Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Anyone ever have a lender comply with the notice of rescission? Or better yet is there any case law showing that a lender rescinded or lawsuits where the lender rescinded the loan?

Seems like this strategy will back-fire HUGE if you’re offered a tender by the lender when they comply with rescission. I want the house, so what happens next?

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The Equitable One
I've had the same concerns. Thank you for asking.
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Hi Don,

I've been doing alot of researching on TILA and cases like you're looking for.  I found a good source at this address:

WJFA

http://www.wjfa.net/mf/mf_TILA.html


Anyway, it cites lots of case law and it says that the courts will not give the victim their home for free.  You get everything rolled back to before the loan and you have to be able to refinance it.



Don wrote:
...is there any case law showing that a lender rescinded or lawsuits where the lender rescinded the loan?

Seems like this strategy will back-fire HUGE if you’re offered a tender by the lender when they comply with rescission. I want the house, so what happens next?

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Hi Barbie,

I have a hypothetical scenario where John Doe not only rescind but does get his home free and clear:

1. The mortgage was a refinance loan

2. It is your primary residence

3. The loan was a residential loan

4.  An audit reveals Truth in Lending Act “Material Disclosure Violations” under Regulation Z., 226.15 and 226.23,

5. In tandem with disputing standing and demanding production of the deed and note, your rights under the Fair Debt and Collection Acts as well as Uniform Commercial Code of Law.

 

The process starts with John Doe’s notice to the creditor that he or she is rescinding the transaction. 

 

It is not necessary to explain why John Doe is canceling.  The FRB Model Notice simply says: “I WISH TO CANCEL,” followed by a signature and date line (Arnold v. W.D.L. Invs., Inc., 703 F.2d 848, 850 (5th cir. 1983) (clear intention of TILA and Reg. Z is to make sure that the creditor gets notice of the consumer’s intention to rescind)).

The statute and Regulation Z states that if creditor disputes the consumer’s right to rescind, it should file a declaratory judgment action within the twenty days after receiving the rescission notice, before its deadline to return the consumer’s money or property and record the termination of its security interest (15 USC 1625(b)).  Once the lender receives the notice, the statute and Regulation Z mandate 3 steps to be followed.

 

First, by operation of law, the security interest and promissory note automatically becomes void and the consumer is relieved of any obligation to pay any finance or other charges (15 USC 1635(b); Reg. Z-226.15(d)(1),226.23(d)(1).  .  See Official Staff Commentary § 226.23(d)(2)-1. (See Willis v. Friedman, Clearinghouse No. 54,564 (Md. Ct. Spec. App. May 2, 2002) (Once the right to rescind is exercised, the security interest in your property becomes void ab initio).

 

Thus, the security interest is void and of no legal effect irrespective of whether the creditor makes any affirmative response to the notice. (See Family Financial Services v. Spencer, 677 A.2d 479 (Conn. App. 1996) (all that is required is notification of the intent to rescind, and the agreement is automatically rescinded).

 

Second, since John Doe has legally rescinded the loans transaction, the mortgage holders (whoever that may be!!) must return any money, including that which may have been passed on to a third party, such as a broker or an appraiser and to take any action necessary to reflect the termination of the security interest within 20 calendar days of receiving the rescission notice which has expired.

 

The creditor’s other task is to take any necessary or appropriate action to reflect the fact that the security interest was automatically terminated by the rescission within 20 days of the creditor’s receipt of the rescission notice (15 USC 1635(b); Reg. Z-226.15(d)(2),226.23(d)(2).

 

THIRD, John Doe is prepared to discuss a tender obligation, should it arise, and satisfactory ways in which to meet this obligation requesting an itemized statement of his payment record to lender/servicer, etc.     The termination of the security interest is required before tendering and step 1 and 2 have to be respected by mortgage holders, servicers, lenders, etc.

 

(HAS ANYONE RECEIVED A CHECK BACK FROM THE VULTURES?  Common practice is that they ignore your letter or send letters of denial saying there are no violations with loan docs)

 

When John rescinds within the context of a bankruptcy, courts have held that the rescission effectively voids the security interest, rendering the debt, if any, UNSECURED.  (See in re Perkins, 106 B.R. 863, 874 (Bankr. E.D.Pa. 1989); In re Brown, 134 B.R. 134 (Bankr. E.D.Pa. 1991); In re Moore, 117 B.R. 135 (Bankr.E.D. Pa. 1990)).

