Can We Rescind Loans That We Refinance?

[Social Apocalypse]

Developing scenario (we are praying and doing candle light vigils and hoping)

Due to legal remedy requirement that MIGHT exist for us (looking better and better in the last week)

IF our two predatory loans end up receiving a mandated remedy through the Office of Thrift Supervision in the form of a conventional mortgage refinance (NOT a mod), are we still able to pursue our rescissions on those loans?

1. The remedy will not address the violations that caused us to rescind.
2. The entity granting the new loan is NOT the entity who currently has the loan, nor the entity who originated it, so would not be the entity who had to rescind it.
3. The Rescission happened last May, and has not been enforced due to requirements in 9th Circ. Ct. to prove tender... we would no longer have that burden if the mortgage has been refinanced.

-and a related question: What about rescinding a loan that subsequently got DISCHARGED in a CH 13? We STILL suffered the damage of making 3 years of payments, even though the balance of the loan may be discharged in a Ch 13. Just another possible scenario.

Please let me know what you think. I think I have read case history where this has happened, as long as the rescission was enacted BEFORE The refinance took place.... and it did. The refinance has not happened yet... but we are very much hoping that it does.

Thanks so much!

[Nathan Fransen Esq.]

TB,
You have some good questions and I know you have been struggling with this for a while. Very difficult to answer them hear in the public forum, but perhaps i can point you in the right direction. Call me at 951-520-9684.

[Social Apocalypse]

I found this article. As usual, it appears the 9th Circuit Court is out to get me with making their off-the-wall decisions in favor of lenders!! WOW did I ever pick the wrong place to get a predatory loan!!

Anything more recent with regard to the 9th?
CAN'T A CALIFORNIA ATTORNEY HELP ME ENFORCE MY RESCISSION??!!!
HELP!!!!!!!!!!!!!!!! Here's the article:

Does a refinancing cut off a right to rescind that a mortgage borrower otherwise would have had? For example, if a mortgage lender in a transaction covered by the Truth-in-Lending Act fails to give a borrower the requisite copies of a right to cancel form, the borrower has three years to rescind the transaction. But, if during those three years, the borrower refinances and pays off the loan, does he lose the right to rescind before the three years are over?

Most lenders would probably say “yes.” After all, the loan has been paid off, so what is left to rescind? Borrowers, on the other hand, will disagree, still wanting to have the right to rescind so that they can get back the transaction charges that were paid at closing.

In the first federal appellate decision to consider this issue, King v. State of California, 784 F.2d 910 (9th Cir. 1986), the Court of Appeals for the Ninth Circuit summarily agreed with the lender, saying simply: “The loan of March 1981 cannot be rescinded because there is nothing to rescind. King refinanced that loan in November 1981, and the deed of trust underlying the March 1981 loan has been superseded.” 784 F.2d at 913.

After the King decision, an unpublished Court of Appeals decision from the District of Columbia disagreed with King in equally summary fashion; a number of bankruptcy and district court decisions followed, most (but not all) of which also disagreed with the lender’s position.

On April 18, 2006, the Court of Appeals for the Sixth Circuit became the first federal appellate court to render a decision containing a substantive analysis of the issue. In Barrett v. JP Morgan Chase Bank, N.A., 2006 WL 997231 (6th Cir. 2006), the Sixth Circuit, in a much more extensive discussion than that presented by earlier appellate courts, disagreed with the Ninth Circuit’s 1986 conclusion and ruled in favor of the borrower on this issue.

The Court in Barrett held that the right to rescind meant not just the right to rescind the security interest, but the right to rescind the transaction and restore the status quo as it existed before the transaction.

While the Court pointed out that Regulation Z states that the right to rescind expires: (1) 3 years after consummation, or (2) upon transfer of all of the consumer’s interest in the property, whichever comes first, the Court noted that nowhere does TILA or Regulation Z add that the act of refinancing an existing loan trans-action, unlike a sale of the property, cuts off the right to rescind.

According to the Sixth Circuit, where there are certain violations under Truth-in-Lending, a borrower continues to have the right to rescind a loan for up to three years after closing—even if the loan is refinanced and paid off during that period of time. While there may be no mortgage left to release in compliance with the rescission request, the refund of fees paid is still an available remedy.

Although there is an apparent split in the circuits on this issue, the weight of authority is presently of the view most recently and extensively espoused by the Sixth Circuit. Until the Supreme Court definitively resolves this issue, lenders should be aware that even loans that have been refinanced may con-ceivably come back to haunt them. Correspondent agreement indemnification provisions, recordkeeping procedures, quality control and other elements of a lender’s business may need to be revisited to address this development.

[dan m]

"perhaps i can point you in the right direction. Call me at..."
Mr. Nathan Fransen Esq.-you rock
you get two thumbs up in my book and we need more like you

[Social Apocalypse]

First of all, Nathan Fransen is THE BOMB. That's the truth folks. I am envious of anyone who gets to work with him.

A little additional info on my NOTES (first and second) because it's interesting.

BOTH of my mortgages were closed on the same day by the same lender: Wilmington Finance to create a bogus 80/20 configuration in which my mortgage broker stole big bucks from us through document shell games, they kept our closing costs (which they financed into the loan on the second mortgage) and only gave us the loan MINUS the closing costs as a down payment on the FIRST. You have to see it to believe it, and soon everyone WILL see it, because I am going to POST my HUD1's and Truth In Lending Disclosures on my blog). You can read about my broker - Paramount Equity Mortgage, and the consent order with attached statement of charges by the State of Washington Department of Financial Institutions: http://dfi.wa.gov/CS%20Orders/C-07-405-08-SC01.pdf Just to illustrate that I am NOT making this stuff up. They are GUILTY.

The loans both closed on May 31, 2006 and recorded on June 7th.
Both are securitized and the notes secured by MERS.
Both were immediately transferred to new servicers on July 7th 2006.
Our FIRST mortgage went to Morequity.
Our SECOND mortgage went to CitiMortgage.

Here's the quirky part:

When I check the status of our records at MERS, it says that the date of our notes is:
CitiMortgage: July 7th, 2006.
Morequity: May 31, 2006. (WHAT??)
How can Morequity have a date of May 31, 2006 when they didn't transfer the loan until July 7th?? I have the transfer docs that state that.

Additionally, when I asked to be included in the remediation order that was enacted by the Office of Thrift Supervision regarding loans made by AIG and it's subsidiaries (Wilmington Finance, Morequity, American General Finance) I was told that my mortgage didn't qualify because it wasn't by a direct AIG subsidiary... WHAT??? According to my records, and MERS it is STILL held by MOREQUITY! God it's driving me insane. If only I possessed letterhead from an attorney's office, then they might READ IT.

After the epic Kansas ruling it tempts me to pursue the produce the note strategy even more, but after good counsel from more than one skilled professional, I realize that the laws say ONE thing, but the actual realities of what happens in court are very different.

Still, I will consider it something that might be in my bag of options if I ever find access to an attorney who is willing to take this on. The argument of "Yes, I know the law says that you have a right to rescind this loan, but you waited too long so the judge won't like it." doesn't feel right to me. I didn't KNOW about the violations until a few months ago, THAT is why I waited. I am WITHIN the statute, but the opinion is, "they won't like it, so forget it."

Thanks again to those who have reached out. You are GOLDEN and I am in your debt.