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Rescission is not a Claim — No Lawsuit Necessary

Posted by Neil Garfield | February 1, 2018

Rescission is not a claim. Rescission is an event. Either it happened or it didn’t. If the notice was sent, it happened. If the notice wasn’t sent then it didn’t happen.

If the rescission is contested it is still effective and the note and mortgage are still void. If anyone thinks the rescission was not sent under the right circumstances they must establish standing and sue to vacate the rescission — not just ignore it. SCOTUS specifically stated that there is no difference between a contested rescission or an uncontested one. They are both effective on mailing.

Those who take a contrary view are ignoring basic procedural law. Under their “theory” the fact that someone contests it is enough to require the borrower to prove a “claim.” That is exactly the opposite of what is stated in the statute and what was confirmed by a unanimous SCOTUS opinion in Jesinoski. There is no “claim” of rescission under the TILA rescission statute. There is only an event that either happened or didn’t happen.

Since this is a jurisdictional matter it can be raised at any time. Assuming nobody has stepped in to plead and prove ownership of the debt, there is nobody with standing that can attack the rescission. Once the 20 days expires, and no court has extended the period during which the actual creditor could bring a claim, the “lender” duties require compliance no matter how wrongful they think the rescission notice was sent.

If the lender remains in noncompliance for more than a year, their right to claim tender of the amount due expires by the express terms of the TILA statute. So at that point the note is void, the mortgage is void, the loan contract is canceled and the right to receive the principal back is time barred.

The standing issue is the key. The moment that a rescission notice is dropped in US Mail the note and mortgage are void “by operation of law.” Any “holder” of the note or mortgage is no longer the holder of anything that is legally relevant. The note and mortgage don’t exist. Hence while some named party might have had standing to foreclose they no longer have standing to foreclose or contest the rescission unless they can plead and prove standing by establishing themselves as the owner of the debt.

Some people consider it a slam dunk against the borrower if the rescission notice is sent more than 3 years from presumed consummation — i.e., the date on the documents. But we all know that funding usually doesn’t occur until hours, days, weeks and sometimes months after the loan documents are signed. So consummation is a question of fact UNLESS the homeowner admits that consummation of a loan contract occurred on specific date more than three years before the notice of rescission.

Many people, including those who see rescission as I do (as SCOTUS does) believe that SCOTUS will ultimately carve out an exception to accommodate the three year limitation on rescission under TILA. I admit that is possible but here is why I think they won’t.

In order to establish a doctrine that a rescission is to be conclusively presumed to be beyond the three year limitation you need a statute, not common law, stating exactly that. The Courts lack the authority to invent a new law of evidence. While it may be “obvious” to some people that the rescission notice was sent more than 3 years after consummation, it remains a question of fact as to the exact moment of consummation — assuming there was any “consummation” with anyone in the chain upon which the present forecloser relies.

Proving the loan and the status of the “lender” would therefore be a requirement to establish that the rescission was sent beyond three years from consummation. Proving that requires showing the holy grail of foreclosure litigation that the banks have successfully hidden since the 1990’s — who paid who for what and when?

Could SCOTUS go the other way? Of course! There is no appeal from their decision. I’m more optimistic that eventually SCOTUS will rule consistently with the Jesinoski decision. That means that if anyone has a gripe about a rescission they must file a lawsuit, establish standing and then plead and prove their case to vacate the rescission.

 

 

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