 

Once the court finds a violation such as not responding to the TILA rescission letter, no matter how technical, it has no discretion with respect to liability (in re Wright, supra. At 708; In re Porter v. Mid-Penn Consumer Discount Co., 961 F,2d 1066, 1078 (3d. Cir. 1992); Smith v. Fidelity Consumer Discount Co., Supra. At 898. 

 

 

Since the lender/servicers/mortgage holder have not cancelled the security interest and return all monies paid by John Doe within the 20 days of receipt of the letter of rescission the lenders/servicers/mortgage holders named above are responsible for actual and statutory damages pursuant to 15 U.S.C. § 1640(a).

 

They are to take any necessary or appropriate action to reflect the fact that the security interest was automatically terminated by the rescission (15 USC 1635(b); Reg. Z-226.15(d)(2),226.23(d)(2). 

 

This requires canceling documents creating the security interest and filing release or termination statements in the public record of FREE and CLEAR TITLE.

 

Since the debt became “unsecured” it was able to be discharged through bankruptcy like any other type of unsecured debt such as a credit card debt.

 

Any thoughts on my hypothetical scenario?


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Sara
Yeah, I want to hear what the responses are too? 

S
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Here You Go Went Through Appeals & Everything

 

 

 

Harry T. Howard, III, New Orleans, La., for defendant-appellant.

R. Collins Vallee, New Orleans, La., for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before COLEMAN, HILL and RUBIN, Circuit Judges.

JAMES C. HILL, Circuit Judge:

The case on appeal raises the question of the appropriate remedy for a creditor's failure to comply with 15 U.S.C. § 1635,[fn1] the rescission provision of the Truth in Lending Act. The district court held that the defendant-creditor in the case on appeal forfeited its right to recover the property it had delivered to the obligor because the creditor did not perform those duties prescribed in § 1635(b). We reverse this holding.

The plaintiffs-appellees, Joseph E. Gerasta and Josefina E. Gerasta, received a home improvement loan from the defendant-appellant, Hibernia National Bank. The loan was secured by a second mortgage on the Gerastas' property. Approximately six months after receiving the loan, the Gerastas discovered that the Bank had not made all the material disclosures required by the Act, and they exercised their statutory right to rescind the transaction pursuant to § 1635(a). Within ten days after receipt of the notice of rescission, the Bank was statutorily required to return to the Gerastas all money received from them and to take all necessary actions to reflect the termination of the security interest created by the second mortgage in the Gerastas' property. 15 U.S.C. § 1635(b). If the Bank had performed these duties within ten days, the Gerastas then would have been required to tender the loan proceeds to the Bank. The Bank, however, took no action after receipt of the Gerastas' rescission notice. Therefore, the Gerastas did not tender the loan proceeds to the Bank, and they filed this suit.

The district court held that the loan to the Gerastas fell within the ambit of the Truth in Lending Act and that the Bank had not made all the statutorily prescribed material disclosures, thereby entitling the Gerastas to rescind the loan transaction pursuant to § 1635. After a careful review of the record we affirm these holdings. See Powers v. Sims and Levin, 542 F.2d 1216, 1219 (4th Cir. 1976); Simmons v. American Budget Plan, Inc., 386 F.Supp. 194, 200 (E.D.La. 1974). We must reverse and remand, however, on the issue of damages. In accordance with § 1635, the district court entered a judgment recognizing the Gerastas' rescission of the loan agreement and recognizing their right to a complete refund of the money they had already paid to the Bank, plus interest. The district court also entered judgment for the Gerastas for a costs and a reasonable attorney's fee and for the cancellation of any inscription in the public records of the second mortgage on the Gerastas' property. The district court also held, however, that the Gerastas are entitled to retain the loan proceeds without any obligation to the Bank, because the Bank did not perform those duties imposed by § 1635.

This court has recognized that the Truth in Lending Act Provides "detailed remedial machinery" to redress violations of the Act. Sosa v. Fite, 498 F.2d 114, 117 (5th Cir. 1974). Therefore, courts should apply those remedies provided in the Act. Burgess v. Charlottesville Savings and Loan Association, 477 F.2d 40, 45 (4th Cir. 1973); Jordan v. Montgomery Ward & Co., 442 F.2d 78, 81-82 (8th Cir.), cert. denied, 404 U.S. 870 , 92 S.Ct. 78, 30 L.Ed.2d 114 (1971). Section 1635 does not expressly provide a remedy for the situation in which the creditor fails to take any action upon receipt of a rescission notice and the consumer does not tender the creditor's property. Section 1640(a),[fn2] however, provides the remedy for a creditor's failure to comply with "any requirement" imposed by certain provisions of the Act, including § 1635.

