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226.23 Right of rescission.
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(a) Consumer's right to rescind. (1) In a credit transaction in which a security interest
is or will be retained or acquired in a consumer's principal dwelling, each consumerwhose ownership interest is or will be subject to the security interest shall have theright to rescind the transaction, except for transactions described in paragraph (f) ofthis section.47
47 For purposes of this section, the addition to an existing obligation of a security interest in a consumer's principaldwelling is a transaction. The right of rescission applies only to the addition of the security interest and not theexisting obligation. The creditor shall deliver the notice required by paragraph (b) of this section but need not delivernew material disclosures. Delivery of the required notice shall begin the rescission period.
(2) To exercise the right to rescind, the consumer shall notify the creditor of the
rescission by mail, telegram or other means of written communication. Notice isconsidered given when mailed, when filed for telegraphic transmission or, if sent byother means, when delivered to the creditor's designated place of business.
(3) The consumer may exercise the right to rescind until midnight of the third businessday following consummation, delivery of the notice required by paragraph (b) of thissection, or delivery of all material disclosures,48 whichever occurs last. If the requirednotice or material disclosures are not delivered, the right to rescind shall expire 3years after consummation, upon transfer of all of the consumer's interest in theproperty, or upon sale of the property, whichever occurs first. In the case of certain
administrative proceedings, the rescission period shall be extended in accordance withsection 125(f) of the Act.
48 The term `material disclosures' means the required disclosures of the annual percentage rate, the finance charge,the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in226.32(c) and (d) and 226.35(b)(2).
(4) When more than one consumer in a transaction has the right to rescind, theexercise of the right by one consumer shall be effective as to all consumers.
(b)(1)Notice of right to rescind. In a transaction subject to rescission, a creditor shall
deliver two copies of the notice of the right to rescind to each consumer entitled torescind (one copy to each if the notice is delivered in electronic form in accordancewith the consumer consent and other applicable provisions of the E-Sign Act). Thenotice shall be on a separate document that identifies the transaction and shall clearlyand conspicuously disclose the following:
http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=f96db9bb6df51e42d46640f1f749338b;rgn=div5;view=text;node=12%3A3.0.1.1.7;idno=12;cc=ecfr#PartTophttp://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=f96db9bb6df51e42d46640f1f749338b;rgn=div5;view=text;node=12%3A3.0.1.1.7;idno=12;cc=ecfr#PartTophttp://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=f96db9bb6df51e42d46640f1f749338b;rgn=div5;view=text;node=12:3.0.1.1.7;idno=12;cc=ecfrhttp://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=f96db9bb6df51e42d46640f1f749338b;rgn=div5;view=text;node=12%3A3.0.1.1.7;idno=12;cc=ecfr#PartTop8/3/2019 Recsission Law 226
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(i) The retention or acquisition of a security interest in the consumer's principaldwelling.
(ii) The consumer's right to rescind the transaction.
(iii) How to exercise the right to rescind, with a form for that purpose, designating theaddress of the creditor's place of business.
(iv) The effects of rescission, as described in paragraph (d) of this section.
(v) The date the rescission period expires.
(2) Proper form of notice. To satisfy the disclosure requirements of paragraph (b)(1)of this section, the creditor shall provide the appropriate model form in Appendix H ofthis part or a substantially similar notice.
(c)Delay of creditor's performance. Unless a consumer waives the right of rescissionunder paragraph (e) of this section, no money shall be disbursed other than in escrow,no services shall be performed and no materials delivered until the rescission periodhas expired and the creditor is reasonably satisfied that the consumer has notrescinded.
(d)Effects of rescission. (1) When a consumer rescinds a transaction, the securityinterest giving rise to the right of rescission becomes void and the consumer shall notbe liable for any amount, including any finance charge.
(2) Within 20 calendar days after receipt of a notice of rescission, the creditor shallreturn any money or property that has been given to anyone in connection with thetransaction and shall take any action necessary to reflect the termination of thesecurity interest.
(3) If the creditor has delivered any money or property, the consumer may retainpossession until the creditor has met its obligation under paragraph (d)(2) of thissection. When the creditor has complied with that paragraph, the consumer shalltender the money or property to the creditor or, where the latter would be
impracticable or inequitable, tender its reasonable value. At the consumer's option,tender of property may be made at the location of the property or at the consumer'sresidence. Tender of money must be made at the creditor's designated place ofbusiness. If the creditor does not take possession of the money or property within 20calendar days after the consumer's tender, the consumer may keep it without furtherobligation.
