Scalia, Jesinoski, and the Process of TILA Rescission

Jesinoski TILA Scribble Photo
Whatever did Scalia Mean?

Scalia on Jesinoski

On 13 January 2015 Justice Antonin Scalia wrote the unanimous opinion in Jesinoski v Countrywide, a case about whether a TILA (Truth In Lending Act) rescinder must file suit within 3 years after loan consummation. His holding stated this:

Justice photo
Scalia Rules!

The Jesinoskis mailed respondents written notice of their intention to rescind within three years of their loan’s consummation. Because this is all that a borrower must do in order to exercise his right to rescind under the Act, the court below erred in dismissing the complaint. Accordingly, we reverse the judgment of the Eighth Circuit and remand the case for further proceedings consistent with this opinion.

This case did not address whether the lender actually violated TILA sufficiently to justify rescission, nor did it address the TILA rescission process.   So, the case goes back to Minnesota US District Court to try the question of whether a TILA violation occurred and whether the creditor received proper notice from Jesinoski.  See the original Minnesota US District trial court opinion. and the 8th Circuit appellate opinion.

Garfield Pontificates

Neil wrote this blog article about TILA rescission.  People wrote over 500 comments in the discussion thread, loaded with proof of what TILA rescission means and how it operates, and laced with both well-considered and frivolous rebuttals.  Neil insisted the Supreme Court invalidated present thinking on it in the Jesinoski opinion, which of course, it did not.  It merely allows TILA rescinders to sue for rescission later than 3 years after loan consummation.  Neil wrote this drivel about the case law Rock and I provided:

Crooked man
Trinkets, Baubles?

My critics were quick to point out that this “theory” of mine was patently absurd. And they pulled out case after case on rescission which absolutely and conclusively proved that I was wrong. You can go back to the early blog posts about this and see for yourself. I predicted that a U.S. Supreme Court decision would overturn all the decisions and opinions that were written and rendered during the 2007-2014 period. I was right. And all the naysayers were wrong. I was right to read the plain wording of a very clear statute (TILA) and the regulations under Reg Z. This was not old-style rescission and it never was meant to be.

It is fascinating to see that the old arguments are popping up again despite a decision from a unanimous US Supreme Court that ordinarily can’t agree on anything. And it was the determination of the court that Justice Scalia should write the opinion apparently to avoid exactly what is happening — people are saying the Supreme Court is wrong. Even if that were true, the US Supreme Court is FINAL. The argument is over regardless of why or how people are covering the previous ridicule of TILA and TILA rescission. Toothless they called it.

If you have already sent a notice of rescission you need to speak with a lawyer because you most likely have rights and substantial upside potential. If you have not sent a notice of rescission, I see nothing to prevent you from doing so, although IF the “lender” or “creditor” has standing and brings up things like the statute of limitations within the 20 day period, you might lose. But in order for them to have standing they would have to prove the debt without using the now void note and mortgage. And THAT is why we have not heard about any lawsuits being filed within 20 days of rescission.

What TILA Rescission Really Means

Bob Hurt photo
Bob Hurt, Writer

Here’s my assessment of the matter.  TILA gives the borrower an absolute right to rescind within 3 days following loan consummation, for any reason whatsoever.  Thereafter, for a violation such as failure to give borrowers requisite disclosures of the right to rescind, an extend right to rescind exists.  Within 3 years after loan consummation, the borrower must give to the creditor a notice of rescission stating the grounds for the rescission and intention to rescind. An unwinding process follows that, including the creditor’s removal of any lien on the collateral property, and creditor’s tender back to the borrower of the full amount of money or property the borrower gave the lender, followed by borrower’s tender back to the creditor all of the money or property the borrower gave the lender, all to restore “status quo ante,” the status of the parties prior to the loan which the loan changed.  Once the lender has received the notice, the lender has 20 days to evaluate the circumstances, determine whether a TILA violation occurred and whether the borrower provided proper and timely notice of rescission, and initiate action to avert rescission by reason of improper or untimely notice.  If the creditor fails to act within 20 days, TILA gives the borrower a one-year window to sue for statutory damages.  If the borrower or lender sues over the matter, a court will issue an equitable ruling and might therein adjust the process of rescission.  If either party cannot tender, or if no TILA violation occurred, or if the creditor never received a valid notice of rescission, the court will deny the rescission.

The Jesinoski opinion did not undo 12 CFR § 1026.15(d). Well, THAT defines rescission as an unwinding process that BEGINS with detection of a relevant TILA violation and ends with both parties returning to their pre-loan condition with respect to the loan.

