That sounds too good to be true! Guess who made this possible… The Supreme Court of the United States (SCOTUS)! There is a shockwave moving through the mortgage industry caused by a unanimous SCOTUS ruling in January. The court settled once and for all exactly what a borrower’s Right of Rescission is, and what latitude the courts have when dealing with it. The content of that ruling is a major win for homeowners and real estate investors alike, but what exactly does it mean for you and your business?
First let’s begin with what the Right of Rescission is. It was established by the federal government in the Truth in Lending Act (TILA). It gives a borrower the right to rescind any residential mortgage transaction within three days of the lender providing all of the disclosures required by TILA. The traditional Right of Rescission happens within 3 days of the closing and allows the buyer to cancel the transaction and get all funds returned by the lender. The Right of Rescission we are interested in is much more expansive. If the lender does not make the disclosures, or the borrower claims that the lender didn’t provide them, or the lender did not fully disclose the nature of the transaction, or the lender was fraudulent in their representation, the period can be extended up to three years after the borrower discovers the fraud. The bank must give up its claim to the property by providing the borrower with a cancelled note and mortgage and by returning every dollar the borrower has paid since inception of the loan. The lender has to respond within 20 days of the notice of rescission being dropped in the mail by the borrower.
The right of rescission was established as a form of consumer protection to give buyers a cooling off period and time to change their minds about the loan. In the ideal loan situation, all proper disclosures would have been made at closing and the homeowner would have a brief window to change their mind about the deal. In the real world, virtually every loan was closed without the lender making all of the TILA-required disclosures. If you have been reading my articles you understand why. The banks were playing a ridiculous shell game with your loan, lying about where the money came from and who actually owned the debt and had the ability to service the loan.
The beautiful part of the Supreme Court’s decision is that it puts the power in the hands of the borrower. After the notice is dropped in the mail, the lender has 20 days to file suit and challenge the rescission. In their challenge, the burden of proof is on the bank to definitively prove that the note was clean and that they made all of the proper disclosures to the homeowner at the time of closing. If they do not respond within those 20 days, they have waived their right to challenge the rescission and must give up their claim to the property. In actuality, the note and mortgage are canceled instantly as you put the notice of rescission in the mail!
According to the court, the act of the homeowner dropping the notice of rescission in the mail is equivalent to a court order. Just think about how effective this could be at stopping a foreclosure! The power is finally back in our hands.
The problem for the banks that want to file suit and challenge the rescission is that, in almost every case, they don’t own the loan. Not only do they not own the loan, they aren’t authorized to represent anyone who actually owns the loan, the note and mortgage were defective or void at inception, and the balance due on the loan is impossible to know because of how many time the loans were sold!
Fortunately for homeowners and real estate investors alike, the public and the courts are starting to wise up to the fraud committed by the major banks. 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 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.
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.