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(4) The procedures outlined in paragraphs (d) (2) and (3) of this section may bemodified by court order.
(e) Consumer's waiver of right to rescind. (1) The consumer may modify or waive theright to rescind if the consumer determines that the extension of credit is needed to
meet a bona fide personal financial emergency. To modify or waive the right, theconsumer shall give the creditor a dated written statement that describes theemergency, specifically modifies or waives the right to rescind, and bears thesignature of all the consumers entitled to rescind. Printed forms for this purpose areprohibited, except as provided in paragraph (e)(2) of this section.
(2) The need of the consumer to obtain funds immediately shall be regarded as a bonafide personal financial emergency provided that the dwelling securing the extension ofcredit is located in an area declared during June through September 1993, pursuant to42 U.S.C. 5170, to be a major disaster area because of severe storms and flooding in
the Midwest.48aIn this instance, creditors may use printed forms for the consumer towaive the right to rescind. This exemption to paragraph (e)(1) of this section shallexpire one year from the date an area was declared a major disaster.
48a A list of the affected areas will be maintained by the Board.
(3) The consumer's need to obtain funds immediately shall be regarded as a bona fidepersonal financial emergency provided that the dwelling securing the extension ofcredit is located in an area declared during June through September 1994 to be amajor disaster area, pursuant to 42 U.S.C. 5170, because of severe storms and
flooding in the South.48b
In this instance, creditors may use printed forms for theconsumer to waive the right to rescind. This exemption to paragraph (e)(1) of thissection shall expire one year from the date an area was declared a major disaster.
48b A list of the affected areas will be maintained and published by the Board. Such areas now include parts ofAlabama, Florida, and Georgia.
(4) The consumer's need to obtain funds immediately shall be regarded as a bona fidepersonal financial emergency provided that the dwelling securing the extension ofcredit is located in an area declared during October 1994 to be a major disaster area,pursuant to 42 U.S.C. 5170, because of severe storms and flooding in Texas.48c In thisinstance, creditors may use printed forms for the consumer to waive the right torescind. This exemption to paragraph (e)(1) of this section shall expire one year fromthe date an area was declared a major disaster.
48c A list of the affected areas will be maintained and published by the Board. Such areas now include the followingcounties in Texas: Angelina, Austin, Bastrop, Brazos, Brazoria, Burleson, Chambers, Fayette, Fort Bend, Galveston,Grimes, Hardin, Harris, Houston, Jackson, Jasper, Jefferson, Lee, Liberty, Madison, Matagorda, Montgomery,
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Nacagdoches, Orange, Polk, San Augustine, San Jacinto, Shelby, Trinity, Victoria, Washington, Waller, Walker,and Wharton.
(f)Exempt transactions. The right to rescind does not apply to the following:
(1) A residential mortgage transaction.
(2) A refinancing or consolidation by the same creditor of an extension of creditalready secured by the consumer's principal dwelling. The right of rescission shallapply, however, to the extent the new amount financed exceeds the unpaid principalbalance, any earned unpaid finance charge on the existing debt, and amountsattributed solely to the costs of the refinancing or consolidation.
(3) A transaction in which a state agency is a creditor.
(4) An advance, other than an initial advance, in a series of advances or in a series ofsingle-payment obligations that is treated as a single transaction under 226.17(c)(6),if the notice required by paragraph (b) of this section and all material disclosures havebeen given to the consumer.
(5) A renewal of optional insurance premiums that is not considered a refinancingunder 226.20(a)(5).
(g) Tolerances for accuracy (1) One-half of 1 percent tolerance. Except as providedin paragraphs (g)(2) and (h)(2) of this section, the finance charge and other disclosuresaffected by the finance charge (such as the amount financed and the annual percentagerate) shall be considered accurate for purposes of this section if the disclosed financecharge:
(i) is understated by no more than1/2of 1 percent of the face amount of the note or$100, whichever is greater; or
(ii) is greater than the amount required to be disclosed.