12 CFR §1026.15(d) (1) deals with the security interest and finance charges; (2) deals with lender tender or rebuttal; (3) deals with borrower tender after lender tender, location of tender, and lender failure timely to grab the borrower tender; (4) acknowledges the court’s power to modify (2) and (3) equitably. That constitutes the quintessential definition of TILA rescission and its unwinding.

Jesinoski did not change TILA, and for most courts it changed nothing other than the time limit for suing for rescission. Rescission has ALWAYS meant mutual tender to revert to status quo ante. And the courts have always required mutual tender to unwind the loan. Regarding the MEANING OF RESCISSION UNDER TILA, READ the REGULATION: 12 CFR 1026.15 and pay attention to item (3). BOTH PARTIES MUST TENDER. Rescission ALWAYS requires mutual tender.

12 CFR § 1026.15(d) Effects of rescission.

(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.

(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 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’s residence. Tender of money must be made at the creditor’s designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer’s tender, the consumer may keep it without further obligation.

(4) The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.

Clearly, the Supreme Court fully embraces this definition. If you have looked at post-Jesinoski opinions, you should have noticed that NONE of them held that the above CFR section constitutes a nullity. You should have seen that the courts REFUSE to allow rescission UNLESS THE BORROWER CAN TENDER CASH. The borrower cannot tender the real estate or a family of circus monkeys. He must give back what the lender gave him (money). But don’t worry, because the borrower will lose the house in foreclosure, a consequence of foolishly failing to make mortgage payments.

Lesson: Borrowers should NEVER rescind UNLESS they can tender.

Borrowers nearly always mess up the TILA rescission effort.  Some think each borrower must receive two copies of the disclosure of right to rescind.  That is not true.  Each must receive one, even though the regulation requires two; the borrower can still rescind by making a copy of the disclosure to attach to the rescission letter. Some send a letter but don’t say they want to rescind.  Some signed an acknowledgment that they received the requisite TILA disclosures, but try to rescind anyway (maybe they listened to Neil Garfield).  Some cannot tender and know they cannot, and never bothered trying to work something out with the lender before trying to rescind.  Some waited too long to rescind or to sue.  Some miscalculated the difference between actual and reported cost of the loan or the error as a percentage of the loan amount.  And nearly all borrowers seeking a TILA rescission stop making their loan payments, thereby provoking the creditor to foreclose the loan and try to take the house.  They can bring up TILA violations and seek setoffs in the lawsuit, either a Temporary Restraining Order in non judicial foreclosure states, or an affirmative defense in judicial foreclosure states.

Some borrowers who gave proper rescission notice for actual TILA violations tried to sue later than 3 years after loan consummation to force the rescission, and the court denied them the right for the same reason that the Jesinoskis appealed – some districts and circuits misread the law.  They thought a rescission and a lawsuit to force the lender to tender were one and the same thing.  They probably reasoned, in addition to other reasons, that no lender will voluntarily allow a rescission, that ALL of them will buck against the rescission and NOT take any action at all within their 20 day window.  It must have seemed axiomatic that a borrower doesn’t have forever to sue for rescission, and 3 years seemed long enough.  But as Scalia wrote, it just isn’t.

However, the Jesinoski opinion did not undo nearly 50 years of TILA jurisprudence regarding the rescission process.  It merely requires courts to allow borrowers 3+ years to file suit in order to force the lender to tender and release the lien in the rescission process.

No Substitute for Knowing the Law

It takes a lot of study to become familiar with the political process by which Congress makes laws and the Executive Branch makes enforcement regulation, to understand principles of statutory construction – how to read and grasp the law, the American language itself (including sentence composition, structure, and punctuation), the statutes, codes, and regulations, and the binding case law that governs the court decision processes.  And this forms the backdrop to the moral dilemma of borrowers who breached their home loan notes, who have no clue how to litigate, and who desperately want to do anything possible NOT to lose the biggest investment of their lives – the family home.  All of that pressure and the lust for earning money, often to pay of law school debts that have lingered for years, and to have a nice, POSH lifestyle…  It all does come together and must come together in the maelstrom of the borrowing/lending-foreclosure process.  And in the end, as Legisman has repeatedly and emphatically told me –

“There is no substitute for knowing the law. NONE!”

Please take advantage of these references to read up on TILA, RESPA, and other laws and regulations that protect consumers.

