TILA Mortgage Rescission – How to Stop a Foreclosure

If you want to know HOW to STOP a Foreclosure, a Truth in Lending Act (TILA) Mortgage Rescission is the key.

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 banks don’t know the damn law! A legal right to TILA mortgage rescission can extend up to three (3) years out from the date of closing if:

1. It’s a REFINANCE loan transaction
2. It’s on your PRIMARY residence
3. It was closed in the last THREE years
4. A forensic loan audit reveals a MATERIAL disclosure violation

Many people ask me how to stop a foreclosure… folks, 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 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, except for transactions described in paragraph (f) of this section. 

(2) To exercise the right to rescind, the consumer shall notify the creditor of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor’s designated place of business.

(3) The consumer may exercise the right to rescind until midnight of the third business day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material disclosures,⁴⁸ whichever occurs last. If the required notice or material disclosures are not delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the Act.

 12 C.F.R. § 226.23(d)
(d) Effects of rescission. (1) When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.

(2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.

(3) If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer’s option, tender of property may be made at the location of the property or at the consumer’s residence. Tender of money must be made at the creditor’s designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer’s tender, the consumer may keep it without further obligation.

(4) The procedures outlined in paragraphs (d) (2) and (3) of this section may be modified by court order.

Don’t know if you caught that above 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, there is no longer any legal instrument to foreclose on. The creditor becomes unsecured just like a credit card creditor. 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 folks, 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. You absolutely want a forensic loan audit done by a knowledgeable analyst. If you’d like to retain me for my audit services, go to my contact page and get a hold of me.

Hopefully, this short post will help you see that a valid TILA mortgage rescission is the best remedy and defense to foreclosure if you qualify for it!