Beach v Ocwen: 1997 Decision that will be used by banks and servicers

against rescission

Posted on April 16, 2015 by Neil Garfield

For Further information and assistance please call 954-495-9867 and 520-405-

1688.

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See Beach v Ocwen Fla. Supreme Court

I have no doubt that the Banks will attempt to use this decision — but it still is

trumped by Jesinowski and other Federal decisions on equitable tolling. Having the

right to cancel/rescind is described as extinguished by TILA regardless of the

circumstances — including the absence of any enforceable loan contract.

This decision (1998) was rendered far before the idea of securitization was

introduced into mortgage litigation. The interpretation of the extinguishment of the

underlying right made sense in the context of loans from Bank A to Borrower B. In

the era of securitization you have all kinds of questions — like when the

transaction was “commenced”. The courts say it is when the “liability” arose. I

agree — if we are saying that the consummation of the transaction begins when the

lender loans money to the borrower. But in most cases we see that the lender did

not loan money to the borrower and that is corroborated by the absence of any

purchase transaction, for value, when the alleged loan is “transferred.” There is no

reasonable business explanation of why anyone would release an asset worth

hundreds of thousands of dollars without receiving payment — unless it wasn’t an

asset of the “seller” in the first place. The presumption is that TILA rescission

rights run from the date the liability arose from the Borrower to the Lender. If the

Lender was not properly disclosed, then one of two things are true: (1) there is no

loan contract which means a nullification and quiet title action is appropriate or (2)

until the real lender was disclosed, the transaction was not consummated. That

might mean that both the three day rescission and the three year rescission are in

play. If the position of the foreclosing party is that a REMIC Trust was finally

disclosed to the borrower — and that the Trust was the lender, then disclosure is

complete. But that isn’t what happened.

The ultimate decision here is going to be on the question of whether there is in fact

a loan contract, and, if so, who were the parties to it? If there was no contract, it is

the same as rescission by operation of law. No new rights arise on assignment or

even sale of the loan from a pretender lender — unless the purchase was in good

faith FOR VALUE and occurred without notice of borrower’s defenses and NOT

when the loan was already in “default.” This narrow exception arises under the

UCC for a Holder in Due Course to be Protected if they meet the narrow criteria

stated in the UCC, article 3, and the narrow enforcement criteria for the mortgage

expressed in Article 9.

The so called default is another hidden issue. If someone “acquires” the note and

mortgage where the Borrower has already not paid or stopped paying on the

alleged loan, then (1) it isn’t negotiable paper and (2) it provides notice that the

borrower might not be paying because they don’t owe the party or successor on the

note and mortgage (and never did).

When the mortgage crisis began, the banks and servicers were claiming that there

were no Trusts and that they could file suit or initiate non-judicial foreclosure

without any reference to trusts. That was why forensic audits were initially

required — when we thought that REMIC Trusts were the true players. Banks and

servicers argued convincingly in court that the Trust was irrelevant. Now in most

cases (with some notable CitiMortgage, Chase and BOA exceptions) the Plaintiff

or beneficiary is identified as a Trustee, bank or servicer (US Bank usually is the

Trustee these days) on behalf of a REMIC Trust. They are now saying that they

have the right to be in court or initiate foreclosure because (1) the Trust received an

assignment and endorsement of the note and mortgage (2) the servicer has a right

to represent and even testify for the the Trustee on the basis of the rights set forth

in the Pooling and Servicing Agreement or by virtue of Powers of Attorney that

magically appear at trial.

So the banks, servicers and their attorneys are side-stepping the issue of

consummation of the transaction. They are withholding the information

where the right of rescission would first become apparent to the borrower.

When they withhold the information longer than 3 years from the date of the

purported “loan closing”, they claim the right of rescission has expired. That

is cynical and circular reasoning. That “closing” may be the point in time that

the borrower’s “liability” arose, but the liability did NOT arise with the

creditor being the party named on the note, mortgage and required disclosure

documents.

Instead, the Payee was a naked nominee regardless of whether the “lender” was a

thinly capitalized mortgage broker or a 150 year old bank.

Neither one loaned the money. In both cases there were using money essentially

stolen from clueless investors on Wall Street who advanced money for the

purchase of shares (mortgage backed securities) issued by an unregistered Trust

that existed only on paper, had no bank account, and never received the proceeds

of the shares that were supposedly sold to pension funds and other “investors”

(actually victims of a fraudulent scheme).

The real answer is, as I have repeatedly said, that there was no loan contract and

therefore the note and mortgage were induced to sign by both fraud in the

inducement and fraud in the execution. But the courts may turn to a foggier notion

that the disclosures were intentionally withheld and that this entitles the borrower

to equitable tolling of the 3 day or three year statute of limitations. It seems highly

doubtful that the US Supreme Court will reverse itself.

If they deny equitable tolling by allowing stonewalling from the Banks then no

new Bank would be able to enter the picture which is the whole purpose of the

TILA rescission. While courts might find the argument from the banks and

servicers as appealing, history shows that the US Supreme Court is just as

likely to effectively reverse thousands of decisions based upon the wrong

premise that rules and doctrines for common law rescission can be applied to

TILA rescission.

Yet my point goes further. The express wording of the TILA rescission as affirmed

by a unanimous Supreme court in Jesinowski is that the rescission is effective by

operation of law when it is dropped in the mailbox — and that there is nothing

else required by the borrower. If the “lender” wants to challenge that rescission it

must do so before the 20 day deadline for compliance — return of canceled note,

satisfaction of mortgage and disgorgement of all money paid. This makes it very

clear that stonewalling or bringing up defenses later when the borrower seeks to

enforce the rescission is not permissible. The idea behind TILA rescission has been

to allow a borrower to cancel one transaction and replace it with another — which

means that title is clear for a new lender to offer a first or second mortgage free

from claims of the prior pretender lender.

Thus the expected defense from the banks and servicers is going to be that the

rescission was void ab initio because of the statute of limitations or some other

reason. But these are affirmative defenses which is to say they are pleas for

affirmative relief in a formal pleading with a court of competent jurisdiction. That

court does not have any jurisdiction or discretion to find that the rescission

was void ab initio if more than 20 days has expired after the notice of

cancellation or rescission was made. Thus procedurally, the express wording

of TILA and Jesinowski totally bars the banks and servicers from raising any

defenses to the effectiveness of the rescission after 20 days from the date of

notice of rescission. To interpret it any other way is to overrule Justice Scalia in

Jesinowski. It would mean that the banks and servicers and Trustees could later

bring up defenses to the rescission which would completely bar the ability of the

borrower to apply for a substitute loan. No lender is going to offer a mortgage loan

where they are taking on the risk that they are not getting the lien priority that is

required to assure payment and collateral protection.

And the reason why there is no qualifying creditor to bring the action within 20

days will be taken up in an upcoming article “What if a Broker Sold an IPO and

Kept the Proceeds? — The True Explanation of Securitization Fail.” Also see

Adam Levitin on that.