fact, in my opinion, it supports the rescission.

So it is possible for virtually all the loans to be subject to the right of rescission which is meant to give the borrower a very strong remedy with teeth, since all the money, the mortgage and the note must be returned and the mortgage is void by operation of law as soon as a homeowner declares his rescission of the “transaction’ (which is probably nonexistent — something that TILA was intended to prevent).

The most interesting thing to me is the tactical advantage of sending a notice of rescission even if it turns out to be unsupported (disclosures were all there and adequate). It changes the burden of proof. Once the rescission is declared by the borrower, it is then up to the creditor to file a lawsuit (within 20 days of the notice of rescission) against the borrower seeking a declaratory judgment that the notice of rescission is not supported by the facts or should otherwise be declared invalid because of statute of limitations or other grounds.

Thus the statute of limitations also applies to the pretender lender. Since none of them ever filed a declaratory action that I know of (within the 20 days required by statute), every notice of rescission has, by operation of law, and as confirmed by the Supreme Court, rendered the mortgage void. This means that at best the obligation is unsecured and can be discharged in bankruptcy. Any subsequent foreclosure after such a notice of rescission is equally void in my opinion and it appears from the statute and the case law now that the notice can be sent anytime up until the mortgage no loner exists because of satisfaction or forced sale.

In order to file such a lawsuit the pretender lender would have to allege and prove the validity of the origination, including the fact that it was not a table funded loan. This is going to be mostly impossible for any of them to achieve. Strategically it is an opportunity to shift the burden of proof on matters that should already be within their burden of proof (but ignored by many trial judges) to the party seeking foreclosure or the party whom they purport to represent as the creditor. I am even wondering if the rescission should be stated in responsive pleading or notice of filing in pending foreclosure cases.

This might be the powerful tool I thought it was back in 2007 where the parties involved in “securitization fail” (see Adam Levitin) must stop everything and (if they do it within the time period prescribed by statute) actually prove (a) that there really is a transaction under that pile of documents they show the court and (b) that there was adequate disclosure of the real parties in their closing and real terms. Remember that the statute has a “tolerance” of only $35 for the the disclosed terms.

Comments are invited.

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