Mutual Tender under Rescission

Rescission means making a contract null. It requires unwinding of the deal so as to restore the parties to “status quo ante,” or “pre-contract condition.”  The unwinding requires the creditor to remove any lien and both creditor and borrower to tender (offer or present for acceptance) payment back to each other of what they received from each other.  See the below definitions, court opinions, and law references.

Definitions

RESCIND.  To abrogate, annul, avoid, or cancel a contract; particularly, nullifying a contract by the act of a party.  See Powell v Lince Co., 29 Misc. Rep. 419, 60 N. Y. Supp 1044; Hurst v. Trow Printing Co., 2 Misc. Rep. 361, 22 N. Y. Supp. 371.

Black’s Law Dictionary
2nd Edition (1910)

rescind (ri-sind), vb. (17c) 1. To abrogate or cancel (a contract) unilaterally or by agreement. [Cases: Contracts C=c249.] 2. To make void; to repeal or annul <rescind the legislation>. 3. Parliamentary law. To void, repeal, or nullify a main motion adopted earlier.
Also termed annul; repeal. rescindable, adj. rescind and expunge. See EXPUNGE (2).

rescission (ri-sizh-an), n. (17c) 1. A party’s unilateral unmaking of a contract for a legally sufficient reason, such as the other party’s material breach, or a judgment rescinding the contract; VOIDAKCE.• Rescission is generally available as a remedy or defense for a nondefaulting party and is accompanied by restitution of any partial performance, thus restoring the parties to their precontractual positions. Also termed avoidance. [Cases: Contracts G=’249.] 2. An agreement by contracting parties to discharge all remaining duties of performance and terminate the contract. – Also spelled recision; recission. – Also termed (in sense 2) agreement of rescission; mutual rescission; abandonment.

Cf. REJECTION (2); REPUDIATION (2); REVOCATION (1). [Cases: Contracts G=252.] – rescissory (ri-sis-<lree or ri-siz-), adj.
“The [UCC] takes cognizance of the fact that the term ‘rescission’ is often used by lawyers, courts and businessmen in many different senses; for example, termination of a contract by virtue of an option to terminate in the agreement, cancellation for breach and avoidance on the grounds of infancy or fraud. In the interests of clarity of thought – as the consequences of each of these forms of discharge may vary the Commercial Code carefully distinguishes three circumstances. ‘Rescission’ is utilized as a term of art to refer to a mutual agreement to discharge contractual duties. ‘Termination’ refers to the discharge of duties by the exercise of a power granted by the agreement. ‘Cancellation’ refers to the putting an end to the contract by reason of a breach by the other party. Section 2-720, however, takes into account that the parties do not necessarily use these terms in this way.” John D. Calamari & Joseph M. Perillo, The Law of Contracts § 21-2. at 864-65 (3d ed. 1987).

equitable rescission. (1889) Rescission that is decreed by a court of equity. [Cases: Cancellation of Instruments (;::; 1.]

legal rescission. (1849) 1. Rescission that is effected by the agreement of the parties. [Cases: Contracts C=> 251.] 2. Rescission that is decreed by a court of law, as
opposed to a court of equity.
“The modern tendency is to treat rescission as equitable, but rescission was often available at law. If plaintiff had paid money, or had delivered goods. he could rescind by tendering whatever he had received from defendant and suing at law to recover his money or replevy his goods. But if he had delivered a promissory note or securities, or conveyed real estate, rescission required the court to cancel the instruments or compel defendant to reconvey. This relief was available only in equity. Many modern courts ignore the distinction …. But versions of the distinction are codified in some states:’ Douglas Laycock, Modern American Remedies 627-28 (3d ed. 2002).

Black’s Law Dictionary 9th Edition (2009)

Court Opinions

“There is no reason why a court that may alter the sequence of procedures after deciding that rescission is warranted, may not do so before deciding that rescission is warranted when it finds that, assuming grounds for rescission exist, rescission still could not be enforced because the borrower cannot comply with the borrower’s rescission obligations no matter what. Such a decision lies within the court’s equitable discretion, taking into consideration all the circumstances including the nature of the violations and the borrower’s ability to repay the proceeds. If … it is clear from the evidence that the borrower lacks capacity to pay back what she has received (less interest, finance charges, etc.), the court does not lack discretion to do before trial what it could do after. Determinations regarding rescission procedures shall be made on a “case-by-case basis, in light of the record adduced.”
Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003)

Courts have equitable discretion to allow borrowers to tender via monthly payments.  In re Stuart, 367 B.R. 541, 552 (Bankr.E.D.Pa.2007); Shepeard v. Quality Sliding & Window Factory, Inc., 730 F.Supp. 1295 (D.Del.1990) (allowing borrower to satisfy tender obligation by making monthly payments); Mayfield v. Vanguard Sav. & Loan Ass’n, 710 F.Supp. 143, 149 (E.D.Pa.1989) (allowing borrower to satisfy tender obligation by making monthly payment).