(2) One percent tolerance. In a refinancing of a residential mortgage transaction witha new creditor (other than a transaction covered by 226.32), if there is no new
advance and no consolidation of existing loans, the finance charge and otherdisclosures affected by the finance charge (such as the amount financed and theannual percentage rate) shall be considered accurate for purposes of this section if thedisclosed finance charge:
(i) is understated by no more than 1 percent of the face amount of the note or $100,whichever is greater; or
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(ii) is greater than the amount required to be disclosed.
(h) Special rules for foreclosures(1)Right to rescind. After the initiation offoreclosure on the consumer's principal dwelling that secures the credit obligation, theconsumer shall have the right to rescind the transaction if:
(i) A mortgage broker fee that should have been included in the finance charge wasnot included; or
(ii) The creditor did not provide the properly completed appropriate model form inappendix H of this part, or a substantially similar notice of rescission.
(2) Tolerance for disclosures. After the initiation of foreclosure on the consumer'sprincipal dwelling that secures the credit obligation, the finance charge and otherdisclosures affected by the finance charge (such as the amount financed and the
annual percentage rate) shall be considered accurate for purposes of this section if thedisclosed finance charge:
(i) is understated by no more than $35; or
(ii) is greater than the amount required to be disclosed.
[Reg. Z, 46 FR 20892, Apr. 7, 1981, as amended at 51 FR 45299, Dec. 18, 1986; 58FR 40583, July 29, 1993; 59 FR 40204, Aug. 5, 1994; 59 FR 63715, Dec. 9, 1994; 60FR 15471, Mar. 24, 1995; 61 FR 49247, Sept. 19, 1996; 66 FR 17338, Mar. 30, 2001;
72 FR 63474, Nov. 9, 2007; 73 FR 44601, July 24, 2008]
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TILA Rescission
In some cases this may be your most potent weapon to combat
foreclosure! If there are material violations in your loan documents, and you have a refinance transaction within the
last three years you may have a right to rescind your loan.
FEDERAL TRUTH IN LENDING LAW
The Truth in Lending Act (TILA) is THE cornerstone of consumer credit legislation. The Statute is Congresss effort to
guarantee the the accurate and meaningful disclosureof the costs of consumer credit and thereby to enable
consumers to make informed choices in the marketplace. See 15 U.S.C. 1601(a). The Act is designed to protect
borrowers who are not on an equal footing with creditors either in bargaining power or with respect to the knowledge
of credit terms. In other words, TILA was passed to aid the unsophisticated consumer. See Thomka v. A.Z. Chevrolet,
Inc. 619 F.2d 246 (3d Cir. 1980). The Act is also remedial and must be liberally construed in favor of borrowers.
See King v. California, 784 F.2d 910 (9th
Cir. 1986). Except where Congress has relieved lenders of liability for
noncompliance, it is a strict liability statute. Courts should continue to assure that consumers are accorded the full
remedies available under the Act for violations found, even if they might seem technical. See Rodash v. AIB
Mortgage Co., 16 F.3d 1142, 1145, 1149 (11th Cir. 1994). Although Congress permitted the Federal Reserve Board to
issue regulations implementing TILA (Reg Z), and to issue interpretations and official staff commentary that the
Courts consider to be persuasive authority, the FRBs authority is not without limits, and a regulation that conflicts
with TILA cannot stand. See Fabricant v. Sears, Roebuck, Clearinghouse No. 54,563 (S.D. Fla. Mar. 5, 2002).
NOTICE OF RIGHT TO CANCEL DISCLOSURE REQUIREMENTS
A common violation we find (and you can check your loan documents to see if you have such a violation) is
that in a refinance transaction each borrower or person with ownership interest in the property did not
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receive two copies each of the federally required notice of right to cancel. If this is true, and your loan was
originated within the statutory three year period (note that arguments for equitable tolling may exist) then
this violation, although appearing technical in nature, can trigger an extended three year right to cancel your
loan.
Under Federal Truth in Lending Law, each Borrower, or person with ownership interest in the property, (in a non-
purchase loan or other exempt transaction) 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, shall be
provided with TWO (2) COMPLETEDcopies EACH of a notice of right to rescind (cancel). It is the lenders
obligation to complete these forms and deliver TWO copies to each Borrower or person with Ownership interest in the
Property. 15 U.S.C. 1635(a), Reg. Z 226.5(b), 226.23(b). If each borrower or person with ownership interest is
not provided two adequate copies of this Notice, an extended three year right to rescindis permitted under the
Federal Truth in Lending Law.
