The following is an overview of a few cases I was looking at in the area of Truth in Lending ("TILA") law. We get a lot of questions about when TILA three years begins to run. THIS IS NOT LEGAL ADVICE AND IS NOT TO BE CONSTRUED AS LEGAL ADVICE. RATHER THESE ARE A FEW CASES THAT DISCUSS TILA RESCISSION, AND GIVE YOU SOME IDEAS OF SOME OF THE CASES OUT THERE. PLEASE CONSULT A LITIGATION ATTORNEY BEFORE FILING A CIVIL LAWSUIT FOR TRO OR INJUNCTION.
The general rule you will normally see in regard to TILA 3 year right of rescission is the following:
"Section 1635 of TILA allows consumers to rescind “any consumer credit transaction . . . in which a security interest . . .is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended,” so long as such rescission takes place within three days of the consummation of the transaction or the delivery of required disclosures under TILA, whichever occurs later. 15 U.S.C. § 1635. If the lender never submits the required disclosures, the borrower’s right to rescission expires three years after the consummation of the transaction. 15 U.S.C. § 1635(f)." In the seminal case ofBeach v., Ocwen, 523 U.S. 410, the United State Supreme Court held: "the right of rescission is completely extinguished after three years from the date of the loan's consummation." See also 15 U.S.C. § 1635(f). Equitable tolling does not apply to an action for rescission under TILA. See Mays v. U.S. Bank National Association, 2010 WL 318537 (E.D. Cal.2010).
This then begs the question, when is a loan "consummated" under TILA. According to the FDIC on this website, consummation means when a consumer becomes obligated on a loan." See also
12 C.F.R. § 226.2(a)(13).
Under Regulation Z, which specifies a lender's disclosure obligations, “consummation” of the loan occurs when the borrower is “contractually obligated.” 12 C.F.R, §226.2(a)(13). The point at which a “contractual obligation ... is created” is a matter of state law. 12 C.F.R. pt. 226, Supp. 1 (Official Staff Interpretation), cmt. 2(a)(13). Under California law, a contract is formed when there are (1) parties capable of contracting, (2) mutual consent, (3) a lawful object, and (4) sufficient cause or consideration. See California Civil Code Section 1550 and Grimes v.New Century Mortgage Corp., 340 F.3d 1007, 1009 (9th Cir. 2003).
Under TILA, the Courts must look to state law in determining when a borrower becomes contractually obligated on a loan. At the very least, before you can have a contract, there must be specifically identified parties to the contract (meaning an identified lender and a identified borrower) - "parties capable of contracting" as set forth above and sufficient consideration.
Now, in the god old days a borrower and a bank would contract to lend money. The borrower would borrow the money and offer a security interest in its property, and the bank would lend money off its balance sheet and hold both the note and mortgage (deed of trust) in the event you failed to pay. Those days are gone for a lawrge number of "securitized loans" (loans that are bundled into pools and sold off on Wall Street). Nowadays, you have a loan "originator" posing as a "lender" and the loan originator is not loaning you a dime (rather, someone else or some other entity is funding, lending, or table funding the loan). In this scenario, the originating lender, purporting to contract to "lend" you money, is not actually lending you any money. In reality, they are doing nothing more than earning a commission on the money SOMEONE ELSE IS LENDING YOU (i.e. some Wall Street investor in your loan pool who is funding the loan, who is NOT IDENTIFIED AT ANY STAGE OF THE LOAN PROCESS, and who expects a return on their investment). These hidden investors are the true "lender" who is the source of funds for you loan. Strange, but true.
So, when you contract with the "originator" of the loan (as opposed to the lender), has the true lender ever been identified? No, they have not. So shouldn't the promissory note be between you and the real lender? After all, the "lender" on the note and deed of trust never lent you any money, and this can be verified by looking at their balance sheet. Do you have an enforceable contract to lend money under state law in this scenario? That is an issue to litigate under TILA - in my opinion. The originator is representing that they are lending you money,, when in fact they are not. They are serving as an intermediary for someone else to lend you money. Is there a meeting of the minds under this scenario?
There are a few other cases I have come across in my research that indicate, that under this scenario (usually involving MERS securitized loans, and other hard money loans where undisclosed entities are table funding the loan), the LENDER MUST BE IDENTIFIED BEFORE THE THREE YEARS BEGINS TO RUN, WHICH MEANS, IF YOU DO NOT KNOW WHO THE REAL "LENDER" IS, OR THE TRUE "SOURCE OF FUNDS" FOR YOUR LOAN, THE THREE YEAR CLOCK TO EXERCISE YOUR RESCISSION RIGHTS MAY NOT BEGIN TO RUN.
