Tag: Regulation Z

TILA Rescission in the wake of Jesinoski

Truth In Lending Act (TILA)

See the full law here:
https://www.law.cornell.edu/uscode/text/15/1635
See the regulation Z here:
https://www.law.cornell.edu/cfr/text/12/226.23

Congress intended the right of rescission to protect the consumer from putting the family home at risk by using the home or the equity in it to secure a loan. It doesn’t apply in mortgage loans for the purpose of PURCHASING the house.  The TILA right of rescission doesn’t protect the home purchaser; it protects the borrower who has the home or equity in it.When looking at laws, read the whole area of a topic to find the definitions and rules of construction, like this one:


15 U.S. Code § 1602 – Definitions and rules of construction 

(x) The term “residential mortgage transaction” means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer’s dwelling to finance the acquisition or initial construction of such dwelling.

The SCOTUS recently affirmed the simplicity of rescission in Jesinoski v Countrywide Home Loans.

Read a discussion of the opinion here:

http://www.scotusblog.com/2015/01/opinion-analysis-shortest-opinion-of-the-year-explains-tila-rescission-right/

The lender, upon receiving a rescission notice may either accept the rescission or dispute it.  If accepted the lender must return all payments and terminate its security interest. The borrower then must tender the loan proceeds to the lender. Should the lender wish to contest the rescission notice, it should send a letter so stating to the borrower. Then either the lender or the borrower may file a declaratory judgment action to determine whether the notice was valid.

Warning, if the borrower files a lawsuit, there is a filing fee and there is an obligation by the borrower to certify that they are making a pleading in good faith and upon a reasonable investigation. That should weed out a lot of truly frivolous claims. Without that mechanism in place, anyone can send a letter and assert a rescission demand, but if they do, they will be sanctioned.

 
In the case of the borrower defaulting, the lender might file a foreclosure action or initiate nonjudicial foreclosure proceedings as appropriate. The borrower would then assert rescission as an affirmative defense to foreclosure or in a declaratory judgment action to halt a nonjudicial sale. 
  
Remember, courts have the discretion to not only determine whether there is a proper basis for a rescission notice but also to reorder the creditor’s and debtor’s obligations in the event rescission was proper. Even if the rescission notice is well founded, a court can still require the borrower to show an ability to tender before forcing the lender to return funds and void a security interest.

Charlatans and Bozos in the foreclosure pretense defense industry have made grand pronouncements about how many lawsuits borrowers will file for rescission or injury resulting from having a rescission effort denied.  Frankly, I have no idea how many borrowers gave the lender a TIMELY TILA rescission notice.  But it makes no sense for the majority of borrowers over the past 7 or 8 years because many bought at the peak of the market, and 3 years later they had underwater loans because of the collapse of house values generally.  How could they pay that back?  Well, the arithmetic would allow subtraction Borrower Repayment minus Lender Repayment.  That might yield a sufficiently low amount for the borrower to sell the house in order to raise the money for repaying the lender.   But, in many cases, borrowers would still fall short, and they could not repay the lender, so the court would not order a rescission.

Yes, a few rescission lawsuits will come up, but not that many.  The Foreclosure pretender defenders will gladly take those borrower’s money for filing the action.

Mort Gezzam photo
Mort Gezzam