The notice shall identify the transaction or occurrence and clearly and conspicuously disclosethe following:
1. The retention or acquisition of a security interest in the consumers principal dwelling.
2. The consumers right to rescind, as described in paragraph (a)(1) of this section.
3. How to exercise the right to rescind, with a form for that purpose, designating the address of the
creditors place of business.
4. The effects of rescission, as described in paragraph (d) of this section.
5. The date the rescission period expires. (See Reg. Z 226.15(b)(5) and 226.23(b)(5))
See Meyer v. Argent Mortgage Co., (In re Meyer), 379 B.R. 529 (Bankr. E.D. Pa. 2007).If the notice is subject to
more than one sensible reading, and different results ensue depending upon which of the readings is adopted, the
creditor has not met the clear and conspicuous standard. SeeHandy v. Anchor Mortgage Corp., 464 F.32 760, 764
(7th
Cir. 2006).
TWO KEY POINTS WE WILL ARGUE (when the two copies each are received but the rescission dates are not
filled in a common TILA violation)
(1)The Lender must fill in the form and dates (not the borrower) If the creditor uses the proper model form,properly completedand fulfills all other requirements, the borrower has no rescission right. This position is
supported by the actual text of the law See 15 U.S.C. 1635(h) which states:
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.
The plain-meaning implication of this statutory provision SEEMS TO BE clear (and therefore is controlling),the lender
has the obligation to complete these forms , it is not the borrowers duty to determine what dates to insert into theforms, much less at the direction of a mobile notary. In fact, the escrow instructions and lenders instruction sheet for
the notice of right to cancel form usually set forth the requirement that the dates be inserted before the borrower is
asked to sign all copies. We will present credible testimony on this point as well. For now, please seeattached
Exhibit Awhich sets forth the evidence currently in our possession, of which we will rely on, and will build our
discovery foundation upon.
This reading of the law (that it is the lenders obligation to insert the dates, and not the borrowers) is also consistent
with the requirement #5 (set forth above) that the lender shall clearly and conspicuously identify the date the
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rescission period expires. In fact, at least two courts have held in the First and Second circuit: the complexity of
business transactions under TILA means that the average consumer cannot figure out when TILA rights expire..
See Bonney v. Wash. Mutual Bank, No. 08-30087 (D. Mass. July 30, 2008). Placing this burden on the borrower
strips the truth from the transaction.
Finally, adding yet more support that the lender, not the borrower, must fill in the dates of the TILA right to rescind
notice is a holding from another court which held: Under both TILA and R egulation Z, the test for disclosure of the
rescission right is whether the form of notice that the lender providedconstitutes a clear notice of that
right. SeePorter v. Mid-Penn Consumer Discount Co., 961 F.2d 1066, 1076 (3d Cir.1992) (the law does not require
an ideal notice of rescission rights, just a clear, accurate and conspicuous one.) the right to rescind can be
clearly disclosed only ifthose two dates are filled in . See Meyer v. Argent Mortgage Co., (In re Meyer), 379 B.R.
529 (Bankr. E.D. Pa. 2007).
(2) The Lender is required to provide TWO copies of the notice of right to cancel to EACH borrower along
with a copy of all of the materialTILA disclosures. Failure to meet these requirements also provides an extended
three year right to rescind the loan transaction. See 15 U.S.C. 1635(a); Reg. Z
226.15(b), 226.23(b) and Webster v. Centex Home Equity Corp. (In re Webster), 300 B.R. 787 (Bankr. W.D. Okla.
2003).
HERE IS ANOTHER WAY TO GET THE EXTENDED THREE YEAR RESCISSION RIGHT (USUALLY A LOAN
AUDIT IS REQUIRED) The material disclosuresrequired in a closed-end transaction, (APR, including the existence
of a variable rate feature, Finance Charge, Amount Financed, Total of Payments, and Payment schedule) the failure
of which to disclose results in an extended three year right to rescind. See Gaono v. Town & Country Credit, 324 F.3d
1050, 1053, (8th Cir. 2003).
Where only one copy of the notice of right to cancel is received, or where each borrower does not receive
two signed and completed copies of the required right to cancel an extended three year right to rescind will
apply.
Note: the lender will argue the borrower signed an acknowledgement that they received two copies each,
and therefore there is no TILA violation, sorry case closed. It seems these lenders and loan servicers forgetto read the following section of the law which we will frequently have to raise.
