Posted on March 13, 2015 by Neil Garfield

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First let me say you can rescind any deal if you prove fraud or a mistake and tender back whatever you got out of the deal — at common law. My comments are limited to TILA rescission which is a specific statutory remedy that works in very specific ways and favors the borrower, not the alleged lender.

There are many conditions and provisions regarding what loans are subject to rescission or the other disclosure requirements of TILA. Whether a specific loan is actually eligible for rescission is a matter of fact, legal argument and conclusions. Some analysis and consultation with a licensed attorney in your jurisdiction is required.  But the way TILA was written if the borrower has reason to believe that the disclosures were not adequate (within the  tolerances specified by TILA) the borrower can send the notice of TILA rescission and make demand for the note, mortgage and money. What the US Supreme Court unanimously ruled about one month ago was that hundreds of judges on trial benches and appellate benches were completely wrong in applying principles of common law rescission to TILA rescission. No lawsuit is required to have the rescission effective. A letter does it all. And no tender is required from the borrower — quite the opposite the creditor must return all money ever paid by the borrower going all the way back to origination.

Those issues are ONLY addressed IF a creditor files a declaratory action against the borrower seeking a judicial determination that the rescission should not be allowed to stand. So the question about whether it was right to send the NOTICE OF RIGHT TO CANCEL doesn’t stop anyone from sending it. But if the creditor files a challenge in court (not a letter stating its rejection), then and only then a Judge may decide whether the the rescission stands. But in order to do that the creditor must allege and prove the loan disclosures were complete and accurate; they must prove the loan origination, the loan acquisition and the money trail to establish standing (in my opinion). Without that, the burden of proof cannot shift to the borrower without violating the spirit and express wording of TILA.

There is a reason why it works that way. The purpose of allowing a borrower to cancel a deal (TILA rescission) with a simple letter is to take away the power of the “lender” to tie up the borrower and extort the borrower into complying with predatory loan terms or inadequate disclosures. Rescission is “effective” the date of the notice. It’s done. The mortgage and note are gone.

The purpose of TILA rescission is actually pretty specific. The idea is to allow a borrower to completely cancel the old deal especially the note and mortgage by operation of law without a lawsuit or tender so that the borrower can then go to an alternate lender and get a new loan from a new lender and give the new lender an enforceable first mortgage lien on the property without the risk of the prior lender contesting the right of the new lender to be in first position on the chain of title. Without stating that the mortgage and note are gone the borrower would not have the alternative which is what TILA is all about — choice. Stonewalling and “rejection” letters are exactly what TILA does not allow.

So what happens if you send a notice of rescission and you were wrong about whether you or your loan qualifies for rescission? Let me state that you don’t know if you are really wrong until the issues are litigated. And I would state that if you have no arguable right to send the rescission there might be some exposure to a claim of abuse of process and damages for attorneys fees, costs or even sanctions. But it seems very unlikely to me that such a result will occur given the current track record of apparently zero actions filed by creditors within the 20 day window since the the whole securitization myth was propagated. And if they don’t file the action within 20 days it doesn’t appear to matter how wrong the borrower was — the issue is over. This is just like non-judicial foreclosure where the borrower must file for a TRO within a short window or a judicial foreclosure where the borrower must answer within a short time period.

The answer is that you can draft anything and you can send anything. The banks have proven this with their fabricated assignments, endorsements, allonges, powers of attorney etc. The real question is what happens if you send a notice of rescission when there are potentially factors that could have a court rule in favor of the bank if the bank filed the required challenge within 20 days of the notice.

And the answer to THAT question, I think, is mostly based on procedure. TILA is very specific as to what happens and when. Regulation Z also helps. A notice of rescission is effective upon notice as stated by TILA (and US Supreme Court) and Regulation Z, and under Regulation Z that means the note and mortgage are nullified back to the origination. So sending notice of rescission would be effective against virtually any loan, regardless of factors that might allow the bank to reinstate the note and mortgage.

If a creditor does file the lawsuit within 20 days, then there might be a judicial finding that the borrower, or the loan or the property or the circumstances were such that the rescission is not proper and therefore will be set aside. If that happens the note and mortgage would be reinstated (because they were nullified by operation of law at the moment the letter was dropped into a mailbox). That much is very clear from Justice Sclaia’s opinion written for a unanimous Supreme Court.

I think this is a situation where the presumptions are reversed from that of a foreclosing party. In a TILA rescission the rescission is effective from date of notice and is conclusively presumed to be valid unless the creditor files the action within 20 days AND WINS. The problem the bank has is that in this case they must establish standing by alleging and proving that they are a creditor — which in many cases would involve disclosures that the banks have been fighting against for 8 years. So I conclude, for the present, that the odds are against the banks filing these actions within the 20 day window. Hence even a “bad” rescission would apparently nullify the note and mortgage — unless and until a real creditor files a real lawsuit within 20 days and proves that there were adequate disclosures and/or that the loan was not subject to TILA rescission.

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

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. 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.


See Wells Fargo Foreclosure_attorney_procedure_manual-1

See Also: Judge Slams Wells Fargo Forging Documents

FOR THOROUGH ANALYSIS AND HISTORY OF TILA RESCISSION SEE Consumer Financial Protection Bureau's Amicus Brief And see this explanation which is almost entirely accurate — Read this excerpt from the Consumer Financial Protection Bureau's Amicus Brief (Rosenfeld v. HSBC): ” If the court finds the consumer was entitled to rescind, it will order the procedures specified by 1635 and Regulation 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 Consumer Financial Protection Bureau 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 is required.

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Legally Cancel Your Student Loans.

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