Neil Garfield Passes Stratosphere with Loony TILA Rescission Theory

In Neil Garfield’s most recent blog article, Why TILA Rescission Makes Perfect Sense, Neil propounds utter nonsense showing why his idea of TILA rescission makes no sense at all.

I would say that as to rescission the principal strategy is to stick with the extreme —- as per the statute, even a “wrongful” rescission is effective by operation of law and may not be ignored by the trial court. It remains effective by operation of law unless a court of competent jurisdiction vacates it. (same as a wrongful foreclosure judgment). We know this to be true because Justice Scalia gratuitously added to the opinion that the TILA rescission statute makes no distinction between disputed and undisputed rescissions. Therefore the mailing of the rescission is the only thing required to cancel the loan contract and render the note and mortgage void by operation of law.

I decided to respond to Garfield’s silly notion that even a LIE about a TILA breach justifies rescission, AND that the lender must comply with it.

Neil:

For the vast majority of borrowers suffering a TILA breach, rescission makes no sense at all because they cannot tender.

To begin with, mortgagors who borrow money and sign for it must repay it or lose the house.  Concomitantly they must find out how others injured them at the inception of the loan and ATTACK .  ONLY in that way can borrowers win against the lender team (bank, appraiser, broker, etc).  Borrowers must ATTACK THE INJURIOUS PARTIES, whether or not they face foreclosure.

Likewise, borrowers who have legitimately rescinded must sue the lenders for not tendering and not removing the lien, and ask the courts to enforce the rescission, but they must also remember that they have the obligation to tender, and if they cannot do it, the court will not order the rescission.  For that reason, most borrowers suffering a TILA breach would become fools for rescinding.  Lenders need not sue because they have no cause of action against the borrower who tries to rescind.

Your consideration that the borrower may rescind on the basis of his own LIE simply defies logic and common sense.  Congress would never and did never intend such nonsense.  That explains why numerous courts have denied the borrower’s rescission efforts – either no TILA breach occurred, or the borrower signed an acknowledgment of receipt of the requisite disclosures, or the borrower did not send timely notice, or whatever the borrower sent did not constitute a notice of rescission.  In point of fact, no law penalizes the creditor for failing to respond to the notice of rescission, SPECIFICALLY BECAUSE that notice could contain a LIE, a claim that the lender breached TILA when in fact the lender’s records show that the lender did NOT breach TILA.

Furthermore, a GARGANTUAN GULF exists between a legitimate NOTICE of rescission and a COMPLETED rescission.  Rescission consists of a process whereby the parties tender back what the received from each other, and the creditor removes any liens. A borrower may initiate rescission.  Then the creditor may decide whether to tender and remove liens, or not.  If the lender tenders and removes liens, then the borrower must tender.  But most of the time the borrower cannot tender, so the lender does not remove the lien until after the borrower has tendered and PAID.  And if the borrower cannot tender, the lender will remove his tender offer and leave the lien in place.

When either party does not cooperate with the tender, one of them must sue.

1.  The lender has no reason to sue to force the rescission.  But he does have a reason to initiate foreclosure when the borrower stops making mortgage payments, which nearly all rescinding borrowers do.  And the court will deal with the rescission ONLY if the borrower brings it up as an affirmative defense, or in a declaratory judgment lawsuit in a non-judicial foreclosure state.  Even then, the court will deny the rescission if either party cannot tender.

2. A TILA breach injures the borrower statutorily, though typically not in fact.  Thus, the borrower MUST sue for damages under TILA, and must also sue to enforce the rescission against a recalcitrant creditor.  Then, the court might punish the creditor if the borrower could tender and a breach occurred, or otherwise might not.  The court certainly will not order a rescission unless both parties can tender.

THAT is how TILA rescission works in reality, in state and federal courts across the land.  Seldom does a creditor go along with the borrower’s TILA rescission effort because the lenders know that even if a breach occurred, the borrower typically cannot and will not tender.

The borrower must, within one year and 20 days after sending notice of rescission, sue for a TILA breach and failure to tender and remove liens, or forfeit the right to damages.

As to damages, the typical TILA rescinder stops making loan payments, and lives “RENT FREE” in the home for YEARS.  THAT constitutes a benefit, not an injury, to the borrower.  It injures the creditor, who eventually forecloses.

The TILA rescinder can suffer damages if he could have refinanced the house, but for damaged credit reputation, or if he could have sold it to raise the tender money, but for the collapse in house values after the notice of rescission.  Creditors have damage assessment teams to help them evaluate these issues in deciding how to respond.  Most of the time the creditors don’t voluntarily go along with the rescission because most rescinders mess up their cases so badly, or have such non-meritorious cases, that the court rules against them.

The foregoing shows why your theory on TILA rescission constitutes a house of cards that will crumble in court every single time someone foolish enough to believe you relies upon it.