REBUTTABLE PRESUMPTIONS UNDER TILA
Even assuming for the sake of argument that there are two signed, dated, and accurately completed notice of right to
cancel documents in the lenders possession (or the consumers acknowledgment of receipt of two completed
copies), this merely raises a rebuttable presumptionthat the lender delivered two copies to the borrower. See 15
U.S.C. 1635(c), and Johnson v, New Century Mortgage Corp., 320 F. Supp. 2D 606, 611 (E.D. Mich. 2004). Courts
permit competent testimony to rebut this assertion of the lender.
The critical factor is not whether the creditor has two signed and completed copies of the notice, but whether the
borrowerhas possession of two signed, dated, and completed copies of the notice of right to cancel. Whether
borrowers were delivered a blank notice of right to cancel is a question of fact that will not be decided on a motion todismiss. See Clay v. Johnson, 77 F.Supp. 2D 879 (N.D. Ill. 1999). The debtors denial of receipt of the notices and
disclosures creates a question of fact that will not be decided on summary judgment even where the borrower signed
acknowledgement of having received two copies of the notice. See Moore v. Mortgagestar, Inc. 2002 U.S. Dist.
LEXIS 27457, (W.D. W. Va. Dec. 18, 2002). Once the borrower rebuts the presumption of delivery (through
competent testimony, affidavits, etc.) the burden shifts to the creditor to prove the delivery of the documents. See Bell
v. Parkway Mortgage, Inc., 309 B.R. 139, 157 (Bankr. E.D. Pa 204).
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In addition, where the debtors testify that they did not receive the disclosures (even if not totally convincing), the
debtors should prevail if the credit cannot produce from its own records any copy of the disclosures. See In re
Pinder, 83 B.R. 905, 913.
In most cases, especially where the borrower has credibility and kept track of all their loan documents (and
where a mobile notary was used to sign the loan docs) the borrower can normally make a fair argument to
rebut any assertion that the lender complied with the clear and conspicuous notice requirements and can
counter any such assertion with competent testimonial evidence.
THE FOLLOWING IS SOME GENERAL INFORMATION ON EXERCISING RESCISSION RIGHTS:
THREE YEAR EXTENDED RIGHT TO RESCIND
(a) Consumers right to rescind.(1) In a credit transaction in which a security interest is or will be retained or
acquired in a consumers principal dwelling, each consumer whose ownership interest is or will be subject to the
security interest shall have the right to rescind the transaction.
(b) Exercising the right of Rescission:
1. 226.23(3) The consumer may exercise the right to rescind until midnight of the third business day
following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all
material disclosures, whichever occurs last.If the required notice or material disclosures are not
delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the
consumers interest in the property, or upon sale of the property, whichever occurs first. In the case of
certain administrative proceedings, the rescission period shall be extended in accordance with section
125(f) of the Act. There is also legal precedence for tolling the statute beyond three years
where fraudulent concealmentis shown. See Bank of New York v. Waldon, 751 N.Y.S.2d 341 (Sup. Ct.
2002).
2. 226.23(2): (2) To exercise the right to rescind, the consumer shall notify the creditor of the rescission by
mail, telegram or other means of written communication. Notice is considered given when mailed, when
filed for telegraphic transmission or, if sent by other means, whendelivered to the creditors
designated place of business. There is also legal precedence for the proposition that filing a lawsuitdemanding to exercise rescission rights is also sufficient notice. See Garedakis v. Indymac Bank, 2004
WL 2254676 (N.D. Cal. Oct. 4, 2004) and Jones v. Saxon Mortgage, Inc. 161 F.2d 2 (table), 1988 WL
614150 (4th
Cir. Sept. 9, 1998).
EFFECTS OF RESCISSION UNDER TILA (IN GENERAL):
I. STEP ONE:
When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes
void and the consumer shall not be liable for any amount, including any finance charge.
THIS MEANS THE SECURITY INTEREST BECOMES VOID BY OPERATION OF LAW.
Following the 2003 Yamamoto decision (discussed below) the FRB added language to the commentary, (Section
226.23 of Regulation Z implements 1635(b)). Which stated:1. When a consumer rescinds a transaction, the security interest giving rise to the right of
rescission becomes void and the consumer shall not be liable for any amount, including any finance
charge.
2. Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or
property that has been given to anyone in connection with the transaction and shall take any action
necessary to reflect the termination of the security interest.
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3. If the creditor has delivered any money or property, the consumer may retain possession until the
creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied
with that paragraph, the consumer shall tender the money or property to the creditor.
4. The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.
Note: This suggests section (1) above is NOT altered, and so when a consumer rescinds, the security interest
becomes void. Unless the Court alters the procedure, the Courts have the discretion.
Where the TILA statute is clear it must be followed. Courts only have the power to alter whether the lender has to
tender first, or the borrower has to tender first. See Yamamotov. Bank of New York, 329 F.3d 1167 (9th Cir. 2003),
but see Semar v. Platte Valley Federal Savings & Loan Association, 791 F.2d 699, 705-06 (9th Cir.1986) (which
stands for the proposition that the Court can alter the procedure of TILA but not the substance of TILA). The
substance of TILA, as described above, is that the security interest becomes void upon the exercise of rescission,
(although the Court can alter this procedure by requiring the borrower to tender first).
In Yamamoto, the Court held:
There is no reason why a court that may alter the sequence of procedures afterdeciding that rescission is
warranted, may not do so beforedeciding 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 borrowers
rescission obligations no matter what. Such a decision lies within the courts equitable discretion, taking into
consideration all the circumstances including the nature of the violations and the borrowers 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.
This case illustrates that the Courts hold the ultimate power to exercise their discretion in any TILA rescission case,
and does not NECESSARILY require that the borrower prove its ability to tender as a pre-condition to exercising
rescission rights.
In fact, a California Court, in Pelayo v. Home Capital Funding, Slip Copy, 2009 WL 1459419, S.D.Cal.,2009 ,recentlydenied a lenders motion to dismiss a TILA rescission claim where the Defendant argued that the borrower was
required to tender before rescission could be allowed (the Defendant essentially arguing that the security instrument
was not automatically void), and where the Defendant argued the Court could not hear the case until the lender made
its decision within 20 days (essentially arguing the TILA claim was not ripe for review). The Court held that the case
could be heard and denied Defendants motion to dismiss.This ruling suggests that although the Court is
permitted to modify the rescission procedure and require proof of tender by the Borrower first, it was also
free NOT to modify the procedure and essentially treat the security instrument as being void (as the TILA
statute requires), thus making the rescission case ripe for review.
There is also legal precedent which suggests that a Court could exercise its equitable discretion under TILA and
allow the borrower to make payments over time as part of meeting the borrowers tender requirement (essentiallyreducing the monthly payment over time). See. 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 Assn , 710 F.Supp. 143, 149 (E.D.Pa.1989)
(allowing borrower to satisfy tender obligation by making monthly payment).
Also note, SOMETIMES (THIS IS PULLED OFF ONE LOAN) the Notice of Right to Cancel Form given to the
borrower states:
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If you cancel the transaction, the mortgage/lien/security interest is also canceled. Within 20 CALENDAR DAYS after
we receive your notice, we must take the steps necessary to reflect the fact that the mortgage/lien/security interest on
your home has been cancelled, and we must return to you any money or property you have given us or to anyone
else in connection with this transaction.
You may keep any money or property we have given you until we have done the things mentioned above, but you
must then offer to return the money or property. If it is impractical or unfair for you to return the property, you must
offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money
must be returned to the address below. If we do not take possession of the money or property within 20 CALENDAR
DAYS of your offer, you may keep it without further obligation.
This SEEMS TO BE a legal assertion, in the form of an admission, that the security interest is automatically void upon
the consumers exercise of rescission. Upon the consumers act of cancelling the transaction the
mortgage/lien/security interest is also cancelled. A creditor should not be permitted to renege on this assertion
(estoppels applies) and the lender is bound by law to honor it.
II. STEP TWO
Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or
property that has been given to anyone in connection with the transaction and shall take any action
necessary to reflect the termination of the security interest.
Note: THE LENDER /SERVICER WILL NOT WANT TO DO THIS SO DONT COUNT IT. In most cases, they wo uld
rather face a judge and see if you can prove your ability to tender.
III. STEP THREE
If the creditor has delivered any money or property, the consumer may retain possession until the creditor has
met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the
consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable,
tender its reasonable value. At the consumers option, tender of property may be made at the location of the property
or at the consumers residence. Tender of money must be made at the creditors designated place of business. If the
creditor does not take possession of the money or property within 20 calendar days after the consum ers tender, theconsumer may keep it without further obligation.
