Neil Garfield’s Qixotic TILA Rescission Theory Can Lead Borrowers into HELL

Dear Neil Garfield:

I write in response to your comments at your blog article TILA RESCISSION: The Bottom Line for Now and to correct some of your misapprehensions about the Truth in Lending Act.  First of all, your enumerations made some good points,  But then it made some not so good.  Your main baseless contention is that a borrower has the right to rescind under TILA for any reason or no reason at all after 3 days after consummation of the loan. That is dead wrong, for very good reason – it violates the stated purpose of TILA, AND it abuses honest lenders

Your first problem is myopia.  You said TILA was enacted “to prevent unscrupulous banks from screwing consumer borrowers.”  That is only partly true.  Congress stated the purpose of TILA in 15 USC 1601:

“It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.”

1. The first purpose of TILA is to enable consumers to compare credit terms.
2. The second purpose of TILA is to protect consumers from inaccurate and unfair billing and credit card practices.

Let us review 15 USC 1635, Rescission.  (a) explains the borrower’s 3-day right to cancel and the creditor’s obligation to provide disclosures of that right and rescission forms to each borrower. (b) explains the loan unwinding or rescission process of lien release and mutual tender. (c) acknowledges the rebuttable presumption of disclosures in the event the borrower signed a receipt. (d) empowers the CFPB to modify or waive rights in a borrower financial emergency. (e) exempts  purchase money and certain other loan activities from TILA rescission.  (f) extends the rescission window to 3 years after loan consummation, or until sale of property or one year after final disposition of a rescission dispute by the court. (g) empowers the courts to award the borrower with relief in addition to rescission for creditor violations of TILA. (h) limits rescission on the basis that creditor supplied imperfect forms that still comply with regulations. (i) allows the borrower to rescind in connection with foreclosure.

It is just plain common sense that the 15 USC 1635(a)(b) TILA 3-day right to cancel a consumer loan that puts the family home at risk does not presume that the creditor is trying to screw the borrower.  Rather, it allows the borrower to change his mind if he finds a more attractive loan deal or just gets “buyer remorse.” That comports with and fulfills the first purpose of TILA above.

The 3-year right to rescind fulfills purpose #2 above.  Thus, the right to rescind under 15 USC 1635(f) gets triggered ONLY by a creditor breach of TILA through failure to give the borrower the requisite, timely, and accurate disclosures.  The regulation at 12 CFR 1026.23(a)(3)i cements the principle in the following language:

“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 consumer‘s 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.”

You see, ONLY failure to deliver the required notice of material disclosures TRIGGERS the right to rescind within a repose window of 3 years following loan consummation, as above.

THIS is where Neil Garfield’s humbug TILA rescission theory blows a gasket and hits the skids.  HE thinks the borrower may rescind after 3 days even if the creditor perfectly complied with TILA disclosure requirements.

Thus, Neil Garfield is DEAD WRONG in his assessment of TILA rescission law.  Every court in the land that has ruled in a related TILA rescission case has allowed post-3-day rescission ONLY in the face of a TILA breach.

Neil Garfield confesses to that reality, of course.  But he says all of those judges got it wrong, and that some day the SCOTUS will vindicate him with an opinion that supports Garfield’s Don Quixote Windmill Tilting Theory of TILA Rescission against creditors who did no wrong.

I have to burst your bubble here, Neil.  THAT will NEVER HAPPEN. NOT EVER. Only a BOZO judge would ever agree with your Don Quixote Windmill Tilting TILA Rescission Theory.

Neil Garfield doesn’t stop there.  He seems to think that TILA rescission applies to purchase money loans, and that borrowers get the right to rescind by mailing a rescission notice way after the 3 year repose window slammed shut, such as 8 years after consummation.  Why?  Because, he asserts that nobody really knows when the loan was consummated because nobody really knows who the lender was, and consummation can happen months or years after the borrower signed the loan documents.

To make it worse, he maintains that the outside-the-window, unjustified rescission deprived the court of jurisdiction because it voided the note and security instrument.

I’m bursting your bubble again, Neil, so take note.  A controversy over a rescission gives the court jurisdiction. Furthermore, TILA rescission statutes 15 USC 1635(b) and (g) BOTH mention court involvement:

“(b) Return of money or property following rescission. …The procedures prescribed by this subsection shall apply except when otherwise ordered by a court.”

