Truth in Lending Act (TILA) Mortgage Rescission
I was on the phone yesterday with a loss mitigation rep from Washington Mutual Bank. I was calling to get the specific address to send a “Notice of Rescission” to for WAMU. Every lender/bank/servicer has specific addresses for these types of correspondence. I asked the lady in Loss Mitigation for the “address that I can send a rescission notice to.” At first, she said, “a what?” “A notice to rescind the loan” I said. “Sir, you can’t rescind a loan” she said. I said, “ma’am, please just give me the address I can send an official notice to rescind the loan to.” She says, “why? did you just close on this loan within the last three days because I’m pretty sure you can’t just cancel a loan.” I said, “ma’am you most certainly can, up to three years from the date of closing actually if it’s a refinance loan of a primary residence and there are certain violations of the truth in lending act; but I’m not going to argue with you, just give me right address!” This little back and forth madness just goes to show how even the bank/servicer employees don’t know the law! A legal right to TILA mortgage rescission can extend up to three (3) years out from the date of closing if:
- It’s a REFINANCE loan transaction
- It’s on your PRIMARY residence
- It was closed in the last THREE years
- A forensic loan audit reveals a MATERIAL disclosure violation
TILA mortgage rescission is a COMPLETE defense to foreclosure. In fact, it is the most POWERFUL foreclosure defense you could have. Why? When you effect a lawful TILA mortgage rescission, you are literally and legally canceling the loan. Here’s exactly what Regulation Z says, 12 C.F.R. § 226 et seq. (“Reg. Z”) (a) Consumer’s right to rescind. (1) In a credit transaction in which a security interest is or will be retained or acquired in a consumer’s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction. (3) …If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation…
TILA mortgage rescission is real. But I haven’t explained to you yet WHY TILA mortgage rescission is a complete defense to foreclosure. What Reg. Z says (12 C.F.R. § 226.23(d)) is that when a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer is not be liable for any amount, including any finance charge (ie. interest or closing costs).
Don’t know if you caught that but I bolded it for you. Yes, that’s right the mortgage (the security interest) becomes VOID. Further, the borrower is NOT responsible for ANY finance charge. That means any/all closing costs and interest paid on the loan from closing to current is refunded to the borrower as a credit against the original loan amount. So, let’s get to the foreclosure defense issue… the mortgage gives the owner of the Note the legal authority to foreclose. If the mortgage is voided by operation of law, there is no longer any legal instrument to foreclose on. The creditor becomes unsecured just like a credit card creditor; and, by the way, that debt can be discharged in a federal bankruptcy court. The security interest has been voided by operation of law. Foreclosure becomes a legal impossibility. The lenders don’t just roll over and go away but if they violated the federal law in your loan transaction, its black and white. It’s not some subjective “he said, she said” issue. It’s recognizable and quantifiable and can be adequately explained in a competent court of jurisdiction.
You absolutely want a forensic loan audit done by a knowledgeable analyst. Hopefully, this short article will help you see that a valid TILA mortgage rescission is the best remedy and defense to foreclosure if you qualify for it!
In short, TILA mortgage rescission is the best defense (and really offense) you have to fight foreclosure. The lender must have committed “material disclosure violation(s)” in order for the “extended right to rescind” to be afforded to you. Don’t let anyone tell you that any old violation of TILA or RESPA or some state statute affords you the right to rescind. I have seen too many borrowers/consumers sold this bit of goods by people claiming to be experts or professional auditors. The scope of TILA mortgage rescission is precise but very powerful.