Section 1635 and § 1640 are not mutually exclusive remedies; a consumer may be entitled to both rescission pursuant to § 1635 and damages pursuant to § 1640. See Mourning v. Family Publications Service, Inc., 411 U.S. 356, 376, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973); Sellers v. Wollman, 510 F.2d 119, 123 (5th Cir. 1975). That Congress intended the § 1640 liability provision to apply to creditors' violations of § 1635 is confirmed by the 1974 amendment of § 1640. Before amendment, § 1640(a) provided that it applied only when a creditor failed "to disclose to any person any information required under this part to be disclosed to that person . . . ." As stated, § 1640 now expressly applies whenever a creditor fails to comply with "any requirement" imposed by certain provisions of the Act, including § 1635. Although the amended version of § 1640 did not become effective until after the present cause of action arose, the amended version of § 1640 is applicable to the case on appeal. Mirabal v. General Motors Acceptance Corp., 537 F.2d 871, 875-76 (7th Cir. 1976). See also Gore v. Turner, 563 F.2d 159, 163 (5th Cir. 1977).

Section 1640 does not provide for forfeiture of the creditor's property. It provides in relevant part for an award of actual damages, a reasonable attorney's fee, and twice the amount of any finance charge in an amount up to $1,000 and not less than $100. Application of § 1640 thus serves the congressional purpose of restoring the parties to the status quo ante and is consistent with the Act's remedial character. Murphy v. Household Finance Corp., 560 F.2d 206, 208-11 (6th Cir. 1977); Binnick v. Avco Financial Services of Nebraska, Inc., 435 F.Supp. 359, 364-66 (D.Neb. 1977); Porter v. Household Finance Corp. of Columbus, 385 F.Supp. 336, 340-43 (S.D. Ohio 1974). If, after a hearing, the court determines that the consumer is entitled to rescind, the consumer will be recomposed for any additional damages and costs he has incurred as a result of the litigation.

The statement of law contained in this opinion may be usefully illustrated by its application to the facts involved in the case on appeal. The Gerastas determined that the defendant Bank had violated the disclosure provisions of the Act. Therefore, the Gerastas notified the Bank of their intention to rescind the loan transaction pursuant to § 1635. The Bank did not perform its statutorily prescribed duties within ten days, allegedly because the Gerastas' rescission was equivocal and because the Bank was uncertain whether the transaction came within the ambit of the disclosure and rescission provisions of the Truth in Lending Act. The Banks's noncompliance exposed the Bank to the possibility of increased liability pursuant to § 1640(a).

It has now been judicially determined that the Gerastas were entitled to rescind their transaction with the Bank and that the Gerastas' notice of rescission was valid. Therefore, the Bank now must return to the Gerastas any money or property that it has received from them in connection with this transaction. The Bank also must take any action necessary to reflect the termination of any security interest created in the Gerastas' property by the transaction. Upon the Bank's performance of its duties, the Gerastas must tender the loan proceeds to the Bank. They should be given a reasonable time within which to do so. Unless the Bank fails to take possession within ten days of tender, its interest will not be forfeited.

This court's decision in Sosa v. Fite, 498 F.2d 114 (5th Cir. 1974), does not require a different result. In Sosa, as in the case on appeal, the creditors did not perform their statutorily prescribed duties after receiving the consumer's notice of rescission. In Sosa, however, the consumer's notice of rescission was accompanied by the Consumer's express offer to return the creditor's property. The court in Sosa emphasized that the consumer's obligation to restore the creditor to the status quo ante was discharged by the tender. In the case on appeal, on the other hand, the Gerastas stated in their rescission notice that they refused to tender the loan proceeds until the Bank performed its statutorily prescribed duties.[fn3]

On remand, the district court should award the Gerastas the amount of damages to which they are entitled pursuant to § 1640(a). The award should include a reasonable attorney's fee for the services rendered on this appeal because the suit was a "successful action." See Powers v. Sims and Levin, 542 F.2d 1216, 1222 (4th Cir. 1976); Sosa v. Fite, 498 F.2d 114, 122 (5th Cir. 1974); 15 U.S.C. § 1640(a)(3). In determining an appropriate fee, the district court should consider the factors stated in Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974). McGowan v. King, Inc., 569 F.2d 845 (5th Cir. 1978). The district court judgment also should make clear that the Bank is entitled to a return of the loan proceeds, though the debt is no longer secured by a second mortgage on the Gerastas' property and though the Bank's duties are in no way conditional upon the Gerastas' tender of the loan proceeds.