“(g) Additional relief.  In any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this subchapter not relating to the right to rescind.”

And so does Regulation Z at 12 CFR 1026.23(d)(4):

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

Quite apparently, the lawyers of Congress and the Executive Branch both anticipated that controversies will arise when a borrower tries to rescind without justification well into the loan period.

Neil Garfield seems to think that the creditor bears the onus of suing to prevent the rescission.  That is not true either. If, after the borrower mails a rescission notice, the creditor who did no wrong refuses to release the lien or tender, the borrower has no choice but to sue or wait till the creditor forecloses to raise the rescission issue.  And the borrower must do that timely, within a year after mailing rescission notice or initiation of foreclosure.  Usually, the borrower stops making payments after mailing the rescission notice, and in due course the creditor forecloses, giving the borrower a chance to bring the rescission to a head.

If the creditor breached TILA and balks at releasing the lien after receiving the borrower’s rescission notice, the borrower can sue for statutory and actual damages.  That is just, for a failure to release the lien prevents the borrower from refinancing in order to tender.  Neil Garfield gets that part right.  And enabling the borrower to refinance for tender constitutes the reason that Congress, in crafting TILA rescission law, reversed the common law tradition requiring the borrower to tender first in a rescission.

Take note, Neil Garfield.  The courts do not punish creditors who can prove perfect compliance with TILA and yet refused to release the lien or tender upon receipt of the notice of rescission more than 3 days after consummation.  The courts punish borrowers, just as the trial court punished the Jesinoskis, by denying their rescission effort because the creditor proved compliance with TILA.

Remember the SCOTUS Jesinoski opinion.  The trial court had not reached the question of a TILA violation because it heeded 8th Circuit precedent that the borrower had to sue within 3 years after consummation, and more than 3 years had passed.  THAT was the question for SCOTUS:  must the borrower sue within 3 years IN ADDITION to mailing notice of intent to rescind within 3 years?  SCOTUS answered NO, and remanded with this language:

“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. It is so ordered. “

The 8th Circuit and Michigan District courts complied. The trial court explained:

“The United States Supreme Court reversed, holding that a borrower exercising a right to TILA rescission need only provide his lender written notice, rather than file suit, within the 3-year period. Jesinoski v. Countrywide Home Loans, Inc.,___ U.S. ___, 135 S.Ct. 790, 792, 190 L.Ed.2d 650 (2015). The Eighth Circuit then reversed and remanded the case for further proceedings. (Doc. No. 38.) After engaging in discovery, Defendants 959*959 now move for summary judgment.”

The bank filed a motion for summary judgment, and the court opined:

“Because Plaintiffs have failed to point to evidence creating a genuine issue of fact that they could tender the unpaid balance of the loan in the event the Court granted them rescission, their TILA rescission claim fails as a matter of law on this additional ground… For the reasons discussed above, Plaintiffs’ TILA claim fails as a matter of law. Without a TILA violation, Plaintiffs cannot recover statutory damages based Defendants refusal to rescind the loan. 1. Defendants’ Motion for Summary Judgment (Doc. No. [51]) is GRANTED. 2. Plaintiffs’ Amended Complaint (Doc. No. [7]) is DISMISSED WITH PREJUDICE.”