  1. TILA – Truth In Lending Act
  2. TILA Regulation Z
  3. FDIC TILA Compliance Manual
  4. RESPA – Real Estate Settlement Procedures Act
  5. RESPA Regulation X
  6. Bureau of Consumer Protection Regulations, Vol 8, Parts 1000-1025 (includes Reg X)
  7. Bureau of Consumer Protection Regulations, Vol 9, Parts 1026-1099 (includes Reg Z)
  8. Consumer Financial Protection Bureau for information and complaints

I might amend this blog article with case law items that provide excellent analyses of TILA rescission.  I have tried to give you a salient exposition of it above, but the courts do a much more comprehensive job.

Other Court Opinions

Joy Iroanyah v BOA

Read this holding from JOY IROANYAH v. BANK OF AMERICA, N.A., 851 F.Supp.2d 1115 (2012):

“For the foregoing reasons, all three summary judgment motions are granted in part and denied in part. Green Tree and MERS are granted judgment on the damage claims against them, though they are not dismissed from the case. Plaintiffs are granted judgment on the question whether the Disclosure Statements violated TILA (they did) and on whether their rescission notices were valid (they were). Defendants are granted judgment on their request to modify the rescission procedures — the Iroanyahs must make their tenders ($162,215.30 on the First Loan, and $26,037.10 on the Second Loan) to effectuate rescission, and if they fail to do so by June 14, 2012, judgment on the rescission claims will be granted to Defendants. Plaintiffs are granted judgment on the question whether Defendants failed to properly respond to the rescission notices, and are awarded $8000 in statutory damages and $2800 in actual damages; those sums have been incorporated into the tender amounts set forth above. The summary judgment motions otherwise are denied, though the Iroanyahs’ motion for summary judgment regarding attorney fees and costs under 15 U.S.C. § 1640(a)(3) is denied without prejudice. If the Iroanyahs wish to pursue attorney fees and costs under § 1640(a)(3) in light of the rulings set forth above, they may file a motion under Local Rule 54.3.”

Belini v WAMU

Furthermore, the borrower has a right of damages action against the creditor for failing to act within 20 days after receiving a valid notice of a valid rescission under TILA. Read this introduction to BELINI v. WASHINGTON MUT. BANK, FA, 412 F.3d 17 (2005):

“This Truth in Lending Act (TILA) case raises difficult and rarely seen issues that arise when transactions regulated by a given state — here, Massachusetts — have been exempted by the Federal Reserve from most of the Act’s requirements. See 15 U.S.C. § 1633; see also Bizier v. Globe Fin. Servs., Inc., 654 F.2d 1, 2 (1st Cir.1981). Only five states have received such exemptions. See 12 C.F.R. Pt. 226, Supp. I. In the end, however, this case turns on a narrower issue, one of first impression for this court under TILA. The question is whether TILA permits a damages claim to be stated by the debtor under 15 U.S.C. § 1640 based on the creditor’s alleged failure to respond properly to the debtor’s notice of rescission. We hold that it does. In doing so, we join the approach of four other circuits, and we know of no circuit which has held to the contrary.

“The plaintiffs, Richard and Theresa Belini, alleged that the defendant, Washington Mutual Bank, sold them a high-cost mortgage without making disclosures required by TILA and equivalent Massachusetts law. They sued in federal court, asserting claims for damages for failure to make these disclosures, for rescission, and for damages for Washington Mutual’s alleged failure to respond properly to their notice of rescission, under both TILA and similar Massachusetts law. The district court held that all of the Belinis’ damages claims were time barred, without discussing separately their claim for Washington Mutual’s alleged failure to respond to their notice of rescission. This left the rescission claim itself and the question of whether there was either federal question jurisdiction or diversity jurisdiction. The court found that the amount-in-controversy requirement was not met, so there was no diversity jurisdiction, and that there was no federal question jurisdiction over a claim for rescission (as opposed to a claim for damages) because of the Massachusetts exemption from certain TILA requirements.

“Although it is clear from the Federal Reserve regulations that a debtor’s ability to bring a federal damages action under 15 U.S.C. § 1640 is preserved despite the Massachusetts exemption, see 12 C.F.R. § 226.29(b), it is much murkier, given the current drafting of these regulations, whether a debtor’s right to sue for rescission under federal law is preserved. Similarly, the question of how to measure the amount in controversy in an action for rescission is difficult.

“We reverse. We find it unnecessary to resolve the difficult question of whether the federal court had either federal question jurisdiction or diversity jurisdiction over the rescission claim, because we find that the Belinis have a viable, non-time-barred federal damages claim under TILA based on the defendant’s alleged failure to respond properly to the Belinis’ notice of rescission. This damages claim provides a basis for federal question jurisdiction. That means that the Belinis’ claim for rescission, which has virtually identical elements under TILA and Massachusetts law, is within the court’s supplemental jurisdiction. This case does not fall into a category that would render the district court’s exercise of supplemental jurisdiction discretionary.”