The district court held that the Bank should have disclosed to the Gerastas that a materialmen's lien could be created in their property pursuant to state law. La.Rev.Stat. § 9:4801. Since the district court rendered its decision, however, the Federal Reserve Board has issued an official staff interpretation that creditors need not disclose statutory materialmen's liens running in favor of a noncreditor-contractor or its subcontractors. Federal Reserve Board Official Staff Interpretation (Sept. 30, 1976). This official staff interpretation does not affect the result in the case on appeal, however, because the Bank violated other disclosure provisions of the Act, and a creditor's liability is not directly affected by the number of violations it commits. Turner v. Firestone Tire and Rubber Co., 537 F.2d 1296, 1297-98 (5th Cir. 1976); 15 U.S.C. § 1640(g).

On this appeal, the Bank alleges for the first time that the Gerastas used a substantial portion of the loan proceeds to improve rental property. Because the Bank did not make this allegation in the district court, we will not consider it. United States v. Allegheny-Ludlum Industries, Inc., 517 F.2d 826, 840 n. 13(5th Cir. 1975); Commercial Credit Business Loans, Inc. v. St. Louis Terminal Field Warehouse Co., 514 F.2d 75, 77 (5th Cir. 1975).

AFFIRMED in part, and REVERSED and REMANDED in part.

ALVIN B. RUBIN, Circuit Judge, concurring:

The opinion is so thorough that I concur completely. I add simply what may be a personal gloss: the forfeiture provision contained in Section 1635(b) is still a part of the Statute; it should be enforced as written in an appropriate case; but, in the absence of the tender by the obligor that the Section specifically requires, it is not applicable.

[fn1] Section 1635 provides in relevant part:

  (a) Except as otherwise provided in this section, in the case of any consumer credit transaction in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any real property which is used or is expected to be used as the residence of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the disclosures required under this section and all other material disclosures required under this part, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and conspicuously disclose, in accordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, an adequate opportunity to the obligor to exercise his right to rescind any transaction subject to this section.

  (b) When an obligor exercises his right to rescind under subsection (a) of this section, he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission. Within ten days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor's obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within ten days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it.

[fn2] Section 1640(a) provides in relevant part:

Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part . . . of this subchapter with respect to any person is liable to such person in an amount equal to the sum of -

  (1) any actual damage sustained by such person as a result of the failure;

  (2)(A)(i) in the case of an individual action twice the amount of any finance charge in connection with the transaction, . . . except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000; . . . and

  (3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court.

[fn3] Sosa was decided pursuant to the pre-1974 version of § 1640, which limited the applicability of § 1640 to creditors' failures to make required disclosures. We do not consider the question of the continued validity of the Sosa decision in light of the 1974 amendment.

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Here's the case:

 

http://67.199.126.23/wordpress/wp-content/uploads/2009/01/tila-rescission-case-adversary-proceeding-ruling-in-favor-of-borrowers.pdf

 

After rescinding the loan the borrowers also filed a Chapter 13 bankruptcy. The lender refused to rescind the loan. The borrowers filed an Adversary Proceeding in the Bankruptcy Court

 

 The judge heard all arguments from both Plaintiff (borrower) and the Defendant. The judge found in favor of the borrower/plaintiff and determined that they had the right to rescind. (Ok great, so now what?)

 

The BIG ruling in this case was that since they had rescinded the loan, the loan became an “unsecured” debt since the mortgage was automatically voided as per TILA. Since the debt became “unsecured” it was able to be discharged through bankruptcy like any other type of unsecured debt such as a credit card debt.

 

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Interesting scenario.

How would a bankruptcy court rationalize giving a home for free?   That seems to me on its face to be an unjust enrichment at the lender's expense.  I can't imagine a lender not filing an appeal if that kind of judgment occured.


Example:

The refi note is $200,000

of that, the lender paid the previous lender's payoff demand of $200,000


Is the BK court saying, the lender who has to rescind the loan, has to eat the entire $200,000 it paid to the previous lender, plus all payments made to them from the borrower?