Law

15 U.S.C. §1635. Right of rescission as to certain transactions

http://www.gpo.gov/fdsys/pkg/USCODE-2010-title15/html/USCODE-2010-title15-chap41-subchapI-partB-sec1635.htm

(a) Disclosure of obligor’s right to rescind

Except as otherwise provided in this section, in the case of any consumer credit transaction (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obligor to exercise his right to rescind any transaction subject to this section.

(b) Return of money or property following rescission

When an obligor exercises his right to rescind under subsection (a) of this section, he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission. Within 20 days after receipt of a notice of rescission, the creditor shall return to the boligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor’s obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within 20 days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it. The procedures prescribed by this subsection shall apply except when otherwise ordered by a court.

(c) Rebuttable presumption of delivery of required disclosures

Notwithstanding any rule of evidence, written acknowledgment of receipt of any disclosures required under this subchapter by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable presumption of delivery thereof.

(d) Modification and waiver of rights

The Board may, if it finds that such action is necessary in order to permit homeowners to meet bona fide personal financial emergencies, prescribe regulations authorizing the modification or waiver of any rights created under this section to the extent and under the circumstances set forth in those regulations.

(e) Exempted transactions; reapplication of provisions

This section does not apply to—

(1) a residential mortgage transaction as defined in section 1602(w) of this title;

(2) a transaction which constitutes a refinancing or consolidation (with no new advances) of the principal balance then due and any accrued and unpaid finance charges of an existing extension of credit by the same creditor secured by an interest in the same property;

(3) a transaction in which an agency of a State is the creditor; or

(4) advances under a preexisting open end credit plan if a security interest has already been retained or acquired and such advances are in accordance with a previously established credit limit for such plan.

(f) Time limit for exercise of right

An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor, except that if (1) any agency empowered to enforce the provisions of this subchapter institutes a proceeding to enforce the provisions of this section within three years after the date of consummation of the transaction, (2) such agency finds a violation of this section, and (3) the obligor’s right to rescind is based in whole or in part on any matter involved in such proceeding, then the obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the earlier sale of the property, or upon the expiration of one year following the conclusion of the proceeding, or any judicial review or period for judicial review thereof, whichever is later.

(g) Additional relief

In any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this subchapter not relating to the right to rescind.

(h) Limitation on rescission

An obligor shall have no rescission rights arising solely from the form of written notice used by the creditor to inform the obligor of the rights of the obligor under this section, if the creditor provided the obligor the appropriate form of written notice published and adopted by the Board, or a comparable written notice of the rights of the obligor, that was properly completed by the creditor, and otherwise complied with all other requirements of this section regarding notice.

(i) Rescission rights in foreclosure

(1) In general

Notwithstanding section 1649 of this title, and subject to the time period provided in subsection (f) of this section, in addition to any other right of rescission available under this section for a transaction, after the initiation of any judicial or nonjudicial foreclosure process on the primary dwelling of an obligor securing an extension of credit, the obligor shall have a right to rescind the transaction equivalent to other rescission rights provided by this section, if—

(A) a mortgage broker fee is not included in the finance charge in accordance with the laws and regulations in effect at the time the consumer credit transaction was consummated; or

(B) the form of notice of rescission for the transaction is not the appropriate form of written notice published and adopted by the Board or a comparable written notice, and otherwise complied with all the requirements of this section regarding notice.

(2) Tolerance for disclosures

Notwithstanding section 1605(f) of this title, and subject to the time period provided in subsection (f) of this section, for the purposes of exercising any rescission rights after the initiation of any judicial or nonjudicial foreclosure process on the principal dwelling of the obligor securing an extension of credit, the disclosure of the finance charge and other disclosures affected by any finance charge shall be treated as being accurate for purposes of this section if the amount disclosed as the finance charge does not vary from the actual finance charge by more than $35 or is greater than the amount required to be disclosed under this subchapter.

(3) Right of recoupment under State law

Nothing in this subsection affects a consumer’s right of rescission in recoupment under State law.

(4) Applicability

This subsection shall apply to all consumer credit transactions in existence or consummated on or after September 30, 1995

 

TILA Regulation Z 12 C.F.R.§ 1026

Stay Up To Date here:
http://www.consumerfinance.gov/eregulations/1026

12 C.F.R. § 1026.23 Rescission under Regulation Z

http://www.gpo.gov/fdsys/pkg/CFR-2015-title12-vol9/pdf/CFR-2015-title12-vol9-sec1026-23.pdf

Appendix I.  Interpretation of Regulation Z by Consumer Financial Protection Burea (CFPB)

http://www.gpo.gov/fdsys/pkg/CFR-2015-title12-vol9/pdf/CFR-2015-title12-vol9-part1026-appI-id89.pdf

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