(1) Ramsey v. Vista Mortgage Corp, 176 BR 183 (TILA RESCISSION IN BANKRUPTCY CHAPTER 13 CASE). In this case, the court laid down the test of when the three year right to rescind begins to run and specifically tackles the concept of when a loan is "consummated." Several internal citiations also help clarify this point. Here is what the Ramsey Court said:
"When Ramsey signed the loan documents on September 13, 1989, he knew who was going to provide the financing. Courts recognize the date of signing a binding loan contract as thedate of consummation when the lender is identifiable." The Court also cited to theJackson v. Grant, 890 F.2d case (9th Circuit 1989), a NON-BANKRUPTCY CASE, and said: "the Ninth Circuit held that under California law a loan contract was not consummated when the borrower signed the promissory note and deed of trust because the actual lender was not known at that time. Under these circumstances, the loan is not “consummated” until the actual lender is identified, because until that point there is no legally enforceable contract."
ANALYSIS: It seems fair to say that the Courts are not willing to find a contractual obligation exists under State Law until a true and actual lender is identified. "Pretender lenders" - as Neil Garfield calls them - and intermediary "originators" who make false representations to the effect that they are "lending money"and are your "lender" should not be sufficient to set the three year TILA rescission clock in motion. Until the real Wall Street entity, or Wall Street Investor, or true source of the table funded loan is identified, the loan should not be deemed "consummated" under TILA and the three year right to rescind should remain open until such disclosure is made. That is TRUTH IN LENDING WHICH IS THE WHOLE POINT OF TILA IN THE FIRST PLACE.
THIS MEANS, IF YOU STILL DO NOT KNOW WHO YOUR LENDER IS AFTER DUE DILIGENCE (AND BELIEVE ME WE TRY WITH DEBT VALIDATION LETTERS, CHAIN OF TITLE REVIEWS, FANNIE AND FREDDIE LOAN LOOKUPS, QUALIFIED WRITTEN REQUESTS, 15 US.C. 1641 LETTERS, UCC PRESENTMENT LETTERS, ETC.) AND IF THE ORIGINATING "LENDER" TRULY NEVER LENT YOU A SINGLE PENNY, PERHAPS THERE IS AN ARGUMENT TO BE MADE, USING THE LAW CITED ABOVE, THAT THE THREE YEARS HAS NOT YET BEGUN TO RUN. NOW, THIS IS A NOVEL THEORY OF LAW THAT I HAVE NOT SEEN ANYONE PUT FORTH AS OF YET. BUT REVIEWING THE CASE LAW, IT SEEMS TO OFFER SOME HOPE TO 4,5 OR EVEN 10 YEAR OLD LOANS. OF COURSE, YOU SHOULD CONSULT WITH FORECLOSURE AND TILA LAWYER BEFORE PROCEEDING ON SUCH A THEORY, BUT WHERE THE BANKS ARE ACTIVELY ENGAGED IN THE "HIDE THE EIGHTBALL" GAME WHERE THEY DO NOT WANT YOU TO KNOW WHO OWNS YOUR LOAN, AND THEY NORMALLY CANNOT EVEN LEGALLY PROVE WHO OWNS YOUR LOAN, IF YOU HAVE NO OTHER OPTIONS THIS MAY BE A THEORY TO BRING TO THE ATTENTION OF YOUR FORECLOSURE, BANKRUPTCY OR LITIGATION COUNSEL. THE FINANCIAL INSTITUTIONS USE EVERY LAW IN THE BOOKS TO TAKE YOUR HOME, THIS MAY BE A POTENTIAL ARGUMENT TO FIGHT BACK.
We have talked about the consequences of TILA rescission in many other posts. Google "Vondran TILA lawyer" (or gothttp://www.RescindMyLoan.net or http://www.ForeclosureDefenseResourceCenter.com) and you will see more articles. AS WITH EVERYTHING ELSE IN FORECLOSURE DEFENSE, DO NOT WAIT UNTIL THE LAST MINUTE BEFORE SEEKING A FORECLOSURE LAWYER. IF YOU GET A NOTICE OF DEFAULT OR NOTICE OF SALE, DO NOT WAIT, CONTACT A FORECLOSURE AND BANKRUPTCY, TILA LAWYER TO PUT TOGETHER A SOUND LITIGATION PLAN.
PLEASE NOTE, EVEN IF YOU ARE CONSIDERING FILING BANKRUPTCY, YOU CAN RESCIND YOUR LOAN IN AN ADVERSARY PROCEEDING IN BANKRUPTCY COURT AND THIS CAN HAVE POTENTIALLY DRAMATIC IMPLICATIONS AS ONCE YOU RESCIND YOUR LOAN UNDER TILA, THE SECURITY INSTRUMENT IS VOID AS A MATTER OF LAW, AND THE LOAN IS ESSENTIALLY AN UNSECURED DEBT. THESE ARE THINGS YOU WILL OFTEN FIND GO UNNOTICED AND UNCHALLENGED TO THE DEBTORS DETRIMENT.
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