As for trying to use the bankruptcy court for a remedy, I would say, tread lightly.  One of the most common requests for help we get in the WJFA support group is from homeowners and business owners that have been frauded by trustee's looking for people with assets to administrate until your assets are all gone.









Violations wrote:
Hi Barbie,

I have a hypothetical scenario where John Doe not only rescind but does get his home free and clear:

1. The mortgage was a refinance loan

2. It is your primary residence

3. The loan was a residential loan

4.  An audit reveals Truth in Lending Act “Material Disclosure Violations” under Regulation Z., 226.15 and 226.23,

5. In tandem with disputing standing and demanding production of the deed and note, your rights under the Fair Debt and Collection Acts as well as Uniform Commercial Code of Law.

....

 

Since the debt became “unsecured” it was able to be discharged through bankruptcy like any other type of unsecured debt such as a credit card debt.

 

Any thoughts on my hypothetical scenario?


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Okay, I had made my response to Violations before scrolling down to your post.

This clarifies what I was saying.  The will not just give you the home for free.  You have to tender the amount you received, which is everything I had been reading.

I think it is a huge gamble to hope that upon sending a recission letter that the len der is going to ignore.

Second, it is another huge gamble to assume you can qualify for a Chapter 7 Bankruptcy in the event a lender fails to rescind.


Also, as I stated in the previous post, we (WJFA) support group have been dealing with bankruptcy fraud and bankruptcy issues for 10 years.  I can tell you  that an adversary proceeding is more expensive than civil litigation in state courts.

Finding a competant and experienced bankruptcy litigator is another issue and then finding one that knows real estate and or lending laws.

After reading this ruling, I suspect that the lien holder in the first position contributed to the financing of this litigation and then was reimbursed when the second-place lender had to pay for attorney fees.


My point is, it would not be wise to attempt this as a remedy. 

There are so many other remedies, which I will detail in another post.




Philip S. wrote:
Here You Go Went Through Appeals & Everything

 

 

 

Harry T. Howard, III, New Orleans, La., for defendant-appellant.

R. Collins Vallee, New Orleans, La., for plaintiffs-appellees.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before COLEMAN, HILL and RUBIN, Circuit Judges.

JAMES C. HILL, Circuit Judge:

The case on appeal raises the question of the appropriate remedy for a creditor's failure to comply with 15 U.S.C. § 1635,[fn1] the rescission provision of the Truth in Lending Act. The district court held that the defendant-creditor in the case on appeal forfeited its right to recover the property it had delivered to the obligor because the creditor did not perform those duties prescribed in § 1635(b). We reverse this holding.

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Barbie wrote:


Anyway, it cites lots of case law and it says that the courts will not give the victim their home for free.  You get everything rolled back to before the loan and you have to be able to refinance it.



This sounds like a true "loan modification" then.  Assuming the lender complies of course, but the borrower gets his money back and then to satisfy the tender requirements, refi's the house for fair market value?
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Hello Don - I don't think TILA remedies equate to a loan modification.  I'm no expert, but I would call it a Loan Correction.

Also keep in mind, many fraud victims that come to WJFA report that when they get their money return on mortgage fraud lawsuits, IRS has it hand out demanding a big chunk.

The goods news is that courts have been consistent about ruling in favor of the borrower when a clear violation has occurred.  But I found a ruling in the legal newspaper at the law library that said a recent ruling sided with the lender with the omission was slight omission and an accident.

So I imagine lenders will jump on that one as their defense.

The thing about rolling the loan back to the amount before you signed the contract, is that can you qualify for a refinance, especially in the this tight lending market, where banks want credit scores in the 700 + range, and so on...

So, what I am looking at now is, what is a cause of action to add to my lawsuit against the lender, who's action contributed to the bad credit score.

What you should be doing is looking at who would refinance your loan and have someone ready in place for the court decision.

I was thinking about, if I had renters in the home, maybe a bank would carry the note and I would keep the renters there to pay the mortgage while I rebuild my credit score.

Barbie



Don wrote:
Barbie wrote:


WJFA web site cites lots of TILA case law and it says that the courts will not give the victim their home for free.  You get everything rolled back to before the loan and you have to be able to refinance it.



This sounds like a true "loan modification" then.  Assuming the lender complies of course, but the borrower gets his money back and then to satisfy the tender requirements, refi's the house for fair market value?
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