And further in the opinion, the court says this about the obligation to sue under TILA within one year if the lender does not act with 20 days after rescission to rebut or tender:

“The statute of limitations for bringing an action under section 1640 is “one year from the date of the occurrence of the violation.” 15 U.S.C. § 1640(e). The “date of the occurrence of the violation,” here, is at the earliest the date that Washington Mutual received the Belinis’ notice of rescission; in truth, the date of the occurrence is likely twenty days later, when Washington Mutual’s time for responding to that notice expired. See Fid. Consumer Disc. Co., 898 F.2d at 903. The Belinis’ notice was not mailed until May 9, 2003. The “date of the occurrence of the violation” cannot be the date the loan was closed; the closing is not the source of the debtor’s complaint, and such a rule would create nonsensical results. 15 U.S.C. § 1635(f) states that “[a debtor’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 that the necessary material disclosures or forms have not been received. It cannot be that the one-year statute of limitations under section 1640 for a creditor’s failing to respond properly to a debtor’s notice of rescission expires before the debtor is required to send that notice in the first place. Since the Belinis’ second action was filed on May 4, 2004, the action was obviously filed within one year of the “occurrence of the violation.””

These opinions are still valid.

Residential Capital

“First, the Supreme Court’s decision in Jesinoski does not constitute an intervening change of controlling law.”

In re: RESIDENTIAL CAPITAL, LLC, et al., Debtors. Case No. 12-12020 (MG) UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK April 9, 2015

Beukes v GMAC

I can see how borrowers get confused about TILA rescission. The opinion in BEUKES v. GMAC, LLC. makes that very clear. Beukes sent timely notice of rescission, and the bank rejected it, claiming Beukes had no right to cancel.  Beukes sent the notice prior to foreclosure and not after foreclosure. One law (15 U.S.C. § 1605(f)(2)(A)) allows rescission noticed prior to foreclosure for loan cost more than 1/2% of the loan amount, but another law (15 U.S.C. § 1635(i)(2)) allows rescission noticed after initiation of foreclosure for charging more than $35 above actual loan cost.

Since Beukes’s cost fell between those two amounts and they did not give notice of rescission after foreclosure started, they could not rescind at all.

That happens when borrowers and their attorneys don’t read or cannot understand the law.

Scherzer v Homestar

The Scherzer v Homestar opinions explain TILA rescission thoroughly. And they TROUNCE the idea that rescission can happen without about tender – a borrower who cannot tender cannot rescind, period. This principle has the simplicity of 1-2-3.

  1. 2011 USDC Eastern District PA – Sherzer cannot sue for rescission beyond 3 years after loan consummation.
  2. 2013 USCCA 3rd Circuit – Sherzer can sue for rescission beyond 3 years; remanded to USDC to deal with rescission.
  3. 2015 USDC Eastern District PA (post Jesinoski)  – on remand Sherzer loses rescission because he cannot tender. Take note of the holding:

“Given the facts of this case, the Court finds that the plaintiffs are UNABLE TO TENDER back the loan amount and that rescission is thus ineffective. Not only did the plaintiffs fail to respond to defendants’ motion for summary judgment — even after the Court gave the plaintiffs ample time to do so (at this point, more than a full year) — but Mr. Sherzer conceded in an on-the-record telephone conference almost five months ago that he’s “out of money” and, in any event, DOES NOT BELIEVE HE WOULD NEED TO RETURN THE MONEY IF THE LOAN IS RESCINDED (Docket No. 134). The Court cannot ignore these facts because one of the “goals of [15 U.S.C.] § 1635 is ‘TO RETURN THE PARTIES MOST NEARLY TO THE POSITION THEY HELD PRIOR TO ENTERING INTO THE TRANSACTION.’” Sherzer, 707 F.3d at 265. Mr. Sherzer’s statements and beliefs contravene this goal (Docket No. 134). For that reason, the Court grants the defendants’ motion.

Note also that before Jesinoski the 3rd Circuit had held the mortgagor didn’t have to file suit within the 3-year Statute of Limitations. Therefore the holding that clarified the Scherzer opinion makes all of the Scherzer opinions precedential.

Therefore, without exception, rescission requires tender, and tender consist of returning whatever the other party gave, or returning its value (in money, of course), to restore status quo ante. No rescission will happen without mutual tender. The court can adjust the tender as necessary, such as setting up a payment plan, and bankruptcy court could discharge a tender debt.

