The Moment of Truth, Signing Bad Loan Documents and the Right of Rescission

from an email:

I had a mortgage refinance done in 2001. The loan officer did not show up for the closing and I never received a good faith estimate before closing only word of mouth figures. At closing the "fees" were outrageous so I advised the closing attorney for the title co. that I was not comfortable with the terms and I did not want to go through with the refi. He insisted that I sign the paperwork and was adamant that I have a three day right of rescission. I was given a small check at closing which was never cashed. I thought about it and exercised my right of rescission on the same day of the closing and the lender received the rescission form on the third day. I have proof it was received. I even sent the normal payment to my current mortgage company who returned my payment. Then lender funded the loan the very next day and I have been in a battle with them ever since. They have constantly told me they were going to correct the problem to wait and it is now 2008. I never received a normal request for payment only late notices every now and then in which I repeatedly faxed the rescission form over and over again. They held an illegal lien recording for 4 years and my credit was ruined. They tried to foreclose twice in 2003 and 2004 which was unsuccessful. They claimed they never received proof that I rescinded the loan. They even sent me proof that they paid my old mortgage co (date stamp of clearing on the third day), and the check was drawn on the title co. Now they are suing me for the money paid out to my prior mortgage company saying that I owe them money. The suit was filed 4.9 years after the original refi date. They finally cancel the mortgage recording 9 months prior to filing the suit in which I was never made aware of until the suit. I went to the court house to get the proof myself. They now acknowledge that I did rescind the loan but they made a mistake. A 4+ year mistake!!!!!

Do they have a right to anything due to the rescission law. The form that I sign says that nothing should have been done prior to three days and if so there was 20 days to correct not 4+ years!!! And they are suing me!! Please any advise you can give would be helpful

First, most important piece of advice: Get a lawyer. Now. I'm not a lawyer, and even if I was, I wouldn't know law and precedent in your state (which isn't mine, because California's an Escrow and Title state).

When you have chosen a lawyer, ask them about grounds for you to sue the mortgage company and whether they'll work on contingency if you can't afford their regular rates.

Talk to your lawyer about getting whatever agency handles mortgage licensing in your state involved. Write a formal complaint letter, send it return receipt requested. That way they can't sweep it under the rug. Also talk to your state legislator if you have to, to motivate that agency to move.

Sad to say, this is likely very much a case of big trying to push little around because big has the resources to fight and little doesn't. You might want to talk to your lawyer about equalizing that, because big means they also have more to lose. Ask your attorney if it's a good idea to approach a reporter for your local paper. Be careful and listen to your lawyer on what to say and what not to say if you do. One slip in this regard can make things even uglier than they started out. It may be a better idea to let the lawyer do the talking here.

Find out if these malefactors been reporting late payments and non-payment to the credit bureaus, in which case you may also have a tort for that. When they have no legal basis to demand payment in the first place, it's defamatory to claim the payment you didn't owe was not made in accordance with the non-existent contract.

What they did was reprehensible in all respects, but more common than just about anyone wants to admit.

Every loan has this same "Moment of Truth" when the final documents are presented. For some loan practitioners, the truth was told before that, but for many others, it wasn't. It has to do with the timeline involved. They make a promise to get you to sign up now, and most people are shopping multiple lenders, so they tell whatever story they think is sexy enough to get you to sign up with them, knowing that most people won't sign up for a backup loan. Thirty or forty-five days from now, when they actually deliver the loan contract, they're the only ones with a loan ready to go, so your choice is limited to sign that paperwork or don't. At sign up, you have the power and they don't, so they say whatever is necessary to get you to sign up with them, because at loan delivery, they have the power and you don't. Once you have committed to that loan provider, you have essentially signed yourself over into their power, and if they don't deliver the loan they quoted to get you to sign up, there are essentially no bad consequences for them. They still get paid when you sign those papers. Over fifty percent of all borrowers literally never notice the differences, and of those who do, eight to nine out of ten will cave in and sign anyway. Upshot: No matter how bad they lied back on day one, there's still a ninety percent plus chance of getting paid. By contrast, if they don't tell a story that's sexy enough to get you to sign up for their loan, there's a zero percent chance of them getting paid. That's why lenders lie, and no legislation and no regulations currently under consideration will change any of this - all it will change is precisely what they have to do in order to get away with it, which is why you should Ask the hard questions of every single prospective loan provider.

You took the time to read the documents carefully, and that's very good. You'd be amazed how many people don't. However, you've got to stick to your guns and refuse to sign. If you had some legal mandate to sign, there would be no point to the right of rescission. What that lawyer was thinking was that if you signed, he got paid, whereas if you didn't sign, he didn't. Disgusting, but probably within whatever code of ethics was theoretically guiding him, as he probably considered the lender to be his client, and not you. I would have told him, "Not going to happen," as I walked out the door. All too often, people want to avoid confrontation and certain personality types can be counted upon to take advantage of it.

That the lender funded the loan the next day is not illegal, as far as I'm aware. Failing to rescind the loan when you rescinded, and to rewind it to the situation beforehand, however, is a hard violation of RESPA, which is federal law, and almost certainly state law and regulations as well. This can lose them their ability to do loans at all in your state, and possibly in any state. This is why nobody actually funds refinances where right of rescission is applicable until right of rescission has expired, because doing that is costly, and what happens if your prior lender refuses to reinstate their loan? After all, they got their money, and having done so, are under no obligation I'm aware of to reinstate the loan contract that has now come to a satisfactory conclusion. I actually don't know what happens in such a situation, but the best guess I can make is that the new lender has to carry the loan on the previous terms and can't charge any fees for the loan, either. Basically, the worst of all possible situations for them.

None of this is going to be easy. It's pretty stressful, and likely to be costly, but the alternative to fighting this battle is worse. Furthermore, if you persevere and do everything right, you could find yourself ending up in a situation that's much better than the one you're in right now, or even the situation that you started in. They don't have a valid lien, the previous lien was paid off, and they have behaved very badly in ways that are potentially legally actionable. Strict liability might apply to their failure to rescind properly when you did rescind in a timely fashion. Of course, they did willfully violate the law in gross violation of due diligence, so strict liability probably isn't necessary to winning such a case. Once again, though, I'm not a lawyer, only a layperson who's learned enough to be dangerous to anyone who pays attention to me instead of a licensed professional. Consult a lawyer licensed in your state for information you can count on.

Caveat Emptor