Why TILA Rescission Makes Perfect Sense
Posted on October 26, 2015 by Neil Garfield
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This is for general information only and is not a substitute for legal advice.
I had occasion to respond to some people who are still confused about rescission. My answer is that it is too simple to fathom because this is exactly what Congress wanted to do to banks who violate the law. It was intended as punishment to the banks who most everyone would agree deserve the punishments meted out by TILA. And anyone whose money was used in illegal transactions are subject to the same punishment. There is no way around it and Congress intended for it to be that way.
I would say that as to rescission the principal strategy is to stick with the extreme —- as per the statute, even a “wrongful” rescission is effective by operation of law and may not be ignored by the trial court. It remains effective by operation of law unless a court of competent jurisdiction vacates it. (same as a wrongful foreclosure judgment). We know this to be true because Justice Scalia gratuitously added to the opinion that the TILA rescission statute makes no distinction between disputed and undisputed rescissions. Therefore the mailing of the rescission is the only thing required to cancel the loan contract and render the note and mortgage void by operation of law.
Perfection of the notice of rescission is accomplished by recording the instrument as an attachment to some form that complies with statute. But the rescission remains effective by operation of law and since under Dodd-Frank notice to one is notice to all, the recording is only necessary if a new new new servicer is brought in claiming to be a third party. Of course even in that case the servicer would be getting records of the prior servicer.
The last point is how and when can a court of competent jurisdiction vacate a rescission? The answer is the same as anything else that is brought to court — an INJURED party must bring an action seeking affirmative relief. And they must do so within 20 days of receipt of the rescission. Since the rescission is effective upon mailing and that means the note and mortgage are void upon mailing the notice, no party can invoke the jurisdiction of any court to vacate the rescission if they are relying upon the note and mortgage for standing. The logic is irrefutable — no court has jurisdiction to grant affirmative relief based upon standing claimed by a party who claims to be the “holder” of an instrument that is void. Thus the threshold issue of standing (injured party) can only be brought by a party would lose money by virtue of the rescission because they either funded the original loan or because they bought it.
To say they can bring that action anytime would defeat the words “by operation of law.” It would mean that the rescission really isn’t effective by operation of law upon mailing but only upon rendition of a court order which is directly opposite to the wording of the TILA rescission statute and the opinion in Jesinoski and Reg Z which declares the note and mortgage void upon mailing of the rescission. The time for filing the challenge therefore would ONLY be within the time limit prescribed by statute for compliance. After that the creditor is in violation of the three TILA rescission duties — return of canceled note, cancel lien, and pay money to “borrower.”
Ignoring the rescission or “ruling” that the rescission was outside the three year period or for any other reason without entering an order vacating the rescission is without any doubt procedurally incorrect. But that is the strategy of the banks. They wish to avoid the necessity of bringing an actual creditor to court who can prove they are an injured party and thus get relief to which they are not entitled based upon two void instruments — the note and mortgage — and the presumptions and assumptions the courts are making as they rule for servicers, trustees and banks.
This is and always has been the intention of Congress when they passed TILA 50 years ago. If a consumer finds that he was not given the correct disclosures and no longer wants the deal he need only send a letter which cancels the whole thing whether the bank likes it or not. Then the consumer may apply to a new bank for financing that will pay off the old “loan” without any finance charges or fees.
The parts about paying the borrower every cent he ever paid and every cent paid to third party as compensation or profit arising out of the origination of the loan was thought of as giving the consumer back the fees and other charges and the payments over a short time; it was never contemplated that the banks would stretch it out for years for their own reasons. And the reason for that was that the new bank would want their own fees etc.
People keep saying that this makes no sense. It makes perfect sense. Congress wanted to be able to penalize the banks for doing table-funded loans and other predatory practices. The principal point of TILA was that the consumer of loan products would have a choice as to WHO he did business with. Reg Z calls it “predatory per se.” That means it is against public policy. If it is against public policy the foreclosing party has unclean hands unless they are a holder in due course, which none of them can claim. If they have unclean hands, they have no right to demand anything in a court of equity. Since foreclosure is an equitable remedy (forced sale), a table funded loan that is part of a pattern and practice (0ver 5) is predatory per se. And Congress decided to punish the banks for violating that. Rescission is just one of those punishments.
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