Community for Creative Non Violence v Reid

Some try to argue that rescission merely means cancellation, and that the courts should use normal dictionary meanings for legal terms of art.  Rescission is such a term, and courts must use the legal meaning:

Rescission – The abrogation of a contract, effective from its inception, thereby restoring the parties to the positions they would have occupied if no contract hadever been formed.

The US Supreme Court dealt with the legal meaning issue in Community for Creative Non Violence v Reid.

“‘It is a well-established rule of construction that ‘[w]here Congress uses terms that have accumulated settled meaning under . . . the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.’ ‘ Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 322 (1992) (QUOTING Community for Creative Non-Violence v. Reid, 490 U.S. 730, 739 (1989)); see Standard Oil Co. of N. J. v. United States, 221 U.S. 1, 59 (1911) (“[W]here words are employed in a statute which had at the time a well-known meaning at common law or in the law of this country, they are presumed to have been used in that sense’).”

Mortgage Attack Logo“The Act NOWHERE DEFINES the terms “employee” or “scope of employment.” It is, however, well established that “[w]here Congress uses terms that have accumulated settled meaning under . . . the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms.” In the past, when Congress has used the term “employee” without defining it, we have concluded that Congress intended to describe the conventional master-servant relationship as understood by common-law agency doctrine.

Conclusion

TILA violations constitute just one of many ways lenders and others involved in the lending process can injure a borrower.  NINETY PERCENT of single family home loan borrowers have sustained actionable injuries, by my estimation.  They borrower who breached a valid note gets nowhere with foreclosure defense EXCEPT by timely raising such injuries as salient issues in negotiations with or a lawsuit against the injurious parties.  You cannot raise such issues if you don’t know they exist, and if you don’t have the knowledge of law and contracts sufficient to find those injuries, you must contract with a competent professional to find them for you.

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727 669 5511

You can learn about the nature of a “mortgage attack” – a challenge of the validity of the loan, at http://MortgageAttack.com.  Then, if you need further help, such as finding a competent mortgage examiner, you can call or write me.

Bob Hurt
727 669 5511
E-mail me

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5 thoughts on “Scalia, Jesinoski, and the Process of TILA Rescission”

  1. This, on the other hand, sheds a different light on rescission and would seem to give credence to Garfield. Then again, it is still just an opinion piece.

    The issue of “tender” will have to be fought tooth-and-nail… in court! (Judges are not in the habit of making waves to change the status quo, hence our Supreme Court. And given the average pro se’s understanding on drafting motions, following procedures and pleading in court, it may very well be a moot point anyway.

    http://apps.americanbar.org/buslaw/committees/CL230000pub/newsletter/201505/feature_1.pdf

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    1. So the author of that American Bar article has flailed his arms for nothing.

      I have provided ample case law to show that nothing has changed in those US Circuits that permitted TILA rescission lawsuits later than 3 years following loan consummation. And those Circuits have required mutual tender prior to ordering rescission. Their case law binds all of the Circuits because the Jesinoski court addressed only the question of whether a borrower may sue for rescission later than 3 years after loan consummation.

      That means the terms “effected rescission” and “exercised the right of rescission” mean “initiate the qualified rescission process that returns the creditor and borrower to status quo ante.” That means the unwinding specified in Regulation Z – borrower tender following creditor tender, plus release of lien, IFF (if and only if) an actual TILA violation occurred and the creditor received a valid notice of rescission from the borrower. That of course entails proof.

      As I have pointed out, the borrower in most cases has breached the note by stopping payments on the loan and in most cases the lender did not violate TILA. That means the borrower faces foreclosure and has no right to rescind anyway, but even if he does have that right, the borrower must raise the matter in a lawsuit, whether borrower-initiated or in the form of affirmative defenses in a foreclosure proceeding. The court will inquire into all of those qualifications as necessary to determine the justice of rescission. And then the court will not order rescission if the parties do not meet the qualifications.

      Bob Hurt

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  2. The insanity continues in Livinglies.

    Today’s post: “Everyone is having trouble with this after years of incorrect rulings from thousands of courts “interpreting” the statute (which was clear and thus not subject to interpretation). So here it is:
    IF NOTICE OF RESCISSION IS SENT THE LOAN IS OVER AND THE NOTE AND MORTGAGE ARE VOID BY OPERATION OF LAW — NO LAWSUIT OR TENDER OF MONEY OR PROPERTY REQUIRED. PERIOD.”

    I am growing increasingly concerned with the ramifications, nationwide, of such a statement. I keep reading Justice Scalia’s ruling and, as far as I can tell, he did not address the issue of tender. How can anyone purporting to help homeowners with foreclosure defense post such nonsense in all impunity? Am I missing something?

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