TILA RESCISSION: The Bottom Line for Now by Neil Garfield Probably the main fallacy of the people who say that TILA Rescission is not possible or viable is that they project the outcome of a lawsuit to vacate rescission. Based upon their conjecture, they assume that Rescission is no more than a technicality. Congress, and SCOTUS beg to differ. It was enacted into law 50 years ago in an effort to prevent unscrupulous banks from screwing consumer borrowers. Let us help you plan your TILA RESCISSION narrative and strategy: 202-838-6345. Ask for a Consult. Register now for Neil Garfield’s Mastering Discovery and Evidence in Foreclosure Defense webinar. Get a Consult and TEAR (Title & Encumbrances Analysis and & Report) 202-838-6345. The TEAR replaces and greatly enhances the former COTA (Chain of Title Analysis, including a one page summary of Title History and Gaps). https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments. It’s better than calling! THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER. —————- I keep getting emails from non lawyers who have a “legal opinion” that not only differs from mine, but also the opinion of hundreds of lawyers who represent the banks and servicers. They say that because disclosures were probably made that rescission is nothing more than a gimmick that will never succeed and they point to the many case decisions in which courts have ruled erroneously in favor of the banks despite a rescission that eliminated the subject matter jurisdiction of the court, since the loan contract, note and mortgage no longer exist. The debt, however, continues to exist even if it is unclear as to the identity of the party to whom it is owed. First the courts ruled erroneously when they said that tender had to be made before rescission was effective. Then the courts said that no rescission could be effective without a court saying it was effective. That one put the burden on proving the figure to make proper disclosure on the homeowner. The Supreme Court of the United States, (SCOTUS — see Jesinoski v Countrywide) after thousands of decisions by trial and appellate courts, told them they were wrong. As of this date, no court has ever ruled that the rescission was vacated — the only thing that could stop it. The lay naysayers keep harping on how wrong I am about rescission. Unfortunately many people believe what they read just because it is in writing. In my case I simply instruct the lawyers and homeowners to simply read the TILA Rescission statute and the unanimous SCOTUS decision in Jesinoski. What they will discover is that I am only repeating what they said — not making it up as some would have you believe. To the naysayers and  all persons in doubt, i say the following: As I have repeatedly said, in practice you are right, for the time being. But the legal decision from SCOTUS will undoubtedly change the practice. The law is obvious and clear. SCOTUS already said that. So no interpretation is required or even permissible. SCOTUS said that too. TILA Rescission is mainly a procedural statute, not a substantive one. SCOTUS said that too. On the issue of when rescission is effective, it is upon mailing (USPS) or delivery. SCOTUS said that too. On the issue of what else a borrower needs to do to make TILA rescission effective, the answer is nothing. SCOTUS said that too. Hence the current argument that you keep making is true “in practice” but only for the moment. SCOTUS will soon issue another scathing attack on the presumptuous courts who defied its ruling in Jesinoski. There can be no doubt that SCOTUS will rule that any “interpretation” that contradicts the following will be void, for lack of jurisdiction, because the loan contract is canceled and the note and mortgage are void: No court may change the meaning of the words of the TILA Rescission statute. Rescission is law when it is mailed or delivered. Other than delivery no action is required by the borrower. That means the loan contract is canceled and the note and mortgage are void. They do not exist by operation of law. Rescission remains effective even in the absence of a pleading filed by the borrower to enforce it. Due process is required to vacate the rescission. That means pleading standing and that proper disclosure was made, an opportunity for the borrower to respond, and then proof that the pleader has standing and that proper disclosures were made. Pleading against the rescission must be filed within 20 days or it is waived. At the end of one year both parties waive any remedies. That means the borrower can no longer enforce the duties imposed on the debt holder and the debt holder may no longer claim repayment. The only claim for repayment that exists after rescission is via the TILA Rescission statute — not the note and mortgage. This is based upon the actual debt, not the loan contract or closing documents. Any claim for repayment after rescission is predicated on full compliance with the three duties imposed by statute. A court may — upon proper notice, pleading and hearing — change the order of creditor compliance with the three duties imposed upon the debt holder. This does not mean that the court can remove any of the duties of the debt holder nor summarily ignore the rescission without issuing an order — upon proper notice, pleading and proof — that the rescission is vacated because the proper disclosures were made or for any other valid legal reason that does not change the wording of the statute. The three duties, which may not be ignored, include payment of money to the borrower, satisfaction of the lien (so that the borrower might have an opportunity to refinance), and delivery of the original canceled note. Virtually 100% of lawyers for the banks and servicers agree with the above. They have advised their clients to file a lawsuit challenging the TILA Rescission because such a lawsuit could be easily won and would serve as a deterrent to people attempting to use TILA rescission as a defense to collection or foreclosure efforts. Yet their clients have failed to follow legal advice because they know that they have no debt holder to whom funds can be traced. If they did identify the debt holder(s) they would be showing that they played just as fast and loose with investor money as they have done with the paperwork in foreclosures. Does this mean a free house to homeowners? Maybe. Considering how many times the loans were sold directly and indirectly, and how many times the banks received insurance, bailout and purchases from the Federal Reserve, that wouldn’t be a bad result. But the truth is that everyone knows that won’t happen unless the courts continue their decisions with blinders on. In the end, the homeowners do owe money to the investors whose money was used too fund the loans, directly and indirectly. Whether it is secured or not may depend upon state law, but as a practical matter very few borrowers would withhold their signature from a valid mortgage and note based upon economic reality.