Again, the Court may alter only steps two and step three per the Federal Reserve Boards commentary set forth
above. Such FRB opinion should be seen as persuasive legal authority.
THE OTHER NICE THING ABOUT A TRUTH IN LENDING RESCISSION CLAIM IS THAT IT IS APPLICABLE
AGAINST ANY AND ALL LOAN ASSIGNEES WITHOUT FEAR OF A HOLDER IN DUE COURSE ARGUMENT.
ASSIGNEE LIABILTY FOR RESCSSION
While assignees are only liable for TILA statutory damages that are apparent on the face of the loan documents
assignees are subject to the rescission right to the same extent as the original creditor.
15 U.S.C. 1641(c) states:
Right of rescission by consumer unaffectedAny consumer who has the right to rescind a transaction under section 1635 of this title may rescind the transaction
as against any assignee of the obligation.
See also the case of Ocwen Fed. Bank v. Russell, 53 P.3d 312 (Haw Ct. App. 2002) which rejected the assignees
holder in due course argument as being no defense to rescission. As other courts have held: without such protection
for the consumer the right of rescission would provide little or no effective remedy. See Stone v. Mehlberg, 728 F.
Supp. 1341, 1348, (W.D. Mich 1989). A loan service r is deemed an assignee if it is or was the holder of the
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obligation. See 15 U.S.C. 1641(f)(1). Please see our request to identify the holder of the loan obligation or master
loan servicer below.
As a final note, in regard to reviewing whether any additional damages may be levied against an assignee of a loan,
in the Meyer case cited above the Court held:
TILA Section 1641 addresses the circumstances under which an assignee may be liable for violations committed by
the prior holder. For loans-such as this one-which are secured by real estate, the statute provides as follows:
Liability of assignee for consumer credit transactions secured by real property
Except as otherwise specifically provided in this subchapter, any civil action against a creditor for a violation of this
subchapter, and any proceeding under section 1607 of this title against a creditor, with respect to a consumer credit
transaction secured by real propertymay be maintained against any assignee of such creditor only if -
(A) the violation for which such action or proceeding is brought is apparent on the face of the disclosure
statementprovided in connection with such transaction pursuant to this subchapter; andthe assignment to
the assignee was voluntary.
For the purpose of this section, a violation is apparent on the face of the disclosurestatement if the disclosure can be
determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the
amount financed, the note, or any other disclosure of disbursement.
We hereby reserve our rights and will seek to hold any assignees liable for any other violations uncovered
following discovery.
Also note there is case law that dictates an injunction against foreclosure is also permitted even in the
absence of a tender ability at the outset of the litigation. Rescission premised upon tender is not mandatory but
an option within the equitable powers of the court. Avila v. Stearns Lending, 2008 WL 1378231 (C.D. Cal April 7,
2008).
Also note, the Courts have recognized the right to seek an injunction against foreclosure where this right (rescission)
is ignored by the lender or assignee. See Horton v. California Credit Corp., 2009 WL 700223 (S.D.Cal.) 2009. Note,
that the 9th
Circuit Court did not require an initial tender obligation from the borrower in granting the injunction
where missing dateson the TILA notice of right to cancel were found.CONCLUSION
If you have a refinance loan within the last three years (meaning it has not been more than three years since your last
refinance, you may want to look at your previous loan file and determine whether or not you have a right to rescind
the loan. In some cases, you will need to perform a mortgage loan audit to detect under-disclosure of APR and
finance charges and other material disclosure violations. In other cases, look at your notice of right to cancel
documents and see if you got two completed copies of the notice of right to cancel document (for each borrower or
person with ownership interest in the property) and see if the rescission dates are filled in and otherwise accurate. If
not, you may have an extended three year right to rescind your loan, and if so, you need to send in a rescission letter
to protect your rights. If the lender refuses to acknowledge your legal rights under Truth in Lending Law (TILA) you
may have grounds to file for an injunction to halt any slated foreclosures. In many cases, you will need to show someability to tender back to the lender, the amounts which you would owe them (your loan balance) minus the amounts
they owe you pursuant to their TILA tender obligation.
This area of the law can be tricky, so you may want to meet with an Attorney to discuss your case.