TRUTH IN LENDING-RESCISSION-RIGHT TO RESCIND

Truth in Lending law is probably the most powerful set of  rights consumers have to fight predatory lending and to potentially save ones home from foreclosure.
WHAT IS TRUTH IN LENDING LAW? Truth in lending law (essentially) is a set of specific legal guidelines that demands that financial institutions make certain “material disclosures” in a loan transaction such as disclosing the annual percentage rate (APR), finance charge, amount financed, and total of payments and payment schedule to borrowers.  The law was created in 1974 and designed to force lenders to put the “TRUTH” in “LENDING.”  There is, of course, a whole lot more to TIL law than this, but for our purposes here suffice it say these are the important items as far as foreclosure defense is concerned.

In a perfect world we would not need these kinds of laws that simply request that lenders to be truthful. However, add a little GREED and unleash the banking industry from regulations and all sorts of things can get fouled up and these types of consumer protection laws are needed to try to protect homeowners from what must simply be called “UNTRUTHFUL LENDERS.”

What is the three year right to rescind extension?

Under federal truth in lending law, in a transaction subject to rescission (ex. a refinance loan typically qualifies) EACH BORROWER or person with ownership interest in a property must be provided TWO COPIES EACH of the notice of right to cancel (NRTC) disclosure document.

Now, you might be asking, why does every person get two copies each of this NRTC?  The idea was that any of the parties should have the right to cancel the loan, which cancellation would be effective as to all, and they could keep a copy for their records, and mail the other one in.

If you see this as important – getting two copies each of the NRTC – then you understand why this concept is protected in Federal Truth in Lending Law.

You should also realize that in addition to each party getting two copies of this essential legal document (it tells you when and where you must cancel your loan) The dates on these truth in lending disclosures must be correct.    After all, what good is a disclosure document if it doesn’t actually disclose anything useful?

What we seeing in many cases is that the originating lender did not take care to see that each borrower received copies of the NRTC and that the dates were accurate.  Part of this is due to the use of mobile notaries who may not have ensured that Truth in Lending requirements were strictly adhered to.  After all, it is not the job of the Notary to ensure TILA compliance.

What happens when borrowers do not get their right to rescind disclosures?

If there are any deficiencies in the above stated requirements (keep in mind there are other material TILA violations not mentioned in this article) it triggers anew timetable, an EXTENDED THREE YEAR RIGHT TO RESCIND YOUR LOAN.  This is strange, because it essentially opens the door back up for rescission even three years after the borrower became obligated on the loan.

WHAT HAPPENS WHEN YOU EXERCISE YOUR EXTENDED THREE YEAR RESCISSION RIGHT UNDER TRUTH IN LENDING LAW?

a) The security instrument is supposed to be automatically voided by operation of law.  I say “supposed” to because there are ways the lenders try to work around this.

b) The lender is supposed to “tender” all payments, costs, fees, etc. that they received in connection with the loan, ALONG WITH, all the money all other parties received in connection with the loan at issue.  In theory, it means they would have to send you a check for all benefits received in connection with the loan.  This would be great if it were actually the STEP 2 the lenders had to follow.

c) Theoretically, after steps ONE and TWO are performed, the Borrower is THEN supposed to “tender” back to the bank the difference between the loan balance and what Plaintiff is owed from the Lender as part of their tender obligation Please note that IF this is how rescission acted in REAL LIFE then there would be a lot loss foreclosures, because if the security interest was voided by operation of law as written (as discussed at step 1 above) then the lender’s would have nothing to foreclose on, the security interest (ex. Deed of Trust) would be void.

But, you figured it out, it doesn’t happen that way in real life what normally happens from my experience is the following:

(1) The lender denies its the Truth in Lending violation, basically by claiming there was no violation.

(2) The Client tries to work out a loan modification and the Client is denied (sometimes for a reason that seems valid and other times not)

(3) As the countdown to foreclosure sale begins, a Client will inevitably contact an attorney (sometimes for the first time) and assert that they need an injunction against foreclosure and/or argue they want to rescind their loan.

(4) If the file review (sometimes called a forensic loan audit) verifies the material truth in lending violation exists the Client will want to send in a rescission letter exercising, in most cases, the extended three year right to rescind your loan

(5) The lender will refuse to honor your TILA request for rescission and will basically tell you to “get lost.”

(6) The homeowner, now infuriated by the lender and their callous response, wants to sue to rescind.

(7) The next discussion with the Client usually involves the “tender” obligation imposed by Tender.  The: “How can we settle this” talk.

(8) If litigation is the chosen path to pursue, (and assuming the issue of tender has been sufficiently addressed), the next step is to send in the rescission letter to the lender – and all their predecessors.  The letter will set forth your grounds for rescission and demand that they honor our demand or face a lawsuit.  We typically also put a QWR in there to get a life of loan accounting (so we know more about the final tender obligations)

(9) A lawsuit is filed by the homeowner because the lender or loan servicer would not honor your TILA notice of exercise of rescission rights letter, or, they would not recognize your stated TILA violation.

(10) At this point, the lender may remove the case to federal court since you are raising a Federal Claim.  There are pros and cons to this.

(11) The lender will undoubtedly demand that the Judge require the borrower to “tender” on the spot (notice how the lender is asking the judge to modify the 1,2,3 step process mentioned above).  The borrower may then be required to discuss the issue of tender.

1. If it is determined that the borrower cannot tender, or the judge is otherwise unwilling to agree to the homeowners tender strategy, then this would likely thwart the defense and the Lender would be able to foreclose on the property (and may not have to pay attorney fees as is normally required for TILA violations that trigger the  extended three year right of cancellation).However, if the judge agrees to the TILA tender plan, then the loan can be rescinded and the lender may be required to tender to you, and to pay your attorney fees. So, as you see, the lender will try to have the judge modify the statutorily proscribed steps, and get the borrower to prove their TILA violation and ability to tender before they will release the security instrument.  Under TILA that judge has the power and authority to “modify the steps” of the rescission transaction. Judges are becoming more and more willing to grant rescissions especially when the violations of TILA are significant. We are finding in many many ARM mortgages that the Finance charge on the final truth in lending disclosures were understated by more than regulation z tolerates. The tolerance for variance on the finance charge is $100. The lenders are supposed to disclose the worst case scenario to the homeowner on the Final TIL. If they have a loan that can index out to 13 or 14 percent then their disclosure needs to show the loan doing so and showing the truthful cost of money. They did not do this on most ARMS. This is your best claim. We can help you find this and other violations of TILA in your mortgage documents.

It is the best method that I have seen to bring the bank out of their standard obfuscate and avoid, delay and lie, promise and not deliver methods and straight into discussions about modifying the terms of your loan. It is the best method you have to bring the bank to the negotiation table with an offer to reduce your principal balance on your mortgage and significantly drop and fix your interest rate.

If you are behind on your mortgage, in jeopardy of losing your home, cannot afford your current payment because you expected to refi but cannot, Read the step by step QWR page after filling out this form. We will contact you within 48 hours.
We dont spam and your information is completely private here. We are located in Virginia.   Nothing herein can be considered legal advice, it is the opinion of the author.

We are actively seeking TILA and RESPA attorneys to file rescission claims for our Forensic Loan audit clients. We are covered in Virginia and Maryland but seek partnership in all of the following areas of the country as we grow our auditing business.

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