Despite Rescissions, Banks Still Refuse to Admit What They Did

In the last 15 months, thousands of TILA rescissions have been filed across the country. As a result we are finally seeing the patterns in how the banks are responding to rescissions. In case after case, the banks are obfuscating. They try to intimidate homeowners and confuse the courts into ignoring the clear letter of the law; that rescission is effective upon mailing as a matter of law. While they keep up this charade in the courts, they refuse to admit to federal regulators the risks posed by these wrongful foreclosures and the mortgage backed securities swindle as a whole.

First let’s clarify a few things about rescission. Whether disputed or not, a rescission is effective at the time it is mailed as a matter of law. It doesn’t matter what a judge WOULD rule if a challenge is filed by a party with legal standing. The rescission is valid until a party with legal standing can prove through a lawsuit in federal court that it should be vacated within the 20 day window.

Servicers will rarely try to dispute that the rescission happened, but will argue that it is not effective. First they usually send a letter to the homeowner stating that the rescission is invalid and they will not honor it. If the homeowner (correctly) challenges this, the bank will try to get a judge to ignore the law through motions that allow the bank to avoid having to prove actual facts in a lawsuit to vacate the rescission. The bank is trying to get the court to agree to the premise that the disclosures made at the time the loan was made were adequate and that the loan was consummated on the date they allege. All of these are questions of fact for a jury to decide the merits of, not a judge.

Despite this, the banks are continuing to steal houses while they rely on the government to bail them out again. Five of the major banks in the U.S., including JPMorgan Chase, Wells Fargo, Bank of America, State Street Corp, and Bank of New York Mellon, received a failing grade from US regulators on their ability to break themselves up without government money in case of a bankruptcy as well as the Fed’s stress test which checks the banks’ ability to withstand market shocks.

This is the second time the banks have failed these tests. If they fail a third time, the government will move in and enforce stringent controls on the banks, even forcing them to sell off assets to guarantee liquidity. Many economists and attorneys believe that the banks are failing these tests because they would have to disclose the real value of mortgage backed securities as well as the liability they are exposed to as a result of wrongful foreclosures and rescission. They could also be facing liability to investors whose money was supposed to be placed in REMIC trusts that were never created.

So let’s see… The biggest banks borrow money at lower rates than their competition, steal homes through a complicated web of falsified paperwork, and then pay off the government via large fines in order to stop investigations into their practices without admitting wrongdoing. What a system we have!

Fortunately, while the legislature and executive branches are letting the banks off the hook, the courts are finally forcing them to put up or shut up. In cases all across the country, courts are demanding that banks prove their standing and that there is a clear paper trail behind each loan. As a result, homeowners across the country are finally receiving justice for wrongful foreclosures and unfair lending practices.

This is a great time to be a real estate investor working with distressed homeowners. What these decisions show us is that the law is finally catching up to the banks.  Along with District and Appellate Courts all over the country, the Supreme Court has ruled as clearly as possible in the homeowners’ favor. With their ruling in the Jesinoski case, the Supreme Court has clarified that TILA rescission is a powerful tool to stop foreclosure and help homeowners stay in their houses longer. It also creates an opportunity for investors to do some pretty amazing deals. The tides have turned and the banks are being forced to negotiate on our terms. No more begging the banks to accept our short sale and REO offers only to have them demand ridiculously high prices. We can now get the banks to the table and demand that they prove they have the right to enforce a loan.

This makes it more important than ever that homeowners and real estate investors act NOW. This is a massive opportunity for real estate investors. If you know of anyone with a defaulted or underwater note, you need to get in contact with my office immediately at (706)-485-0162. I have spent the last two years building up a team of experienced attorneys and fraud examiners/forensic auditors who specialize in exposing fraud committed in the mortgage process and using that fraud as leverage to negotiate the sale of notes. This opportunity is not going to be available forever; we need to strike while the iron is hot!

We have a huge opportunity to help homeowners and do some great deals with multiple exit strategies. For more information, call me at 706-485-0162.